Wednesday, November 29, 2006

Naked Economics Study Guide

Here are the major areas of Naked Economics to take a look at. This is not a shortcut around reading the entire book - it is meant to help you concentrate on important points. The points that are mentioned are things that you should feel comfortable wtih - have a passing knowledge of them ("Oh, yeah, I remember was ____"). There are some study questions at the end in blue to help you, also. This is all for your assistance in understanding the book; none of it will be collected and graded.

If anyone wants to borrow my book (with notes/highlighting, etc) throughout a school day or overnight, come on by and let me know!

We will be discussing the book the first few days of class as a precursor to Unit 1. There will be a quiz on the critical content as well as information from the book on your Unit 1 Test.

Enjoy! :)



Economic way of thinking - pxiii

Chapter 1 - The Power of Markets

Market Allocation - p3
Invisible Hand of the Economy - p4
Utility - p6+
Opportunity Cost - p9
Demand/Externalities - p10
Cost/Benefit Analysis - p11
Profit Motive - p11
Human Capital - p12+
Barriers to Entry - p14
Market price, pricing decisions & price discrimination - p15+
Lessons of markets - p18+
Globalization - p20+

Chapter 2 - Incentives Matter

Incentive - p23
Command vs. private property - p24
Free Rider problem - p24+
Incentives in Economic Systems - p27
Law of Unintended Consequences & Disincentives - p29+
Behavioral Economics - p34
Game theory & Prisoner's Dilemma - p34+
Externalities - p35
Trade & Quotas - p37
Taxation & Laffer curve - p38+
Deadweight Loss - p40
Tax Systems - p41

Chapter 3 - Government and the Economy

Externalities - p43+
Government solutions to externalities - p48+
Government makes market economies possible - p51+
Property Rights - p54
Public Goods & Free Riders - p57+
Redistribution - p59
Equity vs. Efficiency - p60

Chapter 4 - Government and the Economy II

Government inefficiency - p63
Gov't allocation vs. private allocation - p67
Effects of regulation - p69+
Economic Thinking - p72
Deadweight loss - p74
Taxes as regulation/Effects of taxation - p74+
Laffer Curve - p76
Effect of minimum wage - p77+

Chapter 5 - Economics of Information

Adverse Selection - p82+
Economics of Discrimination - p83+
Assymetry of Information - p84+
Screening mechanism - p89
Equality of information - p90+
Branding - p91
Perfect Competition - p92
Monopolistic Competition/Oligopoly - p92
Signaling - p93+

Chapter 6 - Productivity & Human Capital

Fantasy Spending - p98
Income Inequality - p99
Human Capital - p99+
Scarcity - p100
Human capital and job creation - p102+
Displacement - p104+
Productivity - p107
Standard of Living - p108
Rule of 72 - p109
Income Inequality - p111+
Zero sum game - p115

Chapter 7 - Financial Markets

Purposes of financial market - p118
Rules for investing - p119
Basis of financial instruments - p120+
Efficient Market theory - p129
Investment guidelines - p132+
Diversification - p134

Chapter 8 - The Power of Organized Interests

Incentives for interest groups - p138
Consumer/Producer Surplus & Taxes - p142
Price Ceilings and Floors - p142
Laissez faire economics - p143
Trade - p144+

Chapter 9 - Keeping Score

**Is not micro, will not be part of this course**

Chapter 10 - The Federal Reserve

**Is not micro, will not be part of this course**

Chapter 11 - Trade and Globalization

Benefits of trade - p187+
Globalization - p189
Economic interdependence - p189+
Absolute & Comparative Advantage - p190+
Losers from trade - p191
Protectionism - p193
Trade raises real income - p195
Tariffs - p195
Cultural Homogenization - p199
Externalities from trade - p200
Sweatshops - p201
Comp Adv of poor countries - p201

Chapter 12 - Development Economics

Wealth & Poverty of nations - p206+
What makes one country wealthy whan another isn't? - p208+
Property Rights - p209

Study Questions: (Feel free to answer here if you'd like some feedback from me and/or peers) :)

1) How has competition affected your life and in what ways? (p37) Are you better or worse off than your parents?

2) Name 5 underground economies created as a result of taxes. (p37)

3) "We know that people seek to make themselves better off, however they may define that. Our best hope for improving the human condition is to understand why we act the way twe do and then plan accordingly. Programs, organizations and systems work better when they get the incentives right." (p42). To predict outcomes in economics, we need to understand human behavior. What are some other "laws" of human behavior (like self-interest) that might help us understand the workings of the economy better?

4) On p56, the author describes government's institutions that "form the tracks on which capitalism runs". Find 5 of these institutions and describe their role in facilitating capitalist rules.

5) What are some other examples of information assymetry? (p85)

6) In a competitive market, there should be no profits. T/F and why?

7) What human capital do you possess?

8) Does our free-market economy make poverty inevitable?

Good luck! Have fun! :)

Saturday, October 21, 2006

A New School Year...New AP Students!


If you made it here, it means that you got the letter informing you of the book you need to read before coming to class in January. Believe it or not, this is not meant to torture you - it's meant to give us more time on the much more difficult material we need to cover before the exam in May. Lots of people from last year said that they would have LOVED the chance to read a book in order to have more time to concentrate on the hard stuff.

Okay, maybe they wouldn't have loved it. But they said they would have appreciated the increase in time.

This blog is set up for my AP Econ students to chat and respond to problem sets that I post. You can also respond to each other. I am considering setting it up so you all have posting privileges - I think it might make it easier to repond to everyone else. Then again...well, I'm just not sure. We'll see how things go.

The links over on the side might be helpful as we go through the semester, and your posts here will be part of your grade in class.

