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Chapter 8: Basic Macroeconomic Relationships

mikewilkes — Wed, 16 Dec 2009 13:09:08 CST

The Income Consumption / Income Saving Relationship

The consumption, saving schedule.
Average and marginal propensities to save/consume.
- APC=consumption/income
- APS=savings/income
- MPC=change in consumption/change in income
- MPS= change in savings/change in income
Non income determinants of consumption and saving.
- wealth
- expectations
- real interest rates
- household debt

The Interest Rate - Investment Relationship

Expected rate of return.
The real interest rate.
Investment demand curve.
Shifts of the investment demand curve.
- Acquisition, maintenance and operating costs
- business taxes
- technological change
- stock of capital goods on hand
- expectations

The Multiplier Effect

Explanation
Rationale
The multiplier and marginal propensities.

FRQ topics - Microeconomics

welkerjason — Thu, 03 Dec 2009 04:43:33 CST

2009-2002 exams are available HERE
2002-1999 exams are available HERE

To access exams, you must enter:

Username: saseconomics
Password: password

Year and form (A or B)	FRQ #1 topic	FRQ #2 topic	FRQ #3 topic
2009 A	Monopoly, price discrimination, subsidy, positive externalities	Supply and Demand, excise tax, PED, DWL and allocative efficiency	Oligopoly, game theory, payoff matrix, dominant strategy, subsidy
2009 B	Monopolistic Competition, MR=MC, shut-down rule, long-run equilibrium in imperfect competition, economies of scale	Utility Maximization, XED, income and substitution effects	Oligopoly, game theory, payoff matrix, dominant strategy, subsidy
2008 A	Perfect Competition, subsidy, long-run equilibrium, MR=MC	Utility maximization, PED, excise tax	Price ceiling, natural monopoly, allocative efficiency
2008 B	Natural Monopoly, MR=MC, Price ceiling, allocative efficiency, consumer surplus	Market failure, positive externalities, MSC/MPC, MSB/MPB. Excise tax	Diminishing returns, MRP=MRC, Resource markest
2007 A	Market models, Monopoly, tax vs. subsidy	PC Labor market, MRP=MRC, productivity	Oligopoly, game theory, payoff matrixes, dominant strategy, collusion
2007 B	Market models, monopolistic competition, MR=MC, elasticity, allocative efficiency	Oligopoly, game theory, payoff matrixes, dominant strategy, collusion	ATC vs. AVC, profit maximization and ATC, shutdown decision
2006 A	Market Models, Monopoly, MR=MC, elasticity, subsidy	MC, profit maximization, MR=MC, impact of tax	S&D, determinants of D, subsidies, determinants of S, externalities, socially optimal level of output
2006 B	Market models, Monopoly, MR=MC, shutdown decision	Perfect Competition, S&D, consumer and produce surplus, price ceiling	Labor Market, perfect competition, MRP=MRC
2005 A	Market Models, MR=MC, Perfect competition, barriers to entry	S&D, compliments, elasticity, consumer surplus DWL	Labor Market, Perfect competition, MRP=MRC, Diminishing marginal returns
2005 B	Market Models, MR=MC, Labor Markets, Monopoly, MRP=MRC	Market Models, MR=MC, Perfect competition, cost curves, SR supply curve	S&D, copmliments, elasticity, TR test
2004 A	Market Models, externalities, Monopoly, PC, allocative efficiency	S&D, trade and tariffs, consumer/producer surplus	Market Models, MR=MC, monopolistic competition, LR changes in fixed costs
2004 B	Market Models, MR=MC, monopoly, price/MR relationship, profits, elasticity	Tax incidence, S&D, elasticity	S&D, trade and tariffs, consumer/producer surplus
2003 A	Market models, externalities, MR=MC, P=MC	Market Models, MR=MC, monopoly, consumer surplus and DWL	Market Models, Labor market, MRP=MRC, productivity
2003 B	Market Models, MR=MC, PC/Monopoly, DWL, long-run profits	S&D, tariffs and trade, consumer/producer surplus	Labor market in perfect competition, MRP=MRC, changes in price and wages
2002 A	Market Models, Labor market, PC in product and labor markets, long-run PC	Negative externalities, S&D, free riders, MSC=MSB	Marginal utility, equimarginal principal, MU/P = MU/P = 1
2002 B	Market Models, MR=MC, PC, monopolistic competition, consumer/producer surplus	Negative externalities, S&D, MSC=MSB	Labor market, MRP=MRC, S&D, derived demand, price floor
2001	Perfect competition, MR=MC, price ceiling, supply curve in PC	Negative externalities, P=MC, S&D, socially-optimal output level	Labor market, MRP=MRC, PC
2000	Market models, MR=MC, PC/Monopoly, allocative efficiency	Labor market, MRP=MRC, costs, profit	S&D, tariffs and trade, world price, substitute goods, elasticity
1999	S&D, substitute goods, derived demand	Comparative and absolute advantage, PPC, grid for comp. advantage, terms of trade	Market models, MR=MC, PC/Monopoly, relationship b/w MR and P

Macroeconomics

welkerjason — Thu, 03 Dec 2009 03:57:44 CST

Below are the chapters we will cover in during our unit on Macroeconomics. Key Questions from the end of each chapter must be completed and turned in at the end of each unit to earn the unit's 10 point homework grade.

Click on the Unit link to visit that unit's main Wiki page.

Click on the Chapter links to visit that chapter's website, where you can access lots of study tools to enhance your understanding of the chapter's topics.

To access premium content on the text's Online Leraning Center, you need to enter the following information:

Username: welkerjason@yahoo.com
Password: password

Intro to Economics and Microeconomics

welkerjason — Thu, 03 Dec 2009 03:38:08 CST

Research Project: Microeconomics Podcast - CLICK HERE

Below are the chapters we will cover in during our semester of Microeconomics. Key Questions from the end of each chapter must be completed and turned in at the end of each unit to earn the unit's 10 point homework grade.

Click on the Unit links to visit that unit's main wiki page.

Click on the Chapter links to visit that chapters website, where you can access lots of study tools to enhance your understanding of the chapter's topics.

To access premium content on the text's Online Leraning Center, you need to enter the following information:

Username: welkerjason@yahoo.com
Password: password

Four Market Models

DrewBV — Wed, 02 Dec 2009 02:27:15 CST

From most competitive to least competitive:

Pure Competition:

Involves very large numbers of firms producing identical products.
Standardized product (a product identical to that of other producers--ex. corn or cucumbers).

no attempt to advertise or differentiate

Free Entry and Exit: no significant legal, technological, financial, or other obstacles prohibiting new firms from selling their output in any competitive market
No control over the price: "Price Takers"
(i.e. the firms have no market power) .
- The individual firm has very little to no impact on the market.
Demand is perfectly elastic.

Maximizes productive and allocative efficiency.

ex. Agriculture
pure competition markets do not actually exist.

Note: Pure competition does not actually exist in our society, and the agriculture industry is the closest industry to being purely competitive. The pure competition model is used as a standard to evaluate the efficiency of our economy (something to compare to and help our understanding of economy.)

Monopolistic Competition:

Involves large number of firms, but not as many as in pure competition.
Produces differentiated products (ie. clothing, furniture, books)
- Nonprice competition - a selling strategy in which firms try to distinguish their product or service on the basis of attributes such as design and workmanship (product differentiation)
- Focuses mostly on advertising, brand names, and trademarks
Firms can easily enter or leave this market, although not as easily as firms in a purely competitive market.
Imperfect Competition.
Limited control over prices
- ex. retail trade, dresses, shoes

Oligopoly:

Involves a few firms that exert considerable influence over the industry
Produces either standardized or differentiated products.
NONPRICE COMPETITION: emphasis on product differentiation
Existing firms are strong rivals and affects each other's price and output.
Control over price limited by mutual interdependence; considerable with collusion (the decision of rivals).
Harder for a firm to enter or exit.
Imperfect competition.

