Preface v
Acknowledgments vii
About the Author ix
Introduction: The Five-Step Program xi
Step 1 Set Up Your Study Program
1. What You Need to Know About the AP Microeconomics Exam 3
Background Information 3
Some Frequently Asked Questions About the AP Economics Exams 4
2. How to Plan Your Time 11
Three Approaches to Preparing for AP Exams 11
Calendar for Each Plan 13
Step 2 Determine Your Test Readiness
3. Take the Diagnostic Exam 19
Diagnostic Exam: AP Microeconomics, Section I 23
Answers and Explanations 32
Diagnostic Exam: AP Microeconomics, Section II 36
Free-Response Grading Rubric 38
Scoring and Interpretation 39
Step 3 Develop Strategies for Success
4. How to Approach Each Question Type 43
Section I Multiple-Choice Questions 43
Section II Free-Response Questions 46
Step 4 Review the Knowledge You Need to Score High
5. Fundamentals of Economic Analysis 51
5.1 Scarce Resources 52
5.2 Production Possibilities 56
5.3 Functions of Economic Systems 62
6. Demand, Supply, Market Equilibrium, and Welfare Analysis 67
6.1 Demand 67
6.2 Supply 73
6.3 Market Equilibrium 76
6.4 Welfare Analysis 81
7. Elasticity, Microeconomic Policy, and Consumer Theory 86
7.1 Elasticity 87
7.2 Microeconomic Policy and Applications of Elasticity 95
7.3 Trade Barriers 103
7.4 Consumer Choice 105
8. The Firm, Profit, and the Costs of Production 114
8.1 Firms, Opportunity Costs, and Profits 115
8.2 Production and Cost 116
9. Market Structures, Perfect Competition, Monopoly, and Things Between 129
9.1 Perfect Competition 130
9.2 Monopoly 140
9.3 Monopolistic Competition 145
9.4 Oligopoly 147
10. Factor Markets 155
10.1 Factor Demand 156
10.2 Least-Cost Hiring of Multiple Inputs 160
10.3 Factor Supply and Market Equilibrium 162
10.4 Imperfect Competition in Product and Factor Markets 164
10.5 Minimum Wages 166
11. Public Goods, Externalities, and the Role of Government 169
11.1 Public Goods and Spillover Benefits 170
11.2 Pollution and Spillover Costs 173
11.3 Income Distribution and Tax Structures 176
Step 5 Build Your Test-Taking Confidence
AP Microeconomics Practice Exam 1 185
AP Microeconomics Practice Exam 2 205
Appendixes 225
Further Reading 227
Websites 228
Glossary 229
Important Formulas and Conditions 234