MNOTES1CHAPTER 1Objectives of this chapter:1. Define economics

2. The student will be able to differentiate positive economics versus normative economics.

3. The student will be able to develop a systematic method for analyzing economic problems.

4. The student will be able to apply definitions of economic efficiency, equity, and liberty.

MICROECONOMICS - The branch of economics that examines the functioning of individual industries and behavior of individuals decision-making units, that is, business firms and households. Pg 7

ECONOMICS is the study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided. (Pg 2) Economics studies decision making regarding the allocation of scarce resources in individual households and firms to satisfy human wants.

1. [Who uses resources to produce goods and services.?]

Resources are goods and services that are used to produce other goods and services. Resources are: Natural, labor, capital, entrepreneurship. All these resources are used to produce goods and services within a specific time frame. Time may be the ultimate constraint faced by individuals and economies. All economies have these resources but not necessarily in the same quantities. The resources are scarce because human wants are unlimited. The goods and services people want far exceed any nations productive capacity to produce them.

Four characteristics used to describe entrepreneursA. Entrepreneurs view change(globalization) not as a obstacle but as a opportunity.B. Entrepreneurs exploit innovation to create opportunity.C. Entrepreneurs build and grow companies to bring their innovation to market.D. Entrepreneurs take significant calculated, personal risks in building their companies. Main Street Economist June 2003

AThe U.S. Stays Out of the Way of Entrepreneurs@ The Regional Economist Oct 04Entrepreneurship and Policy Environment Review St Louis m/Ap 2006

2. [Give an example of each type of resource.]

3. [Now make a list of some things produced with these resources.]

AN ECONOMIST SHOULD BE ABLE TO:I. IDENTIFY PROBLEMS

NORMATIVE VERSUS POSITIVE ECONOMIC PROBLEMS - Page 9

WHAT SHOULD BE? WHAT IS?

Positive economics - An approach to economics that seeks to understand behavior and the operation of systems without making judgements. It describes what exists and how it works. Pg 8

Normative economics - An Approach to economics that analyzes outcomes of economic behavior, evaluates them as good or bad, and may prescribe preferred courses of action - Pg 8

An example of a positive economic question is, "What is the unemployment rate?" A normative economic question is, "Should the government attempt to lower the unemployment rate? Answers to positive and normative economic questions are based on a set of assumptions.

Positive economic questions ask facts about a current market or our economy. Examples of positive economic questions are: What is the current wage for unskilled labor? , What was the wage of unskilled labor five years ago? , What is the industrial safety level?, What quantity of cocaine is being consumed in the U.S.?, What percent of people are using seat belts?, How many abortions occur in the U.S.?, What is our budget deficit?, How many imported goods do we consume?, How many doctors are licensed each year in our state? What is the inflation rate?, What quantity of money exists in the U.S.?, What is the current level of crime?

4. [List some normative questions that would relate to the above positive economic questions.]

II. People’s Actions are dictated by Incentives5. [List some monetary and non-monetary incentives.]

Monetary Non-monetary(Intrinsic)Income satisfactionPrice LoveWealth HateProfit Revenge

FearSex

18/30/08 Wal-Mart’s Emergency Relief Team WSJ A3 Profit incentive

III. PROCESS INFORMATION ABOUT THE ECONOMY IN A LOGICALLY CONSISTENT MANNER - CRITICAL THINKING.

1. Opportunity cost - Page 2 Super Bowl chatter costs $821.4 million WSJ 1/25/047/12/04 AStep Right Up!@ WSJ 24 hour a day

[Question #1 page 17]7/3/10 Strapped Police Run on Fumes, and Federal Pot-Fighting Cashhttp://www.bls.gov/tus/charts/home.htm

2. Marginal analysis in decision making - Pages 3, 170-171 Identifying things that change as a result of a decision or action and identifying things that do not change as a result of the decision or action.

11/30/09 Get Smart About Product Returns WSJ R7

3. Cause and Effect decision making - Page 3 ceteris paribus 9/7/07 ADope Smokers@ WSJ A14

Cigarette taxMore Punitive to the People 6/2/04

Post Hoc, Ergo Propter Fallacy (after this, therefore because of this) - Page 11

In 1970 known reserves of oil were 531 billion barrels world consumption was 16.5 billion barrels per year. When should the world run out of oil? Current known reserves are about 1.4 trillion barrels

4. Fallacy of composition in decision making - Page 125. Recognizing assumptions6. Incentives

6. [Does anything have a zero opportunity cost?]

7. [Will a heavier stronger football helmet reduce injuries?} Is It Time to Retire the Football Helmet? 11/11/09 WSJ Yes, if you assume ceteris paribus

8. [Current known reserves of oil in the world is 1,342,207,000,000 barrels www.doe.gov Current world usage is 85,085,664 barrels per day. How long will the oil last?]

9. [Assume 10 billion is in estates each year and the economy is contemplating an inheritance tax of 50%. The estimate is the government will take in 5 billion in revenue. Is this correct? What critical thinking skill is important in your answer?]9/7/07 Dope Smokers WSJ1/19/07 Pricier Puffing Wis State Journal3/2/09 Pressure’s on Smokers Wis State Jourwww.tobaccofreekids.org5/14/10 South Carolina, a Holdout, to Lift Cigarette Tax WSJ A4

10. [ARed-meat consumption began declining around the same time that women in large numbers entered the work force@ Women entering the work force caused red-meat consumption to decline. WSJ article (2/20/02) If this conclusion is not correct what critical thinking has been over looked?]

11. [AOnly 38% of U.S. households with children eat their main meal together, according to a 2001 Gallop poll study. In 1990, half of families dined together regularly. Not surprisingly, the cuts of meat whose popularity has declined most sharply are those that take the longest to cook@ WSJ 2/20/02 Which critical thinking skill can explain the above conclusion?]

12. [AEmployees who huddle in groups or around watercoolers to discuss the big game are costing their employees $2.59 every 10 minutes thanks to lost productivity.@ WSJ 1/25/04]

13. [ABut after the incident, the Federal Aviation Administration decided not to require mandatory shoe inspections, apparently finding that the increase in protection would not be worth the added delays.@ Wis. State Journal 12/26/01 Which critical thinking skill does this statement illustrate?]]

14. [Advertisers paid an average of $2 million for 30 seconds of television commercial time on the January 2001 super bowl(2.3 million 1/25/04WSJ, 2.4 1/6/05WSJ, 2.6

million 06, 2.7 million 08). How some of the advertised products fared during 2001. WSJ 1/28/02

Gained or lostMaster Card 27.0 +1.4Dentyne Ice 14.9 +0.6Doritos 37.6 -0.1Visa 50.5 -0.2Pepsi-Cola 14.4 -0.4Budweiser 12.1 -0.5Cingular 7.0 -3.0

A. To determine the true effect that advertising on the Super Bowl had on market share, we need to compare a variety of firms advertising on the Super Bowl with similar products and management.

B. Advertising on the Super Bowl caused market share to decline.

C. Advertising on the super bowl hurt some companies; therefore, no company should advertise on this year=s super bowl.

D. Companies that advertised on the Super Bowl game could have spent the money on plant expansion.

E. The decision to advertise on the Super Bowl should be made if the additional benefits of advertising on the super bowl will exceed the additional costs of advertising on the Super Bowl

Match each of the above statements to the appropriate critical thinking skill listed below:

Opportunity Cost

Marginal Analysis

Ceteris paribus

Post Hoc Fallacy

Fallacy of composition]The seven step procedure below will be used to analyze

normative economic problems in this text.

2 pts Step 1 Specify the parts of the article which are at issue and state the issue clearly. The main

issue should always be stated as a

question. Determine if you are analyzing a private or public policy issue. A public policy issue is one that requires action by government (either local, state or federal). A private policy analysis is one that requires individuals, households, or firms to take action.

3 pts Step 2 Determine the primary area of concern relating to this issue. If this is a current

policy or program, discuss the motivating factor(s) that caused this policy or

program to be adopted. If this is a new policy or program to be adopted, discuss the main

concerns behind this new policy or program. 9 pts Step 3 Discuss potential consequences of answering

this question on efficiency, equity or on other identifiable aspects of individual and social well-being. Thoroughly discuss the

assumptions behind any changes in efficiency, equity, and liberty that may occur. Indicate which part of product market efficiency is affected. (Allocative, technical efficiency or both)

If you have selected a public policy issue start with the following definitions of efficiency, equity, and liberty:Product market efficiency:

1. Right goods and services are produced in the right quantities.

831/10 U.S. Wants Report Card for Cars WSJ B1

A2. The least value of resources are used in producing a good or service. Or the maximum amount of goods and services are produced with the existing resources. T

12. [How does the textbook define efficient markets? Pg 14]13. [Is the definition above consistent with the textbook

definition?]

Equity - Fair access to goods and servicesGoods and services are distributed in accordance with

society=s wishes. In the U.S. we believe fair access to goods and services implies:

1. People who contribute the most to society consume the most

2. People who want the good the most consume it.3. For some goods and services but not all, people who make

little to no contribution to society deserve access to these special goods and services. Society may decide certain groups should have more goods and services and others have less.2/1/10 Heists Targeting Truckers on Rise WSJ A3 Equity

14. [List methods society uses to distribute goods and services based on criteria one, two and three above.]

This implies, people who make little to no market contribution to society deserve some goods and services. The poor will be helped if goods or services are produced at the lowest possible price. Society may decide certain groups should have more goods and services and others have less.