As for the book - I have added some links to info on the book. As of today, I still have at least 7 books available for checkout. You may keep them until January, just be careful with them, and you can't write in them. The book is "Naked Economics" by Charles Wheelan, and you can skip the two chapters on macro stuff (off the top of my head, I'm not sure which ones these are, check the letter). :)

I'll post the study guide and maybe even some problem questions within a few weeks. You may also, as you go through the book this semester, borrow my copy for a day (and night) and see what I have highlighted as important and any notes I've put in there - that might help you.

The most important part is getting the information, not my "tricking" you into reading parts of the book that aren't necessarily important. We will discuss/quiz the first days of class in January - but you do need to have the reading done before then. It would be virtually impossible to read it the first day of classes.

Enjoy! It's actually a very well-written lay book that is pretty easy to read...especially for an econ book. :)

Feel free to post comments - questions - concerns. Come on by if you have questions, or email me through the school email (I'd post it here, but I hate spam...darn web crawlers...)


Friday, August 18, 2006

August already!

Well, you will all be heading off very soon - if you haven't already. I need to update this for this year's students, so old posts will be deleted/privatized very soon.

Thanks for a great semester - good luck!

Thursday, July 27, 2006


They actually mailed me copies of the scores for you guys! All in all, 11 out of 17 got a "3" or higher. Lower than normal, but there's been a lot of chatter from other AP Econ teachers that the test was harder than normal this year, and their numbers are lower, too.

There were some surprises regarding scores, but I have to say - I'm proud of each and every one of you. It's a tough course, and virtually impossible to truly prepare you 100% with the time I have to teach you very difficult material.

The breakdown was:
One "5"
Five "4"'s
Six "3"'s
Three "2"'s
Two "1"'s

Oh, and by the way - the paper clip guy got his house:

Good luck, to all of you - and just to leave you with a picture or two:

(Yeah, I know Annie will love this one...) :)
Have a terrific summer - good luck!

Monday, July 10, 2006


Okay - I heard from other teachers that some of their students got their scores already. If you feel like sharing, let us know how you did! Or - email me!

I hate having to wait until September. That sucks. :

Have a terrific summer - have fun starting school up soon! :)


Wednesday, June 07, 2006

It's Summer!

Hey all! Congratulations on graduating - have a terrific summer!

If you feel like sharing, let me/us know how you did on the national exam in a comment. I'll use this site again next year with brand new AP Econ students to torture - and by then, I'll know some Calc, too! How amazing!

See ya around -


Wednesday, May 24, 2006

The Great Paper Clip Experiment

Here's the link to the Red Paperclip site: Just in case you want to follow it along.

If you want to follow your paperclip here on the blog, feel free. :)

Sunday, May 14, 2006

It's done!

Take a deep breath, pat yourself on the back. The test is over!

You have one week to get caught up on re-tests. I'm closing the retest books on Friday 5/19. You can turn your book in at any time.

You'll get your final project by the end of the week. Oh, and the paper clip thing.

Extra credit posts? Let's see where we go for the next few weeks.

Relax - you all worked very hard and did a great job. Now we just need to wait for the grading!

They have posted the FRQ online, but I haven't taken the time to really read through them yet. Our printer here at home is on the fritz and I always do better on paper copies. Go figure.

Wednesday, May 03, 2006

Some stuff

I sent all the notes to you via email - here are a couple links regarding rent:

And a couple of questions on labor inequalities:

1. Explain the difference between poverty defined absolutely and poverty defined relatively. Which definition is the basis of the poverty line?

2. Suppose each family in the US earned an equal money income. What would be the effect?

3. We have assumed that labor is supplied by individual workers acting competitively. In some markets, however, the supply of labor is determined by a union of workers.
a. Explain why the situation faced by a labor union may resemble the situation faced by a monopoly firm.
b. The goal of a monopoly firm is to maximize profits. Is there an analogous goal for labor unions?
c. Extend the analogy between monopoly firms & unions. How do you suppose that the wage set by a union compares to the wage in a competitive market? How do you suppose employment differs in the two cases?

4. College students sometimes work as summer interns for private firms or the government. Many of these positions pay very little or nothing.
a. What is the opportunity cost of taking such a job?
b. Explain why students are willing to take these jobs.If you were to compare the earnings later in life of workers who had worked as interns and those that had taken summer jobs that paid more, what would you expect to find?

5. Economist June O’Neill argues that “until family roles are more equal, women are not likely to have the same pattern of market work and earnings as men.” What does she mean by the “pattern” of market work? How do these characteristics of jobs and careers affect earnings?

I'll post some more reminders later on the earlier stuff for the national exam next week.


Tuesday, May 02, 2006

Graphs you need to know -

Here's that link for the Micro graphs you need to know for the exam:

Monday, May 01, 2006

Factor Markets

Here are some of the online notes for factor markets: on derived demand

On hiring workers:

1) In 2002, Boeing reduced employment by 33,000 workers. What does this decision reveal about how it viewed its MRP and MRC? Why didn't Boeing reduce employment by more than 33,000 workers? By less than 33,000?

2) Florida citrus growers say that the recent crackdown on illegal immigration is increasing the market wage rates necessary to get their oranges picked. Some are turning to $100,000 to $300,000 mechanical harvesters known as "trunk, shake and catch" pickers, which vigorously shake oranges from the trees. If widely adopted, what will be the effect ont eh demand for human orange pickers? How does a national day of protest, such as today (5/1/06), affect the labor supply and demand?

3) As output rises, which MRP curve declines more quickly - the MRP of the perfect competitor or the MRP of the imperfect competitor? Make sure to explain your answer.

4) In April of 2000, average hourly earnings in manufacturing rose to $13.71, up from $9.80 of ten years earlier. All else equal, such an increase in wages would be expected to reduce the demand for labor, and employment should fall. Instead, the demand for labor has increased dramatically with more than 20 million jobs being created during the decade of the 1990's. How can you explain this seeming discrepancy?

