A well-planned AP course requires an analysis of the determinants of supply and demand and the ways in which changes in these determinants affect equilibrium price and output. 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 Nature and Functions of Product Markets The importance of property rights, the role of incentives in the functioning of free markets, and the principle of marginal analysis should be highlighted. Specific examples from actual economic situations can be used to illustrate and reinforce the principles involved. Students need to be able to differentiate between absolute and comparative advantage, to identify comparative advantage from differences in opportunity costs, and to apply the concept of comparative advantage, in order to determine the basis under which mutually advantageous trade can take place between countries. It is also important that students understand why and how specialization and exchange increase the total output of goods and services. The course can then proceed to a consideration of how different types of economies determine which goods and services to produce, how to produce them, and to whom to distribute them. An effective AP course, therefore, begins by introducing the concepts of opportunity costs and trade-offs, and illustrates these concepts by using the production possibilities curve or other analytical examples. The study of microeconomics requires students to understand that, in any economy, the existence of limited resources along with unlimited wants results in the need to make choices. The following is a brief discussion of these topics and some aspects of them that a teacher may choose to explore. It places primary emphasis on the nature and functions of product markets and includes the study of factor markets and of the role of government in promoting greater efficiency and equity in the economy. The purpose of the AP course in Microeconomics is to give students a thorough understanding of the principles of economics that apply to the functions of individual decision makers, both consumers and producers, within the economic system.
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