Market Liberty - The freedom to use your resources as you see fit as long as the use of those resources does not significantly affect others.3 pts Step 4 Discuss which assumptions you have made in step

3 you believe to be most valid by placing a S(strong), W(weak), or D(difficult to assess) after each assumption.

15. [Define an assumption.] 1 pts Step 5 Assess the source or sources of this article.

Discuss any bias you perceive in the author of the article. Discuss any preferences you may

have on this issue.

5 pts Step 6 Based on which assumptions in step 4 youbelieve to be most valid, make a decision on the question you posed in step 1. Your grade will be determined on how consistent your

decision is with steps 3 and 4, and how well you have considered alternative viewpoints. You should also consider if the concerns you listed are adequately addressed by the proposed solution in step #2. If you decide to reject this policy, state an alternative solution. If no good alternative can be found, maybe a

second best solution will have to do.

2 pts Step 7 Identify pivotal assumptions that would cause you to reverse your conclusion in step #6.

The seven-step procedure is demonstrated below:

Michael Vincents= parents suggest to him that he should study more hours in the week.

STEP #1Should you study more hours per week?

Step #2Students' grades are not high enough - allocative

efficiency.

16. [Why is subject of high grades an allocative efficiency issue? Application]

Step #3Benefits of studying more hours per week would be to get

better grades(allocative efficiency), and ultimately, perhaps, a better job (technical efficiency and equity)

Benefit of Studying more hours per week

Allocative efficiency Assumptions increases 1. Student values more study time more than the opportunity cost.

2. Grades improve

Technical efficiency 3. Student is more productiveincreases

Equity increases

4. Pay increases as a result of being more productive

Potential Costs of studying more hoursAllocative efficiency decreases

5. Student values more study time less than the opportunity cost.

6. Grades get worse

Technical efficiency 7. Student is less productive as a

decreases Result of studying more hours

Equity decreases 8. Pay does not as a result of being more productive Webster=s dictionary defines

assumption as Aanything taken for granted.@ If I suggest allocative efficiency increases if a student studies more, what factors are taken for granted?

17. [Ask the class two questions: How many people drove to campus today? How many people will drive off campus today? Which is a positive economic question? Which of these responses is based on assumptions? Application]

Step #4 The student should place an S(strong), W(weak), or

D(difficult to assess) after assumption 1-8. Parents and students may assess these assumptions differently.

Now evaluate the assumptions behind each of the benefits and costs.If the student values the additional study time more than the alternative, than place a S (for strong assumption) by assumption #1. Opportunity cost may include many things such as: lost wages, lost friends (people who study more must decline more invitations), less of other leisure activities (T.V., hobbies)etc. If the student believes grades will actually increase as a result of more study, place an S by assumption 2. If the student believes they will become more productive as a result of additional study hours, than place a S by assumption 3. If the student believes that additional productivity will be rewarded in the job market, place an S by assumption 4. If assumptions 1-4 are rated as strong, 4-8 must be rated as weak. Both assumptions 1 and 4 can not be rated as strong, but the both could be rated as difficult. Hint:

When listing assumptions for step #3 look for the counter opposites and place them under costs. If you have assumptions listed under cost, check to see if the counter opposite is listed under benefits.

Step #5Did the person suggesting the increase in study hours

present all sides of the issue? Is the person making the decision comprehending all sides of this issue?

Step #6Now make a decision regarding study hours.

Step #7Which of the six assumptions (1-8) are critical to your

decision? That is, if your rating changed from strong to weak or from strong to difficult, your conclusion in step 6 could change.

If a student decides to study more hours in a week, the potential benefit are higher grades, more personal satisfaction, and better pay. Higher grades is a potential benefit, because some assumptions have to be made. It is not certain that more study hours will increase grades and that higher grades will make the person better off.

If a student decides to study more hours there are costs. The opportunity cost represents benefits from the activity or activities will be foregone as a result of increased study time. Even if the student devotes more time to studying, it is not certain his or her grades will increase. It is possible that, if the student studies more, and grades go up, as a result, the student is worse off nonetheless. For example, as a result of more study time, his girl friend leaves him.

ECONOMIC THEORY - A STATEMENT OR SET OF RELATED STATEMENTS ABOUT CAUSE AND EFFECT, ACTION AND REACTION, IN ECONOMIC LIFE. - Pg 10

III. UNDERSTAND THE CONCEPT OF CETERIS PARIBUS - Pg 11

The bottom line in economic analysis is placed on three crucial issues listed below. - Pg 13-14

Economic Goals1. Efficiency

MicroMacro

Growth Stability Inflation - Hyperinflation

2. Equity Inflation

3. Market Liberty - The right to use our resources as we see fit as long as the use of those resources does not significantly affect others.

The primary assumption most economists make when deciding on issues relating to efficiency, equity, and liberty is rationality. Rationality implies people act in there own best interests, even if these interest do not seem logical to us. It may not be rational for me to smoke, but it can be a rational decision for someone else.

Economic efficiency has two components: 1) microeconomic efficiency and macroeconomic efficiency.

The first principle of microeconomic efficiency is called technical efficiency. (T)

The least value of resources are used in producing the good or service. Or the maximum amount of goods and services are produced with the existing resources. TThe second principle of efficiency is called allocative

efficiency. The correct amount of resources are being allocated to the production of this good or service. Pg 14

GRAPHS AND CHARTS Pg 18-23OBJECTIVES:1. Student should be able to compute the slope of a line or a curve.

18. [What does slope measure?]

2. Student should understand the relationship between slope and marginal analysis.

3. Student should be able to explain the concept of opportunity cost by using graphical analysis.

SCARCITY AND CHOICE CHAPTER 2

Objectives: 1. The student will understand and apply the concept of opportunity cost.

2. The student will understand how efficiency, equity and liberty relate to the production possibilities curve.

3. The student will be able to apply production possibilities curve analysis to their life. (International Trade Page 667-674)

4. The student will be able to differentiate between different types of economic systems.

ALL SOCIETIES MUST ANSWER THREE BASIC QUESTIONS:1. What will be produced?2. How will it be produced?3. To Whom - who will get what is produced? - Pg 26

19. [Does your family answer these questions? If the answer is yes to the previous question, name some goods and services it produces. What criteria does your family use to answer the above questions?]

20. [How does society answer these questions?] - Economic Problem Pg 36

Resources are goods or services that are used to produce other goods and services.

1. Natural Resources2. Labor3. Capital4. Entrepreneurship

To produce any good or service you need resources and time.

21. [Which resource makes the biggest contribution to economic growth?]

22. [Write a list of things you would like to have.]

23. [Why don=t you have all the things on your wish list?]

The object of the economic game is to maximize social welfare. Social Welfare will be maximized when the right goods are produced in the right quantities at the lowest cost to society (Least Resources) and the right people consume them while maintaining market liberty.(Allocative Efficiency) (Technical) (Equity)Right Goods Least Resources Right PeopleRight Quantities{WSJ article 10/22/01}

PRODUCTION POSSIBILITY FRONTIER - A graph that shows all the combinations of goods and services that can be produced if all of society's resources are used efficiently - Pg 31

The assumptions behind the production possibilities curve are: (1) Fixed amounts of resources, (2) Fixed level of technology, (3) A fixed time period, (4) Resources are not equally productive in all areas.

Marginal Rate of Transformation - Pg 34

Opportunity Cost - That which we forgo, or give up, when we make a choice or a decision. Pg 27

APPLICATIONS1. Depression2. Imperfect Competition3. Economic growth Pg 35

A. Capital deepeningB. Labor productivity - skill levelsC. Multifactor productivity growth On Reserve

Jan014. Family Production Possibilities Curve5. Comparative advantage a person or country is said to have a comparative advantage in producing a good or service if it is relatively more efficient than a trading partner. Pg 28 Pg 667-674

A politician suggests increasing military expenditures.

24. [What questions would an economist, who is aware of the

production possibilities concept, ask this politician?]

25. [How does efficiency, equity and liberty relate to the production possibilities curve?]

26. [Four individuals employed by a business that produces computers and software. The computers require assembly and the software requires programming of computer code. Use the following information to construct a production possibilities frontier for this company:

Employees Computers CodeA 8 1.0B 5 5.0C 10 .5D 1 10.0

Put computers on the horizontal axis and code on the vertical axis.]

Economic Methods of Thinking Illustrated by The Production Possibilities Curve1. Opportunity Cost2. Marginal Analysis3. Technical efficiency4. Technical inefficiency5. Ceteris paribus

Absolute advantage - One country(business, family) uses fewer resources to produce a good or service Pg 701

Comparative advantage - The advantage in production of a product enjoyed by one country over another when that product can be produced at lower cost in terms of other goods than it could be in the other country. Pg 28 and 701 Marginal rate of transformation is a measure of comparative advantage.

27. [Who has the comparative advantage in producing computers? Code?]

28. Assume Tom Gates can earn $100 per minute and can type 100 words per minute. Mr. Gates is considering hiring a secretary. The secretary will earn $20 per hour and can type 60 words per minute.

A. Compute the marginal rate of transformation of typing for the secretary and Tom Gates.

B. Who has the absolute advantage in producing income and typing?

C. Who has the comparative advantage in income and typing?

29. [John Executive is an excellent administrator and typist. John earns $600 an hour and can type 120 words per minute. John is considering hiring a secretary that can type 80 words per minute and costs $15 per hour. Use the concept of comparative advantage to determine if John should hire the secretary.]

8/15/02 WSJ

30. [Answer problem #5 page 42.]