5) Derek Jeter was the highest paid professional baseball player in 2000. Who is the highest paid baseball player today? How much of an increase has there been since Jeter signed his contract? Are baseball players paid too much? Why or why not? Is there an explanation for why salaries have increased so much in recent years? Who sithe highest paid professional basketball player today? Do baseball players make, on average, more or less than basketball players? Why? What does this have to do with the ideas of labor markets that we've talked about since Friday?

Sunday, April 30, 2006

I know, I know...

I've been terrible posting new problems for you. I have excuses - but they're not good enough. I'll get more on here tomorrow to challenge your brain. I've already promised - two weeks (less than that!) and we'll kick back and relax a little bit.

All right - something to think about. Go to this link (open it in another browser):

These are the three short answer questions from last years' exam. Skip the first one - that deals with externalities, which we will get to this week. See what you can do with the second and third ones, though. You have the info to work with those.

In fact, #2 can be answered completely here. Any takers?

Thursday, April 20, 2006

Monopoly/Monopolistic Competition

Some info for you! Okay - we're down to less than 4 weeks to the exam. The plan is to test next Thursday on Unit 3, since Wed is out with senior interviews and the blood drive. I'm going to use this time to post A LOT of sites that might help you study for the exam. My hope is that I understand this site enough that I can post them permanently over on the side margin so they don't disappear in the posts. **Edit**: If you scroll all the way to the bottom, there is a sidebar that for some reason isn't posting on the side - I added a bunch of links in there. :)

HOLY COW! I just double checked, and I have ONE LESS WEEK than I thought! We don't have four weeks - we have LESS THAN THREE WEEKS! OH MY GOODNESS!

{Take a deep breath}


I thought things looked off on my planning book.



This means FOCUSED INTENSITY is the name of the game. I know you have other classes, I know you have other AP exams. Luckily, our exam isn't until the second week of national exams.

I will post answers to the study guide on a steady basis (I'll set up a calendar for practice). I have the big holy answer book, but your ultra-intelligent teacher did not order a book for herself with the questions, so I won't be able to answer any specific questions until I can see the book. Sorry. :( I have little hand outs with the answers, too - I'll get those out to you later.

Here are some new links:

Price Discrimination: We didn't have time to go into this in detail. Your book also has some information that might be helpful:

A review on efficiency:

Monopolistic Competition: Make sure to scroll down on the page. :)

And some more on Mon. Comp (just realize that you can't call it "competitive competition" on the national exam):


Okay - and some questions for you:

Actually, go back to the last post - there's still quite a few left that you guys haven't answered. :)


Friday, April 07, 2006

And a few more...

Hey there -

I'll check in on occasion over spring break if you have any questions, or just email me. If you've been confused, please spend some time with PC or M so that you can feel more caught up - and if anyone else can answer a peer's question, that's always helpful! :) Most of all - have a nice, relaxing break. You deserve it.

You should be able to:
~recognize a PC graph if it is pictured in front of you but unlabeled
~understand how price is "determined" in PC
~be able to draw accurate industry & firm graphs (completely and appropriately labeled)
~show what happens in the long run if there are short run profits or losses

Introduction to Monopoly. It starts with info on copyright, trademark, etc that is useful for possible questions on the test.
(Price searcher = price taker) This is on MR & D curves and compare PC, M & MC (which we haven't gotten to yet, but shouldn't be too confusing)
Monopoly graph

The problem with putting problems on the markets on here is that you often need to show the graphs in order to get the idea. So some of these might be easier if you draw a graph - but then again, if you can do it without the graph, on a m/c question you'd be able to cut your timing down. Keep in mind that in the short answers, you WILL need to draw graphs. I promise.

There is a grade for posting from 4-3 to 4-10, but you can get extra credit for posts next week.

Okay - some more things to think over:
1) Consider the delivery of mail. In general, what is the shape of the ATC curve? How might it be different than in isolated rural areas or densely populated urban areas? How might the shape change over time?

2) Singer Diddy has a monopoly over a scarce resource: himself. He is the only person who can produce a Diddy concert. Does this fact imply that the government should regulate the prices of his concerts? Why or why not?

3) Why is the equality of marginal cost and marginal revenue essential for profit maximization in all market structures? Why can price be substituted for MR in the MR=MC rule when an industry is perfectly competitive?

4) In long run equilibrium of a perfect competitor, P = min ATC = MC. Of what significance for economic efficiency is the equality of P and min ATC? The equality of P and MC? Make sure to distinguish between productive efficiency and allocative efficiency.

5) Assume that a pure monopolist and a purely competitive firm have the same unit costs. Contrast the two with respect to (a) price, (b) output, (c) profits, and (d) allocation of resources. Since both monopolists and perfectly competitive firms follow the MC = MR rule in maximizing profits, how do you account for the different results? Why might the costs of a PC firm and a monopolist be different? What are the implications of such a cost difference?

Last, but never least: an option for extra credit to turn in on Tuesday 4/18. It will not be accepted after that date! How mean! :) Do some or all - you can get partial credit.

EC #1:
Suppose that the US textile industry is competitive, and there is no international trade in textiles. In long run equilibrium, the price per unit of cloth is $30. (a) Describe the equilibrium using graphs for the entire market and for an individual producer.

Now suppose that textile producers in other countries are willing to sell large quantities of cloth in the US for only $25 per unit. (b) Assuming that US textile producers have large fixed costs, what is the short-run effect of thesse imports on the quantity produced by an individual producer? What is the short run effect on profits? Make sure to illustrate your answer with appropriate graphs. (c) What is the long run effect on the number of US firms in the industry?

EC #2:
Wow. I really don't want to type all this right now. Go to p344 in your text, and do #1 under "Problems and Applications". If you don't have your texts at home, leave a note here by MONDAY MORNING and I will type it in when I come into work on Monday.