A great deal of nonprice competition, especially with differentiated products
- ex. steel, automobiles, household appliances

Pure Monopoly:

Only one firm is involved.
Products are unique with no substitutes.
NONPRICE COMPETITION: mostly public relations
Entry of additional firms is not possible--one firm constitutes the entire industry.
Entry to the industry is often blocked by government. It requires patent or licenses.
Since the monopolist produces a unique product, it makes no effort to differentiate its product.
Imperfect Competition.
There is total control over price "Price Makers"
- ex. local electric utility
- Oil, John D. Rockefeller
- diamonds

Long-run Production Costs

welkerjason — Thu, 26 Nov 2009 02:20:16 CST

The Long-run:

Period of time long enough for firms to change the quantities of all resources employed including capital and new factories.
In the long run, there is no distinction between FC and VC because all resources (therefore costs) are variable in the long run
In the long run, an industry and the individual firms it comprises can undertake all desired resource adjustments or in other words, they can change the amount of all inputs used.
The long run allows sufficient time for new firms to enter or for existing firms to leave an industry.

Firm size and costs
Change from small scale to large scale, ATC will decrease at first, but it increase after.

All resources and costs are variable

The long-run cost curve

The green, orange, yellow, pink, blue curves are separate short run curves. The long run curve is created by combining all the lowest ATC at any output of the short run curves.
* If the number of possible plant sizes is very large, the long-run average-total-cost curve approximates a smooth curve. Economies of scale, folowed by diseconomies of scale, cause the curve to be U-shaped.

Economies and Diseconomies of Scale
Economies of Scale: The period of time where there is a decrease in average costs of production, due to increase in plant size. The workplace becomes more efficient because of the following:

Labor Specialization: as plant size increases, more workers are hired and labor becomes increasingly specialized. workers work fewer and fewer tasks and thus become more skilled at those tasks, and production is efficient
- For example: Workers assemble specific parts of cars in an assembly line. Compared to many workers working on one car at a time, the assembly line is much more efficient.
- Workers become more proficient in their specialized area, making him highly efficient in that one area.
- Greater labor specialization eliminates the loss of time that comes with each worker's shift from one task to another.
Managerial Specialization: a larger plant means an increasingly specialized management.
- For example, sales specialists will solely supervise sales, marketing specialists will solely supervise marketing. Overall, efficiency increases and unit costs decrease
Efficient Capital: larger plants can afford better, more efficient equipment
Other: advertising costs fall per unit of output as more units are produced and sold. Production and marketing skills increase as the firm produces and sells more output. (learning by doing)

Example: The Daily Newspaper.
Reporters, delivery trucks, photographers, editors, management, printers, and all the paper resources go into making a newspaper. However, in most large cities, this newspaper only costs 50 cents. The reason for this is that the fixed costs are spread out and that economies of scale is achieved. The large number of consumers allows the publisher to specialize labor and large printing presses.

Diseconomies of Scale: The difficulty of efficiently controlling and coordinating a firm's operations as it becomes a large-scale producer. (The beast becomes too big to handle!)

Overexpansion of management leads to:
- Bureaucratic red tape
- Miscommunication
- Slower decision-making
- Lower action in the face of changes in consumer tastes or technology
Workers are more inclined to slack or shirk if they are far removed or alienated from employers. This also leads to greater dissatisfaction with work. More costs are needed to hire more managers.
- A good example of this is with General Motors. It became far too big to handle, and thus split into smaller, far more profitable companies such as Cadillac etc.

Constant Returns to Scale:

exist between where economies of scale end and diseconomies scale begin.

long run AC(average cost) does not change --> ATC range constant

5 types of Economies of Scale:
1. Managerial Economies of scale:
The ability of a business to outsource and hire new people depending on its size
2. Technological:
The ability of a business to require new capital
3. Marketing:
The ability of a business to get discounts for supplies
4. Financial:
The ability to get loans from banks or use assets in order to purchase more technology
5. Risk Bearing:
The ability of a company to diversify

Minimum efficient scale and industry structure

Minimum efficient scale: lowest level of output at which a firm can minimize its long-run ATC. This is where economies of scale are reached and where, past this point, diseconomies of scale beging to appear. The shape of the LATC and where the MES lies determines the industry structure.

LATC1: Where economies of scale are reached quickly and where diseconomies of scale quickly begin, i.e. where MES is reached at a low level of input, the industry supports many small producers.
- Examples: apparel, food processing, furniture, wood products, snowboard, and small-appliance industries
LATC2: Where economies of scale exist over a wide range and MES occurs only at high output, efficient production will only be achieved by a few very large firms. Smaller firms, unable to produce at small quantities efficiently, cannot compete. This can, in extreme cases, lead to a natural monopoly.

Examples: the aircraft, information technology and internet service provider industries.
A natural monopoly is a relatively rare market situation in which average total cost is minimized when only one firm produces the particular good or service.

LATC3: Where there is an extended range of constant returns to scale, many quantities produced have the same level of efficiency, allowing for many firms of different sizes to coexist.
- Examples: the apparel, small-appliance and furniture industries.

Price Elasticity of Demand

welkerjason — Wed, 25 Nov 2009 03:17:50 CST

The Price-Elasticity Coefficient and Formula:

Price elasticity of demand = consumers' responsiveness/sensitivity to a product's price change
- A product is elastic if a small change in its price elicits very large changes in the quantity demanded.
- - Movement on the demand curve
    ex. products that are not required in people's daily lives are often elastic products. (not necessity but luxury)
- A product is inelastic if a big price change elicits very little influence on the quantity demanded.
  - Minimal movement on the demand curve
  - ex. products that are required in people's daily lives are often inelastic products. (not luxury but necessity)
It is important to keep in mind that elasticity involves percentage change in price and quantity demanded; not absolute change.

Midpoint Formula for calculating elasticity:

We use the formula in computing the price-elasticity coefficient.

Ex: A change of $4-$5 along a demand curve is a 25% increase, but the opposite price change from $5-$4 along the same curve is a 20% decrease. Since elasticity should be the same whether price rises or falls, the midpoint formula is needed.

This formula simply averages the two prices and the two quantities as the reference points for computing the percentages.

Ex: the reference point for the $5-$4 and $4-$5 price range is $4.50.

Eliminates the "up vs. down" problem

Drop the negative sign.

Ed = %Change in quantity ÷ %Change in price
(Sum of quantities/2) (Sum of prices/2)

Interpretations of Ed:

Elastic: Ed> 1 ; When % change in price elicits a larger % change than from change in quantity demanded

When price increase 20%, quantity demand decrease more than 20%

Inelastic: Ed < 1 ; When % change in price elicits a smaller % change than % change from quantity demanded

When price increase 20%, quantity demand decrease less than 20%

Unit elasticity: Ed = 1 ; When % change in price will cause the exact same % change in quantity demanded; i.e. % change in quantity demanded = % change in price.
Perfectly Inelastic: If a price change creates no change at all in quantity demanded.
- Ed= 0, change in price is irrelevant to demand.
- Graph: Demand line = parallel to the vertical axis.
- Example: Insulin for diabetes; insulin is essential for diabetics to live, therefore, if the price increases by any amount they still have to buy it.
Perfectly Elastic:

Ed= Infinite; a small price reduction causes buyers to change purchases from zero to all they can get.
Graph: Demand line = parallel to the horizontal axis.
Example: Gift certificates; if gift certificates that are worth $100 are being sold for $90 people will buy as much as they can because they are getting a free $10.

The Total-Revenue Test:

Total Revenue = Total amount a seller receives for a product during a certain time period.
- TR = Price x Quantity demanded and sold
Total revenue and price elasticity of demand are related (see below) .

