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, http://www.census.gov/ipc/www/idbpyr.html , 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: http://www.reffonomics.com/determinatesofsupply.html

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: http://www.reffonomics.com/demand1.html

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!