Enjoy! :)


Thursday, April 06, 2006

More Stumpers! :)

1. Explain why the MR facing a competitive firm differs from the MR facing a monopolist.

2. Hey, I never went back to perfect information. What does that mean?

3. Even if PC does not exist, why is it important to the study of microeconomics?

4. Why is the demand curve for a monopolist different from the PC demand curve?

Hmm...I have to go meet your moms & dads. I'll post more tomorrow, and some videos on Monopolies.

See ya!

Friday, March 31, 2006

It's Friday!

Okay - a few more links, and some brain teasers for you.

Here is the PC side by side graphs we used today in class:

PC and an increase in D:

Entry and Exit in PC:

Shut Down rule:

Here's part of an online textbook on PC:

And here is another online text that could help - there are chapter notes, possible overheads, and an online quiz:


And some questions to think about:

1. The licorice industry is competitive. Each firm produces 2 million strings of licorice in a year. The strings have an average total cost of $.20 each, and they sell for $.30. (a) What is the marginal cost of a string? (b) Is this industry in long run equilibrium? Why or why not?

2. Bob's lawn mowing service is a profit-maximizing, competitive firm. Bob mows lawns for $27 each. His total cost each day is $280, of which $30 is a fixed cost. He mows 10 lawns a day. What can you say about Bob's short run decision regarding shut down and his long run decision regarding exit from the market?

3. Your best friend's long hours in the chemistry lab have finally paid off - she discovered a secret formula that allows people to do an hour's worth of studying in 5 minutes. So far, she's sold 200 doses, and faces the following ATC schedule: (Q--ATC) 199 -- $199, 200 -- $200, 201 -- $201. If a new customer offers to pay your friend $300 for one dose should she make one more? Explain.

Have a nifty weekend! :)

Monday, March 27, 2006


Hey guys -

Here is the link to the ppt that Mr. Newy is going to go over with you in class. It's in html format, so everyone should be able to access it.

And no, I didn't write it. :)

Second - check out Sarah's question on sales in the last post. Interesting.

Third - some more links for your economics enjoyment -

Profit Maximization MR/MC stuff:

And part II to that:
This will become more important as we get into the other three types of markets. for basic cost information. There are teacher instructions in the bottom frame that explain what's going on. More costs stuff Costs & Shutdown rule explicit vs implicit costs short run vs long run Long run ATC Types of competition Spectrum of competition

There are a lot more, this guy has tons of info. But...I think that's enough to start with. :)

Note: He does separate oligopoly & cartel, which are together in your book.

Sunday, March 26, 2006

"Day without a Latino"

I had read about this in the Milwaukee J-S on Friday, and Jonathan brought up a great point.

Here's the article:

And here's J0n's comment:

"...there was a article about a peaceful rally in Milwaukee about keeping unregistered migrant workers. If possible, could you possibly put that as one of the forums so we can debate what the economy would be like if we sent all the unregistered immigrants back or if we made them legal US citizens. I personally would think it would be interesting. Thank you."

An excellent point - one that I have a decided opinion on, but will keep my mouth shut so you can think it through. :)

I like these opinion ones. They're awesome to get your brain juices flowing, and your economic reasoning hats on.

I'll check in tomorrow - but will be incommunicado on here until Wed evening. See you in class!


Friday, March 24, 2006


I know there havent' been any new posts this week - there just aren't that many discussion things that go with terms.

Posts this week will be extra credit. I'll get them in Monday morning.

It would be good, though, to revisit the ideas that Jacqui brought up in her comment before:

jacnbox said...
ok, so i was sitting on messenger tonight, procrastinating my homework, per usual, while talking to katie athas. she was writing a persuasive paper for college. it was on the positive effects of minimum wage. even though economists would say any government inference is bad, she still asked me for an argument. here is our conversation:

Katie says:what is one way the raising minimum wage would help the economy

Jac says:it wouldnt. most economists agree. if the government steps into the economy, ex: tariffs, quotas, minimum wage, ceilings and floors, this intereferes with the markets ability to retain or switch equilibrium. raising minimum wage is similar to inflation.

Katie:well that doesn't help my argument

Jac says:i know, im sorry.

Katie says:oh well

Jac says:im trying to think of some bs argument here. what do you have so far as your arguments?

Katie says:i will just have to find something else to babble about

Katie says:minumim wage is not livable, children suffer from it

Jac says:without minimum wage, the economy's equilibrium between supply and demand would change so that a larger gap between social/monetary classes would emerge. essentially, the rich would get richer and the poor would get poorer. already wealthy business tycoons, would then have the ability to use their resource, labor, to its maximum while paying close to nothing. a cashier could clock an 8 hour workday,

Jac says: but only recieve 8 cents. the lack of minimum wage, which is currently unable to support an average family consisting of two adults and two children, would dramatically increase poverty in america. combine this scenario with the increasing need to pay off the national debt, with the temporary solution of printing more currency, and inflation skyrockets. people immigrate to america to live the

Jac says:american dream. without the minimum wage, a standard as to where to start financial support, the dream is shattered.

Jac says:and yes, you can use it. just save the paper, in case i need to use my words again

Katie says:thank you. now my paper is almost done.
9:50 PM, March 23, 2006
jacnbox said...
km, i think you should make my last comment a big post. maybe we can discuss this as a class more.

**********Jacqui makes some really excellent points - great analysis...any comments?

Have a fun weekend...see you Monday!


Saturday, March 18, 2006

This week

I know there's no exciting post this week to get you thinking on what we're actually supposed to be concentrating on...but there aren't that many discussion points on terms.

Malcolm had a good question, though - when you have a holiday like St. Patrick's Day (or any other, really), is that e/affect Micro or Macro (his question was in regards to bars)? I could think of a good argument for either.

What about a bigger holiday - like Easter or Halloween or Christmas?

Have a nice weekend - see you Tuesday. Monday will be time for you to talk with the people in your group about your chapter synopsis/review/whatever you want to call it.

