Transcript Document

August 22
• Class Introduction
– Roster, syllabus, grading, etc.
• What is Economics?
– 5 basic definitions
August 27
• What is Economics? (Continued)
– 5 basic definitions
• The Economic Way of Thinking
– Using Scare Goods is Costly
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Opportunity Cost 1
Individuals Economize 1
Incentives Matter 1 1a 2
Marginal Thinking
Good and bad economists
Normative and positive economics
August 29
• Economic Way of Thinking (Continued)
- What’s scientific about economics?
- Ceteris Paribus
• Chapter 2
• Voluntary Trade
– Transaction costs
• definition
– Middlemen
• Definition
• examples
September 3
• Property Rights
– Four good things
–1234
• Specialization and Division of Labor
– Adam Smith and The Wealth of Nations 1 2
– Pin Factory
– Law of Comparative Advantage
Last week (in case you missed it), El Economista newspaper of Madrid (Spain) reported a brewing trade war
between the European Union and China. Here’s an excerpt (translated with the help of Google):
From El Economista (July 2, 2013)
China Declares War on Wine
The Chinese government has decided to launch an investigation into the European wine sector with the
intention to apply a punitive tax if necessary, as Chinese authorities accuse wine producers in the
European Union (EU) of unfair trade tactics such as dumping and subsidies.
The temporary imposition of a tariff on Chinese solar panels by the EU started a trade war whose greatest
victim is wine.
"There is a thorough research on European wines for export, in all formats, whether bottled in barrels or in
bulk," say sources familiar with the process, which warned that the wineries are going to have to face a
complicated administrative processes that could derail Asian exports. And that is bad news for an industry
whose domestic sales in their home markets are already complicated by the financial crisis.
Chinese authorities have given wine exporters 20 days to register as companies subject to investigation, and if
they are not registered before July 21, China will automatically apply a punitive percentage.
Analyze the full cost of this trade war using David Ricardo’s Law of Comparative Advantage. Note: Your answer
should apply the two graphs similar to the ones utilized in class (as well as the book).
September 5
• Capitalism and Socialism 1 2
• Chapter 3:
– Consumer Choice and the Law of Demand
• Law of Demand
• Demand Schedule
• Demand Curve
– Consumer Choice and the Law of Demand (cont)
• Substitutes and Complements
• What affects Demand and Quantity Demanded?
September 10
• Producer Choice and the Law of Supply
– Profit and Loss
– Law of Supply 1
– Supply Schedule
– Supply Curve
– What Affects Supply and Quantity Supplied?
• Supply and Demand Interact
• Equilibrium Quantity and Price
• Competition and Perfect Markets
• Real World: Shortages and Surpluses 1
Test 1: September 12
Alabama plays Texas A&M this weekend in
College Station, Texas. Use the appropriate
diagrams to answer the following questions.
• This weekend, hotel rooms in College Station are
renting for $500 a night. On non-game weekends, they
rent for $100 per night. Why?
• What will happen to the availability of hotel rooms if
the College Station city government imposes an “antigouging” ordinance that caps rooms at $100 per night?
• Does this make people better or worse off? Why or
why not?
• How might hotel owners fix the problem the ordinance
causes?
• How might local residents solve the problem?
Which of the following Miley Cyrus
quotes best corresponds to a positive
economic statement?
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You appear like a dream to me.
Cuz I’m hot like that.
We won’t stop.
We can’t stop.
So la da di da di.
September 17
• Prices are signals
• Chapter 4: Some S+D Applications
• Resource or Input Markets
– Labor, money
• Input and Output Market Relationships
• Resource or Input Markets (Cont)
– Price Controls: ceilings and floors 1 2
– Definitions
• Rent controls and peanuts
• Blood and kidneys
September 19
• Resource or Input Markets (Cont)
– Tax Incidence
• Legal and economic incidence
• Deadweight loss
•1
• Chapter 5: Economic Role of Government
• Government Definitions 1
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September 24
Competitive Behavior
Consumption-Payment Link 1 2
Voluntarism vs. Majority Rule
Full Cost of Government 1
Protective and Productive Function
Competition and Antitrust 1, 2
• From the Washington Post (July 7, 2013) on some interesting
details of emails sent by Defense Information Systems Agency
(DISA) contracting and budget officers to their colleagues:
“Our available funding balances remain large in all
appropriations — too large to spend” just on small
supplemental funds often required by existing contracts, the
June 27 e-mail said. DISA’s budget is $2 billion.