31. [Review question 1,3,7,8 page 41-42]

1Benefits and Costs of Trade - Pg 750-752 ch 35 Softcover Ch 18 Pg 413-417

1. Improves technical efficiency - Personal exampleThanks Not Buying American pg 14Exports are good and imports are bad. Exports create jobs imports cost jobsProtecting an Industry from foreign competitionKeeping unemployment lowHurt the environmentRecover from a recession12/6/09 Nations Rush to Establish New Barriers To Trade

WSJ A12. Improves Equity3. Improves market liberty4. International relations - Tariff Tsuanmi5. Reduces terrorism

8/13/08 Free Trade Can Fight Terror WSJ A154/12/09 N. Korean Defectors Staggered By South

Washington Post A1

http://www.xtranormal.com/watch/7781737/

Made in the Earth (notes10) EC Sept 1 02 Free Trade and TariffsB An Uneasy Mix 11/6/03 AWe Want Trade, Not Aid@ WSJ

10/21/04 AAs Shrimp Industry Thrives in Vietnam Trade Fight Looms@ WSJ

1/6/05 ATariff Tsunami@ WSJ

2/3/04 AUncork the Law@ WSJ6/9/05 AThe Laptop Trail@ WSJ9/26/05 Sweet and Lowdown WSJ8/11/05 AAid to Workers Hurt by Trade Comes in Trickle@ WSJ10/4/05 Tariffs for the Rich WSJ A269/26/05 Sweet and Lowdown WSJ A1819/6/08 Shot in the Foot WSJ A1019/11/08 Exports Bolster Local Economies WSJ A18/13/09 Food Firms Warn of Sugar Shortage9/22/09 To Outfox the Chicken Tax, Ford Strips Its Own Vans WSJ A1

Current account = (Exports - imports) + Net Income payments(income paid to us from foreign investments - income owed to foreigners) + Net Unilateral transfers JEL Summer 2002 Pg 132NIP = payments to foreigners due to investments in U.S. WSJ 9/20/02

TYPES OF ECONOMIC SYSTEMS - Pg 40 and page 769-7821.Market system (Capitalism) - Laissez-faire - "allow (them) to do"

Capitalism is defined as a system of economic organization characterized by the private ownership of the means ofproduction and distribution and their operation for profit under

predominantly competitive conditions. A crucial aspect of capitalism is the concept of private property. Individuals must be allowed to accumulate and trade private property. This explains laws against theft.

32. What is the incentive for allocative and technical efficiency under capitalism?

Market systems decides the question of "To Whom" first.

CONSUMER SOVEREIGNTY - The idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase – Pg 40

The general that directs all economic activity in a market economy is price. Price of Everything, Russell RobertsFree enterprise – The freedom of individuals (market liberty) to start

and operate private businesses in search of profits. Pg 40

Entrepreneurs look at what is purchased and then determine what will be produced.

33. [What method of economic organization is likely more allocatively efficienct and list any important assumptions?]

Basic assumption of capitalism is consumer rationality.

34. [What is the opportunity cost of a purchase?]

35. [How do consumers answer the questions of; What to buy?, and therefore "who" gets the goods that are produced?]

Market - The institution through which buyers and sellers interact and engage in exchange.

Prerequisites of a the market system1. Private property-Moving resources to highest valued use

Goods and services Your labor - Draft

Savings - InheritanceIntellectual Property (Patent laws)Ability borrow and lend

12/11/03 AThe Link Between patents and Prosperity@ WSJProperty rights and the Wealth of Nations -Volume 23 Cato Institute 4/1/052/20/07 AThe Virtue of Patents@ WSJ A17 Intellectual property rights

36. [How does the answer to the above question relate to the tragedy of the commons (page 739) softcover 454]

2. Self Interest-Rationality-Choice3. Social overhead

A. General accepted accounting principles -Enron (Standardized accounting system)

WorldCom Inc. WSJ 3/1/05B. Stable currencyC. Sound financial institutions

Credit systems are accessible and reliableD. Legal System

Right of Contract Infrastructure and the Wealth of nations EC Jan 15, 02Rule of Law and Economic Growth Inter Nat Trends Fed of St Louis 8/04

4. Capital infrastructureInfrastructure and the Wealth of nations Economic Commentary Jan 15, 20023/21/11 Putting a Price on Clean Water WSJ A15

5. Perfect Competition

Efficiency

Micro MacroTechnical Unemployment

GrowthStabilityInflationInfrastructure - Economic Commentary1/15/02

Allocative Government expendituresEquity National Income

DistributionInflation

35. [How do producers answer the questions of; What to produce?, How to produce goods and services?, and Who gets the goods and services?]

36. [How do the above questions relate to efficiency, equity, and liberty?]

WSJ 6/19/01 Mark-up law for gasoline

2. Command system (Socialism) is defined as a system of economic organization, characterized by the public ownership of the means of production and distribution. http://cafehayek.com/2010/08/worth-a-thousand-words.html

Command is defined as a system of economic organization in which a central government either directly of indirectly sets output targets, incomes, and prices. Pg 39

In a command economy the questions of what? how? And to whom? are answered by a central authority.

Socialism today has come to be associated with a welfare state. The state through a wide variety of transfer payments assumes responsibility for protecting its citizens. Private ownership of the means of production is permitted, with the state ownership of the means of production and distribution considered vital to society.

37. [Does command system emphasize the question of "What" , "How", or "To Whom"?]12/26/09 Venezuela's President Threatens Toyota, GM WSJ A1

Assumption of a command system is government knows better.

Command systems first decides the To Whom questions.

The five factors of production and returns to each are summarized below.

FACTORS OF PRODUCTION PRIVATE RETURNS(Market)

1. Natural Resources------------- ECONOMIC RENT2. LABOR ------------------------ WAGES3. CAPITAL ---------------------- INTEREST Price of Everything, Russell

Roberts 4. ENTREPRENEURSHIP ---- PROFITS

In pure socialism, land and capital are owned by the government and there are no entrepreneurs since the government takes all the risks of production, therefore, the income earned is totally related to wages. Central planning committees decide the important questions of, what, who and who.

FACTORS OF PRODUCTION PRIVATE RETURNS(Command)

1. Natural Resources------------ ZERO2. LABOR ----------------------- WAGES3. CAPITAL --------------------- ZERO4. ENTREPRENEURSHIP ---- ZERO

38. [Does a football team best represent a market system or command system?]

Many times private interest and (goals) may differ from social interest (goals).

Capitalism believes in:1. Private property2. Consumer sovereignty3. Maximizing social welfare based on the individual preferences

39. .[What is the objective of the economic game?]

37. [Give some examples where private and social interest may differ.]Private and social interest

Capitalism CommandEconomic Incentives Yes NoCompetition yes Noproperty rights for resources yes Noprice reflect resource cost Yes No

Corruption in government Yes Yes

38. [In a command system are the social returns to land, and capital zero?]

39. [Which method of economic organization i.e., command or market is likely to have a bigger gap between private and social goals?]

40. [Land includes all natural resources on the earth: air, water, timber, coal, oil and others. Compare how people under market and command systems would treat land(pollution), maintain capital, and value entrepreneurship.]

41. [What incentive do people under command systems have to invent new products and start new businesses?]

ABlack Village= Testifies To Communism=s Toll On the Environment@ 1/9/02 WSJ1/27/02 ACapitalism for Consenting Adults WSJ9/20/04 ACan Socialism Survive@ WSJ Football and socialism10/2/06 AWhy Beijing Is Trying to Tally The Hidden Costs of Pollution As China=s

Economy Booms@ WSJ A29/30/06 ABeneath the Dow=s Surge, Investors Find a Mixed Bag@ A19/14/10 Cuba to Cut State Jobs in Tilt Toward Free Market WSJ A1

3. The traditional economic system is one in which the questions of what? how? and to whom? are answered "traditionally." Typically, an elaborate system of customs, social mores, and accepted practices determine what goods and services get produced, lhow resources are combined to produce those goods and services, and whose wants get satisfied by consuming those goods and services.

Although the Amish, the ante bellum South, and the Melanesian potlatch are frequently used examples of traditional economic systems, as with capitalism and socialism, no purely traditional economic system exists. Nonetheless, many vestiges of tradition are to be found in the U.S. economy, influencing decisions of what? How? and To Whom? Examples include the large proportion of children who follow in their parents' career footsteps; use of queuing to ration available goods and services, stereotyping certain service workers; and division of household production tasks among household members, especially by gender.

5. Mixed Systems - Pg 40Can Socialism Survive? 9/20/04 WSJ

Capitalism consumers individual decisions to purchase goods and

services decide the basic questions of what, and who producers decide the question of How.

Socialism the government help decides the basic questions of what, how and who.

Command the government decides the basic questions of what, how and who.

Communism the people decide by a collective decision making process basic question of what, how and who are decided by some central authority.

Mixed economy consumers decide the basic questions of what, how and who for some goods and government decides the questions of what, how and who for other goods. Most economies let the market, government, and tradition decide the questions of what, how, and who. The precise combination of market forces, government forces, and traditional forces determine whether the system is called capitalism, socialism, or traditional.

43. [In the U.S. give some examples of government answering the basic questions of what, how and who. Hint: F.D.A. Social security, OHSA, Unemployment insurance, Unfair sales act 100.30 Wis. Statute - AThe practice of selling certain items of merchandise below cost in order to attract patronage is generally a form of deceptive advertising and an unfair method of competition in commerce@, Wine Lovers See Red(WSJ 9/24/08), CAFÉ, No Child let behind law, minimum wage, E.P.A.] CAFÉ JEL Fall 2003, WSJ 11/14/05, Government bails out AIG, GM, and Chrysler, Government owns 61% of GM.