Thursday, March 16, 2006


There's a few other posts here for you to ponder, but the real stuff - for this unit -

Consider the following costs for a pizzaria. They go in order of Q in dozens/TC/VC


a. What is the fixed cost? how do you know?

b. What is the marginal cost per dozen pizzas using TC? What is the marginal cost per dozen pizzas using VC? What is the relationship between the two?

Legalizing Drugs

So, as Jonathon asked...

Why are drugs good for the economy?

What would happen if they were legalized?

This is actually a good micro question, and I'm pretty sure I have a reading on it for later in the unit. Think through the S & D of it - if drugs were legalized, what would happen to the price and why?

Or anything else that Jon thought would be good to discuss. :)

National Debt

Keep in mind - this is macro stuff, and has nothing to do with your test. I'm glad you're interested, though! :)

Inflation is a weird thing. Technically, it's a decrease in the value of your money - something that cost $1.00 last year costs, on average, $1.03 now (at 3% annual inflation). This is a good thing - it allows for growth. But our government has a fear of inflation almost as much as a fear of deflation (like during the Depression).

If inflation rises too fast, the government (the Federal Reserve, who controls our money supply) will step in and cut down on the money supply (usually by changing interest rates) in order to get it under control. There's a fear that hyperinflation could occur - and that's talking about something like 1000% annually (which has happened in the past in other countries).

If we just printed $6 trillion to pay off the debt, it limits the scarcity of money and cuts the value. If there are 6 trillion diamonds on the ground, having one diamond won't mean anything. It's the same idea. So - your money becomes worthless. Literally, if they print that much at one time.

The money is owed to people who have loaned money to the government in the form of Treasury bills & bonds. Those people would get some of that printed money in that case, but it would be limited - $1000 here and $2500 there. As the value of the money people had would drop, prices would rise - and probably quickly. Wages would not keep up with the prices, and we would see layoffs as companies could not keep up with their costs.

And with such a huge influx of money at one time, this would happen quickly.

Only a portion of the money is owed to US citizens - we do owe other countries, also, so the currency would be leaving the country, which is a whole different story.

'Course, this is all theory and may not happen at all. But I don't think that politicians are willing to take the chance.


Monday, March 13, 2006

Question from "Elasticity Stuff..."

Since no one went back to this one, I wanted to make sure to get the info out to you.

This was the question:

Studies have fixed the short-run price elasticity of demand for gasoline at the pump at -.20. Suppose that international hostilities lead to a sudden cut off of crude oil supplies. As a result, US supplies of refined gasoline drop 10%. If gasoline was selling for $1.40 per gallon before the cutoff, how much of a price increase would you expect to see in the coming months?

I pointed out before that you now have the elasticity (-.2, or for our sake, .2), but how do you determine the percentage change in price from the info given?

Remember: elasticity = % change in quantity over % change in price

So - you have elasticity at -.2, the % change in Q as 10, and need the % change in price

What do you need to make the elasticity at .2 when the change in Q is 10? you need 50% -- therefore you would see a 50% price increase - from $1.40 to $2.10, since 50% of $1.40 is $.70.

Comments? :)

Test today!

Well, the scores look really REALLY good!

Average: 74.5 . I know that number scares you, but I am delighted with it! Anytime I can get a C average on a unit AP test, it is AWESOME! Like I've said before, you should not leave that test thinking, "oh, yeah, easiest thing I've ever done...waste of my time, easy A."

Lowest score so far: 60%
Highest score so far: 86%

Ladies and gents, that is excellent. You should be very proud - even with all of the negative comments about how you don't know it and all that jazz, you did a great job. :)

I only wish we could take a break and relax...but we can't. :( Give me one more unit and we'll slow down. A little.

And of course, things will change after the exam.

I have two students that still have to take the test, so I'll show you your scores tomorrow, the tests by the end of the week.

This afternoon, I'll also post some more info on the questions you've had in the blog messages.

From some of the response to the after school meeting - well, I'll do what I can for us NOT to have to meet, but we'll see how unit 3 goes. It is, by far, the most important unit.

Great job, guys!


**almost forgot - you may start retesting as soon as we can go through the test. Because of the end of the quarter next week, all retakes must be done by Friday 3/24! :)

Friday, March 10, 2006

Test Monday

Okay, I won't tell you the countdown to the national test, or how many days behind we are right now. :)

Test - 50 multiple choice questions. Look at the review sheet to help you determine the important things. Know elasticity well. Regular S & D quetsions are on there, too.

I know, my typing needs help tonight. It's been a horrific day and I'm ready to go home.

It is possible that we may need to talk about a required after school meeting. Maybe we could pot luck it - people bring stuff in to share with others. Maybe we could each chip in $5 and get some pizzas. It really depends on how we're doing in Unit three.

But - just an advance notice to get some feedback. Are there any days of the week that would be absolutely impossible? (I'm not talking work schedules, really - if I can get it planned far enough in the future, I'm hoping you could ask off work for one night). Impossible = "I have stuff planned every Tuesday night that cannot possibly be changed".

Like I said - we may not need it. But then again, we might.

There are a number of questions posted after this to get you thinking. Happy studying!

I'll check in throughout the weekend if you have questions.



According to an article in the New York Times, "many Midwest wheat farmers oppose the free trade agreement [NAFTA] as much as many corn farmer support it." (Nov 5, 1993) Assume that the US is a small country in the markets for corn and wheat, and that without the free trade agreement, the US would not trade these commodoties internationally (these are both false, but it makes the questions easier to understand).

a. is the world wheat price above or below the US "no trade" wheat price? (the price where we would choose not to trade with another country)

b. is the world corn price above or below the US "no trade" corn price?

c. Considering both wheat and corn, does NAFTA make US farmers as a group better or worse off?

d. Does it make US consumers better or worse off?


