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Economics 102 Chapter 2: In-Class Assignment Form into groups of three or four people. Since this is your first in-class assignment, take a few minutes to introduce yourselves. Then, do the following two questions. Write your answers as a group in the space provided. 1. We have described four factors of production: natural resources, labor, capital, and entrepreneurship. Think of any restaurant you have ever been to: Dennys, MacDonalds, Taco Bell, Pizza Hut, or any other. Write a list of some of the things used by that restaurant that would qualify as natural resources. Write a list of some of the things used by that restaurant that would qualify as labor. Write a list of some of the things used by that restaurant that would qualify as capital. Who is the entrepreneur in this restaurant and what does the entrepreneur do? 2. We have defined opportunity cost as the value of everything that is sacrificed when one decides to do something. You have decided to take Principles of Microeconomics this semester. What is the opportunity cost of this decision? Try to consider all of the sacrifices you expect to make. Then, try to put a dollar value on them so that you can determine exactly what you are giving-up. The opportunity costs are composed of: I estimate that the dollar value of the opportunity costs of taking Principles of Microeconomics is: $_____________________________________ Show how you arrived at this number. 3. This class is concerned with rational decision-making. This involves considering the marginal benefit and marginal opportunity cost for each unit. Form into groups. Discuss among yourselves how you would use the procedure for rational decision making in each of the following situations. Then write briefly in the space what you have concluded. 1. A family must decide how many children to have. 2. You have taken a quiz and received a grade of 3 out of a possible 10 points (F). You are allowed to take a second version of the quiz. If you do so, you can raise your grade to a maximum of 7 out of 10 (C) as long as your score on the second quiz is at least 7. Since you scored poorly on the first version, you will need to study carefully. There are 570 maximum possible points in the course. Will you take the second version of the quiz? Why? 3. You are driving home from Phoenix. You stop at a Dennys in a small town for dinner. You have never been in this small town before and are not likely to ever be there again. Your dinner is fine and so is the service. Your bill is $10. Use the procedures for rational decision-making to determine whether or not you will leave a tip for the person who waited on your table.

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Economics 100/102 Name________________________ Class 3: In Class Assignment 1. In each case, state whether you believe the demand for the product is relatively elastic or relatively inelastic? Then, provide reasons for your conclusion. 1. American Online (AOL).for access to the Internet as well as other services 2. Paying a bill by first class mail 3. Services of a doctor to fix a broken arm 4. Services of a doctor for plastic surgery (changing one's appearance) 5. Japanese automobiles (such as Toyota or Nissan) 6. A burger at MacDonalds 7. Use of cigarettes

8. Flights on American Airlines to see New York City as a tourist 9. Tickets to the movies 10. Courses at Palomar College

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Economics 102 Name______________________ Class #4 In Class Assignment The demand curve in Chapter 4 was drawn with the assumption that the population is two million people. This is repeated here as Quantity Demanded1. Now, assume that the population rises to 3 million people. The demand schedule changes and is shown below as Quantity Demanded2. Price Quantity Demanded1 Quantity Demanded2 $340,000 0 2000 1 $320,000 1000 3000 2 $300,000 2000 4000 3 $280,000 3000 5000 4 $260,000 4000 6000 5 $240,000 5000 7000 6 $220,000 6000 8000 7 $200,000 7000 9000 8 $180,000 8000 10000 9 $160,000 9000 11000 10 $140,000 10000 12000 11 $120,000 11000 13000 Plot the new points and draw the new demand curve on the same paper as used in Chapter 4. Show the relation between the original and the new demand curves. The new demand curve has shifted to the _______________ (right or left?) Besides the increase in population, then shift in the demand curve that you have depicted could have been caused by: 1. a/an ___________________(increase or decrease?) in the incomes of homebuyers 2. a/an ___________________(increase or decrease?) in the interest rates that people

will pay to borrow money to buy homes 3. a/an ___________________(increase or decrease?) in rents on apartments 4. a change in tastes so that buyers prefer homes _______________(more or less?) 5. buyers’ expecting that the prices of new homes will _______________(increase or

decrease?) in the near future

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Economics 102 Name_______________________ Chapter 6: In Class Assignment #1 In Chapter 4, you were given a demand schedule for new homes. Earlier in this chapter, you were given a supply schedule for new homes. These are repeated here. Price Quantity Demanded Quantity Supplied 1 $340,000 0 14,000 2 $320,000 1000 13,000 3 $300,000 2000 12,000 4 $280,000 3000 11,000 5 $260,000 4000 10,000 6 $240,000 5000 9,000 7 $220,000 6000 8,000 8 $200,000 7000 7,000 9 $180,000 8000 6,000 10 $160,000 9000 5,000 11 $140,000 10000 4,000 12 $120,000 11000 3,000 13 $100,000 12000 2,000 If the price of homes is $320,000, there will be a _______________(shortage or surplus?) equal to _____________________ homes. If the price of homes is $120,000, there will be a _______________(shortage or surplus?) equal to _____________________ homes. The equilibrium price is equal to $_________________ and the equilibrium quantity of homes is equal to ___________________. Draw the demand curve and the supply curve on the graph paper on the back of the page. Show the equilibrium price and the equilibrium quantity on the graph. In Chapter 5, there was a shift in the demand for new homes to the right. The data are given below. Price The quantity demanded is: The quantity supplied is Demand1 Demand2 1 $340,000 0 2000 14000 2 $320,000 1000 3000 13000 3 $300,000 2000 4000 12000 4 $280,000 3000 5000 11000 5 $260,000 4000 6000 10000 6 $240,000 5000 7000 9000 7 $220,000 6000 8000 8000 8 $200,000 7000 9000 7000 9 $180,000 8000 10000 6000 10 $160,000 9000 11000 5000 11 $140,000 10000 12000 4000 12 $120,000 11000 13000 3000

