1. Cherokee High School
AP MICROECONOMICS
UNIT #1
Basic Economic Concepts
Daniel A. Gagnon
2010-2011

2. AP MICROECONOMICS UNIT #1
BASIC ECONOMIC CONCEPTS
GEORGIA PERFORMANCE STANDARDS IN THIS UNIT
Fundamental Economic Concepts
SSEF1 The student will explain why limited productive resources and unlimited
wants result in scarcity, opportunity costs, and trade offs for individuals, businesses,
and governments.
a. Define scarcity as a basic condition that exists when unlimited wants exceed limited
productive resources.
b. Define and give examples of productive resources (e.g., land (natural), labor (human),
capital (capital goods), entrepreneurship).
c. List a variety of strategies for allocating scarce resources.
d. Define opportunity cost as the next best alternative given up when individuals,
businesses, and governments confront scarcity by making choices.
SSEF2 The student will give examples of how rational decision making entails
comparing the marginal benefits and the marginal costs of an action.
a. Illustrate by means of a production possibilities curve the trade offs between two
options.
b. Explain that rational decisions occur when the marginal benefits of an action equal or
exceed the marginal costs.
SSEF3 The student will explain how specialization and voluntary exchange
between buyers and sellers increase the satisfaction of both parties.
a. Give examples of how individuals and businesses specialize.
b. Explain that both parties gain as a result of voluntary, non-fraudulent exchange.
SSEF4 The student will compare and contrast different economic systems and
explain how they answer the three basic economic questions of what to produce,
how to produce, and for whom to produce.
a. Compare command, market, and mixed economic systems with regard to private
ownership, profit motive, consumer sovereignty, competition, and government
regulation.
b. Evaluate how well each type of system answers the three economic questions and
meets the broad social and economic goals of freedom, security, equity, growth,
efficiency, and stability.
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3. SSEF6 The student will explain how productivity, economic growth, and future
standards of living are influenced by investment in factories, machinery, new
technology, and the health, education, and training of people.
a. Define productivity as the relationship of inputs to outputs.
b. Give illustrations of investment in equipment and technology and explain their
relationship to economic growth.
c. Give examples of how investment in education can lead to a higher standard of living.
Microeconomic Concepts
SSEMI1 The student will describe how households, businesses, and governments
are interdependent and interact through flows of goods, services, and money.
a. Illustrate by means of a circular flow diagram, the Product market; the Resource
market; the real flow of goods and services between and among businesses, households,
and government; and the flow of money.
International Economics
SSEIN1 The student will explain why individuals, businesses, and governments
trade goods and services.
a. Define and distinguish between absolute advantage and comparative advantage.
b. Explain that most trade takes place because of comparative advantage in the
production of a good or service.
SSEIN2 The student will explain why countries sometimes erect trade barriers and
sometimes advocate free trade.
d. List specific examples of trading blocks such as the EU, NAFTA, and ASEAN.
COLLEGE BOARD STANDARDS IN THIS UNIT
I. Basic Economic Concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(8–14%)
A. Scarcity, choice, and opportunity cost
B. Production possibilities curve
C. Comparative advantage, absolute advantage, specialization, and trade
D. Economic systems
E. Property rights and the role of incentives
F. Marginal analysis
READING ASSIGNMENTS
1. Chapter 1: pp. 3-11. 5. Chapter 5: pp. 89-92.
2. Chapter 1: pp. 11-18. 6. Chapter 23: pp. 441-448.
3. Chapter 2: pp. 28-41. 7. Chapter 5: pp. 96-100.
4. Chapter 5: pp. 84-89.
LECTURES
1. An Economic Way of Thinking. 4. Introduction to International Trade.
2. Opportunity Cost and PPC. 5. Computing Abs./Comp. Advantage and
3. Types of Economic Systems. Fair Trades.
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4. ACTIVITIES (may or may not do all)
1. Broad social goals of an 4. Why did communism collapse?
economic system. 5. The legacy of Soviet
2. Different ways to slice the pie. communism.
3. A Parking Lot full of incentives. 6. Trade activity.
WORKSHEETS (may or may not do all)
1. Scarcity Budget Activity. 6. Campus parking.
2. Scarcity, Opportunity Cost, and 7. Benefits and costs.
PPC. 8. Hatfields and McCoys.