Price Elasticity and the Total-Revenue Curve:

Elastic (Ed>1)	Price ↑; TR ↓ Price ↓; TR ↑ [Price and revenue move in opposite directions]	Percentage of quantity demanded is larger than percentage on change of price
Inelastic (Ed<1)	Price ↑; TR ↑ Price ↓; TR ↓ [Price and revenue move in same direction]	Percentage of the average quantity demanded is smaller than percentage of the average price
Unitary (Ed=1)	Price ↑; TR unchanged Price ↓; TR unchanged	Percentage of the average quantity demand = percentage of average price

Price Elasticity along a Linear Demand Curve: elasticity varies in different price ranges of the same demand curve.

Determinants of Price Elasticity of Demand:
(remember SPLAT!)

1. Substitutability: Direct relationship between the number of substitute goods of a product and the elasticity of the product

# of substitutes up = elasticity up
# of substitutes down= elasticity down

(ex): If Reebok running shoes are the only choice of running shoes available, its number of substitutes is low and people would not be very sensitive towards its price changes because they need running shoes anyway. Hence, elasticity goes down.
If other companies such as Nike and Adidas start to manufacture running shoes as well, the number of substitutes would go up and if Reebok still increases its prices, people would buy the substitutes instead. Hence, elasticity goes up.

2. Proportion of Income: If other things are equal, there's a direct relationship between the price of good relative to income and the elasticity of demand of the good.
The higher the price of a good relative to consumer's incomes, the greater the price elasticity of demand.

(ex) Price of toothpaste up by 10% = few dollars extra. Consumers will still buy the toothpaste since its still relatively cheap.
Price of sports car up by 10% = few thousand dollars extra. Consumers will react sharply to the price increase because the original price of the good is already so high.

3. Luxuries vs. Necessities:
Necessities = inelastic, we NEED it no matter what price; ex: food
Luxuries = elastic, we can do without it; ex: Designer handbag

4. Addictiveness: If the product is very addictive (i.e. cigarettes) people will continue to buy the product regardless of price

5. Time: Basically,
Short time (Less durable) to consider whether to buy a product = inelastic. No time to adjust to price change
Long time ( durable) to consider whether to buy a product = elastic. Plenty of time creates consumer sensitivity (The longer the time the more elastic the good becomes.)

Applications of Price Elasticity of Demand:

Large crop yields:

Demands for a majority of farm products are mostly inelastic, with Ed around 0.20 or 0.25.
An increase in output of farm products causes a decrease in their prices and the incomes of farmers.
- Therefore, farmers find large crop yields undesirable

- The government focuses on products with high Ed
  - If products with high elasticity are greatly affected by taxes enforced by the government, total revenue of these products will decrease and affect the market greatly.
  - Higher taxes on elastic products are therefore undesirable.
Decriminalization of Illegal Drugs:
- Debates have been going on about whether or not drugs should be legalized, like alcohol and cigarettes. Many are now saying that the government is losing too much money on the war against drugs: the need for more prison cells, a larger police force and the increasing number of people dying. If drugs are legalized, the government could gain some money through taxes.
- Some argue that drugs are more elastic than people think. Besides the portion of consumers that are inelastic, there are also some people who are "occasional users" and can abstain from or substitute drugs with other things such as alcohol.

AP Macroeconomic FRQ topics

welkerjason — Tue, 10 Nov 2009 06:21:19 CST

	1	2	3
2009 B FRQ/Rubric	AS/AD, Phillips Curve, Fiscal Policy, Long Run Adjustment	Multiple Deposit Expansion, Inflation, Money Market	FOREX, Loanable Funds
2008 FRQ/Rubric	Phillips Curve, Budget, Multipliers, Loanable Funds, Growth	Balance of Payments, FOREX	Trade
2008 B FRQ/Rubric	AS/AD, Fiscal policy, Loanable Funds, FOREX	Trade Barriers, Balance of Payments	GDP, Inflation
2007 FRQ/Rubric	Money Market, FOREX, AS/AD	Monetary Policy, Multiple Deposit Expansion, Nominal v. Real Interest rates	GDP
2007 B FRQ/Rubric	AS/AD, Money Market, Long run adjustment	Loanable Funds, Growth	Balance of Payments, FOREX
2006 FRQ/Rubric	AS/AD, FOREX	Money Market, Loanable Funds, Nominal v. Real interest rates	Unemployment, Phillips Curve
2006 B FRQ/Rubric	AS/AD, Long run adjustment, Loanable Funds, Growth	Multiple Deposit Expansion	FOREX
2005 FRQ/Rubric	AS/AD, Monetary Policy, Nominal v. Real interest rates	Loanable Funds, FOREX	Phillips Curve
2005 B FRQ/Rubric	Policy Mix, AS/AD, Phillips Curve	Growth	Loanable Funds, FOREX
2004 FRQ/Rubric	AS/AD, Monetary Policy, Long run adjustment	Interest rates, FOREX	Multiple Deposit Expansion
2004 B FRQ/Rubric	AS/AD, Phillips Curve, Monetary Policy, Supply – side	Balance of Payments, FOREX, interest rates, investment	Trade
2003 FRQ/Rubric	AS/AD, Policy Mix	Inflation	Trade
2003 B FRQ/Rubric	AS/AD, Fiscal Policy, Loanable Funds, FOREX, Growth	Trade	Phillips Curve
2002 FRQ/Rubric	Policy Mix, AS/AD	Growth	Balance of Payments, FOREX
2002 B FRQ/Rubric	AS/AD, Policy Mix, FOREX	Consumption & Saving, Loanable Funds, Growth	Balance of Payments, FOREX
2001 FRQ/Rubric	AS/AD, Fiscal Policy, Supply-side, Growth	Interest rates, FOREX	Multiple Deposit Expansion
2000 FRQ/Rubric	AS/AD, Fiscal Policy, Investment	FOREX	Money Market, AS/AD
1999 FRQ/Rubric	Interest rates, FOREX, AS/AD, Policy Mix	GDP, Growth	Growth

AP Macroeconomics Syllabus

welkerjason — Tue, 03 Nov 2009 06:29:33 CST

Semester 1:
(the percentages indicate the proportion of the multiple choice AP exam will be consist of questions from each section)

Unit 1: Basic Economic Concepts – 8-14%

Scarcity, choice, and opportunity cost
Production possibilities curve
Comparative advantage, absolute advantage, specialization, and trade
Economic systems
Property rights and the role of incentives
Marginal analysis

Unit 2: The Nature and Functions of Product Markets - 55-70%
A. Supply and demand – 9 days. 15 - 20%

Market equilibrium
Determinants of supply and demand
Price and quantity controls

Unit 3.1: Measurement of Economic Performance - 12–16%
A. National income accounts

1. Circular flow

2. Gross domestic product

3. Components of gross domestic product

4. Real versus nominal gross domestic product

B. Inflation measurement and adjustment

1. Price indices

2. Nominal and real values

3. Costs of inflation

C. Unemployment

1. Definition and measurement

2. Types of unemployment

3. Natural rate of unemployment

Unit 3.3: National Income and Price Determination - 10–15%
A. Aggregate demand

1. Determinants of aggregate demand

2. Multiplier and crowding-out effects

B. Aggregate supply

1. Short-run and long-run analyses

2. Sticky versus flexible wages and prices

3. Determinants of aggregate supply

C. Macroeconomic equilibrium

1. Real output and price level

2. Short and long run

3. Actual versus full-employment output

4. Economic fluctuations

Unit 3.4: Financial Sector - 15–20%
A. Money, banking, and financial markets

1. Definition of financial assets: money, stocks, bonds

2. Time value of money (present and future value)

3. Measures of money supply

4. Banks and creation of money

5. Money demand

6. Money market

7. Loanable funds market

B. Central bank and control of the money supply

1. Tools of central bank policy

2. Quantity theory of money

3. Real versus nominal interest rates

Unit 3.5: Inflation, Unemployment, and Stabilization Policies - 20–30%
A. Fiscal and monetary policies