44. [“Currently it can take $1 billlion, thousands of patients and more than a decade to gather the evidence necessary to approve a new cancer drug.” ESJ10/2 C1”]

Let's now examine the various forms of economic organization in relationship to the economic goals discussed above.

Market Command TraditionalEfficiency Equity StabilityLiberty Efficiency EquityEquity Liberty Liberty Stability Stability Efficiency

45. [How does market price affect efficiency, equity, liberty?]

Chapter 3 and 4 Demand, Supply, and Market equilibriumObjectives:1. The student will be able to define four types of market organizations.2. The student will understand the effect market organization has on the economic goals of efficiency, equity and liberty.3. The student will be able to explain the relationship between efficiency, equity, liberty and the five basic assumptions of perfect competition.

4. The student will be able to understand the importance of ceteris paribus in making comparisons and be able to apply this concept to business and households.

5. The student will be able to understand the variables that shift the demand schedule.

6. The student will be able to understand the difference between the Demand Schedule and quantity demanded and apply this to the market place.

7. The student will be able to understand the difference between supply and quantity supplied and apply this to the market place.

8. The student will be able to understand the variables that shift supply.

9. The student will be able to understand price is the primary rationing mechanism (answers questions of what, how and who), but there are other rationing mechanisms.

10. The student will be able to understand the advantages (benefits) and disadvantages (costs)of using price as rationing mechanism.

MARKET ORGANIZATION - The way an industry is structured.

Structure is defined by how many firms there are in an industry, whether products are differentiated or are virtually the same, whether or not firms in the industry can control prices or wages, and whether or not competing firms can enter and leave the industry freely.

1. Perfect Competition - Characteristics described above. Pg 10546. [A CEO makes decisions of what and how, and government makes decisions of what, how and to whom in a command system. What is the important distinction between them?

2. Monopolistic Competition - An industry structure in which many firms compete, producing similar but slightly differentiated products. Pg 302

Barriers to Entry1. Exclusive Control over important inputs2. Economies of Scale3. Patents4. Government Licenses or Franchises Pg 273-274

3. Oligopoly - An industry structure with a small number of (usually) large firms producing products that range from highly differentiated (automobiles) to standardized (copper). Pg 310 Duopoly - An industry dominated by only 2 firms. TeleAtlas and Navteq WSJ 1/14/08 A2Collusion Inquiry Targets Ice Companies WSJ 8/07/08

4. Monopoly - An industry structure in which there is only one large firm that produces a product for which there are no close substitutes. Pg 27210/16/09 Wal-Mart Strafes Amazon in Book War A1 Benefits of competition

P.C. ────── M.C. ─────── Oligopoly ──────── Monopoly

47. [How do you think each firm market organization will affect efficiency, equity, and liberty?]

48. [The Wall Street Journal reported the following market shares for appliances on 7/19/97:

Whirlpool 35%G.E. 32%Maytag 15%A B Electrolux(Frigidaire) 10%Raytheon(Amana) 7%

What form of market organization does the appliance industry

appear to follow?]

50. [The Wall Street Journal reported the following market shares for beverages on 3/8/99:

Coca-Cola.......44.5%Pepsi...........31.4Cadbry Schweppes14.4

Scource:Davenport & Company LLCWhat form of market organization does the beverage industry appear to follow?]

51. [The Wall Street Journal reported the following market shares for music on 3/8/99:

Universal/PolyGram...24.5%Warner Music.........18.2Sony Music...........16.6EMI Group PLC........12.9BMG Entertainment....12.2

Source:Scoop MarketingWhat form of market organization does the music industry appear to follow?]

52. [The Wall Street Journal reported the following market shares for Tobacco on:

Philip Morris........66.62%RJR Nabisco..........12.95Lprillard ...........11.16Brown & Williamson... 9.27

Source: WSJ 1/27/04What form of market organization does the tobacco industry appear to follow?]

53. [The Wisconsin State Journal Reported on 1/24/06:2005

U.S. Sales World SalesGeneral Motors....26% 15Ford..............18 11Daimier-Chrysler..14 7Toyota ...........13 12Honda ............ 9Nissan............ 6 5Others ...........13 43Volkswagen

8Source: Ward=s Automotive Group (wardsauto.com)

What form of market organization does the automobile industry

appear to follow?]

54. [The Wall Street Journal reported the following market shares for phones on 3/8/99:

U.S. residential customers, in millionsAT&T/TCI...............80Bell Atlantic/GTE......41SBC/Ameritech..........30MCI WorldCom...........20

What form of market organization does the telephone industry appear to follow?]

Estimated 2004 market share of the top five U.S. residential long-distance carriers:

AT&T ................. 30%Verizon............... 12SBC .................. 11MCI .................. 9Sprint ............... 5.5

6/10/04 WSJ

55. [The Wall Street Journal reported the following market shares for furniture on 11/7/98:International Inc (Broyhill, Lane, and thomasville)Lifestyle Inter Ltd. (Drexel Heritage, Henredon, Lexington) and La-Z-Boy Inc. have about 20% of the market and 1000 other manufacturers share the rest. What form of market organization does the furniture industry appear to follow?]

56. [The Wall Street Journal reported the following market share at three major airports serving New York City:

2/9/99 98 share 99 share1. Continental 22.2 WSJ 6/6/002. American 13.9 20.03. Delta 13.3 22.14. US Airways 9.6 5. United 8.1 6. TWA 4.6 11.77. Northwest 3.2 8. British Air 1.8

57. What form of market organization does the airline industry in New York city appear to follow?]

Newark, NJ Continental 55.8Washington Dulles United 54.6Pittsburgh US Airways 85.9Boston US Airways 23

Delta 22.1American 14.9

Orlando Delta 31.7US Airways 13.9Southwest 9.2

Atlanta Delta 75.3Charlotte US Airways 89.6Dallas/Ft Worth American 69.8Cleveland Continental 56.1Detroit Northwest 77.6Minneapolis Northwest 79.9Columbus America West 23.2

US Airways 16.7Delta 16

Salt Lake City Delta 74.4Denver United 73.2Los Angeles United 26.9

American 12.1Southwest 11.6

58. [Three companies control about 90% of the radio stations in the U.S. WSJ 5/01]

59. [Three companies-AT&T Comcast, AOL Time Warner and Charter Communications Inc.,-will control 65% of the nation=s cable market. WSJ 12/21/01]

[Ground shipping Company Market ShareUPS 59.8%U.S. Mail 25.3Fed Ex 12.9DHL 2.0 10/6/03WSJ]

2/25/02 AWhy the Sudden Rise In the Urge to Merge And Form Oligopolies? WSJ

60. [ Mobile Phones Company Market ShareMotorola 15.3%Nokia 34.5Samsung 11.4Siemens 8.7I.G. 5.8Sony Ericsson 5.4Others

18.9 WSJ10

/30/03]

61. [Confectionary Market WSJ 9/8/09Mars 14.8Cadbury 10.3Nestle 7.6Hershey 4.8Kraft 4.5]

62. [ Computer Industry Gateway 16Hewlett 30Dell 28Toshiba 5Apple 7Other 14 WSJ 1/3/08

Title Insurers

First American 27%Fidelity 29Land America 18Stewart 11Old republic 6All others 8 WSJ 2/12/08 A1

The chicken and egg debate is relevant here. Remember the old debate which came first the chicken or the egg? Some argue that teaching good business practices is the best way to improve a flawed system. I argue that good business practices are a function of the system and will only change when the system changes. Does ethics produce a good system or does the system produce good ethics? Should our society teach ethics in our schools and hope to produce a good society or should we have a system that requires good ethics and business practices. Which do you think will be most successful? Large numbers of buyers and sellers, easy entry and exit, homogeneous product, perfect information, and economic incentive mandate good ethics, i.e., good business practices.

62. [Which of the following businesses or industries do you believe would most likely be efficient and equitable: postal service, Wal-Mart, General Motors, General Mills, wheat

farming, and Dick's grocery?]

1. Perfect Competition implies the following assumptions: 1) large number of buyers and sellers, 2) homogeneous product, 3) easy entry and exit and 4) perfect knowledge on the part of producer and consumer, 5) economic incentive is present.Pg 144-145Let's examine assumption number one. In baseball, the reserve clause tied baseball players to one team for life. There were not many buyers for a players services in fact, only one buyer. As a result, players bargained with only one owner. The owner also knew if the player refused the contract he was offered, his only opportunity was to quit baseball, since he could not bargain with another team. As a result, players became exploited (received salaries below what they were worth to the team).

In baseball stadiums concessions are generally operated by one firm, and fans or other firms are forbidden to bring food or drink into the stadium. What happens to the price of a hot dog compared to street vendors? You guessed it, whamoo- $3.00 hot dogs. Now who is being exploited? When there are many buyers and sellers for labor and products, a fair trade is struck between producer and consumer. Have you ever noticed that management and employees are more responsive to consumer demands in Wal-Mart or K-Mart than in the U.S. Postal office?

2. Imperfect competition1. Imperfect market structure2. Monopolistic competition3. Oligopoly4. Monopoly5. Monopsony

1/27/04 AHow Driving Prices Lower Can Violate Antitrust Statues@Stock market AGoogle IPO Aims to Change the Rules@ WSJ 4/30/04

Baseball before free agency 1 buyer many sellers - Monopsony Hot Dogs in the stadium 1 seller many buyers - MonopolyPostal Service ?? - ??Microsoft WindowsBeerWal-Mart ?? - ??

63. [Classify the: postal service, Wal-Mart, wheat farming, and Piggly Wiggly grocery store, Microsoft, HP computers into the various types of market structure listed on page 52 of your text?]

