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 that...it 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! :)

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Forward

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! :)

A New School Year...New AP Students!

Welcome!

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...)

KM

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!

Scores!

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: http://oneredpaperclip.blogspot.com/

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!

Kris

Scores?

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! :)

KM

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 -

KM

The Great Paper Clip Experiment

Here's the link to the Red Paperclip site: http://oneredpaperclip.blogspot.com/2005/07/about-one-red-paperclip.html Just in case you want to follow it along.

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

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.

Some stuff

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

http://www.reffonomics.com/inframarginalrent.html
http://www.reffonomics.com/pureeconomicrent.html

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.

KM

Graphs you need to know -

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

http://www.reffonomics.com/micrographs7.swf

Factor Markets

Here are some of the online notes for factor markets:

http://www.reffonomics.com/deriveddemand.html on derived demand

On hiring workers: http://apecon.us/mrpmfc.gif

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?

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): http://www.collegeboard.com/prod_downloads/ap/students/economics/ap04_frq_micro.pdf

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?

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}

Okay.

I thought things looked off on my planning book.

Crap.

Okay.

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:
http://apecon.us/monopolypricediscrimination.gif

A review on efficiency:
http://www.reffonomics.com/economicefficiency.html

Monopolistic Competition: Make sure to scroll down on the page. :)
http://www.reffonomics.com/Monopolistic_Competition.html

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

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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. :)

KM

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

Monopoly:
http://www.reffonomics.com/monopoly1.ppt
Introduction to Monopoly. It starts with info on copyright, trademark, etc that is useful for possible questions on the test.

http://apecon.us/monopolyperfectcompetition.gif
(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)

http://www.reffonomics.com/monopoly3.html
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?


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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! :)

KM

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!

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: http://www.reffonomics.com/perfectcompetition2.html

PC and an increase in D:
http://www.reffonomics.com/perfectcompetitionincreaseindemand.html

Entry and Exit in PC:
http://www.reffonomics.com/entryexit.html

Shut Down rule:
http://www.reffonomics.com/shutdownrule.html
http://www.reffonomics.com/shutdown3.html

Here's part of an online textbook on PC:
http://www.howardcc.edu/social_science/micropdf/unit-6.jb.pdf

And here is another online text that could help - there are chapter notes, possible overheads, and an online quiz:
http://william-king.www.drexel.edu/top/prin/txt/Comp/Ch8ToC.html


~~~~~~~~~~~~~~~~~~~~~~~~~~

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! :)

Links

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.

http://www.reffonomics.com/perfectcompetition/frame.htm

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: http://apecon.us/allmeroth1aa.gif

And part II to that: http://apecon.us/allmeroth2aa.gif
This will become more important as we get into the other three types of markets.

http://www.reffonomics.com/costs2/frame.htm for basic cost information. There are teacher instructions in the bottom frame that explain what's going on.

http://www.reffonomics.com/costs/frame.htm More costs stuff

http://www.reffonomics.com/shutdown2.html Costs & Shutdown rule

http://apecon.us/explicitandimplicit.gif explicit vs implicit costs

http://apecon.us/longrunshortrun.gif short run vs long run

http://www.reffonomics.com/longrunatccurve.html Long run ATC

http://www.reffonomics.com/typesofcompetition.html Types of competition
http://www.reffonomics.com/spectrumofcompetition.html 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.

"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:

http://www.jsonline.com/story/index.aspx?id=408736&date=3/16/2006

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!

KM

Questions

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!

KM

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.