1. Demand-side effects

2. Supply-side effects

3. Policy mix

4. Government deficits and debt

B. Inflation and unemployment

1. Types of inflation

a. Demand-pull inflation

b. Cost-push inflation

2. The Phillips curve: short run versus long run

3. Role of expectations

Unit 3.6: Economic Growth and Productivity - 5–10%
A. Investment in human capital
B. Investment in physical capital
C. Research and development, and technological progress
D. Growth policy

Unit 4: Open Economy: International Trade and Finance -10–15%
A. Balance of payments accounts

1. Balance of trade

2. Current account

3. Capital account

B. Foreign exchange market

1. Demand for and supply of foreign exchange

2. Exchange rate determination

3. Currency appreciation and depreciation

C. Net exports and capital flows
D. Links to financial and goods markets

AP Economics Syllabus

welkerjason — Tue, 03 Nov 2009 06:26:55 CST

Semester 1: Microeconomics
(the percentages indicate the proportion of the multiple choice AP exam will be consist of questions from each section)

Unit 1: Basic Economic Concepts – 8-14%

Scarcity, choice, and opportunity cost
Production possibilities curve
Comparative advantage, absolute advantage, specialization, and trade
Economic systems
Property rights and the role of incentives
Marginal analysis

Unit 2: The Nature and Functions of Product Markets - 55-70%
2.1. Supply and demand – 9 days. 15 - 20%

Market equilibrium
Determinants of supply and demand
Price and quantity controls
Consumer surplus, producer surplus, and market efficiency
Tax incidence and deadweight loss

2.2 Elasticity

i. Price, income, and cross-price elasticities of demand
ii. Price elasticity of supply

2.2.1. Theory of consumer choice – 5-10%

1. Total utility and marginal utility

2. Utility maximization: equalizing marginal utility per dollar

3. Individual and market demand curves

4. Income and substitution effects

2.3. Firm behavior and market structure -25-35%

2.3.1. Production and costs -10-15%

1. Production functions: short and long run

2. Marginal product and diminishing returns

3. Short-run costs

4. Long-run costs and economies of scale

5. Cost minimizing input combination
6. Profit:

a. Accounting versus economic profits

b. Normal profit

c. Profit maximization: MR=MC rule

2.3.2 Perfect competition

1. Profit maximization

2. Short-run supply and shutdown decision

3. Behavior of firms and markets in the short run and in the long run

4. Efficiency and perfect competition

2.3.3 Monopoly

1. Sources of market power

2. Profit maximization

3. Inefficiency of monopoly

4. Price discrimination

5. Natural monopoly

2.3.4 Oligopoly

1. Interdependence, collusion, and cartels

2. Game theory and strategic behavior

2.3.5 Monopolistic competition

1. Product differentiation and role of advertising

2. Profit maximization

3. Short-run and long-run equilibrium

4. Excess capacity and inefficiency

Unit 2.4. Market Failure and the Role of Government - 12-18%
A. Externalities

1. Marginal social benefit and marginal social cost

2. Positive externalities

3. Negative externalities

4. Remedies

B. Public goods

1. Public versus private goods

2. Provision of public goods

C. Public policy to promote competition

1. Antitrust policy

2. Regulation

D. Income distribution

1. Equity

2. Sources of income inequality

Unit 2.5: Factor Markets – 10-18%

1. Derived factor demand
2. Marginal revenue product
3. Labor market and firms’ hiring of labor
4. Market distribution of income

Semester 2: Macroeconomics

Unit 3.1: Measurement of Economic Performance - 12–16%
A. National income accounts

1. Circular flow

2. Gross domestic product

3. Components of gross domestic product

4. Real versus nominal gross domestic product

B. Inflation measurement and adjustment

1. Price indices

2. Nominal and real values

3. Costs of inflation

C. Unemployment

1. Definition and measurement

2. Types of unemployment

3. Natural rate of unemployment

Unit 3.3: National Income and Price Determination - 10–15%
A. Aggregate demand

1. Determinants of aggregate demand

2. Multiplier and crowding-out effects

B. Aggregate supply

1. Short-run and long-run analyses

2. Sticky versus flexible wages and prices

3. Determinants of aggregate supply

C. Macroeconomic equilibrium

1. Real output and price level

2. Short and long run

3. Actual versus full-employment output

4. Economic fluctuations

Unit 3.4: Financial Sector - 15–20%
A. Money, banking, and financial markets

1. Definition of financial assets: money, stocks, bonds

2. Time value of money (present and future value)

3. Measures of money supply

4. Banks and creation of money

5. Money demand

6. Money market

7. Loanable funds market

B. Central bank and control of the money supply

1. Tools of central bank policy

2. Quantity theory of money

3. Real versus nominal interest rates

Unit 3.5: Inflation, Unemployment, and Stabilization Policies - 20–30%
A. Fiscal and monetary policies

1. Demand-side effects

2. Supply-side effects

3. Policy mix

4. Government deficits and debt

B. Inflation and unemployment

1. Types of inflation

a. Demand-pull inflation

b. Cost-push inflation

2. The Phillips curve: short run versus long run

3. Role of expectations

1. Balance of trade

2. Current account

3. Capital account

B. Foreign exchange market

1. Demand for and supply of foreign exchange

2. Exchange rate determination

3. Currency appreciation and depreciation

C. Net exports and capital flows
D. Links to financial and goods markets

Course Information

welkerjason — Tue, 03 Nov 2009 05:10:44 CST

Introduction

Welcome to Mr. Welker's Advanced Placement and International Baccalaureate Economics. This course will prepare you for two either the AP exam in Micro or Macroeconomics, or the IB standard level or higher level examination in Economics.

This website play a major role in your Econ studies in Welker's. This is your class Wiki, where you will make regular contributions to a comprehensive study guide covering the topics from the AP and IB Econonomics courses.
In addition, this wiki will serve as a discussion forum to extend class discussions beyond the classroom, a chat room to gather and talk economics with one another and your teacher, a study center to review for unit tests and exams, and a social network for enhancing your understanding of the principles of economics.
The Wiki is to be used in partnership with Welker's Wikinomics Blog, where Mr. Welker and other Economics educators write regular posts aimed at extending the content knowledge learned in AP and IB Economcis beyond the classroom and into the real world.
Contributions to the Wiki and the Blog are a required part of your grade in Welker's class. Scroll down for details.

Mr. Welker's Courses

AP Courses

AP Economics Course Syllabus (Micro and Macro in one year)

AP Macroeconomics Course Syllabus (Macro in one year)

IB Course

Introduction to Economics and Microeconomics Unit Overview (IB Units 1 & 2)

Microeconomics Units homepage

Macroeconomics Unit Overview (IB Unit 3)

Macroeconomics Units homepage

International Economics Unit Overview (IB Unit 4)

Development Economics Unit Overview (IB Unit 5)

Books used in Welker's Econ classes

McConnell and Brue’s Economics: Principles, Problems, and Policies provides a clear and concise perspective on economics. The 17th Edition builds on their tradition of leadership by sticking to three main goals: help the beginning student master the principles essential for understanding the economizing problem; help the student understand and apply the economic perspective accurately and objectively; and promote a lasting student interest in economics and the economy.

Student Edition - CLICK HERE
Instructor Edition (password required) - CLICK HERE

IB Diploma Programme Economics Course Companion This Course Companion has been specifically designed to support the student through the IB Diploma Programme in Economics. It supports the course content and provides students with materials and activities as well as advice and guidance for the portfolio of four commentaries. In addition it provides activities integrated with study and learning approaches, TOK, and the IB learner profile. Examples, features, and case studies drawn from around the world will encourage students to
develop an international perspective.

Advanced Placement Economics (aka the Rainbow Book) teaches a college-level economics course that prepares high school students for the AP Economics Exam. The Teacher Resource Manual introduces the key concepts, and the Student Activities booklets -- Microeconomics and Macroeconomics -- reinforce the principles with activity-based lessons.