64. [Classify the above product or services from most to

least efficient and explain your answer?]

65. [How does assumption one relate to the market power of Wal-Mart and U.S. Post Office?]

66. [List some markets that have large numbers of buyers and sellers?]

Assumption number two - homogeneous product. This implies thatall the producers are producing the same product. Did youever ask yourself which farmer produced the last gallon of milk you bought? Of course not, it is not important since all milk is identical no matter which farmer produced it. Farmers are most efficient because they do not waste time and resources trying to differentiate their product. Farmers concentrate on lowering costs since product differentiation does not matter and price is out of their control.

Assumption number three - Easy entry and exit into and out ofthe marketplace. In the 1950's, 60's and 70's G.M., Ford andChrysler had very few rivals because of many barriers to entry suchas capital costs (the cost of starting an automobile company is hundreds of millions of dollars or more), trade tariffs and quotas. What incentive did the big three auto producers have to produce a quality product? Quality at Ford, G.M. and Chrysler did not start to become job #1 until the tariffs and quotas started to disappear. Easy entry forces companies to be consumer conscious. If one firm does not deliver what the consumer wants, another will. In fact, large numbers may not be as important as easy entry in maintaining efficiency. If there is only one seller, but this seller is aware the market is easy to enter, prices are restrained. The threat of additional competition, if prices are raised too high, counterbalances few sellers.

Most cable TV companies are given a monopoly in their market area (one seller). To counter balance this market power the cable companies are regulated as to price.

3/28/03 AWisconsin lags in disciplining doctors, national report says@ Wis. State Journal Repeat offenders from Web.

Market power is the ability to raise without quantity demanded falling to zero. If all the competitive assumptions were valid, firms will have no market power.(Page 263) What would happen to cable companies prices and offerings if any firm who

wanted to offer cable could enter your local market? We shall soon find out. 105/15/08 Wal-Mart Raises Bar on Toy-Safety Standards WSJ B1

67. [How has easy entry and exit affected professional sports?]

68. [Will a sports monopsony affect entry or exit?]

69. [A Market system Aincessantly revolutionizes the economic system destroying the old one, incessantly creating a new one@ Capitalism, Socialism, and Democracy by Joseph Schumpter

How does this quote by Joseph Schumpter relate to the assumption regarding easy entry and exit? How does this statement relate to the AOn Reserve@ article of January 2001?]

Judge Opens Information Services to Bells

"Federal Judge Harold Greene, in an unusual order that warned of flagrant anti-competitive behavior, allowed the regional Bell telephone companies into the information-services market."1 This could eventually result in telephone companies competing with cable TV companies. Easy exit is as important as easy entry. If a firm isnot delivering the best product at the lowest price and is faced with many sellers, the firm dies. But death of firms, unlike people, is not final because these resources (labor, capital, land, entrepreneurial ability and time) can be used elsewhere, dictated by consumer demands. Socialism is the perfect example where business was not allowed to fail, as a result, goods were few and of poor quality. An economist once said there is no such thing as a free lunch. The freedom to fail produces economic efficiency but it has its costs. People suffer the hardship of unemployment, and as a result of unemployment, divorce, theft and suicides occur.

70. [How does the government attempt to minimize this cost?]

Assumption number four - Perfect Information about products and production methods. No market will ever have perfect information, but the importance of this assumption is that more information is better than less. The better informed people are

1 "Judge Opens Information Services to Bells", Wall Street Journal, July 26, 1991

the better choices people make in the market place, and as a result, markets function more efficiently. Markets most often fail because information about the product is lacking. As an example, someone advertises an imitation diamond ring for $24.95. The seller is aware of the quality of the imitation but the buyer is not. The purchaser receives the ring and is disappointed. An inefficient trade has resulted in making the seller better off but the buyer worse off as a result of insufficient information. 10/24/09 Learning to Love Insider Trading WSJ W17/31/10 Sites Feed Personal Details To New Tracking Industry WSJ A1Benefits and costs of the internethttp://www.newsweek.com/photo/2010/12/08/things-that-killed-the-internet.html

People spend thousands, and sometimes millions, of dollars to acquire more information. Think about how much money is spent each day by all the stock analysts and accountants who provide private individuals with better information on the financial status of companies. Many companies hire economists to improve the information about the future of the economy and their product. Magazines such as Consumer Reports are published because individuals want more information about: autos, T.V.s, stereos, boats and other products.

11/15/08 Insurers Stop Paying for Care Linked to Errors WSJ D16/26/08 How Technology Can Help Trim Auto Insurance WSJ D1

71. [What is the main concern of most people when they purchase a used cars? How does this concern relate to the assumptions of perfect competition?]

72. [Should the government insure no jobs are lost making CD’s, phonebooks etc?]

10/21/03 AWhat would Adam Smith Say? WSJ e-commerce trade and informationInformation and Prices EC May 1, 2003Radio Frequency identification Chips WSJ 5/13/05=Track inventory or casino customersCredence goods March 06 JEL pg 5 Goods or services where an expert knows more about the quality a consumers needs. Auto repair, taxi cab ride in a strange city,doctors www.wipricepoint.org

Rent Versus PurchaseSomeone on a business trip needs transportation for two

days. The decision is to rent a car or buy a car and sell it two days latter. The decision seems easy almost everybody rents the car.

73. How does this decision to rent the car relate to imperfect competition? Analysis]

Assume the same individual knows someone in the city that is selling a car similar to the one he was going to rent. He also is aware of another potential buyer. Dr. Ronald Coase won a Nobel Prize in economics by showing how markets are affected by transaction costs. Parts of the transaction cost of buying and selling a car is the cost of acquiring information of what cars are available, the quality of the cars, and potential buyers for those cars.

74. Would you now rent or buy the car? Evaluation]

Some people lease cars (rent) instead of purchasing them because the lease payments are less than the purchase payments. Others lease because of tax advantages.

75. Most people rent a vacation home for one or two weeks. Why not buy it and sell it? Analysis How do time shares fit into this? Analysis]

76. [Give an example of how information makes your life more technically and allocatively efficient.]

77. [How will the world wide web affects these assumptions?]

A large employer can buy health insurance at a cheaper cost per employee than a single individual. Economists call this asymmetrical information. The buyer of health insurance has more information about his or her health than the seller.

76. [List other cases where asymmetrical information exists]

Assumption five - Economic incentivePayment

Consumer ---------------- Producer ----------------

Product

Consumer - Insurer - ProducerObjectives - (profits)- Objectives

T P N A E Y M M

Y E A N P T

Consumer -------------------- Producer Product

77. [List the objectives of the consumer, insurer, and producer.]

78. [Do the objectives of the consumer, insurer, and producer coincide?]

79. [Why do you think hospitals can charge significantly different prices for the same quality care?]

80. [What affect do the above six assumptions have on efficiency, equity, and liberty?]

The chicken and egg argument does ethics produce a good system or does the system produce good ethics. Should our society rely on teaching business ethics in our schools and hope to produce a good system, or should we teach business ethics and model our system in such a manner that its operation requires good ethics and sound business practices? Re-examine questions 32 in chapter 2. Countries that have economic systems further from the competitive model have more corruption. The economic freedom index, Ashows a strong correlation: more economic freedom, less corruption.@2

When economics conflicts with ethics, economics usually wins. Imperfect market structure often provides opportunities for economics to conflict with ethics. When profits and ethics conflict, usually profit wins. The NCAA, illegal drugs, and the stock market are a few examples of economics conflicting with ethics. The NCAA regulates college sports. Federal law prohibits

2 Infrastructure and the Wealth of Nations, Economic Commentary, Federal Reserve Bank of Cleveland, January 15, 2002

the sale of certain drugs. The Securities and Exchange Commission regulates activity in the stock market.

The 117 division I-A schools in 2002 generated $454 million of revenue, $219 million profit, on men=s basketball. CBS is paying the NCAA $6 billion over the next 11 years to broadcast the men=s basketball tournament; the money is shared among NCAA schools. AAmong other things it shows how colleges, in their zeal to field teams that win games and draw big money are tempted to look the other way when it comes to enforcing academic standards@3

The office of National Drug Control Policy estimates for the year 2000 Americans spent about $36 billion on cocaine, $10 billion on heroin, $5.4 billion on methamphetamine, $11 billion on marijuana, and $2.4 billion on other substances. A seven-step analysis of illegal drugs is given in chapter 8. Certainly here is a case where economic interest conflicts with social interest.

Insider trading (trading on information not available to the general public) is illegal in the stock market. The SEC has the difficult task of trying to prohibit insider trading. When millions and possibly billions of dollars can be made with inside information, profits again conflict with ethics.

81. [How successful will teaching business ethics be in imperfect competition? Evaluation]

82. [Identify specific assumptions in perfect competition that will produce good business behavior i.e., from the perspective of society. Analysis]

83. [Would the ENRON scandal have occurred in perfect competition? Analysis]

CIRCULAR FLOW DIAGRAM - Pg 47

3 A College Coach Pushed the Limits To Sign Top Talent, Wall Street Journal 4/7/03

Households - The consuming units in the economy. Households exist to maximize peoples satisfaction. Households maximize satisfaction by producing household goods and consuming both household and market goods. Pg 46

Firm - An organization that transforms resources (inputs) into products (outputs). Pg 46

THE DEMAND SCHEDULE IN PRODUCT (OUTPUT) MARKETSThe law of demand states that quantity demanded varies

inversely with the relative price of the product, other things remaining equal (ceteris paribus). The variables that affect the quantity purchased are:

1. Price of the product – quantity demanded2. Income - Demand

Buying Wine on the Dime 2/19/09 WSJ D1Normal vs inferior goods

3. Wealth - Demand4. Price of other products - Demand5. Tastes Demand6. expectations of future price changes DemandQuantity demanded - The amount of a product that a household

would buy in a given period if it could buy all it wanted at the current market price ceteris paribus. Pg 56 Quantity demanded changes when product price changes and all other factors are held constant. Factors 2-6 determine the level of demand.Cause and Effect reasoning has many potential pitfalls students should be aware of these three:1. Ceteris paribus2. Post Hoc Fallacy

3. Fallacy of composition

UNDERSTAND THE CONCEPT OF CETERIS PARIBUS - Pg 1184. [Each one of these tests are trying to determine the

cause and effect. Determine if the following experiments are valid, if not, determine what critical thinking skill would be important to improve the test i.e., make a more accurate determination of cause and effect.]