Suppose the government raises $100 million through a $0.01 tax on widgets, and another $100 million through a $0.10 tax on gadgets. If the government doubled the tax rate on widgets and eliminated the tax on gadgets, would it raise more, less, or the same amount of money as before?


If the government imposes a tax on heating oil:

a. Would the DWL on this tax likely be greater in the first year it is imposed, or the fifth year?

b. Would the revenue collected from this tax likely be greater in the first year after it is imposed or in the fifth year?


Agree or disagree, and why?

1. If the government taxes land, wealthy landowners will passt he tax on to their poorer renters.

2. A tax that has no deadweight loss cannot raise any revenue for the government.

3. If the government taxes apartment buildings, wealthy landlords will pass the tax on to their poorer renters.

4. A tax that raises no revenue for the government cannot have any deadweight loss.


Okay, the market for piza is characterized by a normal downward sloping demand curve and an upward sloping supply curve.

a. Suppose the government forces each pizzaria to pay a $1 tax on each pizza sold. What happens to CS, PS, tax revenue & DWL in comparison to the same areas before the tax was imposed?

b. If the tax were removed, pizza eaters and sellers would be better off, but the government would lose tax revenue. Suppose that consumers and producers voluntarily transferred some of their gains to the government. could all parties (including the government) be better off than they were with a tax?

Consumer Surplus

If you were to consume 5 hamburgers at Wendy's, would you enjoy a consumer surplus?


Okay, this one was giving people grief today. My hint is to graph it out. Basic supply & demand. And yes, Nicki, I *was* confusing you today - I realized why during lunch. I was looking at it upside down (I know, it's terrible of me). Make sure to graph the correct quantity and price - with demand, at the lowest price there will be more than one person wanting it. In supply, at the highest price there will be more than one person wanting to produce it. That's the basics of the Laws of Supply & Demand.

There are four consumers willing to pay the following amoutn for haircuts:

Jerry-$7, Oprah-$2, Sally Jessy-$8, Montel-$5

There are four haircutting businesses with the following costs:

Firm A:$3, Firm B:$6, Firm C:$3, Firm D: $2

Each firm has the capacity to give only one haircut. For efficiency, how many haircuts should be given? Which businesses will cut hair, and which consumers should have their hair cut?

Monday, March 06, 2006

Elasticity stuff...

You guys are doing very well on the questions from earlier postings! I can't help but notice, though, that some questions are very sad because they're being ignored. ;) Also, two of them may be easier to answer now that you have more info. Any takers?

1. Other thing equal, an increase in the number of buyers for a product or service will increase demand. Baby diapers and retirement villages are two products designed for different population groups. The US Census Bureau website, , provides population pyramids (graphs that show the distribution of population by age and sex) for countries for the current year, 2025, and 2050. View the population pyramids for Mexico, Japan, and the US. Which country will have the greatest percentage increase in demand for baby diapers in the year 2050? For retirement villages? Which country do you think will have the greatest absolute increase in demand for baby diapers? For retirement villages?

2. Taxicab fares in most cities are regulated. Several years ago, cab drivers in Boston obtained permission to raise their fares 10%, and they anticipated that revenues would increase by about 10% as a result. They were disappointed, however. When the commissioner granted the 10% increase, revenues increased by only about 5%. What can you infer about the elasticity of demand for taxicab drivers? What were cab drivers assuming about the elasticity of demand? (You may not be able to answer this one without looking up other ways to determine elasticity in your book) :)

3. Studies have fixed the short-run price elasticity of demand for gasoline at the pump at -.20. Suppose that international hostilities lead to a sudden cut off of crude oil supplies. As a result, US supplies of refined gasoline drop 10%. If gasoline was selling for $1.40 per gallon before the cutoff, how much of a price increase would you expect to see in the coming months?

Friday, March 03, 2006

Elasticity and Price Ceilings/Floors

I haven't decided yet what we'll do for the re-quiz - you may have two chances, I'm not sure. The reason why the application quizzes are more difficult is because the assumption is made that you know and understand the material - there's a difference between knowing it and being able to apply it, and the application can get really tricky. This is a good way to prepare for the national exam - because I would estimate it is about 85% application. They assume that you know the material - they are asking you to apply it.

The info next week on taxes and trade involve manipulating the S/D graphs. Colored pencils may be helpful.

Some more questions for you to think about:

1. In an effort to 'support' the price of some agricultural goods, the Dept of Agriculture pays farmers a subsidy in cash for every acre that they leave unplanted. The Agriculture Department argues that the subsidy increases the 'cost' of planting and that it will reduce supply and increase the price of competitively produced agricultural goods. Critics argue that because the subsidy is a payment to farmers, it will reduce costs and lead to lower prices. What argument is correct? Is this a price ceiling or a price floor in action? Explain.

2. Lovers of classical music persuade Congress to impose a price ceiling of $40 per ticket. Does this policy get more or fewer people to attend classical music concerts?

3. The government has decided that the free-market price of cheese is too low. If the government imposes a binding price floor in the cheese market, what would that do to the price and quantity of cheese sold? Is there a surplus or a shortage?

(there are more questions on older posts below)

Extra credit: Answer this to turn in on Monday (at least I'll know who's reading the blog! :) ) This will be worth...let's missing homework assignment (if you have a zero in there) or, if you have all homework in, +10 on a quiz. How's that? --> Suppose the total demand for wheat and the total supply of wheat per month in the Kansas City grain market are as shown (The chart didn't work, so use it this way):
Th. of bushels demanded/Price per bushel/Th. of bushels supplied

a. Graph the demand & supply for wheat. Make sure to label all parts correctly.
b. Suppose the government establishes a price ceiling of $3.70 for wheat. What might prompt the government to establish this price ceiling? Explain the main effects and demonstrate your answer graphically.
c. What if the government established a price floor of $4.60 for wheat? What will be the main effects of the price floor? Show it on your graph.