Favorite ways to Learn Economics: See economics in action with FAVORITE WAYS TO LEARN ECONOMICS! This manual of experiments and problem sets uses hands-on experiments to reinforce the principles of microeconomics and macroeconomics. With relevant problems, follow-up experiments, opportunities of real-world decision making, and problem sets, mastering economic principles has never been easier!

Your Grade in Welker's Economics Class

50% Unit tests

Unit tests will be given every two to four weeks
Assessments will consist of multiple choice, short and long response, data and document based questions, and free response questions (AP only).

30% Quizzes and Commentaries (for IB Econ).

20% Contributions to the Econ Wiki, the teacher's blog, and your class blog and Key Questions from textbook.

The Wiki and the Blog as part of your grade

During each unit (every 2-3 weeks), each student is required to sumit online a "Wiki and Blog Log", for which you must:

contribute to at least THREE pages from the unit's Wiki,
respond to or begin at least ONE thread in the wiki's discussion forum,
post comments to at least THREE posts on Welker's blog or the class blog, and
Write at least ONE blog post on his or her class's group blog.

Wiki & Blog Grade components:

Contributed to at least three pages from the the current Unit's Wik: 5 points per contribution = 15 points
Responded to or start at least one thread in the wiki's discussion forum: 10 points
Commented on at least three blog articles: 15 points
Authored at least one new post for your class's group blog relating to the topics covered in the class: 20 points

Total Wiki/Blog grade for each unit = 60 points

Wiki and Blog Rubric

Student: ___________________ Unit: _____________________ Period:_______

Blog comment rubric:

Criteria	Low marks	High marks
Length and quality of response (5 marks)	Less than three posts, comments do not meet the word requirement, comments are reasonably well thought 0-3	3 posts commented on, 75-150 words each, clearly articulated response to blog post, referencing previous comments 4-5
References to blog post and previous comments (5 marks)	Comments make only minimal reference to blog posts. Little attempt is made to respond to previous comments and/or discussion questions. 0-3	Comments contain concise reference to the blog post. Student responds clearly to previous comments and/or discussion questions. 4-5
References to topics from class (5 marks)	Comments demonstrate only minimal connections between topics from class and the post and previous comments. 0-3	Comments contain clear references and connections between the posts and topics learned or discussed in class 4-5

Total score for blog comments: _____/15

Blog post rubric:

Criteria	Low marks	High marks
Length, connection to syllabus (2 marks)	Post EITHER does not relate to the current unit OR is not between 400-600 words 0-1	Post relates to the current unit AND meets the word limit of between 400-600 words 2
Organization and presentation (4 marks)	Post is poorly organized and presented. Quotes from article are missing or used only minimally 0-2	Post is well organized and presented. Author makes effective use of quotes from the article 3-4
Economics Terminology (5 marks)	The post demonstrates minimal use of appropriate economic terminology and there are only limited attempts to define terms 0-3	The post demonstrates appropriate use of economic terminology. Terms requiring definitions are correctly defined. 4-5
Application and Analysis of Economic concepts and theories (5 marks)	The application or analysis of relevant concepts and theories has been attempted, but the linkages to the article are inappropriate or superficial 0-3	Relevant concepts and theories have been identified and suitably applied in the blog post. 4-5
Evaluation (4 marks)	The author attempts to evaluate the economic theories and concepts applied, but the evaluation is limited 0-2	The author demonstrates evaluation of the economic theories and concepts applied with 3-4

Total score for blog post: _____/20

Wiki and Forum contributions:
Added new content or edited existing content at least three wiki pages: 1 - 2 - 3 ____/15

Created or contributed to at least one thread in the discussion forum: YES - NO ____/10

Total Wiki & Blog Score: ____/60

Welker’s Wikinomics™

AP Econ in the News - Basic Economic Concepts

lferoze — Sun, 18 Oct 2009 12:03:29 CDT

Instructions: Here you can post a link to an article from any online news source relating to the topics covered in the current unit. Next to the title* of the article include a 3 or 4 sentence summary in your own words explaining how it relates to the current unit in AP Economics.

**To create a hyperlink, type or paste the title of the article into the screen, highlight it, then on the "EasyEdit Toolbar" click the "Link" button. Here you can copy and paste the link URL for the article.

Kevin Ma:
China announces fall in politically charged pork prices
This article talks about the price rising for porks. I remember doing the blog on pork prices rising and thought it was interesting so i decided to research more about it. China has a shortage of pigs due to diseases, decline in pig rearing and rising raise cost. The shortages cost a raise in price. I beleive that China was getting people to raise pigs so there wouldn't be a shortage of pigs. So the price of pork is staring to slowly stabilize. It has dropped about 3% worldwide and has an average price of 19 kuai per kilogram.

Sunny Kim:
Apple profits beat Wall Street expectations
This article basically tells us how much profit is Apple making this year and how much the amount of profit increased compared to previous years. According to the article, the profit increased tremendously, and Apple is becoming a much wider, effective, and influencial company in the world. "Apple's share price up $12.19 or nearly 9% to $137.26 in after hours trading. Two years ago Apple's share price was just $44." Moreover, "Apple shipped 9,815,000 iPods during the quarter, representing 21% growth year-on-year, and accounting for $1.57bn in revenue."
This, one of the most famous Apple product, is holding more than 70% of the music market. This article was quite interesting, and I could once again sense the immense influence of Apple in the world. Now I think I know why Apple is known as the only rival of Microsoft.

Yun Qi Mok:
Oil Price Futures and Peak OilThis is a fascinating article about why oil prices are skyrocketing, as well as debates whether or not people put their money where they say they will. There are many people who tell others to buy peak oil, and yet never buy it themselves. Why? One, because lots of speculation that oil production has peaked. Two, because the North Sea is running out, with production dropping 10% in 2004 and 12.8% in 2005, and three becacuse Venezuela has nationalized nearly all of oil production, which means production will most likely fall. On one hand, people see the prices shoot up, on the other, they realize that oil market is reaching its maximum point soon.

Angel Liu:
Zimbawe Gov't Eases Price Control
The Zimbawe government has an economic policy of price control to lower inflation; the inflation rate is about 7,600%. However, govenrment's effort badly impacted Zimbawe's economics. Accomodations and basic food supplies rates are cut in half, and many suppliers cannot get enough revenue to pay for its cost. Furthermore, many hotels, restaurants and bars are closing down because food and liquor supplies are running low in the market. Every shelf is emptied immediately after foods are stocked. Zimbawenes are constantly storing food supplies in case government withdraw price control and inflation choke food supplies.
serena:
The Effects of a Black Market Using Supply and Demand
As government decided to make a good illegal, the supply and demand gradually decreased, A sharp drop in supply because selling illegal good will cause suppliers trouble thus lead people shift into other industries. A drop in demand because people won't want to buy illegal goods thus cause the demand to fall. When there's more supply and less demand the price of the good drop, but when demand exceeds the current supply, then there will be an increase in price.

Mina Song:
US At Risk Of Recession From Housing
I thought this articles is interesting because it is related to what we are learning these days. This article is about growth of US housing and the articles is saying that if it lowered the interest it would be better. Quote : "Lower interest rates now would help,". The rest of the article is about the seriousness of the problem and who and what kind of people are trying to solve prolems in different ways.

Dana Yeon:
Letter from America: New York Shows Way for Urban Renaissance
This article introduces the readers to some of the statistics of New York City's population and gives the reasons to why it is growing again. Some analysts claim that it is just another effect of globalization on major cities; they claim that all major cites, not only that of New York City, has been growing in population recently as the byproduct of economic growth. On the other hand, some analysts disagree and point to cities like Detroit, a city where constant population decline has been taking place as the result of globalization. However, what sets New York apart from other cities, the journalist claims, is because NYC, "as an economic unit has a comparative advantage, with all its cross-fertilization of ideas." I thought this article was a great way of looking at some of the principles of economics without directly relating it to numbers or businesses.