1. Test the corrosive power of two acids. The acid tested on steel has much more corrosive power. PROCEDURE: One acid is tested on steel the other on aluminum.

2. Test the effectiveness of two new drugs for healing cuts. The drug tested on the 25 year old male healed the cut much faster. PROCEDURE: A doctor tests one drug on a 25 year old male

another drug is tested on a 60 year old female.

3. Test the relationship between price and quantity demanded. The retiree purchased more at a higher price.

PROCEDURE: An individual asks a college student what quantity would he or she buy at $10 per unit

and then asks a retiree what quantity he would buy at $20 per unit.

4. Test for wage discrimination. The average wage of men in the company is greater than the average wage of women. PROCEDURE: An individual calculates the average earnings of

blacks versus whites.

5. Test the performance of the public school systems of various countries. The country that has the highest score has the best school system. PROCEDURE: An individual examines the average performance of

high school seniors by giving a standardized test of math and science skills.

85. [What problem do all of the following experiments have in common?]

Remember Michael Vincent wanted to raise his G.P.A.. Michael decided that the cause of his low grade point was not enough study hours. If Michael studies more hours and raises his G.P.A., can we conclude that everybody can raise their G.P.A. by studying more hours. This is an example of the fallacy of composition. What works for one individual may not work for everyone.

86. [Why would this decision to study more hours not have the same effect for everyone? Analysis]

Michael=s friend observed he has been studying more lately and his G.P.A. in the next three semesters has gone up. If Michael=s friend attribute the increase in G.P.A. to additional studying she might be making post hoc fallacy. Because the increase in G.P.A. followed the increase in study hours it may not be the cause of the improvement in G.P.A..

87. [What other factors could cause an increase in Michael=s G.P.A.? How does ceteris paribus relate to your answer?]

An individual was surveyed to determine the quantity of candy bars he would buy at various prices. This schedule is called a demand for candy bars and is shown below.

Quantity demanded Demand (Page 52-53) Causes Causes Income

P Q Wealth Price of other products

Tastes Future price changes

#Individuals

Table 4.1Demand Schedule for Candy Bars

┌──────────────────────────┐│ Price Quantity/per wk││ $1.00 1 A │ 1 unit quantity demanded at $1.00│ $ .75 2 B │ 2 units quantity demanded at $ .75│ $ .50 3 C │ 3 units quantity demanded at $ .50│ $ .25 4 D │ 4 units quantity demanded at $ .25│ │ ──────────────────────────┘Quantity demanded is represented by specific prices and the resulting quantity purchased. Demand represents all prices and quantities that will be purchased at these prices. Demand is the entire schedule in the box above.

1 2 3 40

0.2

0.4

0.6

0.8

1

1.2

Demand #1

Deamnd #1

A

B

C

D

The equation for this line is Qd = 5 – 4PLook at question 9 chapter 3.

Demand Schedule #2 - Change in Wealth┌───────────────────────┐│Price Quantity/per wk ││$1.00 2 E │ 2 units quantity demanded at $1.00│$ .75 3 F │ 3 units quantity demanded at $ .75│$ .50 4 G │ 4 units quantity demanded at $ .50│$ .25 5 H │ 5 units quantity demanded at $ .25└───────────────────────┘Graphically this is shown below as a shift to the right of the demand schedule in figure 4.2 below.

The equation for this line is Qd = 6 – 4P

1 2 3 40

0.2

0.4

0.6

0.8

1

1.2

1.4

Demand #1Deamnd #2

A

B

C

D

E

F

G

Demand Schedule #3 - Change in Taste┌────────────────────────┐│ Price Quantity/per wk ││ $1.00 0 I │ 0 units quantity demanded at $1.00│ $ .75 1 J │ 1 unit quantity demanded at $ .75│ $ .50 2 K │ 2 units quantity demanded at $ .50│ $ .25 3 L │ 3 units quantity demanded at $ .25└────────────────────────┘

Graphically this is shown below in figure 4.3.

The equation for this demand line is:Qd = 4 – 4P

Figure 4.3Demand Schedule #3 - Change in Taste

Dollar Price

1 2 3 40

0.2

0.4

0.6

0.8

1

1.2

Demand #1Demand #3

A

B

C

D

J

K

L

Demand Schedule #4 - Change in the relative price of a substitute ┌─────────────────────────┐ │ Price Quantity/per wk │ │ $1.10 1 M │ 1 unit quantity demanded at $1.10 │ $ .83 2 N │ 2 units quantity demanded at $ .83 │ $ .55 3 O │ 3 units quantity demanded at $ .55 │ $ .28 4 P │ 4 units quantity demanded at $ .28 └─────────────────────────┘The equation for this demand line is:Qd = 5.02 -3.65P

Candy bar B would be defined as a substitute good. Substitutes are goods or services that cause the demand schedule for good A to shift right when the price of good B increases and vice versa. Coke and Pepsi could be substitutes.

88. [Think of substitutes for: butter, gasoline, milk, casino gambling, new cars, and cocaine.]

An increase in the price of a substitute will shift the demand for a product or service to the right, increasing quantity purchased at every price as shown in figure 4.4 below.

1 2 3 40

0.2

0.4

0.6

0.8

1

1.2

Demand #1Demand #4

A

B

C

D

M

N

O

P

89. [What would happen to the demand for the substitutes you just named if the price of butter, gasoline, milk, casino gambling, new cars, and cocaine increased?]Winds Shift for Renewable Energy As Oil Price Sinks, Money Gets Tight By TOM WRIGHT 10/20/08

90. [Does zero percent financing on new cars affect the used car market? If so, how?]

91. [What might cause the price of these goods to go up?]

Assume this individual loves to drink a can of M.V. soda with the candy bar. The price of M.V. soda doubles tomorrow, relative to the price of other soft drinks. How will this price increase effect the demand for other competing soft drinks and the demand for candy bars? M.V. soda and candy bars for this individual are complements. Complements are goods or services that cause the demand schedule for good A to shift right when the price of good B decreases and vice versa. Soda and potato chips are complements.

92. [Think of some goods that are complements.]

93. [Classify the book and the lectures in this course as either substitutes or complements? Explain]

As the price of a complement increases the demand for

complementary goods decreases. This is shown as demand #5 in table 4.5 below.

Table 4.5Demand Schedule #5 - A change in the price of a complement

┌───────────────────────┐│Price Quantity/per wk ││$1.00 0 Q │ 0 units quantity demanded at $1.00│$ .75 1 R │ 1 unit quantity demanded at $ .75│$ .50 2 S │ 2 units quantity demanded at $ .50│$ .25 3 T │ 3 units quantity demanded at $ .25└───────────────────────┘

The demand is shown in graphically form in figure 4.5 below.

Figure 4.5

Demand #5 - A change in the price of a complement

1 2 3 40

0.2

0.4

0.6

0.8

1

1.2

Demand #1Demand#5

A

B

C

D

R

S

T

94. [What are complements to butter, gasoline, milk, casino gambling, new cars, and cocaine?]

Chief Executive Carly Fiorina of H-P, AShe says she is willing to allow the computer=s $22 billion computer division to do

little more than break even because PC sales help H-P make money on printers, consulting and consumer electronics.@ WSJ 5/12/200411/31/09 The Economics of Giving It Away WSJ W1

95. [Are movies in the theater and movies on DVD substitutes or complements?]

96. [How will the quantity of video rentals be affected if movie the industry lowers the price of tickets?]

97. [How many markets will be affected by a change in the relative price of butter, oil, milk, casino gambling and cocaine?]

98. [Government announces a plan to pass a law freezing the price of gasoline. Would this law impact other markets?]

The government announces a new snack tax of 10% which will apply to candy bars next week. A snack tax law was passed in California. Assume: 1) a snack tax is passed in this state and will take affect next week, 2) The consumer is initially at demand schedule #1 shown in table 4.1, 3) ceteris paribus(everything else remains constant). Then the demand schedule is likely to change to demand #6 shown in table 4.6 below:

Table 4.6Demand Schedule #6

┌───────────────────────┐│Price Quantity/per wk ││$1.00 6 U │ 6 units quantity demanded at $1.00│ .75 7 V │ 7 units quantity demanded at $. 75│ .50 8 W │ 8 units quantity demanded at $ .50│ .25 9 X │ 9 units quantity demanded at $ .25└───────────────────────┘

1 2 3 4 5 6 7 8 90

0.2

0.4

0.6

0.8

1

1.2

Series 1Series 2

A

B

C

D

U

V

W

The equation for this demand is:Qd = 10 – 4P

Consumers expectations of future price changes have been affected by the imposition of this snack tax. This shift (shown in figure 4.6 below) in demand will not be permanent. Demand will revert back to normal (Demand #2) after the tax becomes effective. Consumers respond to an increase in the price of the product like any other increase and quantity demanded will decrease. The new demand for candy bars is shown in table 4.7.

