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In this comprehensive guide, we cover everything you need to know about AP Microeconomics.
Let’s get into it!
What is Microeconomics?
“It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest.” – Adam Smith
Economics is the study of how people produce and consume goods and services. It is usually divided into two branches: Microeconomics and Macroeconomics. Microeconomics focuses on the behavior of individuals and companies, and how they make decisions related to the abundance or scarcity of resources.
Microeconomics as an academic discipline begins with Jeremy Bentham and Utilitarianism; namely, this is the belief that people are rational actors who make choices in their best interests. But it was given formal expression by Adam Smith in his seminal work The Wealth of Nations. Smith’s theory states the following:
- Self-interest creates economic competition.
- Economic competition leads to the perfect balance between supply and demand.
- The supply-demand equilibrium optimizes the use of resources for the entire society.
The conclusion of Smith’s research is that the “free market” represents an “invisible hand” that guides all producers and consumers toward the most rational and efficient distribution of resources. There have of course been numerous developments and advances since Adam Smith, but the bulk of Microeconomic theory stems from his singular conclusion. Keep it in mind constantly if you take AP Microeconomics.
AP Microeconomics vs. AP Macroeconomics
Microeconomics is the study of individuals and businesses and concerns how they make optimal decisions. Whereas Macroeconomics is a top-down study of entire nations, industries, and economies, Microeconomics is usually understood as a bottom-up approach to economics.
Most high schools offer both AP Microeconomics and AP Macroeconomics courses, but what is the difference between the two courses, and which one should you take?
First, it is worth noting that, at most high schools, AP Micro and AP Macro will be offered as half-year, one-semester courses. That means you can conceivably take both classes in one school year. You could even take them concurrently if the option exists and you feel comfortable handling the workload. The core concepts of both classes relate strongly to one another.
Which course should you take first?
Usually, students take Microeconomics first, but there is some debate among teachers about which course feeds more naturally into the other. The short answer is that you can’t really go wrong; both classes build on the lessons of the other. However, there are a couple of logical reasons to consider taking Micro first. The fundamental concepts in Micro are usually more familiar to students and more intuitive. Additionally, Microeconomic theory historically predates Macroeconomic theory by a couple of hundred years.
AP Microeconomics is designed to prepare students for the rigors of studying economics at college. If you intend to study business, finance, economics, or other related disciplines, it is one of the better AP courses you can take to bolster your academic resume.
The course is usually only one semester long. The material is relatively succinct compared to other AP courses, which means it is also comparably easier to prepare independently for the test. If you want to take the test, but your school does not offer the right classes, consider studying the material on your own or with a tutor.
The AP Microeconomics test is offered to students every year, usually in early May. In 2021, College Board is offering digital tests in late May and early June.
This year the testing dates are Wed. May 12th for the paper exam and Fri. May 28th/Tue. June 8th for the digital exam.
The test costs $95. Typically, the registration deadline is in November.
The AP Macroeconomics exam is two hours and ten minutes long. The test is divided into two sections: multiple-choice and free-response.
You are given 70 minutes to answer the 60 multiple-choice questions. This portion of the test represents two-thirds of your total score.
The free-response section consists of one long response and two short responses. You will be given 60 minutes to answer the three free-response questions. The free-response section represents one-third of your total score.
The multiple-choice portion of the test is designed to test your ability in three different areas:
- Defining economic models and principles
- Explaining the outcome of given economic situations
- Determining the outcome of unknown economic situations
Additionally, the College Board notes that approximately ¼ of the multiple-choice questions will require you to analyze numbers or input calculations. You should bring a calculator on test day!
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A Breakdown of the Curriculum
The AP Microeconomics course is designed to improve student’s skills in four core areas: Principles and Models, Interpretation, Manipulation, and Graphing and Visuals. These core skills make up the bulk of what you will be working on throughout your course and what you will be tested on at the end of the year.
Principles and Models
- Define economic principles, like supply and demand, and models of economic behavior.
- Explain economic concepts when given specific examples.
- Identify an economic model or principle using calculations or quantitative data.
- Compare and contrast the similarities and limitations of different economic models and principles.
- Explain how specific economic outcomes occur.
- Explain what actions should be taken to achieve a specific outcome based on known economic concepts.
- Contrast how different variables will affect an economic outcome.
- Interpret an economic outcome using calculations or quantifiable information.
- Determine the outcome of specific economic situations.
- Determine the effects of specific changes to an economic situation.
- Use calculations to manipulate an economic model.
Graphing and Visuals
- Model economic situations using graphs or other visual representations.
- Draw a graph with accurate measurements and labeling.
- Demonstrate understanding of given economic situations using visual representation.
- Show how changes to an economic model or principle might affect the visual representation.
There is considerable overlap in these areas, and you will not be taught each skill in a discrete lesson. Rather, these are the skills you will be expected to develop and improve upon throughout the semester. In essence, you have to understand the theory, interpret information based on the theories you learn, manipulate outcomes of economic situations, and graphically represent what you interpret and manipulate.
The AP Microeconomics course is also designed to highlight four “Big Ideas.” These “Big Ideas” are intended to serve as the foundation of your understanding.
Big Idea #1: Scarcity and Markets
There are limited resources for individuals and companies to use. This results in the need for both businesses and consumers to make choices, which creates a market economy. In a market economy, the choices and needs of buyers and sellers determines resource allocation and relative pricing of goods and services. An example of this is the Law of Supply and Demand. Scarcity and Markets is primarily taught in chapters 1 and 2 of the curriculum.
Big Idea #2: Cost, Benefits, and Marginal Analysis (CBA)
There are costs and benefits associated with any economic decision. A significant part of economic theory relates to how to minimize cost and maximize benefit. Making the best decision often relies on marginal analysis and thorough manipulation of economic data. An example of this is Marginal Analysis and Consumer Choice Theory. CBA is primarily taught in chapters 1 and 3 of the curriculum.