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Page 2 What is the new equilibrium price? $_______________ What is the new equilibrium quantity of new homes? ________________ Show the shift on the graph on the back of the page. Show the new equilibrium price and quantity of new homes. Because of the shift in the demand, there is now a _________(shortage or surplus?) equal to _________ new homes. This will cause the price of new homes to ________(rise or fall?). The change in the price will __________(increase or decrease?) the quantity demanded for new homes and ___________(increase or decrease?) the quantity supplied of new homes. In Chapter 6, there was a shift in the supply of new homes to the right. The data are given below: Price quantity demanded quantity supplied new quantity supplied 1 $340,000 0 14000 16000 2 $320,000 1000 13000 15000 3 $300,000 2000 12000 14000 4 $280,000 3000 11000 13000 5 $260,000 4000 10000 12000 6 $240,000 5000 9000 11000 7 $220,000 6000 8000 10000 8 $200,000 7000 7000 9000 9 $180,000 8000 6000 8000 10 $160,000 9000 5000 7000 11 $140,000 10000 4000 6000 12 $120,000 11000 3000 5000 What is the new equilibrium price? $_______________ What is the new equilibrium quantity of new homes? ________________ On a different graph on the next page, redraw the original demand and supply curves. Then, show the shift in supply. Show the new equilibrium price and quantity of new homes. Because of the shift in the supply, there is now a _________(shortage or surplus?) equal to _________ new homes. This will cause the price of new homes to ________(rise or fall?). The change in the price will __________(increase or decrease?) the quantity demanded for new homes and ___________(increase or decrease?) the quantity supplied of new homes.

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Economics 102 Name______________________ Chapter 6: Assignment 1. Assume that the market for automobiles begins in equilibrium. Draw the demand and supply curves for automobiles in the graph below. Label all axes and curves. Show the equilibrium price and quantity. Then, buyers’ incomes fall due to a recession. Make the appropriate change on the graph. Show the new equilibrium. When the new equilibrium is reached, the price of automobiles will have ___________(risen or fallen?) and the quantity of automobiles sold will have ___________________(risen or fallen?) Price of Automobiles ____________________________________

0 Quantity of Automobiles 2. Assume that the market for automobiles begins in equilibrium. Draw the demand and supply curves for automobiles in the graph below. Label all axes and curves. Show the equilibrium price and quantity. Then, there is an increase in the wages paid to automobile workers (a cost of production). Make the appropriate change on the graph. Show the new equilibrium. When the new equilibrium is reached, the price of automobiles will have ___________(risen or fallen?) and the quantity of automobiles sold will have ___________________(risen or fallen?) Price of Automobiles ____________________________________Quantity of Automobiles

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Economics 102 Name___________________________ Class #6: In Class Assignment #1 Assume there is a well defined geographic area of a city. The area is composed exclusively of apartments and is populated by low-income residents. The people who live in the area tend to stay in that area because (1) they cannot afford to live in other areas of the city, (2) they prefer to live with people of their own ethnic group, or (3) there is discrimination against them in other areas of the city. Rents paid are a very high percent of these people’s incomes. (!) Would the demand for apartments in this area be relatively elastic or relative inelastic? State why? (2) Would the supply of apartments in this area be relatively elastic or relative inelastic? State why? (3) Draw the demand curve and the supply curve as you have described them, showing the initial equilibrium price and quantity. Label carefully. Price 0 Quantity (4) Now assume that the government creates a rent supplement program. Under this

program, the renter is required to pay 30% of income in rent. Any additional rent is paid by the government – up to a limit. For example, a low-income person with an income of $500 per month would be required to pay $150 (30%) in rent. If the rent is $350, the other $200 would be paid by the government. Analyze the results of this program. Show the changes on the graph and explain what will result. Who gains and who loses from this program?

(5) Instead, assume that the government decides to provide a building subsidy to people who build apartments in this low-income area. A certain percent of their costs of production will be paid by the government. Analyze the results of this program. Show the results on the graph and explain what will result. (6) From the point of view of improving housing for the poor, which is the better program?

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Economics 102 Name_______________________ Class #6: In-Class Assignment #2 Consider the market for grains. (1) Is the demand for grains relatively elastic or relatively inelastic with respect to the price? Explain why. (2) Is the demand for grains relatively elastic or relatively inelastic with respect to income? Explain why. (3) Is the supply of grains relatively elastic or relatively inelastic with respect to the price? Explain why. (4) On the graph below, draw the demand and supply curves as you have described them. Show the equilibrium price and quantity. Price ________________________________ 0 Quantity of Grains

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Page 2 (5) Over time, the demand for wheat has shifted to the right. Why has this occurred? (6) Over time the supply of wheat has shifted to the right. Why has this happened? (7) Which do you believe has shift more over the past century: the demand curve or the supply curve? Explain why. Then, show these two shifts on the graph. (8) As a result of these two shifts, the price of wheat will ____________ (rise or fall?) Because of the price elasticity of demand for wheat, total revenues received by farmers will __________________(rise or fall?) The result is that the total profits of farmers will _________________(rise or fall?) (9) The market is sending a signal to the farmer. What is it telling the farmer to do?

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Economics 102 In Class Assignment for Class #10 Name___________________ In the class, there were several functions of government noted under laissez faire. For each of the following, state which function, if any, would be used to justify what government does. 1. Government provides Homeland Security _____________________ 2. Government requires you to have a smog control device on your automobile. _____________________ 3. Government requires warnings on cigarette packages of health dangers. _____________________ 3. Government has makes the city park available to all _____________________ 5. Government makes it illegal to drive faster than 65 miles per hour _____________________ 6. Government makes it illegal to use marijuana and cocaine. _____________________ 7. Government pays most of the cost for you to be a student at Palomar College. _____________________ 8. Government provides Social Security and Medicare for those who are age 65 and up _____________________ 9. Government has price supports for farmers _____________________ 10. Government subsidizes the arts and public television & radio _____________________ 11. Government zoning requirements tell you that you cannot have a business on your _____________________ property. 12. Government may require all employers to provide health insurance coverage for their workers. _____________________ 13. Government owns and controls certain forest areas (the national forests and the national parks) _____________________

