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STEP 1 Set Up Your Study Program 3

1 What You Need to Know About the AP Economics Exams 3

2 How to Plan Your Time 12

STEP 2 Determine Your Test Readiness 19

3 Take Diagnostic Exams 19

Diagnostic Exam:AP Microeconomics 23

Diagnostic Exam:AP Macroeconomics 28

STEP 3 Develop Strategies for Success 41

4 How to Approach Each Question Type 41

Section Ⅰ:Multiple-Choice Questions 41

Section Ⅱ：Free-Response Questions 44

STEP 4 Review the Knowledge You Need to Score High 49

5 Fundamentals of Economic Analysis 49

Scarce Resources 50

Production Possibilities 53

Functions of Economic Systems 59

6 Demand,Supply,Market Equilibrium,and Welfare Analysis 63

Demand 63

Supply 69

Market Equilibrium 72

Welfare Analysis 77

7 Elasticity,Microeconomic Policy,and Consumer Theory 82

Elasticity 83

Microeconomic Policy and Applications of Elasticity 91

Consumer Choice 98

8 The Firm,Profit,and the Costs of Production 107

Firms,Opportunity Costs,and Profits 108

Production and Cost 109

9 Market Structures,Perfect Competition,Monopoly,and Things Between 121

Perfect Competition 122

Monopoly 132

Monopolistic Competition 137

Oligopoly 139

10 Factor Markets 145

Factor Demand 146

Least-Cost Hiring of Multiple Inputs 150

Factor Supply and Market Equilibrium 152

Imperfect Competition in Product and Factor Markets 153

11 Public Goods,Externalities,and the Role of Government 157

Public Goods and Spillover Benefits 158

Pollution and Spillover Costs 160

Income Distribution and Tax Structures 162

12 Macroeconomic Measures of Performance 169

The Circular Flow Model 170

Accounting for Output and Income 171

Inflation and the Consumer Price Index 177

Unemployment 181

13 Consumption,Saving,Investment,and the Multiplier 187

Consumption and Saving 188

Investment 191

The Multiplier Effect 194

14 Aggregate Demand and Aggregate Supply 201

Aggregate Demand(AD) 201

Aggregate Supply(AS) 204

Macroeconomic Equilibrium 207

The Trade-Off Between Inflation and Unemployment 212

15 Fiscal Policy,Economic Growth,and Productivity 219

Expansionary and Contractionarv Fiscal Policy 219

Difficulties of Fiscal Policy 223

Economic Growth and Productivity 227

16 Money,Banking,and Monetary Policy 234

Money and Financial Assets 234

Fractional Reserve Banking and Money Creation 241

Monetary Policy 243

17 International Trade 251

Comparative Advantage and Gains from Trade 251

Balance of Payments 255

Foreign Exchange Rates 257

Trade Barriers 260

STEP 5 Build Your Test-Taking Confidence 267

AP Microeconomics Practice Exam 1 267

AP Macroeconomics Practice Exam 1 287

AP Microeconomics Practice Exam 2 309

AP Macroeconomics Practice Exam 2 329

Appendixes 351

Bibliography 351

Web Sites 353

Glossary 355

Important Formulas and Conditions 363