3. Activity 3: Scarcity, Opp. Cost, 9. Opportunity cost and
and Choice. comparative advantage.
4. Explicit vs. implicit costs. 10. The circular flow.
5. The Costs of College.
TEXTBOOK STUDY QUESTIONS
1. Chapter 1: 3, 5, 7, 10, 11, 13, 14. 3. Chapter 5: 4, 6, 10.
2. Chapter 2: 8, 9. 4. Chapter 23: 4.
AUDIO LECTURES
See Moodle
PROJECTS
None
UNIT GRAPHS
See Moodle
REFLECTION PAPERS
See handout
QUIZZES
1. Graph Interpretation. (1)
2. PPC tables, graphs. (2)
3. Absolute/Comparative Advantage/Fair Trade. (3)
TEST PRACTICE
1. Sample Multiple Choice.
2. Sample Free Response.
TESTS
Unit Test #1
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5. OBJECTIVES
1. List and discuss the four types of resources.
2. List the assumptions of the production possibilities table/curve.
3. Discuss the possible applications of production possibilities analysis.
4. Identify the 3 economic questions and discuss how they are answered in the three
major economic systems.
5. List trading block, their members, and their agreements/procedures.
6. List and define social/economic goals and discuss how each economic system
addresses them.
VOCABULARY
Economics Allocative efficiency
Microeconomics Marginal analysis
Macroeconomics Marginal benefit
Positive statement Marginal cost
Normative statement Law of increasing opportunity cost
Scarcity Absolute advantage
Trade-offs Comparative advantage
Opportunity cost Specialization
Incentives Opportunity cost ratio
Traditional economy Terms of trade
Command economy Trading possibilities line
Market economy Gains from trade
Mixed economy Circular flow
Private property Product market
Self-interest Factor market
Competition European Union
Equity NAFTA
Efficiency GATT
Production possibilities curve WTO
Factors of production ASEAN
Capital good MFN
Consumer good Multinational Corporation
Economic growth
Productive efficiency
GRAPH/CHART/APPLICATION SKILLS
1. Interpret a production possibilities table and/or chart.
2. Solve for opportunity cost using a PPC or table.
3. Analyze the circular flow model of goods and services.
4. Solve for absolute and comparative advantage in production of two products by
two countries and be able to identify a fair trade.
5. Demonstrate how trade increases countries’ consumption beyond their individual
PPC.
6. Interpret a marginal benefit/marginal cost graph.
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6. AP MICROECONOMICS UNIT GRAPHS
UNIT #1: BASIC ECONOMIC CONCEPTS
Along with reflection papers, unit graph assignments will go along with each unit
we complete. Being able to draw, label, and interpret the graphs is crucial to your
success in the class and on the AP Microeconomics Exam.
Requirements of Unit Graphs:
1. Each graph that is listed on the sheet for that unit must be graphed.
2. Each graph should have a title above it that clearly identifies what it is.
Ex.: Production Possibilities: Increasing Opportunity Cost.
3. Each graph must have the x and y axis clearly labeled.
4. Each axis must have numerical values.
5. Below each graph, there should be a short description of what this graph is used to
illustrate (try to limit to 1-3 sentences).
6. The graphs must be hand-drawn, not computer generated.
7. Graph paper is preferred but if you don’t want to buy it you can make your own
by inserting tables (probably 10 rows X 10 columns unless you want to make it
bigger) into Word documents then printing them out. You are allowed to make
your graph paper on the computer but the graphs themselves must be hand-drawn
and labeled.
8. Graphs should be neatly drawn and labeled, not thrown together at the last
minute.
9. Due dates will be announced as the appropriate units are completed.
UNIT 1 GRAPHS
1. Circular flow model
2. Marginal benefit/marginal cost
3. Production possibilities (3 separate graphs)
a. Constant
b. Increasing (per unit of good A or good B)
c. Zero
4. Production Possibilities and trading possibilities lines: one for each of two
countries
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