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Economics 102 Name____________________ Chapter #11: In-Class Assignment 1. Earlier, the Farm Programs were described. Both the Price Support Program and the Acreage Restriction Program are example of price floors. In recent years, these programs have cost taxpayers $10 to $15 billion per year and have cost consumers perhaps another $10 billion per year in higher food prices. The beneficiaries of this program are farmers. However, only a small percent of farmers (large, corporate farms) get the vast majority of the benefits. As a group, use the principles of Public Choice to explain how a program that benefits so few people, costs so many people, and is economically inefficient has been able to exist for sixty years! 2. The class described bureaucracies and made the assumption that people in bureaucracies respond to the incentives they are provided. Palomar College is a bureaucracy. Here is a brief description of the incentives: (1) The Board of Governors (5 people) are elected by the people for four-year terms. (2) The administration is paid a fixed salary (on a scale). There are few promotion possibilities for administrators at Palomar, but some can gain promotion by moving to other colleges. Administrators can be fired as administrators but have tenure with the college. (If fired, an administrator would become a teacher.) (3) The teachers have tenure (cannot be fired except for cause, after a four year probation period) and are paid on a fixed salary scale. Teachers have very few promotion opportunities and rarely leave employment before retirement..

(4) The clerical and other employees (called "classified") are paid on a fixed scale that depends on the type of job. These people have more promotion opportunities than teachers, but lower pay. After a brief probation, they can only be fired for cause.

(5) The amount of money received by the college depends on the number of units taken by students. Up to a limit, the college receives a certain number of dollars for each student. These dollars are then allocated to each area of the college in proportion to its size. Based on these incentives, what kinds of behaviors would you expect to see? Relate your answer to any experiences you have had with the college. (If you are not familiar with Palomar College, the same set of incentives exist for your high school or any other college attended.)

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Economics 102 Chapter 22 In Class Assignment 1. Health care costs have been rising very fast. Such costs will rise either because the demand

for health care has been rising or the costs of producing hralth care have been rising (supply falling).

Name some reasons that the demand for health care might have been rising in recent years. Name some reasons that the costs of producing health care might have been rising in recent years.

2. In 1993, President Clinton proposed the following reforms of the health care system (these were not passed into law). What arguments can you make that these changes would have been good for society? What arguments can you make that these changes would have been bad for society? (1) All Americans would be guaranteed a comprehensive health insurance package.

(2) Individuals and families would receive coverage from a regional or corporate “health alliance”. There would be only one regional alliance in each geographic area, which would cover all people in that area not covered by corporate alliances (which could be formed only by companies with more than 5,000 employees).

(3) Each regional alliance would provide several plans from which individuals and families would choose. Doctors would be free to choose the plan or plans in wish they wish to work. (This is similar to what employers provide their workers today.) All of the plans would offer the same set of comprehensive benefits. They would differ in the amount people would pay themselves. The plans would be provided by private insurance companies or HMOs, as they are now. The Regional Alliance would only act as a broker between the patient and the plan.

(4) The premiums would be set by law. For 1994, the average would have been $1,932 for a single person, $3,865 for a couple with no children, and so forth. Employers must pay 80% of the average premium. Payments for part-time employees would be pro-rated --- if one worked half time, the payment would be half that of a full-time worker. Self-employed people must make their own payments. The individual or family would have to pay the difference between the employer payment and the premium. If he or she chooses a more comprehensive, and therefore expensive, plan, he or she must pay the difference. If he or she chooses a cheaper plan, he or she can keep the difference. Low-income people would receive discounts on their part of the premium. The government would limit the amount the premium can grow each year.

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Economics 102 Class #12 In Class Assignment Name___________________ 1. In the 19th century, there was major debate concerning the "diamond-water paradox". It was noticed that water, which is absolutely essential to the existence of life, has a value in the market that is very low (in fact, water is virtually free). On the other hand, diamond, which has uses that are much less important (industrial use, jewelry), has a value in the market which is very high. How do you explain this paradox? How does your answer illustrate the law of diminishing marginal utility? 2. A progressive income tax is a tax such that the percent of one's income that one pays in tax rises as one's income rises. Thus, a poor person may pay a very low percent of his income in tax while a rich person may pay a very high percent of her income in tax. Use the law of diminishing marginal utility to justify progressive income taxes, assuming that the goal of tax policy is that everyone should suffer equally from paying taxes.

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Economics 102 Class #13 In Class Assignment Janice decides to quit her $20,000 a year job and open a small store selling high fashion. To start her store, she takes $100,000 out of her savings account. She had inherited this money from her parents. During the first year, her expenses are as follows: Rent for the Store $15,000 Four Hired Workers $80,000 Clothes $100,000 Accounting Firm $3,000 Electricity $2,000 Insurance $5,000 Janice also works in the store ordering the clothes and doing some selling. During the first year, Janice’s store sold $250,000 worth of clothing. Her Explicit Costs were $___________________ Her Implicit Costs were $___________________ Her Total Economic Costs were $___________________ Her Fixed Costs were $___________________ Her Variable Costs were $___________________ Her Economic Profit was $___________________

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Economics 102 Name_______________________ Class #14: In Class Assignment #1 The following is a Production Function for sewing blue jeans per day. Capital Input Labor Input (Workers Per Day) 0 1 2 3 4 5 6 7 1 0 15 34 44 48 50 51 47 2 0 20 46 64 72 78 81 80 1. Calculate the Average Physical Product of Labor in Each Case: Labor Average Physical Product (One Machine) Average Physical Product (Two Machines) 1 2 3 4 5 6 7 2. Assume that there is only one sewing machine (short-run). Calculate the marginal physical product of labor: Labor Marginal Physical Product Marginal Cost 1 2 3 4 5 6 7 3. Assume that each worker is paid $80 per day ($10 per hour for an 8 hour day). Assume also that there are no other variable costs of production. In the chart above, calculate the marginal cost of production. (Hint: if one worker is paid $80 and produces 15 pairs of blue jeans, the marginal cost of each pair myst be $80 divided by 15 = $5.33.) If the marginal physical product is rising (falling), the marginal cost must be _____________ (__________).