Jonathan Lau:
Toys "R" Us Recalls Crayon Boxes
This article is about how Toys "R" Us recalled crayon boxes because the printed ink on the outer packaging of the wood cases contained lead. This has been just the lastest of many faulty goods recently discovered to be dangerous due to health and safety concerns. Interestingly enough, all of these products have been manufactured in China. This article relates to the economy in many ways including its role in the circular flow model; when one good/service is changed, the rest of the market involved is affected.

Jessica Chiang:
Ethics and the iPhone
This is an article about opportunity cost, as it weighs the costs and benefits of using technology. By choosing to use technology, we are giving up many traditional social activities; for example, we no longer write personal, hand written letters. We now write emails and call up long distance friends. Although these inventions in technology have helped us greatly, we are also losing much valuable social networks. Friends no longer visit each other or write each other often because they can talk over MSN. Also, technology may be bad for us, as it increases mortality rate. The use of cell phones has an increase in car accidents over the years, and cell phone radiation may be harmful to the body.

Drew Venkatraman
Will Student Loan Reforms Cut Costs?
Being that it is almost time for all of us to be applying for student loans i found this hilarious and yet intriguing. It talks abotu the conflicts of interest (self interest) among congress and the schools themselves. And how in the end many people are forced to choose which is better, the money i could be earning right now without a college education or forgoing those dollars in order to earn more later. What type of oppurtunity cost is it to you?

Alex Goldman:
The Big Bucks
This article talks about how rich the CEOs of major American corporations are. For example, "top executives at major businesses last year made as much money in one day of work on the job as the average worker made over the entire year." Not only that, but the CEO pay over the last decade has increased 45%. The article is full of comparisons to help put in perspective how much a CEO rakes in every year. The numbers are astounding. This relates to the economic concept of specialization. CEO's have the unique skill of being able to take charge and direct a company. There is evidently a high demand for this skill, because it is with millions of dollars. 36.4 million dollars on average, to be exact. (That doesn't include benefits.)

Hansen Gu:
U.S. Weapons, Given to Iraqis, Move to Turkey
Sometimes we overlook the economics behind war and conflict. There is always a demand for weapons, whether it be for a police force, or for a rebel group. As far as self interest is concerned, the consumer demands effective weaponry for the cheapest price to best defend themselves. For the suppliers, technological advancements in the weapons and production methods of the weapons are a priority so that they can meet the demand. In this article, many US weapons, which are technologically advanced and of good quality, have been sold or traded from Iraq to Turkey. Many rebel groups in Turkey have a strong demand for this type of weaponry and the US, unwilling through Iraq, has supplied them.

Howard Jing:
Our Couch Potato Nation
This article talks about how Americans, previously known for their Puritan Work Ethic, are now spending more and more time off work. Although there are other nations that do less work than the US, such as Japan and the Netherlands, other countries such as Switzerland and Britain put in more hours than the US. Additionally, the average American has 117 hours of free time per week, compared to 110 hours in 1965. This adds up to several extra weeks of vacation time. What it means that Americans believe that the opportunity cost of doing relaxing things is lower than the opportunity cost of putting in extra hours and making more money.

Robert Wang:
Luxury baseball: The $400 glove
This article discusses the most expensive baseball glove in the world (not including signed gloves that were worn by professional players, like Derek Jeter) to be created yet by Rawlings. Essentially what the article comes down to in my eyes is the notion of supply and demand. There is an excess supply of the Rawlings Primo glove (3000 gloves made this year) compared to the demand for this glove, which is fairly low. There is a certain extent of the demand for the glove (I'd want one), but it does not reach the desired level that Rawlings expected, which is in the professional players. Players in the MLB, attached to their own gloves, do not want to have to break-in to a whole new glove, so they opt out in using the new glove and the technology that comes with it. With regard to that, I find it interesting that one player (Peavy) asked for the technology to be implemented into the glove that he currently is using, but he did not want the Rawlings Primo glove itself. Thus, maybe there is a higher demand for the new technology that Rawlings created than the finished product itself? It should be interesting to see what Rawlings does in the future to keep their new product competetive.

Jessica Chiang:
Gas Prices Rise for the First Time in Weeks
Although gas prices have been low for the past few weeks, they suddenly increased again. This is due to the fact that Hurricane Dean ruined many important oil supply routes in the southern Gulf, which led to a decline in gas inventories. The demand of oil and gas remain high. This is related to supply and demand because as the supply of gas decreases and the demand stays the same, the prices will increase because the gas is now harder to obtain and is more valuable. Economists predict that the demand for gas will continue to increase while the supply of gas continues to decrease; this will lead to more competition between gasoline companies and a significant increase in the price of gas.

Rebecca Sung:
Teen trades hacked iPhone for new car
This article talks about a teenage hacker who successfully hacked the iphone, so that it can be used with other cellular networks besides AT&T. Currently, the teenager named George Hotz has reached a deal with Certicell. This means that with the iphone being a phone that can be used with other cellular networks besides AT&T, like Certicell, AT&T will face competition in the iPhone business. In a follow up article, though, the hacker could face a legal battle. If the hacking way is spread to other companies, AT&T will face a lot of competition because in this case, they won't be the only carriers of the popular iPhone. AT&T will most likely lose profit too if other companies get ahold of the hacked iPhones because the competition will most likely lower prices.

Kevin Ma:
Betting Big on China's Vegas
This article talks about the CEO and Las Vegas Sand, a casino/hotel in Las Vegas, who went to Macau, China to open a new casino/hotel worth 2.4 billion dollars. He decides to go to Macau and open a casino because there is less competition there than in Vegas and all the other Casino's are opening up there.. Macau is one of the biggest gambling cities however competition in Las Vegas is higher. But the competition in Macau is heating up which is why they're in Macau getting a piece of that action. This article mainly has to do with competition. It can be linked to the "invisible hand" to. It benefits the casion owner and China's economy.

Calvin Lu:
PlayStation 3 price cut may be ahead This is a short article on CNNMoney.com that predicts Sony may cut down the price of PS3. Originally retailing up to 700$, Sony may cut the price by 100$ worldwide in October due to technological improvement and competitions with its rivals, Xbox360 and Wii. This illustrates the “invisible hand” theory by Adam Smith. And also shows how technology can help more production with less resource, which shifts out the production possibility curve.

James Tsao:
Scarcity of Water Threatening the world today
This IPS (Inter-Press-Service) global news article covers the idea of scarcity that we discussed about in class. New threats such as climate change, increase in global population and the sudden growth of the water-hungry bioenergy sector has endangered the availibility of water in many places in the world. An annual-meeting of over 2000 water professionals, technicians, scientists, and policy makers was held recently to discuss the impending problem. The executive director of Stockholm International Water Institute, Anders Berntell, warned in this meeting that 1.4 billion people now live in regions where there is a real water scarcity. The scarcity of water, perhaps the most important natural resource, will now focus the economists on finding new ways to use the resource more efficiently or new ways to conserve the resource.
SoYeon Yoon:
Census data shows income is up, but...
Census data shows that the income of households increased, but the gap between the poor and the rich grows bigger. It appeares that the incomes of the people increase, and the economy is working well, but actual situation is not like that. Economists say that despite the increase in incomes, the economy is not doing well as before the 2001 recession. The number of people without health insurance grew by a large amount, and the poverty thresholds are not designed according to geogrphical difference so that it does not fit the subsistence in the region.

Jessica Ng:
Samsung moves up the ranks
Korean electronics maker Samsung had recently quietly surpassed Motorola to become the No. 2 seller of mobile phones, and made it clear that they're "gunning for the market leader", Nokia. The have declared to sell more phones in emerging economies, and become the ultimate phone provider to the developing world. They also declared in adopting different strategies in appealing to younger users. This is a reflection of the competition between firms in a market economy, which in turn brings in benefits to society, in this case, better and nicer cellphones. This is in correlation with Adam Smith's "Invisible Hand."

