Section outline

  • Developing Understanding

    In the real world, firms rarely operate in perfectly competitive markets. In this unit, students will encounter the ways in which imperfectly competitive markets depart from the model of perfect competition introduced in Unit 3. Students will continue to build on their understanding of what it means for a market to be efficient or inefficient as they consider the welfare implications of imperfect markets. In the context of learning about oligopoly behavior, students will be introduced to the field of game theory as an approach to studying strategic decision making.

    Building Course Skills

    1.D 2.C 4.B 4.C

    In this unit, students should be able to describe the similarities and differences between market structures. To help students develop this skill, consider first approaching the topic by using real-world examples and having students describe distinguishing characteristics of those examples. Using graphic organizers such as Venn diagrams might also be helpful to keep track of similarities and differences. Graphing continues to be essential in this unit, and graphing each market structure can be difficult for some students. Be deliberate in modeling the differences between a license/patent monopoly and a natural monopoly, as well as a monopolistically competitive firm both in the short-run (with profits or losses) and at long-run equilibrium. While it is critical that students understand the differences between the graphs in each of these models, it is also important to stress the similarities. For example, a common characteristic of all imperfect product market graphs is that the marginal revenue curve lies below the demand curve. Regardless of the market structure, students should practice neatly drawing each graph and labeling it appropriately until they can do so flawlessly.

    Preparing for the AP Exam

    Game theory is an important concept in the field of economics and is a challenge for some students on both the multiple-choice and free-response sections of the
    AP Exam. Students should have sufficient opportunities for guided practice interpreting payoff matrices, identifying dominant strategies and Nash equilibria, and redrawing payoff matrices after given changes. Answering past free-response questions on the topic (e.g., 2013 AP Exam Question #2) is a good way to practice.