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Economics 102 Name______________________ Chapter 14: In-Class Assignment #2 1. Fill in the following table: Total Total Average Average Average Variable Fixed Total Variable Fixed Total Marginal Quantity Cost Cost Cost Cost Cost Cost Cost 0 0 $180,000 $180,000 1 $160,000 180,000 340,000 2 300,000 180,000 480,000 3 420,000 180,000 600,000 4 560,000 180,000 740,000 5 720,000 180,000 900,000 6 900,000 180,000 1,080,000 7 1,100,000 180,000 1,280,000 8 1,320,000 180,000 1,500,000 9 1,560,000 180,000 1,740,000 10 1,820,000 180,000 2,000,000 11 2,100,000 180,000 2,280,000 12 2,400,000 180,000 2,580,000 1. Go back to the earlier assignment. What two costs comprise the total fixed cost of

$180,000? 2. Go back to the earlier assignment. Notice that the total variable cost is the same as

the one you were given earlier. How much of the total variable cost is the cost of natural resources and how much is the cost of labor?

3. Plot the average variable cost, average fixed cost, average total cost, and marginal

cost on the graph paper on the next page. Connect the points to form the four graphs.

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4. Describe in general terms the shape of the average variable cost curve. 5. Go back to the description of the reasons for increasing marginal returns and for

diminishing marginal returns. Describe why, for a home builder, the average variable cost would fall as the quantity rises (that is, why the cost of labor and natural resources to build each home would fall as more homes are built).

6. Then, describe why the average variable cost would rise as the quantity increases

beyond some point (that is, why the cost of labor and natural resources to build each home would rise as more homes are built).

7. Describe in general terms the shape of the average fixed cost curve. 8. Describe in general terms the shape of the average total cost curve. 9. Go back to your answers to questions 6 and 8. Describe why, for a home builder,

the average total cost would fall as the quantity rises (that is, why the cost of building each home would fall as more homes are built).

10. Then, go back to your answers to questions 7 and 8. Describe why, for a home

builder, the average total cost would rise as the quantity rises beyond some point (that is, why the cost of building each home would rise as more homes are built).

11. On an earlier assignment, you drew the marginal cost curve and related it to the

marginal physical product. Here, you are to relate it to the average total cost (and also to the average variable cost). Examine the numbers you calculated. For those quantities for which the average total cost (or average variable cost) is falling, the marginal cost is ________(above, below, or equal to) the average total cost (or average variable cost). For those quantities for which the average total cost (or average variable cost) is rising, the marginal cost is ________(above, below, or equal to) the average total cost (or average variable cost).

12. On your graph, the marginal cost crosses the average total cost (and also the average

variable cost) at which point on the average total cost (or average variable cost) ________________________________________.

13. If you produce 5 homes, the average total cost is $180,000. This means that it costs you $180,000 to build each of the homes. Go back to the earlier assignment. How much of this $180,000 of cost represents the costs of natural resources (wood, plasterboard, and so forth)? ________________ How much of this $180,000 of cost represents the cost of labor?_________________ How much of this $180,000 of cost represents the cost of capital goods?___________ How much of this $180,000 of cost represents the implicit costs? ________________

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Economics 102 Name______________________ Chapter #14: In-Class Assignment Assume that you and your family have recently arrived in the United States. You have decided to open a restaurant featuring the food of your former country. You borrow some money from other recent immigrants from the same country to start the restaurant. You use this money to rent a space in a mall and to buy the necessary equipment. The labor in the restaurant will provided by your family, including two adults and all children over age 10. Your food will be served in an "all-you-can-eat" buffet; every customer will pay a fixed price of $6.95. 1. What are your implicit costs? List what these costs would be. If you can, try to put a dollar value on them. 2. What are your explicit costs? List what these costs would be. If you can, try to put a dollar value on them. 3. Based on your answers above, what are your variable costs? List them. 4. Based on your answers to questions 1 and 2 above, what are your fixed costs? List them. 5. If you put dollar values on the costs in questions 1 and 2, calculate how many meals you would have to sell to have an economic profit of zero.

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Economics 102 Name____________________________ Chapter 15: In-Class Assignment 1. In Chapter 14, you calculated the costs as follows: Total Total Average Average Average Variable Fixed Total Variable Fixed Total Marginal Quantity Cost Cost Cost Cost Cost Cost Cost 0 0 $180,000 $180,000 1 $160,000 180,000 340,000 $160,000 $180,000 $340,000 $160,000 2 300,000 180,000 480,000 $150,000 $ 90,000 $240,000 $140,000 3 420,000 180,000 600,000 $140.000 $ 60,000 $200,000 $120,000 4 560,000 180,000 740,000 $140,000 $ 45,000 $185,000 $140,000 5 720,000 180,000 900,000 $144,000 $ 36,600 $180,000 $160,000 6 900,000 180,000 1,080,000 $150,000 $ 30,000 $180,000 $180,000 7 1,100,000 180,000 1,280,000 $157.143 $ 25,714 $182,857 $200,000 8 1,320,000 180,000 1,500,000 $165,000 $ 22,500 $187,500 $220,000 9 1,560,000 180,000 1,740,000 $173,333 $ 20,000 $193,333 $240,000 10 1,820,000 180,000 2,000,000 $182,000 $ 18,000 $200,000 $260,000 11 2,100,000 180,000 2,280,000 $190,909 $ 16,364 $207,273 $280,000 12 2,400,000 180,000 2,580,000 $200,000 $ 15,000 $215,000 $300,000 On graph paper, draw the average total cost once again. Label this Average Total Cost1. 2. Now assume that a larger company would mean that the total fixed cost would increase to $210,000. But the extra capital would reduce the need for workers, lowering the average variable cost by $5,000 per house. Calculate the new average total cost. Draw the new average total cost on the same graph and label it Average Total Cost2. On the graph, show the parts of the two average total cost curves that would be used to derive the long-run average total cost curve. Total Total Average Average Average Variable Fixed Total Variable Fixed Total Quantity Cost Cost Cost Cost Cost Cost 0 0 $210,000 $210,000 1 $155,000 210,000 365,000 $155,000 2 290,000 210,000 500,000 $145,000 3 405,000 210,000 615,000 $135.000 4 540,000 210,000 750,000 $135,000 5 695,000 210,000 905,000 $139,000 6 870,000 210,000 1,080,000 $145,000 7 1,065,000 210,000 1,275,000 $152,143 8 1,280,000 210,000 1,490,000 $160,000 9 1,515,000 210,000 1,725,000 $168,333 10 1,770,000 210,000 1,980,000 $178,000 11 2,045,000 210,000 2,255,000 $185,909 12 2,350,000 210,000 2,560,000 $195,000 At what quantity of homes will the company decide to have the larger company?_________

