Unit I: Economic Basics

Topic 1: Scarcity, Choice, and OC

Topic 2: PPF & Trade

Topic 3: Economic Systems

Topic 4: Circular Flow Model and Main Macro-Topics

“To provide an overview of how the economy works, the course should start with a model of the circular flow of income and products that contain the four sectors: households, businesses, government, and international.”

(http://apcentral.collegeboard.com/apc/public/repository/ap08_economics_coursedesc.pdf)

Topics Covered:

I. Basic Economic Concepts (8-12 %)
A. Scarcity, choice, and opportunity cost
B. Production Possibilities Curve
C. Comparative Advantage, Absolute Advantage, Specialization, Exchange
D. Demand, Supply, and Market Equilibrium*
E. Macroeconomic issues: business cycle, unemployment, inflation, growth

I.  D. Demand, Supply, and Market Equilibrium*

These topics will be our second large ‘unit’

We will use the micro syllabus for this topic because it is an overlap in the Macro and Micro courses..

Topic 1: Scarcity, Choice and OC

Module
(Krugman) / Chapter (McConnell) / Concepts
1 / 1 / Scarcity, Choice and Opportunity Cost
-  Scarcity
-  Opportunity Costs
-  Basic Economic Questions

Objectives:

1. Define economics, distinguish between microeconomics and macroeconomics, and explain the questions economics tries to answer.

2. Describe the “economic way of thinking,” including definitions of scarcity, utility, opportunity costs, marginal costs, marginal benefits and how these concepts may be used in decision-making.

3. Identify types of economic resources and types of income associated with various factors.

Concepts to memorize:

Scarcity Opportunity Cost Utility

Marginal Economic Principle ceteris paribus

Microeconomics Macroeconomics Aggregate

Positive Economics Normative Economics Incentive

Factors of Production Wage Rent

Interest Profit Rational Choice

Inputs/Outputs Goods/Services

Key Conceptual Questions:

1. What is scarcity?

2. What are three questions every society must answer because of scarcity?

3. What are economic resources? What categories do economists use to classify them? Why are resources also called factors of production? Why are they called inputs?

4. Specify and explain the typical shapes of the marginal-benefit and marginal-cost curves. How are these curves used to determine the optimal allocation of resources to a particular product? If current output is such that marginal cost exceeds marginal benefit, should more or fewer resources be allocated to this product? Explain.

Topic 2:

Module
(Krugman) / Chapter (McConnell) / Concepts

3 / 1 / Production Possibilities Curve
-  Assumptions (ceteris paribus)
4 / 1, 5 / Comparative Advantage
-  Specialization
-  Absolute Advantage

Production Possibilities & Comparative Advantage:

Watch PPF Basics parts 1 and 2 (http://www.mrrobinson.org/AP-Microeconomics.html)

Objectives:

1. Construct a production possibilities curve when given appropriate data.

2. Illustrate economic growth, unemployment and underemployment of resources, and increasing costs using a production possibilities curve.

3. Define efficiency and describe an efficient use of resources.

4.  Define and calculate absolute and comparative advantages for production and exchange.

5.  Explain how people gain from specialization and trade.

6.  Predict the effects of policies that restrict free trade.

7.  Define and calculate absolute and comparative advantages for production and exchange.

8.  Explain how people gain from specialization and trade.

9.  Predict the effects of policies that restrict free trade.

Concepts to memorize:

Budget Line Attainable/Unattainable PPF

Trade-off Economic Growth Efficiency

Productive Efficiency Allocative Efficiency Free Lunch

Comparative Advantage Absolute Advantage Specialization

Key Conceptual Questions:

1.  In what ways and to what extent does the production possibility model (diagram) illustrate the fundamental economic problems facing all societies?

2.  Illustrate on a PPF model economic growth.

3.  Why do people trade?

4.  How would trade restrictions affect the welfare of individuals and/or nations?

Topic 3:

Chapter 2 (McConnell)
Concepts: Economic Systems

Objectives:

1. Highlight the main features of a market economy and a command economy.

2. List and explain the important characteristics of the American market system.

3. Explain the role of self-interest and “invisible hand” in promoting economic efficiency.

4. Explain the limitations of command economies.

5. Identify the decision makers and the markets in a market system using the circular flow diagram.

6. Identify the two roles each that households and businesses play using the circular flow diagram.

7. Differentiate between product and resource markets.

Concepts to memorize:

Traditional Command Free Market

Mixed Invisible Hand Curricular Flow Model

Goods and Services Market Factor Market Households

Firm

Key Conceptual Questions:

  1. Define the four types of economies.

2.  Describe the characteristics of a Free Market Economic System.

3.  Describe who and how goods and services are allocated in a free market system.

4.  Identify and describe the elements that make up the circular flow model.

Topic 4: Macroeconomic Issues

Krugman Module: 2 and class lecture

Objectives:

1. Understand the basic statistical tools and measures that economists use to analyze the economy.

2. Differentiate the basic difference between nominal and real

3. Understand the basic concept of unemployment.

4. Understand the basic measure of inflation.

5. Understand, and define, the basic concepts of savings and investment.

6. Understand the role of expectations and uncertainty in economic activity.

7. Explain how unanticipated shocks to supply and demand affect the economy

Key Vocabulary:

Macroeconomics Business Cycle Recession

GDP Real GDP Nominal GDP

Unemployment Inflation Economic Growth

Savings Financial Investment Economic Investment

Demand Shocks Supply Shocks