“It is critical in our efforts to [spend] 100% of our available
resources this fiscal year,” said the e-mail from budget officer
Sannadean Sims and procurement officer Kathleen Miller. “It
is also imperative that your organization meets its projected
spending goal for June. . .”
• Full memo here.
September 26
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Competition and Antitrust (cont.) 1, 2
Externalities 1
Public Goods
Asymmetric Information 1
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From an article this week about Michael Jordon: Jordan, in a video for the NBA 2K14 game
that is being released today, says he’d like to have gone one-on-one against Jerry West, Elgin
Baylor, Julius Erving, Carmelo Anthony, Dwyane Wade, and [LeBron] James. Only one player
causes doubt to creep into his mind and even that guy does it in the most Michael Jordan
way ever. “I don’t think I would lose — other than to Kobe Bryant because he steals all of my
moves.”
Yes, no, and explain: Are Michael Jordan’s moves a public good?
October 1
• Chapter 6: The Economics of Collective Decision-Making, or
Public Choice
• Public Interest or Interest Group?
– Public Choice 1 2
• Rational Ignorance
– Why Vote? 1
– Reasons to vote
• Majorities and Bundling
• Test 2 on October 3
• The imposition of price ceilings on a market often results in
a. an increase in investment in the industry.
b. a persistent surplus in the market.
c. an increase in expenditures in the “extra legal” market.
d. lower prices being offered on the “extra legal” market.
• When a tax is imposed on a good,
a. the supply curve for the good always shifts.
b. the demand curve for the good always shifts.
c. the amount of the good that buyers are willing to buy at each price
always remains unchanged.
d. the equilibrium quantity of the good always decreases.
e. the good becomes a bad.
• A hurricane blows through New Orleans and destroys
windows throughout the city, causing the price of
new windows to skyrocket. A coalition of community
leaders has asked that the city place a price cap on
new windows because, in the words of the coalition,
“they shouldn’t be allowed to charge more than
their costs.” Using what you’ve learned this
semester, answer the following:
• a. Why are window makers likely to raise their
prices?
b. What concept of “costs” does the coalition
have in mind?
c. How will rising prices actually make more
windows available to the community?
d. What might local window makers do to
increase prices without angering the
coalition?
October 8
Chapter 6 (cont.)
• Special Interest Effect
– Welfare Effects 1
• Rent Seeking 1 2 3 4
From a January 4, 1979, newspaper op-ed by U.C.L.A.
labor economist Finis Welch:
“A mandated minimum wage is a kind of lottery in
which a worker must find employment at or above
the specified level. There is no constraint on the
number of jobs, but employers who would otherwise
pay some workers lower wages must pay the
minimum or not hire them. The result is that
winners receive increased wages and losers lose their
jobs. Paradoxically, the losers are those who would
have earned the least in any case.”
• From Tim Harford’s 2009 book,
The Logic of Life:
Three hundred million people [American consumers] are losing from the protection
for the sugar industry, and fifty thousand are gaining, with most of the gains going
to a very small elite. That seems an extraordinary and irrational outcome for a
democratic society to produce, but the apparent paradox should not be quite so
confusing. As we’ve seen in earlier chapters, individually rational behavior does
not necessarily lead to a socially rational outcome. As a voter, you can be excused
for being rationally ignorant of how you’re being hosed by the sugar industry:
Why bother making the effort to understand the issue and find out which
candidates at the next election are opposed to sugar subsidies? You might be
seething with righteous indignation, but your vote would likely have no effect
whatsoever. Even if it did penetrate your rational ignorance that sugar tariffs are
costing you six dollars a year in higher grocery bills, how much do you
care? Would you change your vote as a result?
October 10
• Ethics Assessment Here
• Time Horizons
• Wealth Transfers
Chapter 7: Demand and Consumer Choice
• Utility, Marginal Utility, and Marginal Benefit
• Diminishing Marginal Utility
• Computations 1
October 15
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Consumer Equilibrium (cont.)