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3. Now consider a third choice --- a company that is even larger. Assume that the total fixed cost rises by another $30,000, to $240,000. Again assume that the additional capital reduces the need for workers, lowering the average variable cost by another $5,000 per house. Calculate the new average total cost for the larger company. Then, draw the average total cost curve on the same graph. Label this Average Total Cost3. Show the parts of the three average total cost curves that will be used to derive the long-run average total cost. Total Total Average Average Average Variable Fixed Total Variable Fixed Total Quantity Cost Cost Cost Cost Cost Cost 0 0 $240,000 $240,000 1 $150,000 240,000 390,000 $150,000 2 280,000 240,000 520,000 $140,000 3 390,000 240,000 630,000 $130,000 4 520,000 240,000 760,000 $130,000 5 670,000 240,000 910,000 $134,000 6 840,000 240,000 1,080,000 $145,000 7 1,030,000 240,000 1,270,000 $147,143 8 1,240,000 240,000 1,480,000 $155,000 9 1,470,000 240,000 1,710,000 $163,333 10 1,720,000 240,000 1,960,000 $173,000 11 1,990,000 240,000 2,230,000 $180,909 12 2,290,000 240,000 2,530,000 $190,000 At what quantity of homes will one buy the third sized company? __________________ 4. San Marcos Market is a grocery store of about 5,000 square feet. Stater Brothers is a grocery store of about 20,000 square feet. Stater Brothers can sell groceries at a lower price than San Marcos Market because its costs of production are lower. Explain why Stater Brothers’ costs of production are lower. That is, what cost advantages does Stater Brothers (or Vons or Albertsons) have just because it is a larger company? Name as many as you can.

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Economics 102 Name____________________________ Class 16: In-Class Assignment 1. In each case, state whether you believe the industry should be characterized as perfect competition, pure monopoly, monopolistic competition, or oligopoly. STATE YOUR REASONS. 1. Growers of avocados _____________________________ 2. Fast-food restaurants _____________________________ 3. Automobile Producers _____________________________ 4. Television stations _____________________________ 5. Computer manufacturers _____________________________ 2. Go back to the in-class assignment for Chapter 14. Assume now that all homes are the same and that each home produced will sell for a price of $200,000. Use the principles of rational decision-making to determine how many homes this builder will build. (To do this, you need to calculate the marginal revenue.) 3. Plot the marginal revenue curve on the graph you drew for the in-class assignment to Chapter 14. Show on the graph the quantity that will maximize the company's profits and the economic profits earned.

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Quantity Price Total Revenue Marginal Revenue Total Cost Marginal Cost 0 $200,000 $180,000 1 $200,000 $340,000 $160,000 2 $200,000 $480,000 $140,000 3 $200,000 $600,000 $120,000 4 $200,000 $740,000 $140,000 5 $200,000 $900,000 $160,000 6 $200,000 $1,080,000 $180,000 7 $200,000 $1,280,000 $200,000 8 $200,000 $1,500,000 $220,000 9 $200,000 $1,740,000 $240,000

10 $200,000 $2,000,000 $260,000

11 $200,000 $2,280,000 $280,000

12 $200,000 $2,580,000 $300,000

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Economics 102 Name_____________________ Class 17: In-Class Assignment 1. Go back to the number set for Chapter 14. Assume now that the market price falls to $160,000 per house. At this price, the profit-maximizing quantity is _________________. The economic profits equal $________________________. Since the maximum profit is negative (loss), should the company continue to produce in the short-run at the loss? Or should the company shut-down in the short-run? ________________________ EXPLAIN WHY. 2. Go back again to the number set for Chapter 14. Assume now that the market price falls to $120,000. At this price, the profit-maximizing quantity is ________________. The economic profits equal $_________________________. Since the maximum profit is negative (loss), should the company continue to produce in the short-run at the loss? Or should the company shut-down in the short-run? ________________________ EXPLAIN WHY.

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Page 2 Quantity Price Total Revenue Marginal Revenue Total Cost Marginal Cost 0 $160,000 $180,000 1 $160,000 $340,000 $160,000 2 $160,000 $480,000 $140,000 3 $160,000 $600,000 $120,000 4 $160,000 $740,000 $140,000 5 $160,000 $900,000 $160,000 6 $160,000 $1,080,000 $180,000 7 $160,000 $1,280,000 $200,000 8 $160,000 $1,500,000 $220,000 9 $160,000 $1,740,000 $240,000

10 $160,000 $2,000,000 $260,000

11 $160,000 $2,280,000 $280,000

12 $160,000 $2,580,000 $300,000

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Page 3 Quantity Price Total Revenue Marginal Revenue Total Cost Marginal Cost 0 $120,000 $180,000 1 $120,000 $340,000 $160,000 2 $120,000 $480,000 $140,000 3 $120,000 $600,000 $120,000 4 $120,000 $740,000 $140,000 5 $120,000 $900,000 $160,000 6 $120,000 $1,080,000 $180,000 7 $120,000 $1,280,000 $200,000 8 $120,000 $1,500,000 $220,000 9 $120,000 $1,740,000 $240,000