Michael Daily:
New Technology Creates New Consumer Printers For HP
New technology from HP has allowed them to create a new line of touch screen printers for their consumeers. The new printers according to HP will increase print speeds, lower costs for high volume consumers, and provide easier access to internet-based printing. The largest of the new models has a seven inch touch screen which consumers can use to customize photos before they print. This new technology from HP is an illustration economically that when technology increases so does the production possibilities curve.

Conrad Liu:
New Casino in Macau Welcomes Tourists to Roll the Dice
The new 2.4 billion Venetian Macao Resort Hotel is up and running, with the opening scene involving the smashing of a champagne bottle against a gondola. American billionaire Sheldon Adelson, the resort's inaugurator, hopes to use this site as a popular area where tourists can make a pit stop and try their hand at gambling--it already makes Las Vegas look miniscule. Obviously, the article shows how demand and supply can potentially be the driving force in investing huge amounts of wealth into something: in this case, the billionaire hopes that with this luxery stop, uncommon to start with, the demands of having a luxurious place can be fulfilled, thus allowing an incredible amount of output from the resort.

Andy Xu:
Asia’s Skills Shortage – Capturing Talent

In the article Asia’s Skills Shortage – Capturing Talent, the inability to meet the demand of qualified staff positions to keep up with Asia’s transformations has been highlighted. In economics class, one of the most fundamental concepts taught is the condition of scarcity, but who would have thought that China, a country with so much economic growth potential and abundant resources, would be short of labor. The answer is that this shortage mainly involves in skilled labor: schools and universities are already increasing its size but still unable to keep up with educating the demand of skilled business people; specialized occupations such as the airplane pilot are in demand by huge figures; the numbers of lawyers in China, 122,000, equals the amount of lawyers in the state of California (population ratio 1.3 billion to 37 million). Of course, this is where foreign trade is especially useful, China now works hard to hire business entrepreneurs from America, pilots from Brazil, and Hai Gui’s, Asians who have been educated overseas to meet the huge demand of quality labor. This article teaches us that the mismatch between supply and demand in Asia's labour markets can be adjusted efficiently by trading resources.

Jennifer Choi:
Smaller Shares, Bigger Slices
We, in our class, talked about the competition caused by limited (scarce) resources. This particular article also talks about the increased competition between workers as the globalization continues. Workers in rich countries now have to compete against the workers who cross borders to take jobs in rich countries. The workers in rich countries not only loss their jobs by the cheap-cost workers from abroad but also by the advancing technology that is now taking the places of human labor.

Trevor Sun:
Santa Claus is Chinese or, Why China is Rising and the US is Declining
In our class we recently discussed the benefits of specialization and international trade and why countries specialize in a type of good or service. In this article it talks about how most consumer goods in the United States are all made in China. This is because China has become "the world's factory" in that most of its exports are consumer goods to the U.S. Since the U.S. consumers are buying so many goods from China it's no wonder why the economy is booming in China. In their survey, it says that 70% of the gifts opened on Christmas are produced in China which goes to show how many items are coming out of China.

Sunny Kim:
Bush: U.S. economy is thriving
In AP Economics class, roles of government and its influences on business and economy have been taught to us. According to 'Economics' by McConnell Brue, government is an active but limited organization that provides the rules for economic activity and promotes economic stability and growth. This article shows how a government can help economy of its country to thrive and grow. President Bush said Wednesday the U.S. economy is thriving and he is doing what it takes to keep it strong. According to President Bush, he will cut taxes to help the U.S. economy to grow. If the government cut taxes, companies and citizens will be able to free themselves from pressure of taxes and they will gain larger profit. Thus, like domino, the economy of U.S. will thrive.

Jenny Kim:
Singing for Supper
A great amount of Indian widows are being paid to pray with shaved heads which represent their widowhood. A woman would make only $4.60 in a month by praying in the morning and in the evening, which is not enough for a woman to live a pleasing life. India has always scorned at widow hood due to their belief in Hinduism. Because of this, widows are being discriminated in the Indian society. Although the situation for the widown got better due to the change in law, they are still not allowed to remarry, despite the fact that they were married at a young age, without their own will to get married. Many of these women were widowed at an early age, which makes their life even more sufferable.

Mond Gu:
China declares 'war' on tainted products
In response to thedefected and toxic products produced in China, the government has launch a "war" against these "flawed" goods to protect China's reputation as a safe and high quality industrial country. China's rapid economic development has increased its exported products by more than 80% in less than a year. However, China economic system cannot support the never ending increasing demands of its products, this in terms has severely affected the quality of many of its products including toys. Safety of these goods are near impossible as there is millions if not billions of products being exported to foreign countries every year.

Kathie Lee:
Australia's costly drought
Australia's most agricultural area is suffering from a major and unfortunate case of drought. However, if there is no heavy rainfall in this region over the next 2 months, Australia's prime minister, John Howard will terminate the irrigation supply to the Murray-Darling basin (Eastern Australia's main water resource). There are several factors that will be significantly influenced by this decision. For example, this decision puts farmers' livelihood and income under a great risk. This further supports the scarcity and the strong impact of water today.

Jo Lo:
Climate Wars loom over scarce resources
The division between the rich and poor will be greatly worsened in the coming years. The poorest places in the world such as Africa will experience the worst of global warming because of their inability to combat the effects of climate change. Because of the growing population in Africa and the area of land suitable for agricultural farming grows smaller and smaller, Africa faces food and water shortages in the future. As this problem starts to spread to other poor areas, tensions will form between countries in those areas for the limited resources that still remain.
This is a huge problem because global warming is happening even though some people do not think so. Climate change is causing resources to be used up more quickly, resources that are becoming scarcer every day.

Judy Chen:
Burger King net tops Street, shares fall on capex
Burger King Holdings Inc (BKC.N) posted a better-than-expected quarterly profit on Friday, helped by longer store hours, sales of breakfast items, and a popular promotional tie-in with summer blockbuster "Spider-Man 3." As United States is a Market System, most of the companies have their own property, therefore, encouraged to compete with other similar companies in order to gain profits. Such Burger King- The world's No. 2 hamburger chain behind McDonald's Corp compete with McDonald by advertising, inspires the United States Economics since there are more people choosing between two companies, therefore, opportunity cost exists for whom to purchase either food of one company.

Christina Hu:
Disney's Ross: 'High School Musical 2' Success Proves Strength of TV Movie Biz
The success of High School Musical and its sequel proves how a free market system produces the best results in an economy. Free enterprise allows entrepreneurs to sell their goods (television shows) in any chosen market, to anyone. They have the choice to create whatever kind of show they want as well, because it is not a command system where the government determines exactly what will be produced, how, and who will get it. The creators of High School Musical decided they wanted to produce a musical, and decided how it would be made by choosing actors and locations, and who it would be targeted at (in this case, 9-14 year olds).

Mina Song:
http://www.cnn.com/2007/WORLD/europe/08/23/footmouth.lifted.ap/index.html?iref=newssearch
EU band the meats from Britain. The reason for it is to stop spread the disease from Britain, but the problem that it will cause in Europe is disaster of meat markets. They assumed that there will be some problems, and they are taking the risk of it. But I think the price of the meat in Europe will increase dramatically. Therefore, both comsumers and the producers will suffer from it.

Karen Chen:
Creeps and Bounds: Can America Provide Universal Health Care Without Adopting A Government-Run System?
The most interesting thing in this article was that a solution proposed was to "distribute...vouchers free to individuals..." It made me think if it really was "free", or if there was a catch to it, seeing as how there's no such thing as a free lunch. Anyway, the whole point of this article was deciding whether to make this new policy government-run (in a larger sense, kind of like a command economy) or to make it private (like a market economy). If it's made private, it would cost the government more money, but like we learned, it also gives the people more freedom. If it's centrally planned, the people would get less choices but it would save the government a lot of money.