Substitution and Income Effects
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Elasticity: Definition
Measurement
Equations 1
What Affects Elasticity?
October 17
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Income, Cross, and Supply Elasticity
Chapter 8: Producer Theory Assumptions
Types of Firms
Economic Costs and Profits
Car manufacturer’s total costs of producing cars:
a. What are the manufacturer’s fixed cost?
b. For each level of output, calculate the total variable costs, average variable costs, average total
cost, average fixed cost, and then marginal cost.
c. What are the minimum cost of output? (ATC is lowest at 8 units.)
d. Calculate marginal cost for each level of output.
October 22
• Economic Time
• Seven Short Run Costs
– TFC, AFC, TVC, AVC, TC, ATC
– Total and Averages Together
– MC
• Three Product Curves and the Law of Diminishing
Marginal Returns
• Test 3 on Thursday, Oct. 24
October 29
• 12
• Long Run Costs
– U-Shaped Curve and Different Short-Run Levels of
Output
– Economies of Scale 1 2 3
October 31
• Diseconomies of Scale
• Returns to Scale (RTS)
What Causes Cost Curves to Shift?
• 1
November 5
• Chapter 9: Price Takers and Perfect Competition
– Four assumptions
• Marginal Revenue and Marginal Cost
– How Much to Produce?
– Relation to Market Supply and Demand
• Average Total Cost and Profit and Loss
• Terms: Economic Profit, Normal Profit
November 7
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Economic Loss, Shutdowns 1, 2, 3, 4
Economic Losses and Shutdowns
Supply Curve for the Competitive Firm
Long Run Analysis
– Constant Cost Industries
– Increasing Cost Industries
• Perfect Competition as a Benchmark
Things to Think About
• Farmers are often heard to complain about
the high costs of machinery, labor, and
fertilizer, suggesting that these costs drive
down their profits. Does it follow that if, for
example, the price of fertilizer fell by 92
percent, farming (a highly competitive
industry with low entry barriers) would be
more profitable? Explain.
Things to Think About
• If the firms in a price-taker market are making
short-run profits, what will happen to the
market price in the long run? Explain.
• “In a price-taker market, if a business operator
produces efficiently—that is, if the cost of
producing the good is minimized—the
operator will be able to make at least a normal
profit.” True or false? Explain.
Things to Think About
• Suppose the government of a large city levies
a 5 percent sales tax on hotel rooms. How will
the tax affect
(a) prices of hotel rooms,
(b) the profits of hotel owners, and
(c) overall spending on hotel rooms (spending
that includes paying the tax)?
Things to Think About
• Suppose that the development of a new drought-resistant
hybrid seed corn leads to a 50 percent increase in the average
yield per acre without increasing cost to the farmers who use
the new technology. If the producers in the corn production
industry were price takers, what would happen to the
following?
– the price of corn
– the profitability of corn farmers who quickly adopt the new technology
– the profitability of corn farmers who are slow to adopt the new
technology
– the price of soybeans, a substitute product for corn
Things to Think About
• “When the firms in the industry are just able
to cover their cost of production, economic
profit is zero. Therefore, if demand falls,
causing prices to go down even a little bit, all
of the firms in the industry will be driven out
of business.” True or false? Explain.
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November 12
• “Things to Think About”
• Chapters 10 & 11: Price Searchers and
Monopolies
– Price searchers with low entry barriers and price
searchers with high entry barriers
– Pure monopoly definition
• Barriers to Entry (3)
November 14
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Graphical and Monopoly Profits (and Losses)
Price Discrimination
Oligopoly and Cartels 1
Monopolistic Competition (Contestable
Markets)
• Test 4: November 19
Problem
• A new musical group called Novella cuts a debut single, and a
record company determines the number of price points for
the group’s first single, “Mary’s Gun.” The record company
can produce the song with fixed costs of $10,000 and no
variable costs.
Price per download
Quantity of downloads
$2.99
25,000
$1.99
50,000
$1.49
75,000
$0.99
$0.49
100,000
150,000
– What is TR and MR at each price?
– What price would maximize the record company’s profits? How much
would the company make?
– If you were the agent for Novella, what signing fee would request from
the record company? Explain your answer.