10 $120,000 $2,000,000 $260,000

11 $120,000 $2,280,000 $280,000

12 $120,000 $2,580,000 $300,000

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Page 4 3. Fill-in the following table. Assume there are 1,000 companies in this industry. Price Supply of One Company Market Supply Market Demand $140,000 10,000 160,000 9,000 180,000 8,000 200,000 7 7,000 7,000 220,000 6,000 240,000 5,000 260,000 4,000 280,000 3,000 300,000 2,000 320,000 1,000 340,000 0 Compare the market supply and the market demand to those of Chapter 4. Notice that they are the same. We have now derived the market supply that was given in Chapter 4. The equilibrium price is $________________and the equilibrium quantity is __________.

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Economics 102 Name______________________ Class 19 In-Class Assignment #2 1. Go back to the calculations and graph you did for the In-Class Assignment to Chapter 16. Now, assume that the fixed cost rises from $180,000 to $360,000. There is no change in a variable cost or in the price of homes ($200,000). Fill-in the following table with the new fixed cost replacing the original one: Quantity Total Total Total Average Marginal Marginal Variable Fixed Cost Total Cost Revenue Cost Cost Cost2 1 $160,000 $360,000 $520,000 2 300,000 360,000 660,000 3 420,000 360,000 780,000 4 560,000 360,000 920,000 5 720,000 360,000 1,080,000 6 900,000 360,000 1,260,000 7 1,100,000 360,000 1,460,000 8 1,320,000 360,000 1,680,000 9 1,560,000 360,000 1,920,000 10 1,820,000 360,000 2,180,000 11 2,100,000 360,000 2,460,000 12 2,400,000 360,000 2,760,000 The quantity of houses that now maximizes economic profits is _________________. The economic profit now equals $______________________. Show the changes on the graphs on the following pages. Make any changes to Marginal Revenue, Marginal Cost, or Average Total Cost. Show the new profit-maximizing quantity and the new economic profits.

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Page 2 1. Given the amount of economic profit that is earned now, in the long-run, sellers will

____________ (enter or leave?) the industry. As a result, the supply in the market will ____________ (increase or decrease?), which is a shift in the supply curve to the ____________ (right or left?).

Show this shift on your graph. As a result of this shift in supply, the price of the product will _________(rise or fall?). This will continue until the economic profits are equal to $_________. Show the long-run changes on your graph. In long-run equilibrium, the new equilibrium price is $___________ and the new equilibrium quantity is ____________. $ Marginal Cost Average Total Cost Price1 = Marginal Revenue1 0 7 Quantity of Homes One Representative Company

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$ Supply1 A 200 (Price1) Demand1 0 7000 Quantity of Homes

All Sellers Together (The Industry)

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Economics 102 Name__________________ Class 19 In Class Assignment #1 In Chapter 5, we had an increase in the demand for new homes. The data are repeated: Price Supply of One Company Market Supply Market Demand New Demand $140,000 4 4,000 10,000 12,000 160,000 5 5,000 9,000 11,000 180,000 6 6,000 8,000 10,000 200,000 7 7,000 7,000 9,000 220,000 8 8,000 6,000 8,000 240,000 9 9,000 5,000 7,000 260,000 10 10,000 4,000 6,000 280,000 11 11,000 3,000 5,000 300,000 12 12,000 2,000 4,000 320,000 13 13,000 1,000 3,000 340,000 14 14,000 0 2,000 Using the New Demand, the new equilibrium price is $___________________. Use this new price to fill in the table below. Quantity Price Total Revenue Marginal Revenue Total Cost Marginal Cost 0 $180,000 1 $340,000 $160,000 2 $480,000 $140,000 3 $600,000 $120,000 4 $740,000 $140,000 5 $900,000 $160,000 6 $1,080,000 $180,000 7 $1,280,000 $200,000 8 $1,500,000 $220,000 9 $1,740,000 $240,000

10 $2,000,000 $260,000

11 $2,280,000 $280,000

12 $2,580,000 $300,000

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To maximize profits, the individual company will now produce _______ houses. The total equilibrium market supply for all 1,000 companies is now ______ houses. Each individual seller is now earning an economic profit equal to $______________. Show the changes on the graphs. Make any changes to Marginal Revenue, Marginal Cost, or Average Total Cost. Show the new profit-maximizing quantity and the new economic profits. 2. Given the amount of economic profit that is earned now, in the long-run, sellers will

____________ (enter or leave?) the industry. As a result, the supply in the market will ____________ (increase or decrease?), which is a shift in the supply curve to the ____________ (right or left?). Show this shift on your graph.

As a result of this shift in supply, the price of the product will _________(rise or fall?). This will continue until the economic profits are equal to $_________. Show the long-run changes on your graph. In long-run equilibrium, the new equilibrium price is $___________ and the new equilibrium quantity is ____________. $ Marginal Cost Average Total Cost Price1 = Marginal Revenue1 1 7 Quantity of Homes

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One Representative Company

$ Supply1 A 200 (Price1) Demand1 1 7000 Quantity of Homes

All Sellers Together (The Industry)

