AP® Microeconomics Course Introduction

Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources which is contrast to macroeconomics. In sense of taking it as AP® course, many regard to microeconomics as more difficult than macro. In this article, we’ll be going through the basic knowledge and skills you will need in order to successfully take the course and the best methods to acquire them. Also, I will be providing the structure of exam which will hopefully help you understand towards what you will be moving if you take the course.

Firstly, there are those who choose to take AP® course classes and those who are encouraged to self-study. You will probably be advised to do the same for almost every course, so I do strongly advise you, to take the classes as many students found it really difficult without taking them. However, whatever way you choose to do it, there are some things you should acquire in order to successfully take the course.

Many recommend Barron’s textbook as core literature for taking any AP® course, thus it goes the same for this one (Barron’s AP® Microeconomics/Macroeconomics) published by Barron’s Educational Series. For those made to self-study due to some other class schedule contradiction or any other reasons, you can check out some sites for online learning, because it allows you to do it from your home and lets you organize yourself more freely. One of those is Educator (educator.com). It lets you access all courses at a monthly fee so it could be a good choice.

By the Numbers

When you will be finally making your choice on how to study, you’ll probably want to know how past students scored. In 2015 17.9% of the students had a score of 5 which is a slight percentage increase from the year before. Credit for that increase is claimed by professors who say they were pushing students a bit more and working harder in classes. This is another reason to think through going to classes. The rest of the scores in 2015 were pretty good statistically as depicted below:

Exam Structure

The exam consists of two sections: multiple choice section and free response section. The time provided for those sections combined is 2 hours and 10 minutes.

Multiple choice sections lasts for 1 hour and 10 minutes and is worth 66% of the exam score. It consists of 60 questions which require the use of economics content knowledge and reasoning across the range of course topics, while some questions might require analysis of different hypothetical situations.

Directions:

Each of the questions or incomplete statements below is followed by five suggested answers or completions. Select the one that is best in each case.

Example Question:

Scarcity is correctly described by which of the following statements?

I. Scarcity exists if there are more uses for resources than can be satisfied at one time.

II. Scarcity exists if decisions must be made about alternative uses for resources.

III. Scarcity would not exist in a society in which people wanted to help others instead of themselves.

(a) I only
(b) II only
(c) III only
(d) I and II only
(e) I, II, and III

Free response section lasts for 1 hour straight and is worth 33% of the exam score. It consists of 3 questions where question 1 is a long essay question which is worth 50% of the total score, while the other two questions are short essay questions and are worth 25% of the total score each. Questions are designed so that they ask the student to analyze unique scenarios using different course concepts. Some of the questions may require graphical analysis.

Directions:

You are advised to spend the first 10 minutes reading all of the questions and planning your answers. You will then have 50 minutes to answer the three questions. You may begin writing your responses before the reading period is over. It is suggested that you spend approximately half your time on the first question and divide the remaining time equally between the next two questions. Include correctly labeled diagrams, if useful or required, in explaining your answers. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. Use a pen with black or dark blue ink.

Example Question:

1. The markets for bananas, muffins, and coffee are interrelated, and each market is perfectly competitive.

(a) In the market for bananas, the equilibrium price is $1.00 per pound, and the equilibrium quantity is 1, 000 pounds per week. Suppose the government imposes a price floor on bananas at $1.20 per pound, causing the quantity supplied to increase to 1,500 pounds per week.

(i) Would the price floor result in a shortage, a surplus, or neither? Explain.
(ii) Calculate the price elasticity of supply if the price increases from $1 to $1.20. Show your work.
(iii) Between $1 and $1.20, is the supply elastic, unit elastic, or inelastic? Explain.

(b) Bananas are an input for muffins.

(i) Draw a correctly labeled graph of the market for muffins indicating the equilibrium price and quantity, labeled P₀ and Q₀, respectively.
(ii) On the graph drawn in part (b) (i), show the impact of an increase in the price of bananas on the muffin market, labeling the new equilibrium price and quantity P₁ and Q₁, respectively.
(iii) On the same graph, completely shade the area that represents the change in the consumer surplus caused by the increase in the price of bananas.