Big Idea #3: Production Choices and Behavior
Businesses seek to maximize their profit, minimize their losses, and eliminate risk. These motivations influence how businesses make decisions regarding production and distribution of resources. An example of this is Monopolies and Price Discrimination. Production Choices is primarily taught in chapters 3, 4, and 5 of the coursework.
Big Idea #4: Market Inefficiency and Public Policy
A market economy does not necessarily maximize efficiency. The market can fail to distribute resources adequately. This leads to the need for well-constructed economic public policy to create greater efficiency in the market. An example of this is International Trade and Public Policy. Market Inefficiency and Public Policy is primarily taught in chapters 2 and 6 of the coursework.
It is recommended that you take time to understand these ideas at the beginning of your studies. You will want to revisit them in different contexts to strengthen your comprehension.
The material itself is broken down into six chapters: Basic Economic Concepts; Supply and Demand; Production, Cost, and the Perfect Competition Model; Imperfect Competition; Factor Markets; and Market Failure and the Role of Government. These chapters are then further broken down into several subunits.
Chapter 1: Basic Economic Concepts (12-15% of the exam)
- Resource Allocation and Economic Systems
- Production Possibilities Curve
- Comparative Advantage and Trade
- Cost-Benefit Analysis
- Marginal Analysis and Consumer Choice
Chapter 2: Supply and Demand (20-25%)
- Price Elasticity of Demand
- Price Elasticity of Supply
- Other Elasticities
- Market Equilibrium and Consumer and Producer Surplus
- Market Disequilibrium and Changes in Equilibrium
- The Effects of Government Intervention in Markets
- International Trade and Public Policy
Chapter 3: Production, Cost, and the Perfect Competition Model (20-25%)
- The Production Function
- Short-Run Production Costs
- Long-Run Production Costs
- Types of Profit
- Profit Maximization
- Firms’ Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market
- Perfect Competition
Chapter 4: Imperfect Competition (15-20%)
- Introduction to Imperfectly Competitive Markets
- Price Discrimination
- Monopolistic Competition
- Oligopoly and Game Theory
Chapter 5: Factor Markets (10-15%)
- Introduction to Factor Markets
- Changes in Factor Demand and Factor Supply
- Profit-Maximizing Behavior in Perfectly Competitive Markets
- Monopsonistic Markets
Chapter 6: Market Failure and the Role of Government (8-13%)
- Socially Efficient and Inefficient Market Outcomes
- Public and Private Goods
- The Effects of Government Intervention in Different Market Structures
How to Study and Get a 5
Approximately 15-20% of AP Microeconomics test-takers each year receive a perfect score of 5. How can you give yourself the best chance to be one of them?
The first thing to understand is that compared to most other Advanced Placement tests, AP Microeconomics is relatively concise. The material is usually taught in school in a single semester, and if you are learning it independently you could conceivably do so in just a few months. This means that it is relatively simple to study for and well-suited to students who might otherwise feel overwhelmed by more extensive material.
The second thing to understand is that the AP Microeconomics test is extremely consistent year after year. This means that the test is particularly accessible for tutors and students. The College Board strongly emphasizes the importance of the four fundamental skills and mastery of the four “Big Ideas.” Every multiple-choice and free-response question is intentionally designed to test one of the four fundamental skills and one of the four “Big Ideas.” Focus on mastering them throughout your studies and you will be in excellent shape.
Additionally, the layout of the material and percentage of each topic covered is very consistent year after year. This means you can be quite assured of the relative significance of each subject to your grade. For example, chapters 2 and 3, which concern Supply and Demand laws and Cost-Benefit Analysis, make up almost half of the multiple-choice questions on every test. If you want to know which areas to focus your attention on to maximize your results, the information is all here for you.
Finally, the free-response section of every test is consistently designed to measure your ability to make graphs and represent economic data visually. Naturally, none of the multiple-choice questions will ask you to draw graphs (though a small number will ask you to interpret them), so the test will ask you to demonstrate your skills in these areas in the free-response section. In a typical long-response question, you might be asked to draw and explain several graphs representing adjustments to an economic situation. Ensure you understand how to represent data visually in order to master the free-response section. A standard short-response question will usually feature visually represented data, either in the form of tables or graphs, and ask you to explain various theories and make calculations relating to that data.
So, how can you best prepare to ace the AP Microeconomics test and walk away with one of those 5’s that are in such short supply?
First, you should begin studying the material at least 3–6 months before the date of the test. If you are learning in school, this should be taken care of for you, but if you are studying independently, you will have to be more proactive with your studying. You might want to begin in January by reviewing the material and practicing multiple-choice questions. After you have reviewed the material, you should take a diagnostic test to see what areas you need to focus on and which you can safely ignore.
This is something a private tutor or teacher can help you with as it can be a little difficult to analyze your own strengths and weaknesses. If you need help studying, there are many tutors at Transizion who can help you master the material and ace the test.
Additionally, you need to practice interpreting and representing economic data using graphs as much as possible. Your answers in the free-response section will likely depend heavily on your ability to accurately identify, label, and draw graphs. You should also practice doing free-response sections online (example practice problems can be found on the College Board website). Ask a teacher or tutor to mark your responses and help you identify what areas you need to improve upon.
The AP Microeconomics test is one of the simpler Advanced Placement tests to study for. The material is succinct, the test is formulaic, and much of what you have to know involves memorization of formulas and graphs. If you are prepared to put the time and effort in, AP Micro represents one of your best opportunities to get a 5 in an Advanced Placement course and bolster your college application.