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Economics 102 Class #20 In Class Assignment Name__________________ Let us consider a decrease in a variable cost of production. The variable costs are the costs of the natural resources and the labor. Let us assume that the productivity of the workers increases so that fewer workers are now needed to build houses. Our calculations become as follows (with all costs in thousands). Each worker is still paid $20,000. The natural resources cost is $20,000 per house. The fixed cost remains at the original $180,000. Natural Total Total Average Labor Resource Variable Fixed Total Total Marginal Marginal Quant Labor Cost Cost Cost Cost Cost Cost Cost Revenue 1 6 $120 $20 $140 $180 $320 $200 2 11 220 40 260 180 440 200 3 15 300 60 360 180 540 200 4 20 400 80 480 180 660 200 5 26 520 100 620 180 800 200 6 33 660 120 780 180 960 200 7 41 820 140 960 180 1,140 200 8 50 1,000 160 1,160 180 1,340 200 9 60 1,200 180 1,380 180 1,560 200 10 71 1,420 200 1,620 180 1,800 200 11 83 1,660 220 1,880 180 2,060 200 12 96 1,920 240 2,160 180 2,340 200 13 110 2,200 260 2,460 180 2,640 200 14 125 2,500 280 2,780 180 2,960 200 Fill in the table and compare your calculations to the original calculations in you made. Notice that a change in a variable cost of production affects both the average cost and the marginal cost. The average total cost and the marginal cost are both __________ (higher or lower?) than before. Draw the graph for the representative company in perfect competition and for the industry, beginning with a positive economic profit. Then, make the appropriate changes in average total cost and marginal cost on the graph. The company will maximize profits at that quantity for which the marginal revenue equals the marginal cost. This is now _____ houses. Show this as point b on the graph and label this number of houses q

2. At the price of $200,000 per house, the company would earn an economic

profit of $____________. One company increasing quantity will have no effect on the market price. But if all companies increase quantity (from 7,000 houses to _______ houses) , the result is to create a surplus in the market. (Remember that there are 1,000 companies in this industry.) On your graph of the situation for the industry (all companies together), the supply has ____________(increased or decreased?) because of the decrease in the variable cost (label the quantity desired to be produced by the industry as Q

2 ). The surplus causes the price to fall to P

2 ($180,000). Show this on the

graph.

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The individual company must now respond to the lower price. The price = marginal revenue line has shifted down. The individual company will now maximize profits at quantity _____ (q

3)

where the new marginal revenue equals the new marginal cost (point c). The total industry equilibrium is shown by point C with an industry quantity of ______ (Q

3). The individual

company is earning an economic profit equal to the $__________. Show the new economic profits on the graph. The analysis thus far has been confined to the short-run. In the long-run, there will be a response to the economic profits that are now being earned. Companies will ____________ (enter or leave?) the industry. The supply in the industry will shift ________ (right or left?) from Supply

2 to Supply

3). The price will ___________(rise or fall?) and the economic profits will

__________ (rise or fall?). This process will continue until the economic profits once again equal ______. This occurs at a price of $160,000 (price

3). Point D shows the equilibrium quantity for

the entire industry (Q4); point d shows the equilibrium quantity for the individual company(q

4)

which is __________ houses. When the new long-run equilibrium is reached, all of the benefit of the increase in workers' productivity will have gone to _____________.

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Economics 102 Name______________________ Class 20 In Class Assignment 1. You are given the following demand curve facing a monopolist. Fill-in the table. Price Quantity Total Marginal Average Marginal Revenue Revenue Total Cost Cost $340,000 0 320,000 1,000 $340,000 $160,000 300,000 2,000 240,000 140,000 280,000 3,000 200,000 120,000 260,000 4,000 185,000 140,000 240,000 5,000 180,000 160,000 220,000 6,000 180,000 180,000 200,000 7,000 182,857 200,000 180,000 8,000 187,500 220,000 160,000 9,000 193,333 240,000 140,000 10,000 200,000 260,000 120,000 11,000 207,273 280,000 The quantity the monopolist will produce is ________________. The price that will be charged is $_______________________. The economic profits that will be earned are $______________. 2. Draw the demand curve, the marginal revenue, the average total cost, and the marginal cost for the monopolist using the graph paper on the back of the page. For the demand and marginal revenue, you may use the data you calculated in question 1. Show on the graph the quantity that will be produced, the price that will be charged, and the economic profits. 3. Notice that, for the monopolist, the price of the product is greater than the

marginal revenue. Use the numbers in the table to explain why this is so.

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Economics 102 Name___________________________ Class #21 --- In-Class Assignment 1. Use the principles of price discrimination to explain the following: 1. Why do students and the elderly pay a lower price for movies than others? 2. Why does SDG&E charge a lower price to business users than to household users? 3. Why do long-distance companies charge a higher price to business users than to household users?

4. Other than cost savings, why do gasoline stations charge a lower price to people who pump their own gasoline than to people who have an attendant do it for them?

2. In this section, the reasons for the phenomenon of natural monopolies were described.

The bus system in North County is a natural monopoly while the airline industry is not. Using the reasons discussed in this section, explain why this is so.

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Economics 102 Name_________________________ Class 22--- In Class Assignment 1. In the graph below, draw the demand, marginal revenue, average total cost, and marginal cost for a movie theater in the 1970s. Assume the theater is in a monopolistically competitive industry in long-run equilibrium. $ ____________________________________ Quantity 2. Now show on the graph the result of the decrease in demand for movie theaters

that resulted from the invention, and subsequent popularity, of the VCR. Show what would occur in the short-run. Then, show what would occur in the long-run. Explain the changes you made. In each case, what happens to the quantity produced, the price, and the economic profits?

3. The movie theaters responded to the VCR by moving into large multi-plex theaters.

At first, six or eight theaters would be found in one structure. Now, twenty or thirty theaters may be found in one structure. The purpose of doing this is to lower costs so as to regain profitability. The building is used more efficiently if many parts of it are showing different movies. The workers, ticket takers, ushers, cleaners, etc. can also be used more efficiently. In each case, is the reduction in the cost a reduction in a fixed cost or in a variable cost? Show the results of these cost reductions on the graph --- in both the short-run and the long-run. Again, explain the changes you made. In each case, what happens to the quantity produced, the price, and the economic profits?

