Unit #2: Supply and Demand




    Chapters 4-6

    Check here for class handouts and lesson plans.



    © 2006 The College Board. All rights reserved. Visit apcentral.collegeboard.com (for AP professionals) and

    www.collegeboard.com/apstudents (for students and parents).


    The Nature and Functions of Product Markets


    A well-planned AP course requires an analysis of the determinants of supply and

    demand and the ways in which changes in these determinants affect equilibrium

    price and output. In particular, the course helps students make the important

    distinction between movements along the curves and shifts in the curves. The course

    also emphasizes the impact of government policies, such as price floors and ceilings,

    excise taxes, tariffs, and quotas on the free market price and quantity exchanged.

    The concepts of consumer surplus and producer surplus should also be introduced.

    Students are expected to comprehend and apply the concepts of elasticity, including

    calculating price, cross-price, income elasticities of demand, and the price elasticity

    of supply.


    The next area covered in the course is the theory of consumer choice. Students

    should gain an understanding of the basic postulates underlying consumer choice:

    utility, the law of diminishing marginal utility, and utility-maximizing conditions, and

    their application in consumer decision-making and in explaining the law of demand.

    By examining the demand side of the product market, students learn how incomes,

    prices, and tastes affect consumer purchases. Here it is important that students

    understand how to derive an individual’s demand curve, how individual and market

    demand curves are related, and how the income and substitution effects explain the shape of the demand curve.

Related Files