99. [How do entrepreneurs use consumer expectations of price changes to their advantage to stimulate the shift in the demand schedule for products?]

100. [Does it make any difference to the producer if the demand schedule increases(shifts right) or quantity demanded increases?]

101. [When a merchant has a price markdown sale, is she/he relying on a change in the demand schedule or quantity demanded to increase sales?]

102. [ When the same merchant advertises on T.V. claiming his or her product is of better quality than the competitor=s product, is the advertisement trying to increase sales by shifting the demand schedule or quantity demanded?]

103. [Decide if each of following events affect demand or quantity demanded for cigarettes:

Eventa. Cigarettes cause cancerb. In the market for Marlboro, competing brands sell for less.c. Price of matches goes upd. Government announces a tax on cigarettes starting

tomorrowe. Government announces a tax on cigarettes starting todayf. Per capita income increasesg. The price of cigarettes increases.H. Price of nicotine patch increases.I. Cigarettes companies announce a price increase next week

Why does it require a lower price for consumers to purchase more goods or services? The answer is diminishing marginal satisfaction. Pg 142-147

The level of satisfaction gained from consumption exhibits diminishing marginal levels of satisfaction as additional units of a product are consumed. Pg 111

Market demand Pg 56

The Demand Schedule = F(I,Wt,T,Pc,Ps,Pe,#I) A change in product price will never cause a change in the demand schedule. I = Income Wt = Wealth T = Taste These variables willPc = Price of a complement shift the demand Ps = Price of a substitute schedule and cause a Pe = Future price expectations of the change in product product price assuming ceteris#I = Number of individuals paribus. Quantity demanded is only affected by product price

Red (ABCD) - Original demand for candy barsBlue (EFGH) - Change in income/wealthGreen (IJKL) - Change in tastesBrown (MNOP) - Change in a price of a substitutePurple(QRST) - Change in a price of a complement

Black (UVWX) - Change in expectations

One characteristic of an efficient market, as defined above, is a large number of buyers and sellers. A market demand schedule adds the quantity demanded at every price by all consumers of the product. Look at the two individual demand schedules shown in table 4.8 below:

Table 4.8Michael's Demand Schedule Anne Marie's Demand Schedule┌──────────────────────┐ ┌────────────-────────┐│Price Quantity/per wk │ │Price Quantity/per wk|│$1.00 0 Q │ │$1.00 2 U │ .75 1 R │ │ .75 3 V │ .50 2 S │ │ .50 4 W │ .25 3 T │ .25 5 X│────────────────---───┘ └─────────────────────┘Assume these two consumers make up the market for candy bars.

104. [What happens if a third consumer is added to the market place? Synthesis]

0 1 2 3 4 5 6 7 80

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105. [What happens to market demand if one consumer leaves the market for candy bars? Analysis List some ways in which a market can expand or contract. Analysis]

106. [Determine what will happen to the demand schedule for a computer word processing program if: 1 the price of computers decreases, 2. consumers expect computers to fall in price, 3. consumers expect software to fall in price, 4. consumers become wealthier. Synthesis]

Below is a bus schedule with 5 arrival and departure times, for the Askil Bus Company. Before the customer knows which bus she wants to take, she must first decide on a departure time.

Arrivals Departures 9:05 a.m. 10:00 a.m.11:05 a.m. Noon 1:05 p.m. 2:00 p.m. 3:05 p.m. 4:00 p.m. 5:05 p.m. 6:00 p.m.

This bus schedule represents all the possible arrival and departure times of the Askil Bus Company. When you think of a bus schedule, you think of a list of arrival and departure times. The demand schedule represents all the possible price and quantity combinations of a good and service that will be sold in a specific time period. If the bus company states all arrivals and departures will be delayed by I hour the entire schedule changes. If a friend tells you she will be departing at two o=clock you now know when she will be arriving. When you think of a demand schedule you should also think of many different prices and quantities.

Supply schedule - A table showing how much of a product firms will supply at different prices per unit in the short run, ceteris paribus. Pg 80

The variables that motivate producers are: pg 621. Price of the product2. Cost of production per unit3. Profitability of related products

Quantity supplied - The amount of a product that a household would buy in a given period if it could buy all it wanted at the current market price ceteris paribus. Pg 62 Quantity demanded changes when product price changes and all other factors are held constant. Factors 2 and 3 determine the level of supply.

Supply Schedule #1 - Supply of candy bars

┌───────────────────────┐│Price Quantity/per wk ││$1.00 4000 AF │ 4000 units quantity supplied at $1.00│ .75 3000 AE │ 3000 units quantity supplied at $ .75│ .50 2000 AD │ 2000 units quantity supplied at $ .50│ .25 1000 AC │ 1000 units quantity supplied at $ .25└───────────────────────┘The above is a supply schedule of candy bars for A.M. Candies. The assumption here is that each level of production at the various prices represents the profit maximizing level. This schedule can be shown graphically in figure below. All the assumptions of perfect competition apply. Intuitively the price must rise for the entrepreneur to produce a larger quantity because the costs of production must rise.

Qs = 4000P

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The following variables would cause A.M. Candies to change the desired level of production (shift supply) at each price: cost of production, technology, taxes, subsidies, and profit expectations of alternative production. The supply schedule is upward sloping (larger quantity supplied if prices increases) because cost increases as quantity produced increases.

107. [How do you think the supply schedule for A.M. candies would look if the price of chocolate went up?]

The new supply schedule #2 is shown below in figure 4.11.

Table 4.11 Supply Schedule #2 - A Change in Cost┌──────────────────────┐│Price Quantity ││$1.10 4000 AG │ 4000 units quantity supplied at $1.00│$ .85 3000 AH │ 3000 units quantity supplied at $ .75│$ .60 2000 AI │ 2000 units quantity supplied at $ .50│$ .35 1000 AJ │ 1000 units quantity supplied at $ .25└──────────────────────┘

Quantity supplied refers to a specific quantity offered for sale at a specific price. The supply curve has an infinite number of quantity supplied points determined by each and every possible price of the product. Only four of those points are shown above in table 4.11 and below in figure 4.11. Supply represents the entire schedule shown in figure 4.11. This can be shown graphically in figure 4.11 below.Qs= 4000P - 400

Figure 4.11 Supply Schedule of Candy Bars #2 - A change in the price of

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chocolate108. [What other costs of production could change the

quantities offered at each price (shift supply)?]

109. [What happens to the supply schedule if the price of chocolate decreases?]

Assume an assembly line is created that allows the production of more candy bars with the same amount of labor. Assume the cost of setting up this assembly line is negligible. How will the above supply curve be affected? Any improvement in technology will act like a decrease in costs and increase quantities offered at each price (shift the supply curve to the right). This is shown in table 4.12 below.

Table 4.12Supply Schedule #3 - A Change in Technology

┌──────────────────────┐│Price Quantity ││$ .90 4000 AK │ 4500 units quantity supplied at $1.00│ .65 3000 AL │ 3500 units quantity supplied at $ .75│ .40 2000 AM │ 2500 units quantity supplied at $ .50│ .15 1000 AN │ 1500 units quantity supplied at $ .25└──────────────────────┘This can be shown graphically in figure 4.12 below.

Figure 4.12 Supply Schedule #3 - A Change in Technology

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Qs= 4000P +400Dollar PriceNow assume the government will tax candy manufacturers $.125

for each candy bar sold. This tax is called an excise tax. An

excise tax is a tax which is levied on specific commodities. This tax will act like an increase in cost and the price necessary to produced each unit will increase (shift to the left of the supply schedule). Given the firm is on supply schedule #4, the new supply schedule will be shown in table 4.13 and figure 4.13.

Table 4.13Supply Schedule #4 - An Excise Tax on Candy Bars

┌──────────────────────┐│Price Quantity ││$1.125 4000 AR │ 4000 units quantity supplied at $1.00│ .875 3000 AQ │ 3000 units quantity supplied at $ .75│ .625 2000 AP │ 2000 units quantity supplied at $ .50│ .375 1000 AO │ 1000 units quantity supplied at $ .25└──────────────────────┘This can be shown graphically in figure 4.13 below.

Figure 4.13An Excise Tax on Candy Bars

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Qs = 4000P - 500Supply Schedule of Candy Bars #5 - A government subsidy 5

cents per unit.

┌────────────────────────┐│Price Quantity ││$ .95 4000 AV │ 3500 units quantity supplied at $ .95│ .70 3000 AU │ 2500 units quantity supplied at $ .70

│ .45 2000 AT │ 1500 units quantity supplied at $ .45│ .20 1000 AS │ 500 units quantity supplied at $ .20└────────────────────────Qs = 4000P + 200

110. [Draw a supply curve for A.M. candies assuming the government gives the company 5 cents for each candy bar produced.]

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Assume A.M. Candies produces other snack foods such as potato chips. Assume also that A.M. Candies expects the profitability of potato chips to increase 12.5 cents relative to candy bars. 111/25/08 Cotton Can’t Weather the Downturn WSJ B1

111. [How would this change in expectations of the relative price and profitability of potato chips affect A.M. Candies= decision to produce candy bars? How has the opportunity cost of producing a candy bar changed?]

112. [How would this change in expectations of the relative price and profitability of potato chips affect A.M. Candies' decision to produce potato chips?]