(c) In the market for coffee, the equilibrium price is $3.00 per cup and the equilibrium quantity is 100 cups per week. The cross-price elasticity of coffee with respect to muffins is −2.

(i) Are coffee and muffins normal goods, inferior goods, complementary goods, or substitute goods?
(ii) Assume the supply of coffee is perfectly elastic. Using the equilibrium price and quantity given above, draw a correctly labeled graph for the coffee market, and show the impact of an increase in the price of muffins on the coffee market.
(iii) Given the original quantity of 100 cups of coffee per week, if the increase in the price of muffins is 10%, calculate the new equilibrium quantity in the coffee market. Show your work.

Content

There are four key areas that need to be covered for you to learn what you’ll need in the exam. These four areas are:

1. Basic Economic Concepts.
2. The Nature and Function of Product Markets.
3. Factor Markets.
4. Market Failure and Role of the Government.

A. Basic Economic Concepts

Studying microeconomics will require you to understand that, in any economy, the existence of limited resources along with unlimited wants results due the need for making choices.

This is why AP® course begins with introduction to the concepts of opportunity costs and trade-offs, and illustrates these concepts by using the production possibilities curve or other analytical examples. The course then proceeds to considering how different types of economies determine what goods and services should they produce, how to do it, and who to distribute them to. The course will try to enable you to grasp why and how specialization and exchange increase the total output of goods and services.

You will be required to differentiate between absolute and comparative advantage, identify comparative advantage from differences in opportunity costs, and to apply the concept of comparative advantage, in order to determine the basis under that mutually advantageous trade can happen on the international level. I’d like to point out importance of property rights, the role of incentives in functioning of free markets, and principle of marginal analysis.

B. The Nature and Functions of Product Markets

The study of the nature and functions of product markets falls into four broad areas: supply and demand models, consumer choice, production and costs, and theory of the firm.

The first area requires an analysis of supply and demand determinants and ability to apply concepts of elasticity, including calculating. It will walk you through impact of government policies, the concepts of consumer surplus and producer surplus.

The second area covers production and cost analysis. You should be able to understand average and marginal products, the link between productivity and costs and the law of diminishing marginal returns as well as the concept of cost minimization and productive efficiency.

Finally, the fourth area covers behavior of firms in different types of market structures such as a monopoly or oligopoly. Here you will encounter the definition of profits, and required to make distinction between different types using marginal analysis.

C. Factor Markets

In this part you will be applying the concepts of supply and demand to markets for various factors. You will also analyze the concept of derived demand and gain understanding of how the market determines the distribution of income.

D. Market Failure and Role of the Government

In this section you should try to understand the arguments for and against government intervention in an otherwise competitive market. Impact of government tax policies on the distribution of both income and allocative efficiency should be highlighted.

Skills Required

Basically, the course gets you trained for what you will encounter in exam, but still you should be aware of that this course requires some advanced skills. You will need to be putting maximum effort developing your analytical skills. The analysis goes with graphs so you will need to fully understand and represent results of your analysis.

Also, you will be introduced to different economic concepts which may be unknown to you, so you have to be able to accept various new ideas which may be somewhat exotic and hard to grasp. You don’t need to fully understand those ideas, but you will need to apply them to specific situation and context as well. Unlike basic knowledge you get in high school, this is not only about reproducing ideas or facts, but you get to solve specific problems, so being creative is definitely a plus.

Finally, if you are to succeed in anything you need to put effort, work hard and give it time and patience to develop yourself. You should be well aware that this is a new, higher but achievable level.

Benefits

First of all, AP® courses are simulation of the next level in your education. Their credit is recognized by universities. This is a huge plus, since it obviously trains you for something that the system didn’t expect you could grasp at your age. However, the system provided the way for those who are ambitious. Also, you will learn new mechanisms of thinking through practice. That is the best you get. You improve yourself. After the course you will feel more confident about everything you do as it boosts the way you analyze and make decisions.

Next Steps

If you get to study microeconomics in AP® and successfully pass the test, you will have to achieve a recognizable credit. If you plan to study economics, this is perhaps one of the better choices you made considering your education. It allows you to skip certain steps and focus on what you like. Skipping in this manner is not losing what others get, because, remember: you already got it.

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