Principles of Microeconomics for AP® Courses 2e Chapter 1: Welcome to Economics! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.1 What Is Economics, and Why Is It Important? . . . . . . . .
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Principles of Microeconomics for AP® Courses 2e Chapter 1: Welcome to Economics! . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.1 What Is Economics, and Why Is It Important? . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.2 Microeconomics and Macroeconomics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1.3 How Economists Use Theories and Models to Understand Economic Issues . . . . . . . . . . 15
1.4 How To Organize Economies: An Overview of Economic Systems . . . . . . . . . . . . . . . 18
Chapter 2: Choice in a World of Scarcity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.1 How Individuals Make Choices Based on Their Budget Constraint . . . . . . . . . . . . . . . 28
2.2 The Production Possibilities Frontier and Social Choices . . . . . . . . . . . . . . . . . . . . 33
2.3 Confronting Objections to the Economic Approach . . . . . . . . . . . . . . . . . . . . . . . 38
Chapter 3: Demand and Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
3.1 Demand, Supply, and Equilibrium in Markets for Goods and Services . . . . . . . . . . . . . 46
3.2 Shifts in Demand and Supply for Goods and Services . . . . . . . . . . . . . . . . . . . . . 52
3.3 Changes in Equilibrium Price and Quantity: The Four-Step Process . . . . . . . . . . . . . . 61
3.4 Price Ceilings and Price Floors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
3.5 Demand, Supply, and Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Chapter 4: Labor and Financial Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
4.1 Demand and Supply at Work in Labor Markets . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.2 Demand and Supply in Financial Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
4.3 The Market System as an Efficient Mechanism for Information . . . . . . . . . . . . . . . . . 98
Chapter 5: Elasticity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
5.1 Price Elasticity of Demand and Price Elasticity of Supply . . . . . . . . . . . . . . . . . . . 108
5.2 Polar Cases of Elasticity and Constant Elasticity . . . . . . . . . . . . . . . . . . . . . . . 113
5.3 Elasticity and Pricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
5.4 Elasticity in Areas Other Than Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
Chapter 6: Consumer Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133
6.1 Consumption Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
6.2 How Changes in Income and Prices Affect Consumption Choices . . . . . . . . . . . . . . 141
6.3 Labor-Leisure Choices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146
6.4 Intertemporal Choices in Financial Capital Markets . . . . . . . . . . . . . . . . . . . . . . 151
Chapter 7: Production, Costs and Industry Structure . . . . . . . . . . . . . . . . . . . . . . . . 163
7.1 Explicit and Implicit Costs, and Accounting and Economic Profit . . . . . . . . . . . . . . . 165
7.2 Production in the Short Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
7.3 Costs in the Short Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
7.4 Production in the Long Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179
7.5 Costs in the Long Run . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
Chapter 8: Perfect Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195
8.1 Perfect Competition and Why It Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196
8.2 How Perfectly Competitive Firms Make Output Decisions . . . . . . . . . . . . . . . . . . . 197
8.3 Entry and Exit Decisions in the Long Run . . . . . . . . . . . . . . . . . . . . . . . . . . . 212
8.4 Efficiency in Perfectly Competitive Markets . . . . . . . . . . . . . . . . . . . . . . . . . . 214
Chapter 9: Monopoly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223
9.1 How Monopolies Form: Barriers to Entry . . . . . . . . . . . . . . . . . . . . . . . . . . . 224
9.2 How a Profit-Maximizing Monopoly Chooses Output and Price . . . . . . . . . . . . . . . . 228
Chapter 10: Monopolistic Competition and Oligopoly . . . . . . . . . . . . . . . . . . . . . . . . 243
10.1 Monopolistic Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244
10.2 Oligopoly . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252
Chapter 11: Monopoly and Antitrust Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
11.1 Corporate Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 264
11.2 Regulating Anticompetitive Behavior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 270
11.3 Regulating Natural Monopolies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272
11.4 The Great Deregulation Experiment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
Chapter 12: Environmental Protection and Negative Externalities . . . . . . . . . . . . . . . . . 283
12.1 The Economics of Pollution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284
12.2 Command-and-Control Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288
12.3 Market-Oriented Environmental Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . 289
12.4 The Benefits and Costs of U.S. Environmental Laws . . . . . . . . . . . . . . . . . . . . . 293
12.5 International Environmental Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296
12.6 The Tradeoff between Economic Output and Environmental Protection . . . . . . . . . . . 297
Chapter 13: Positive Externalities and Public Goods . . . . . . . . . . . . . . . . . . . . . . . . 309
13.1 Why the Private Sector Underinvests in Innovation . . . . . . . . . . . . . . . . . . . . . 311
13.2 How Governments Can Encourage Innovation . . . . . . . . . . . . . . . . . . . . . . . . 314
13.3 Public Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317
Chapter 14: Poverty and Economic Inequality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 327
14.1 Drawing the Poverty Line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 328
14.2 The Poverty Trap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 331
14.3 The Safety Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 334
14.4 Income Inequality: Measurement and Causes . . . . . . . . . . . . . . . . . . . . . . . . 338
14.5 Government Policies to Reduce Income Inequality . . . . . . . . . . . . . . . . . . . . . . 344
Chapter 15: Labor Markets and Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355
15.1 Market Power on the Supply Side of Labor Markets: Unions . . . . . . . . . . . . . . . . . 356
15.2 Employment Discrimination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 363
15.3 Immigration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 369
Chapter 16: Information, Risk, and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 377
16.1 The Problem of Imperfect Information and Asymmetric Information . . . . . . . . . . . . . 378
16.2 Insurance and Imperfect Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
Chapter 17: Financial Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397
17.1 How Businesses Raise Financial Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 399
17.2 How Households Supply Financial Capital . . . . . . . . . . . . . . . . . . . . . . . . . . 402
17.3 How to Accumulate Personal Wealth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 414
Chapter 18: Public Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 425
18.1 Voter Participation and Costs of Elections . . . . . . . . . . . . . . . . . . . . . . . . . . 426
18.2 Special Interest Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428
18.3 Flaws in the Democratic System of Government . . . . . . . . . . . . . . . . . . . . . . . 431
Chapter 19: International Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 439
19.1 What Happens When a Country Has an Absolute Advantage in All Goods . . . . . . . . . 440
19.2 Intra-industry Trade between Similar Economies . . . . . . . . . . . . . . . . . . . . . . . 445
19.3 The Benefits of Reducing Barriers to International Trade . . . . . . . . . . . . . . . . . . 448
19.4 What Happens When a Country Has an Absolute Advantage in All Goods . . . . . . . . . 450
Chapter 20: Globalization and Protectionism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 461
20.1 Protectionism: An Indirect Subsidy from Consumers to Producers . . . . . . . . . . . . . . 462
20.2 International Trade and Its Effects on Jobs, Wages, and Working Conditions . . . . . . . . 469
20.3 Arguments in Support of Restricting Imports . . . . . . . . . . . . . . . . . . . . . . . . . 472
20.4 How Governments Enact Trade Policy: Globally, Regionally, and Nationally . . . . . . . . 477
20.5 The Tradeoffs of Trade Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481
A | The Use of Mathematics in Principles of Economics . . . . . . . . . . . . . . . . . . . . . . . 489
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