To understand economics, students need to understand that because most resources are scarce, individuals and societies must make choices. When making rational choices, people do so “on the margin,” taking into account the additional costs and benefits of their decisions. The foundational economic ideas addressed in this unit form the basis for more advanced analysis of consumer and producer behavior that will be developed throughout the course.

This unit will provide the basis for understanding how markets work by introducing the supply and demand model. Students will build on the concepts of scarcity and choice that were introduced in the first unit and explore the factors that influence consumer and producer behavior. They will learn how the interaction of consumers and producers in competitive markets determines market prices and results in the most efficient allocation of scarce resources. At the end of the unit, students will also begin exploring the effects of government policy on market outcomes, laying the groundwork for additional analysis in the last unit of the course.

Unit 3 focuses on firm behavior and culminates with an introduction to the perfect competition model, which will form a basis of comparison for other market structures in the next unit. This unit builds on the idea of supply, which was introduced in the previous unit, and explores in more detail what drives the decisions that firms make. Thinking like a firm may be challenging for students, who are more used to acting as consumers in their everyday lives. Drawing connections to students’ own experiences and carrying out classroom simulations can help bring these concepts to life. Reminding students of the ways in which the behavior of firms is consistent with the ideas of cost-benefit analysis and marginal decision-making addressed in the first unit of the course may also be helpful in elucidating these concepts.

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.

In many ways, Unit 5 is a culmination and an extension of material that has been introduced previously. For example, in Units 3 and 4, students learned that public policy can affect the economy’s output, price level, and level of employment in the short run; in this unit, students will build on this understanding to examine the long-run implications of policy actions and the concept of economic growth. Similarly, in Unit 2 students were introduced to inflation and unemployment as economic indicators, and in Unit 3 they learned about the relationship between inflation and unemployment; in this unit, students explore how the Phillips curve model is used to represent this relationship in the short run and long run.

Unit 6 introduces students to the concept of an open economy in which a country interacts with the rest of the world through both product and financial markets. This unit is often challenging for students because economic activity between nations must be facilitated by currency exchange, which introduces another market to be considered when analyzing macroeconomic situations. Changes in economic activity affect the supply of and demand for a nation’s currency and subsequently the value of that currency. But it is also true that changes in the value of a country’s currency can affect economic activity in that country. In addition to these insights, students have the opportunity in this unit to consider the effects of economic policy on exchange rates and the implications of such changes.