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  AP Guide: Microeconomics | Macroeconomics

  Guide to Commanding Heights Online for AP Instructors

  This guide maps Commanding Heights Online resources to criteria from The College Board's "Advanced Placement Program Course Description: Economics."


  Basic Economic Concepts
The Nature and Functions of Product Markets
Efficiency, Equity and the Role of Government

  I. Basic Economic Concepts

  C. Specialization and comparative advantage: the basis for international trade

AP Overview of Basic Economic Concepts

"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. An effective AP course, therefore, begins by exploring this need by studying the concepts of opportunity costs and trade-offs, which can be illustrated by the production possibilities curve or other analytical examples. 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. It is also important that students understand why and how specialization and exchange increase the total output of goods and services. In this context students need to be able to differentiate between absolute and comparative advantage, to identify comparative advantage from differences in output levels and labor costs, and to determine the basis under which mutually advantageous trade can take place between countries. Specific examples from actual economic situations can be used to illustrate and reinforce the principles involved."

Relevant Content Material from Commanding Heights Online

Commanding Heights Episode One tracks the parallel evolution of capitalist (market-based) and socialist (centrally-planned) economic regimes from the close of World War One through the 1970's. Its early chapters (Chapters 2, 3, 4, 5 and 6) contrast how each system determines which goods and services to produce, and what the actual outcomes of their policies are up through to the close of World War Two. Later chapters of Episode One track the post-war efforts of various western democracies (especially Britain) to incorporate a more socialist approach within a market-based system and the results of those experiments. In addition, these later chapters cover the efforts of newly independent nations to mix democracy with central economic planning. Episode Two then tracks the collapse of Soviet-style communism in the 1980's, the reforms that swept the planned economies of western democracies and developing nations alike during the same period, and the market oriented reforms undertaken by China. To gain a better sense of the structure of this content, view the Episode descriptions, Chapter Menus and Transcripts in Storyline.

To promote a deeper understanding of comparative advantage and its role in international trade and economic development, The Commanding Heights site contains an interactive atlas of economic history, the Time-Map (available on the rich-media, broadband version of the site only). The Time-Map tracks six kinds of economic regimes as practiced by 41 nations over 92 years. By launching the Time-Map and using its color key together with the time bar at the bottom of the map, students can scan through 92 years of world history, and spot changes in economy policy. Observing these changes, they can identify nations that have focused their development strategy on export-oriented comparative advantage trade (sky blue = outward development - export oriented, comparative advantage focus with global exposure and variable state ownership). By noting the points in time that such policies were introduced in various nations, they will become aware of global trends in economic policy formation over time. They will notice the vast expansion in the number of nations pursuing outward directed, comparative advantage policies since the 1970s, and in particular since the 1990s.

Students can also identify nations pursuing more tightly controlled, directed market policies that also seek to foster export oriented comparative advantage trade by means of highly regimented state control of industrial policy (green = directed market - industrial export focus and state regimenting private sector finance and trade).

From the Time-Map, students can launch more detailed, individual Country Reports for each of these nations, and study the periods in which these policies are in place. (Users of the low-bandwidth version of the site can also access low-bandwidth versions of these reports.) The reports include economic data and text information that can help students assess comparative outcomes and determine whether or not trade has expanded as a result of these policies, and what effects, over time, they have had on overall economic growth, per capita income, debt, and other outcomes. Students can also use the site's Search function to find interview segments and essays that bear on the countries and policies under consideration.

Worthwhile examples of outward directed, comparative advantage policy in action are found in the following country reports: Hong Kong (especially from '60s on), Chile (from 1974), Argentina (from 1976), Egypt (after 1977), Turkey (after 1980), Brazil and Bolivia (after 1985), Tanzania (from 1987), Mexico (from 1988), Peru (from 1990), Taiwan and India (from 1991), Russia (1992), South Africa (1995), Singapore and Pakistan (after 1997), Malaysia, Indonesia, and Thailand (after 1998), and Korea (after 1999).

Countries focused primarily on a directed market - industrial export approach include Japan (from 1952), Taiwan (from 1957), Singapore (from 1959), South Korea (1961-1998), Malaysia (from 1972), Thailand (1972-1997), Indonesia (1982-1997), and China (from 1993)

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  II. The Nature and Function of Product Markets

  1. Product pricing and outputs within different market structures
    1. Imperfect Competition
      1. monopoly
      2. oligopoly
      3. monopolistic competition
  2. Efficiency and government policy towards imperfect competition
from AP Overview of the Nature and Functions of Product Markets

"The study of the nature and functions of product markets falls into four broad areas:

"...The fourth area covers the behavior of firms in different types of market structures. In covering perfect competition, the course focuses on determining short-run and long-run equilibrium, both for the profit-maximizing firm and for the industry, and on the equilibrium relationships between price, marginal and average revenues, marginal and average costs, and profits. In considering the market behavior of a monopolist, students compare a monopolist's price, level of output, and profit with those of a firm operating in a perfectly competitive market. By paying particular attention to the concept of allocative efficiency, students learn how and why competitive firms achieve an efficient allocation of resources, whereas monopolists do not. The distinction between allocative and productive efficiency should be made. Students also learn why the government should in some cases encourage competition and in others allow a regulated monopoly to exist. Finally, students should have some familiarity with the characteristics and behaviors of firms in monopolistic competition and oligopoly, as well as their effects on efficiency. A discussion of basic game theory should be used to enhance a student's understanding of the interdependent behavior of firms in an oligopoly market."

Relevant Content Material from Commanding Heights Online

All three episodes of the program, as described in the Storyline section of the site, are concerned with the nature and functions of product markets and the relative efficiency of markets and competition under different economic systems and policies. The 41 Country Reports support and expand the program's historical survey of these differences with detailed information and specific economic data Two chapters, in particular, are relevant to the study of both imperfect competition and monopoly: Episode One, Chapter 10 (India's Way), and Episode Two, Chapter 4 (India's Permit Raj). Together, these chapters detail how India's idealistically planned, protectionist economy produced a noncompetitive, monopolistic auto industry that stifled innovation. The chapters are supported by extensive interviews about the Indian economy, best located by searching on the term "India."

A search on the term "monopoly" will also yield a number of essays and other site resources that deal with the general subject from a variety of viewpoints.

For the study of imperfect competition and oligopoly, the many chapters in Episode Two devoted to post-communist Russian privatization and the rise of the Oligarchs will be helpful. Chapters 2, 3, 8, 14, 15, 16, 18, 19, 20 all deal with the economic collapse of the Soviet Union, beginning in the early 1980s. Chapters 18,19, and 20 are specifically concerned with privatization and seizure of control of the commanding heights of the Russian economy by the Oligarchs. Related content for these chapters includes links to extensive interviews, including one with the Russian Oligarch Vladimir Potanin. On the rich-media version of the site, these links appear as synchronous "enhancements" that become available as the video chapter plays. On the low-bandwidth version of the site, these same links to related content can be accessed for each chapter from the Storyline menu of Episode Two.

With regard to efficiency and government policy toward imperfect competition, Episode One contains an account of U.S. efforts to regulate the airline industry from the 1930s to late 1970s. Chapter 5 covers the regulatory policies implemented in the 1930's and Chapter 14 covers the deregulatory effort more than forty years later. Also of note is Episode One, Chapter 12, which features Nixon's attempts to manage U.S. markets through price controls in the 1970s. Related content/enhancements links are also available for these chapters. Finally, students will find much useful material by searching on the terms "regulation" and "deregulation."

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  III. Efficiency, Equity and the Role of Government

  1. Externalities
  2. Public goods
  3. Distribution of income
AP Overview on Efficiency, Equity and the Role of Government

"It is important for students to understand the arguments for and against government intervention in an otherwise competitive market. Students examine the conditions for economic efficiency and the ways in which public goods and externalities generate market failures even in perfectly competitive economies. In addition, students are expected to study the effectiveness of government policies such as subsidies, taxes, quantity controls, and public provision of goods and services, which are designed to correct market failures. Although there is not a generally accepted standard for judging the equity of an economyıs income distribution, a well designed course will examine the impact of government tax policies and transfer programs on both the distribution of income and economic efficiency."

Relevant Content Material from Commanding Heights Online

In Episode Two, the fall of Soviet-style communism illustrates the difficulties that are created when governments attempt to centrally enforce more equitable distribution of scarce resources.

Episode Two's video chapters and interviews about Poland's economy are also helpful in this regard. Students can search on the terms "Russia," "Soviet Union," "Poland," and "communism" to access the video chapters and interview content related to the problems of central economic control.

Many Episode One chapters on Britain's economic development from the end of World War II through the reforms of Margaret Thatcher also show how government attempts to correct perceived market deficiencies often produce unintended results. Of particular note are Chapters 7, 13, 15, 17, 18, and 19, which deal with the consequences of establishing state-owned monopolies to create "fair shares" and the eventual re-privatization of these same industries. Extensive related content links/enhancements include economic data, essays, debates, and in-depth interviews from participants who shaped and reshaped these policies.

In addition, chapters within all three episodes of the program trace the evolution of the Indian economy from independence through the reforms of the 1990s. This narrative is extremely relevant to the subject of market efficiency and the actual effects of government policy. Educators and students can locate all the relevant video chapters by searching on the term "India" and then looking under the heading Storyline. Other types of content related to the Indian economy will also be displayed in the search returns.

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  AP Guide: Microeconomics | Macroeconomics

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