Tuesday, February 28, 2006


When you come back from the Senior Trip, we will have 76 days left to the exam.

Just to give you that warm fuzzy feeling about all we have to do before then.

No puking, please. This will be fun!

FUN! FUN! :)

More on Elasticity

Remember - posting grades go from Monday morning to Sunday night. So....if you haven't posted by 7:30 am Monday morning, you're outta luck for the week. :)

Nate - post comments to others, or answer one of the other questions! I've been trying to get a variety of questions on there to answer...lame comments are not allowed. Well, they're allowed, but they don't count. Like commenting on 80's hair. Unless you relate it to demand.

Remember - short run = immediate change while long run is what will happen in the future because of a given change.

Okay - elasticity, revisited:

1. If demand is elastic and price is raised, what happens to total revenue? How can you prove this?

2. Why is industry supply more elastic in the long run than in the short run?

3. If price were increased from $40 to $42 and quantity demanded fell from 50 to 45, calculate elasticity, state whether demand is elastic, unit elastic, or inelastic; and find out how much total revenue was when price was $40 and $42.

(Okay, so those are simple. Or rather, they should be simple)

Let me find some brain stumpers... umm..

4. Other thing equal, an increase in the number of buyers for a product or service will increase demand. Baby diapers and retirement villages are two products designed for different population groups. The US Census Bureau website, , provides population pyramids (graphs that show the distribution of population by age and sex) for countries for the current year, 2025, and 2050. View the population pyramids for Mexico, Japan, and the US. Which country will have the greatest percentage increase in demand for baby diapers in the year 2050? For retirement villages? Which country do you think will have the greatest absolute increase in demand for baby diapers? For retirement villages?

**this is a question I used to use as an internet assignment. Remember, you must find the *PERCENTAGE CHANGE* in demand for baby diapers and retirement villages, then the *ABSOLUTE CHANGE* afterwards. There is a difference. Can you get one of the answers?

5. Joe loves Mello Yello and will spend $10 per week on it no matter the price. What is his price elasticity of demand for Mello Yello?

6. Since some of you were confused on this one: which of the two items in each part have the higher price elasticity of demand? (and why, of course)
a. oranges or Sunkist oranges
b. car or salt
c. foreign travel in the short run or foreign travel in the long run

Pick & choose, answer one, a few, or all. The more you work on answering, the better you will understand it.

Have fun tomorrow -


Thursday, February 23, 2006


Some of you looked confused on the changing elasticity of a straight line with "unchanging" slope. Here's an example - unfortunately, I can't draw it here, but assume that it is a downward sloping, unit elastic curve (it looks like a regular demand curve).

Because of the differences in quantities, even if the change in price stays the same, the percentage change in Q will differ along the demand curve.

So - if the change from $10 to $9 results in a change in QD of 1 to 2:

2-1/(2+1)/2 over 9-10/(9+10)/2 = 1/1.5 over 1/9 = .66/.11 = 6 = elastic

But, further down the curve, as the price changes just one dollar, the QD's are different, so the percentage change is different. For example, further down the same demand curve, if the price fall from $6 to $5, the QD rises from 5 to 6:

6-5/(6+5)/2 over 6-5/(5+6)/2 = 1/5.5 over 1/5.5 = .18/.18 = 1 = unit elastic

Then, even further down the same demand curve, the QD's are also different. For example, when price falls from $3 to $2, the QD rises from 8 to 9:

9-8/(9+8)/2 over 3-2/(3+2)/2 = 1/8.5 over 1/2.5 = .12/.4 = .3 = inelastic.

Even though the change is $1 in each part of the curve, and even though the QD is only changing by 1 each time, because of the law of demand and the fact that you're looking for percentage change, the elasticity can be different in different parts of the curve.

Good job on the three in the previous post - you have the changes down really good there.

Other things to tease your brain:

1. When would you want to own a business that sells price-elastic products? Why?

2. In 2000, cattle were selling for 69 cents a pound, up from 61 cents a year earlier. This was despite the fact that supply increased over the year.

3. The rent for apartments in New York City has been rising sharply. Demand for apartments in New York City has also been rising sharply. This is hard to explain, because the law of demand says that higher prices should lead to lower quantity demanded. Do you agree or disagree? (and, as always, explain)

4. Taxicab fares in most cities are regulated. Several years ago, cab drivers in Boston obtained permission to raise their fares 10%, and they anticipated that revenues would increase by about 10% as a result. They were disappointed, however. When the commissioner granted the 10% increase, revenues increased by only about 5%. What can you infer about the elasticity of demand for taxicab drivers? What were cab drivers assuming about the elasticity of demand? (You may not be able to answer this one without looking up other ways to determine elasticity in your book) :)

And a tougher one, just to strain your brain even more:
5. Studies have fixed the short-run price elasticity of demand for gasoline at the pump at -.20. Suppose that international hostilities lead to a sudden cut off of crude oil supplies. As a result, US supplies of refined gasoline drop 10%.
If gasoline was selling for $1.40 per gallon before the cutoff, how much of a price increase would you expect to see in the coming months?

Any questions from you?

Monday, February 20, 2006

S & D

Okay - I know some of you are getting this down perfectly, but some of you are still super-confused. Some things to think about (always make sure to describe your answer with shifts in S & D curves (since you can't draw on here) and what happens to P & Q with those changes):

1. During the year 2000, Orlando, FL was growing rapidly, with new jobs luring young people into the area. Despite increases in population and income growth that expanded demand for housing, the price of existing houses barely increased. Why?

2. The US government administers two programs that affect the market for cigarettes. Media campaigns and labeling requirements are aimed at making the public aware of the health dangers of cigarettes. At the same time, the Department of Agriculture maintains price supports for tobacco. Under this program, the supported price is above the market equilibrium price, and the government limits the amount of land that can be devoted to tobacco production. Are these two programs at odds with respect to the goals of reducing cigarette consumption?