The new supply schedule would shift from supply #1 to supply #6 as shown in figure below

┌─────────────────────────┐│ Price Quantity/per wk ││ S#1 S#6││$1.00 4000 AF │-4000 units quantity supplied at $1.00

│$1.125 4000 AF' │-3500 units quantity supplied at $1.00│ .75 3000 AE │-3000 units quantity supplied at $ .75| .875 3000 AE' │-2500 units quantity supplied at $ .75│ .50 2000 AD │-2000 units quantity supplied at $ .50│ .625 2000 AD' │-1500 units quantity supplied at $ .50│ .25 1000 AC │-1000 units quantity supplied at $ .25│ .375 1000 AC' │- 500 units quantity supplied at $ .25└─────────────────────────┘

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Black (AC,AD,AE,AF) - Original supply Green (AG,AH,AI,AJ) - Change in costRed (AN,AM,AL,AK) - change in technology Blue (AO,AP,AQ,AR) - change in an excise taxViolet (AS,AT,AU,AV) - change in the profitability of a other good or service

The Supply Schedule = F(C(Tx, Sb, Tc),Pr,#F) Changes in the price of the product never cause a change in the supply schedule.

C = Cost of production Tc = TechnologyTx = Excise Taxes Changes in theseSb = subsidies per unit of variables will cause Production a shift in the supply schedule and result inPr = Profitability on related a change in price Production assuming ceteris paribus

#Fr = Number of producers in the industry

Quantity Supplied is only affected by the market price. MARKET EQUILIBRIUM Pg 62

Applications of the demand and supply schedule.113. Assume the individual demand relationship is

represented by the graph on page 34 or the equation Qd=5-4P. The market supply relationship is represented by the graph on page 44 or equation Qs=4000P. What is the equilibrium price of candy bars?]

114. [List some alternative methods to ration goods other than price. Which of these methods of rationing goods would be most efficient and equitable?] Pg 97-105

Shortage of parking spaces on campus - Exponent Sept 19Shortage of student planners - Exponent 9/19/02 http://www.washingtonpost.com/wp-dyn/content/article/2010/10/11/AR2010101104496.html?hpid=topnews

In the market for candy bars the price of ice cream decreases and the candy makers union gets a wage increase.

In the market for candy bars the price of soda decreases and the price a chocolate increases.

In the market for candy bars today the state will place a $.50 tax on each candy bar tomorrow.

In the market for candy bars consumers become weight conscious and a new piece of capital equipment allows twice as many candy bars to be made in one hour.

Examples of excise taxes would be a tariff on the importation of foreign products and luxury taxes. The federal government in 1990, passed a 10% luxury tax on cars costing $30,000 or more and boats costing $100,000 or more. Recently this tax has been repealed.

115. [How will this affect the supply schedule of these expensive cars and boats?]

116. [How will cold weather in Florida affect the demand and supply for tomatoes?]3/3/10 Tomatoes Get Sliced From Menus WSJ B1

117. [If you are working for a manufacturer that produces luxury cars or boats, would you favor this law? Explain.]

118. [Who pays the Realtors fee?]

119. [How do demand and supply schedules relate to the questions of what, how and who?]

120. [Decide how each product market will be affected by the following events:

1. The surgeon general states cigarette smoke is dangerous.

2. You graduate from school and get a $40,000 per year job and you enjoy sea food.3. You win the lottery and enjoy seafood4. Price of quarter pounders increases relative to Big Macs.5. Restaurants start charging for catsup. 6. State of Wisconsin announces a snack tax of $.50 per bag effective next week.7. State of Wisconsin announces a snack tax of $.50 per bag effective immediately.8. Airline unions negotiates a wage increase.9. Tractors become more productive in planting corn10. Government gives farmers .$50 for each bushel of corn they produce.11. Price of wheat rises relative to corn.12. The number of dairy farmers decrease.]

Other applications of demand and supply1. free goods

airpollination7/11/08 To Be or Not To Be a Beekeeper WSJ A1

2. non-market goods3. Price ceilings and floors4. policy analysis

120. [How does airline pricing relate to demand and supply? 8/26/10 You Paid What for That Ticket WSJ

121. [Demand and supply questions 1-12 page 72-73]122. David Jones of Los Angeles's Water Conservation Team issues a warning

citation Friday because the homeowner allegedly was watering his flowers on the wrong day of the week and at the wrong hours of the day. The city also has an

anonymous hotline and email address to report water wasters, a practice some residents embrace and others disdain. WSJ 8/24/09 How does demand and supply relate to “water wasters”? Is there a better solution?

9/7/05 AIn Praise of >Gouging= WSJ A163/22/10 A Fight for Maui's Water WSJ A3

123. [8/22/02 ADiscounts on Power at Odd Hours@ WSJ Read this article from the Wall Street Journal. Illustrate the demand schedule and supply schedule for power during the day and the evening. Application] Microsoft word file -notes/scan WSJ 5/2/08 B1

124. [Does power discounts in the evening affect efficiency, equity, or market liberty? Analysis If yes, explain if efficiency, equity or, market liberty increases or decreases. Evaluation ]

5/19/10 Electricity: The New Math WSJ A610/18/10 High-Tech Cures for Water Shortages WSJ R1

Price is an efficient and equitable rationing mechanism in a competitive market place.

Why is price efficient? It produces technical and allocative efficiency - Pg 6 notes

STEP #1 - Should the U.S. set a price ceiling on oil?

STEP #2 - Transportation and heat are necessities of life. STEP #3 - List the predicted consequences of this proposed policy on efficiency, equity and liberty. Thoroughly discuss the assumptions behind any changes in efficiency, equity and liberty.

If this policy has benefits i.e., efficiency, equity and/or liberty increases, list them here and state the assumptions necessary for efficiency, equity, or liberty to increase. If this policy has costs i.e., efficiency, equity and/or liberty decreases, list them here and state the assumptions necessary for efficiency, equity and/or liberty to decrease.

Benefits of This PolicyASSUMPTIONS

1. equity increases 1. Sufficient oil is available no shortage develops

2. No Black Market develops3. enforcement

Costs of This PolicyASSUMPTIONS

1. efficiency decreases 4. Shortage develops (A)5. Other markets are affected (A)

2. equity decreases 6. Sufficient oil is not available7. Black Market Develops8. No enforcement

3. Liberty decreases

STEP #4 - Assess the validity of your assumptions in part 3 and make a decision regarding the most important benefits and costs of this policy, based on which assumptions appear to be the most feasible. Support your decision on which assumptions are most reasonable by using economic theory from this text.

123. [Which of the above assumptions do you believe are most valid?]

Assumption #3You must assume strict enforcement of this law. Government

realizes that a price floor with no exceptions would discourage firms from bringing to the market hard to reach oil. Oil that is very deep, must be extracted from shale or other rock, or oil from under the sea would not be brought to the market place. Therefore the government establishes two price floors one for old easy access oil and the other for new hard to reach oil.

124. [What is the incentive for oil companies under this two tiered pricing system?]

When oil is stored it is very difficult to determine if this oil came from old wells or new wells.

Assumption #4Given a normal downward sloping demand and upward sloping

supply curve a lower price of oil should have market incentive effects for producers and consumers. Consumers should react by

being less energy conscious and producers should be less willing to bring oil to the market place (quantity demanded increases and quantity supplied decreases).

Price answers questions of What, How, Who, and as a result affects efficiency and equity.

If the government uses price to answer the "who" question, it simultaneously affects the "what" and "How question.

AThe Misallocation of Housing Under Rent Control@ AER Sept 03

Chapter 5 ElasticityObjectives:1. Students will be able to compute arc elasticity of demand

2. Students will understand the determinants of elasticity of demand.

3. Students will be able to explain how elasticity of demand affects total revenue.4. Students will understand pricing decisions based on elasticity of demand.

ELASTICITY - Used to quantify the response in one variable when another variable changes. Pg 86

Relatively Elastic Ed > 1Relatively Inelastic Ed < 1Unitary Elastic Ed = 1

Midpoint formula Pg 101

Elasticity and total revenue Pg 93

Inelastic P x Q = TR Increases

Elastic P x Q = TR Decreases

Unitary Total revenue does not change

Determinants of Elasticity1. Availability of substitutes2. Percentage of our budget3. Time dimension Pg 94

125. [ Assume the local gas station believes the elasticity of demand for its= gas is -2.0 and the elasticity of demand for candy it sells is -.75. The store owner views gasoline and candy bars as complements. Explain. Application Devise a pricing policy for this owner for gasoline and candy given the above elasticities of demand. Application]

126. [What would be your estimate of the elasticity of demand for electricity? Analysis]

127. [If Wal-Mart lowers the price of gas 1 cent below its competitors, what do you think Wal-Mart estimates the elasticity of demand for gasoline to be? . Application

128. [Estimate the elasticity of the demand for gasoline]

Distributional and Efficiency Impacts of Increased US Gasoline Taxes AEA June 09

129. [Estimate elasticity of demand for heroin and cocaine. Application]

130. [The State of Wisconsin has increased the tax on cigarettes by one dollar (1/19/07). Why?]

131. [Will the tax increase revenue ceteris paribus? Why is ceteris paribus violated?]

Other elasticities1. Income2. Cross-Price3. Supply

130. [List 5 products that you think are relatively inelastic and relatively elastic]

131. [Problems 1-16 Pg 98-99]

1/99 AThe Great Trade Debate: From Rhetoric to Reality@ Fed of Chicago

Multilateral Trade negotiations: Issues for the Millennium RoundReview(fed of St Louis) July/Aug 2000

AThe Controversy over Free Trade: The Gap Between Economists and the General Public@ Review(Fed of St Louis) Jan/Feb 2002