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Economics 102 Assignment for Class #23 Name___________________ Fill in the table below. Assume that all workers are hired in a perfectly competitive labor market at a wage of $9. Labor Total Product MPP Price MRP MRC 1 10 $1 2 21 1 3 33 1 4 44 1 5 54 1 6 63 1 7 71 1 8 78 1 How many workers will a profit maximizing employer hire? ______________ If the wage were to fall to $8, how many workers would be hired? ______ If the wage were to rise to $10, how many workers would be hired?______ In the graph below, draw the MRP curve and the MRC curve (assuming a wage of $9). Show the profit-maximizing number of workers hired. $ ___________________________________ 0 Number of Workers

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2. Would the demand for the following workers be relatively elastic or relatively inelastic? In each case, explain why. 1. Free agent football players try to raise their salaries by switching teams. Elastic or Inelastic? __________________________________ Why?____________________________________________________ 2. The Presidents (CEOs) of corporations try to get raises in their own salaries. Elastic or Inelastic?___________________________________ Why?____________________________________________________ 3. Those who run cash registers at grocery stores try to get increases in their wages. Elastic or Inelastic?___________________________________ Why?____________________________________________________

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Economics 102 Name______________________ Class #24: In Class Assignment One of the most significant social changes of the past 25 years has been the large increase in the labor force participation rate of married women aged 25 to 25 with small children (at least one child under six years old). Another significant social change has been the large increase in the labor force participation rate of students, age 14 to 22. Form into groups of three or four people. Review the concepts of "substitution effect" and "income effect". Then, as a group, use these concepts to try to think of as many reasons as you can for these changes in labor force participation rates. Try to think of at least three reasons: 1. 2. 3. 4. 5.

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Economics 102 Name_________________________ Class 25 In Class Assignment 1. Now that the main points concerning the determination of wages have been discussed, you will be put into groups. One set of groups will discuss the following question: on average, why are male workers paid higher wages than female workers? The second set of groups will discuss the following question: why has the wage gap between male workers and female workers narrowed considerable over the past 20 years? 2. Discuss the following: If a household had an annual income of each of the following, would

you consider the household “rich”? $1,000,000 _____ $ 500,000 _____ $ 250,000 _____ $ 125,000 _____ $ 100,000 _____ $ 75,000 _____ $ 50,000 _____

3. If you have not examined the data in the chapter, consider the following questions:

1. How much income did a household need in 2001 to be in the 80th percentile (80% of American households would have less income while 20% would have more income)? ___________________ 2. How much income did a household need in 2001 to be in the 95th percentile (95% of American households would have less income while 5% would have more income)? ___________________

3. Using your answer to question 1, what percent of American households would your group consider “rich”? _______________ 4. Based on your best guess as to your own family’s income in 2001, approximately what percentile in the income distribution did your family fall? Do this for each person in the group. ___________________

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Economics 102 Name_________________________ Class 26 In Class Assignment Form into groups of 3 or 4 people. Consider the following proposition: taxes should be raised on the richer people, with the money given as transfers to the poorer people, so as to make the distribution of income as equal as it was in 1967. Your group will be assigned to argue either for or against this proposition. Name as many arguments as you can for the position your are assigned. 1. 2. 3. 4. 2. In 1997, the poverty rate for the United States was 13.3%. But the poverty rate for California was 16.8%. Based on what you know about the causes of poverty and the type of people likely to be poor, what hypotheses can your group develop to explain why the poverty rate is higher in California? 3. Assume that you are a major policy maker in the United States. Your goal is to devise

policies to greatly reduce the incidence of poverty in the United States. What policies would you recommend? Why?

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Economics 102 Name_________________________ Chapter 29 In Class Assignment In Chapter 29, it was assumed that there were only two countries and two products. The cost of making a product in each country (that is, the amount of labor time) was given by the following: In Vineland In Cheeseheadland Labor Hours Required: 1 Bottle of Wine 15 hours 10 hours 1 Kilogram of Cheese 10 hours 4 hours 1. First, in the space below, draw the production possibilities curve for Vineland, assuming that there are 30 million hours of labor time available per year. Remember that the production possibilities curve shows all possible combinations of goods that can be produced. If all of the hours are devoted to wine, Vineland can produce _____ bottles of wine. If all of the hours are devoted to cheese, Vineland can produce _____ kilograms of cheese. If 15 million hours were devoted to wine and 15 million hours to cheese, Vineland can produce ____ bottles of wine and ____ kilograms of cheese. Show these on the graph below. Show the production possibilities curve as a solid line. Quantity of Wine

0 Quantity of Cheese 2. Second, in Vineland, each hour devoted to producing wine requires the sacrifice of ___ kilograms of cheese. This is the opportunity cost. In Cheeseheadland, each hour devoted to wine requires the sacrifice of ___ kilograms of cheese. This is the opportunity cost. Vineland has the absolute advantage in ______________. Cheeseheadland has the absolute advantage in _______________. (Choose wine, cheese, both, or neither). Page 2 Vineland has the comparative advantage in ______________. Cheeseheadland has the comparative advantage in _______________. (Choose wine, cheese, both, or neither).

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Vineland should export __________________ goods and it should import ________________ goods. 1. Third, imagine that Vineland specializes completely in wine. All 30 million hours were used

to produce wine. Vineland then trades 1 million bottles of wine to Cheeseheadland. In return, it gets back _____ kilograms of cheese from Cheeseheadland.

Is Rest of the World better-off with trade? Why? _____________________________ _____________________________________________________________________ 2. Finally, show the production possibilities curve with trade on the graph on page 1. Show

the new production possibilities curve as a dashed line. 3. The North American Free Trade Agreement (NAFTA) was described in the chapter. It created a Free Trade Area between the United States, Canada, and Mexico. Assume now, that there is a proposal to extend the Agreement to become the American Free Trade Agreement (AFTA). This means that there would be a Free Trade Area covering all of the Americas --- North America, Central America, and South America. Form into groups of four people. You are to debate whether the American Free Trade Agreement should be passed. Half of the groups will be assigned to debate in favor of an American Free Trade Agreement. The other half of the groups will be assigned to debate against an American Free Trade Agreement. Write down your arguments in the space below. Come up with as many as your group can. After you have discussed this in your group, the entire class will debate the proposition that an American Free Trade Agreement should be passed.

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