Or, use S & D analysis to explain this:

Why would someone pay this much?


Or, this:

(Swear to God, if you ask who David Gilmour is, I might scream... :) )

Why would someone pay that much?


I'll post more as I read through your comments. Enjoy!

Friday, February 17, 2006

Equilibrium + Act. 15 & 16

I just sent out the notes on equilibrium from Wednesday, so check your inbox. They aren't long. Chapter 4 can help, too.

I've posted some in the comments sections to guide you along. Remember - two posts per week. I'm going to print the comments on Monday morning to grade. If you prefer, you could post in your own blog, but you might want to zap me an email to let me know you did that as a post.

For Act 15 Part B => It gives you something that has happened, and you need to determine what will happen to supply or demand of the good listed. So - the example they give is that a hurricane destroyed the apple crop in Connecticut. First, from the info given, would it affect supply or demand of the good for each number? Second, what would then happen to the price and quantity of that good? (HINT: draw in the graph to help you determine this)

So - for #7 on p. 76. If the apples in CN are destroyed by a hurricane, what would happen to apples in Boston? Supply or demand? Look for the first shift {Supply would decrease}. Draw in a new supply curve to the left of the one on the graph as the shift in supply. Compare the first equilibrium price and quantity to the second. What happens to price? {Increase} What happens to quantity? {Decrease}

Then, do #8. The different numbers do not necessarily go in order (so you don't have to assume that what happened in #7 leads to what happens in #8).

For Activity 16:

Each "Figure" goes together (use "figure 16.1" for all parts under that, "figure 16.2" for all parts under that, etc).

For the first one - it talks about a new fertilizer, etc etc. Read through the whole thing. Then, look at the graphs and go down the column. So for the first graph, for potatoes: How does the new fertilizer affect potatoes? Does it change demand? {No, so circle the dash for demand, showing no change} Does it change supply? {Yes - it increases supply, so circle the "up" arrow for supply and draw in the new supply curve} What happens to price? {Down, so circle the "down" arrow} What happens to quantity? {Up, so circle the "up" arrow} .

Then, go on to the next column - "Bread". Use the information you have on potatoes, so assume that the price of potatoes has dropped and the quantity has increased to determine the changes in bread. After that, go on to "Wheat" and so on.

Try to finish through 16 by Monday! :)

Tuesday, February 14, 2006


Here is the link for the animated gif file for the determinants of supply:

Some questions for you - ideas for discussion. And please feel free to answer others, too!

Post your own questions from class if you want!

1. Give one example from actual firms or industries for each of the factors that cause a change in supply.

2. Why does the supply curve slope upwards?

And some supply & demand questions:

3. If you were a seller, why would you want to limit supply - either by keeping out new market entrants or by establishing production quotas? Why would you hate that if you were a consumer?

4. If marijuana were legalized, what would happen to the supply and demand curves for the drug?

Always make sure to explain your answers! :)

Demand, revisited

I'm working on getting people posting privileges - I should be able to make it so that anyone who is in the class can start a new post.

Regarding some of your comments on the questions on demand:

#3 --> If an apple can substitute for a pear (assuming it doesn't matter to you which one you eat), which is the normal good and which is the inferior?

Or, for those of you who are not "food minded", if it doesn't matter to you whether you drive a BMW or a Lexus, which is the inferior good?

The question is not asking if an inferior good CAN be a substitute for a normal good - it's asking if two normal goods CANNOT be substitutes for each other.

What does it mean to be an inferior good? What does it mean to be a normal good?

Sunday, February 12, 2006

The World of AP Econ

The World of AP Econ

Retesting --

In case you didn't catch this before, you can retest as many times as you want (as many tests as there are) before the next exam. They are all multiple choice, different questions, fewer questions. I will take the higher test grade regardless of how many times you take the retests.

Crandall - sorry, but the test is within your lifetime. In fact, very close! Mwahahahahaaa!

Tomorrow - Supply. I swear. We're going to get to it tomorrow.

And I *will* figure out how to post your comments right on the main page.

Tuesday, February 07, 2006


My intent for this is to allow you the chance to ask questions you may not have had time for or wanted to in class. You can also comment on information if you prefer, or if you don't have questions. This will become required by next week - 2 posts per week. They will go in as "comments", and will be able to be viewed by everyone else, hopefully stirring up some discussion. "Week" will be defined as Monday 12:00 am through Sunday 11:59 pm. And yes, you can make them both at the same time if you need to - but they must be substantially different. And yes, you may answer someone else's question. I may not check daily, so feel free to (PLEASE!) answer someone else's questions! :)

Today, we looked at what constitutes Demand and the difference between quantity demanded and demand. This is really important - I know it seems trivial, but the difference is something that they've looked at on the national exam - and if you're writing your essay and you use the wrong one, you will not get the point for it.

Here is the animated .gif I used in class today:

And here is what you'll look at tomorrow:

We'll go over them in class if I'm here tomorrow, if not, then we'll go over them on Thursday.

So - a question for you. Let me see...umm... We'll go for three. See what you can do with these. Do you agree or disagree, and why?

1. The price of a good rises, causing the demand for another good to fall. The two goods are therefore substitutes.

2. The price of good A falls. This causes an increase in the price of good B. Goods A and B are therefore complements.

3. Two normal goods cannot be substitutes for each other.

What do you think?

Countdown: 99 days to the exam

That's calendar days, btw.

I got your review books in, and they look pretty good. My brain was obviously not working too great, because I ordered 19 - enough for one for each of you, but I don't have one to go over the questions with you. I, of course, get the answers, though. So I need a little time to go through them. I'm thinking you won't need them until we get closer to the exam, anyway.

Other review book suggestions:

Be careful on getting used ones - although they may be cheap, make sure they are within the last three years or so, and check to see that they haven't written in them too much!