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AP Economics Summer Assignment

Summer Reading assignments from Economics by Example

First, you need to purchase Krugman’s Economics for AP. The textbook comes in a package with a second book, Economics by Example. This summer’s reading is all from Economics by Example.

Before the first full day of classes in the fall you should have read Chapters 1 through 13, pages 1 through 97 in Economics by Example. You should expect a quiz on the material during the first full class period. The following pages include guide questions for the reading in each chapter. I will try to construct your opening summer reading quiz based on the questions provided. I suggest that as you read the assignment, you take notes on the reading being sure to note information related to the topics on the lists I have provided. The total assignment should take between 5 and 6 hours. I suggest that you spread it out over several sessions and not do more than one hour at a time.

In the following pages I have tried to leave space so you can take some notes right on the sheets provided. It will help if your notes are done carefully enough so you can use them to review before the beginning of the class in the fall. I will also send you an email with this assignment sheet as an attachment so you can download it.

The quiz you will have will be a fill-in-the-blanks quiz that will focus on definitions of economic terms. The material contained in these readings is meant to serve as an introduction to the study of microeconomics. Don’t worry if you don’t understand all of the material covered in the summer readings. We will cover virtually all of it thoroughly during the first term.

Good luck with the assignment. I am looking forward to meeting all of you and beginning this adventure in Advanced Placement Microeconomics and Macroeconomics. Have a great summer.

Fran Bradley
George School History Department

Chapter 1 pages 1 through 8

  1. Economics is the study of limited resources and unlimited wants.
  2. Cost/Benefit Analysis
  3. Marginal Benefit and Marginal Cost
  4. What is the crux of economic reasoning?
  5. The economic benefit of going to school for another year
  6. Is the most efficient outcome always the best outcome? Why?
  7. Ceteris paribus
  8. Are costs always strictly financial? Why or why not?
Chapter 2 pages 9 through 15
  1. Most of economics can be summarized in the 4 words, “People respond to incentives.”
  2. Why didn’t the cashier stop the defacing of the watermelons?
  3. Sales of Hummers versus the sales of the Toyota Prius
  4. Sin Taxes?
  5. Peak-load pricing
  6. Perverse Incentive and examples
  7. Price Floors
  8. Minimum wage laws
Chapter 3 pages 17 through 25
  1. 15th century Turkish law regarding coffee
  2. Law of Supply and the Supply curve
  3. Opportunity costs
  4. Inputs
  5. The Law of Diminishing Marginal Returns
  6. The Flower Pot Example
  7. Change in quantity supplied vs. a change in supply and the relationship of each to the supply curves
  8. The Law of Demand
  9. As the price of tuna rises, what happens to my demand curve for tuna?
  10. What is the market demand curve?
  11. Study the Table on page 21.
  12. Normal and Inferior goods
  13. Columbus and the price of spices
  14. The second most traded commodity in the world
  15. Supply is determined by _____________
  16. Demand is determined by ________________
Chapter 4 pages 26 through 32
  1. Utility
  2. Marginal Utility
  3. The Law of Diminishing Marginal Utility
  4. Price elasticity of demand and the formula for price elasticity of demand
  5. Inelastic demand
  6. Elastic demand
  7. Things which determine elasticity
  8. The price elasticity of demand for cigarettes
  9. Relative to the elasticity of demand for its product, when should a firm raise its prices?
Chapter 5 pages 33 through 39
  1. A market
  2. Three seldom recognized characteristics of markets
  3. Is the price of a school an accurate indication of the quality of the education it offers?
  4. A price floor
  5. The marriage contract between Jennifer Lopez and Ben Affleck?
Chapter 6 pages 40 through 47
  1. The Wealth of Nations and Adam Smith
  2. The “Invisible Hand”
  3. Productive Efficiency, Allocative Efficiency, and Distributive Efficiency
  4. The conditions for Perfect Competition
  5. Price Takers
  6. The Supply Curve and the increasing marginal cost of producing each unit
  7. The Demand Curve and the decreasing marginal value of each unit to consumers
  8. Why not make either more or less than 3 clown noses?
  9. Market Power
  10. Externalities
Chapter 7 pages 49 through 54
  1. The marginal product of labor
  2. The “Law of diminishing marginal returns”
  3. The short run
  4. Fixed inputs
  5. Variable inputs
  6. Study the table on page 51.
  7. Negative versus diminishing marginal product
  8. Marginal Revenue Product
  9. Derived Demand
Chapter 8 pages 55 through 62
  1. Fixed Cost
  2. Variable cost
  3. Total cost
  4. Marginal cost
  5. Average fixed cost
  6. Average variable cost
  7. Marginal Revenue
  8. Study the table on page 59.
  9. A Natural monopoly
Chapter 9 pages 63 through 69
  1. The Optimal Consumption Rule and its’ formula
  2. Consumer Surplus
  3. Producer Surplus
  4. Deadweight loss
  5. Explain the Deadweight Loss of Christmas Gifts
Chapter 10 pages 70 through 74
  1. The problem with “all-you-can” offerings
  2. Per unit pricing for trash
  3. How do variable cost pricing structures improve efficiency?
Chapter 11 pages 75 through 82
  1. Both positive and negative externalities.
  2. Excise Taxes
  3. Market Power
  4. Imperfect Information
  5. Why is there a tendency for the used car market to be made up of primarily “lemons”?
  6. Adverse selection
  7. Moral hazard
  8. Non rival in consumption
  9. Non excludable
  10. Public goods
  11. The “free rider” problem
Chapter 12 pages 83 through 90
  1. Neoclassical Economists – reliance on “rational choice theory” suggested by Milton Friedman
  2. Institutional Economists – question whether decision makers always act “rationally” as Joseph Stiglitz suggests.
  3. Status quo bias
  4. The endowment effect
  5. Sunk Costs
Chapter 13 pages 91 through 97
  1. Monopoly
  2. Oligopoly
  3. Cartels
  4. The four-firm concentration ratio
  5. Barriers to entry
  6. Counterfeiting
  7. Bootlegging
  8. Contestable markets