Tim Chu
Water Scarcity: A looming crisis?
Since so much of this chapter focuses on the main topic of scarcity, i thought i would post one up on this page. Basically, this article found on the BBC news website talks about the steady decrease in usable water and how that will affect humans and all other organisms in the future. I thought it was interesting because water, which most of us regard as a renewable resource that is easily obtained, is not available to a billion people in the world. Its a scary topic that kind of ties in with the whole global warming crisis as well.

Nicole Wong
Fans now turning final pages of 'Harry Potter'
I think that the "Invisible Hand" is at work here. The Scholastic publishing company reportedly printed 12 million copies of the Harry Potter book- something that they probably would not have done for many of the other books that it publishes. This due to the fact that Scholastic is aware of society's interest in the Harry Potter series and therefore goes out of its way to print more copies of the book than usual. Scholastic could have printed more copies of other books, but chose to print numerous copies of Harry Potter instead to satisfy consumer wants and it is clearly aware of consumer sovereignty.

Serena Tu
We Will Never Run Out of Oil
What i find interesting on this article is that, as I enter the class on the first day, I leave the room with "resources are limited", and i also learn the word "scarcity". So i assume resources are scarce. But in the article I read, it says that we will never run out of oil, "no matter if you take a pessimistic or optimistic view about the amount of oil still available to be extracted". In the article, this view is supported by the author pointing out that, as we are getting more advanced technologies, we will have better drilling skills, and thus more oil will be discovered. The article also suggested that as the price of gasoline increase, there will be less consumer demand for it, so there will still be plenty of oil in the ground. So i guess we will never run out of oil?

Yun Qi Mok
U.S. consumer sentiment weakens in August
This article is fascinating because it clearly shows the correlation beteween the producers and consumers, with pricing as a indication. The article points out that because of the sharp selling of goods in the market stocks, buyers are getting worried and consumers are begining to stem their spending. It also shows that economics is based upon confidence of the market, as well as the role that the government plays even in a free market economy system.

GM May Make 60,000 `Volt' Electric Cars in First Year
Kevin H
This article interested me because it is related to the production possibility curve. The article stated that, "General Motors Corp. may build as many as 60,000 of its Volt electric cars for their inaugural year on the market, four times the sales of Toyota Motor Corp.'s hybrid Prius." However, this is only good for the environment if they are sold and that is based on the toeiss acronym. Another person stated that, at this rate of production, GM could sell the car for even under 30,000. This is a huge improvement in technology as, the article stated and such a big increment in techonology would be represented something like what i have drawn. Below. (from the black line to the red line)

LAX Renovations
Caleb Liao
This article talks about the future renovations of the LAX (international airport of Los Angelos) that was mandated by the Federal Aviation Administration. This descision was made because LAX is one of the leading airports in the U.S. in near-collisions. The renovation of not just the landing strips but also airport decor creates job opporutnities for local contractors and residents, and possibly/most likely a cut-back for government officials. However, the opportunity cost of renovating the airport is the lost money spent on education and public services. To weigh marginal benefit against marginal costs would be to project whether the renovation of the airport would create greater economic opportunity for the people of Los Angelos in the future.

Katherine Yang:
Free Lunch Money
The article begins with a quick overview of economy and how it may relate to the environment, specifically; business firms would want to maximize profits, however environmental policy dictates that firms have to divert resouces from production towards "clean up activities". However the Porter Hypothesis argues that the environmental policy would reduce production costs once firms learn more efficient methods to create a win-win situation. The artical makes a reference to Business Week's "Top Green Companies" that have claimed to be able to fulfill the environmental policy with minimal diversion from profits.

Annie Sung
McDonald's Goes Upscale
I found this article interesting because it relates to competition in the economy. Recently, McDonald's has been gaining some negative publicity regarding nutrition, and it seems like they are now trying to appeal to customers in another way: decor and ambience. Since this new upgrade has only been implemented in Europe, customers in Europe would most likely feel more luxurious. McDonald's new sophistication shows that the market is flexible to any changes necessary to fit consumer needs accordingly.

Helen Chu:
Where Target Is Always 'Tar-zhay'
This is an article about how Target has opened up a new line called "Target Couture" where the clothes they sell are more expensive and high-end. There was a part of the article that illustrates how this strategy has outpaced Wal-mart's sales growth by a significant amount. This is a clear example of the competition and drive for innovation in the market system, as Target developed a new clothing line as a strategy to beat its biggest rival, Wal-mart. This is also an example of "the invisible hand", because even though Target employed this strategy for self-interest, many people, mainly people who love clothes, benefit from the creation of this new clothing line.

Michael Chow:
Dollar Continues to Fall Against Yuan
The Chinese Yuan now stands at approx. 7.56 against the US Dollar. It's value since July 2005 has increased more than 7%. This was the result of China's decision to raise interest rates, in a way China is under the pressure for allowing the yuan for it continuing increase. By taking advantage of it's increasing trade with the US, China is therefore is gradually making an improvement. Set by the China Central Bank the yuan is limited to raising or falling by 0.5% each day.

Julie Lin:
Why Not Just Print More Money?
I know this might seem like a stupid question to ask since we're all in high school now, however this is what i've always wondered about since i was small. This article tells us in simple words, why the government can't just print more and send everyone a stack of cash. if everyone got rich over the night, most of the money will be spent, either to purchase goods or services. command of the market will overwhelm supplies, and the market will be forced to raise prizes, which will lead to a massive inflation, money will be devalued anyway. same thing goes for wages, if you were to get a stack of cash, most people will not work as hard as they should, therefore there will be demands for extra labour, or extra wages for workers. "Labor market pressures require wages to increase, so product costs must increase as well."

Alice Su:
Up, Up, and Away
This article informs readers about IDW Publishing, a design, production, and publishing company for comic books and graphic novels that has recently ventured into the field of making comic book versions of popular TV shows and movies. Because the company focuses on those comics that they know will be more popular (for example, this last summer they came out with a four-part comic book adaptation of the Transformers movie and sold it everywhere from Toys 'R Us to Amazon.com), it illustrates the concept of consumer sovereignty in deciding what producers put on the market. In addition, this article discusses how competition with the other comic producers for the license to produce comics spurs this company to become more efficient as well as improve the quality of their goods in an effort to attract more customers, which displays how a market economy works in providing incentive for better production through competition.

Richard Tu:
http://sorrel.humboldt.edu/~economic/econ104/marginal/
This article explains more specificly about marginal analysis; it explains marginal cost and benefit in various situations, including both hard and easy decisions. It provides a well explained graph showing what happens to marginal cost and benefit when the consumption of the society increases. The article also explains how marginal cost and benefit would affect the economy efficiency as a whole. Furthermore, it also talks about "The Moral Vacuum of the efficiency standard", explaining that "one must not use the efficiency standard indiscriminately or else he/she arrives at some ridiculus or dangerous conclusions."

Kevin Chiu:
Woolworths eyes strong profit growth
This article relates to our class in the regard that it is a prime example of a business maximizing their profits. Through cutting the price of certain products, the company hopes to increase consumers in order to maximize their profit. Even though this cut has yet to be implemented by the company, competitors already fear this aggressive tactic while oppose them.

Kevin Yeh:
As China Roars, Pollution Reaches Deadly Extremes
I thought that this article was a great example of opportunity costs in a growing economy. By having such skyrocketing economic growth, China has to pay for it by dealing with the huge pollution problems. Its citizens are contracting cancer and other diseases, and the water supply is becoming scarce. Also, if China wants to reduce pollution, they must sacrifice some of the industrial plants which are aiding its growth.

Emily Yeh:
The agonies of agflation
This article reflects the concept of inflation. The demand for grain is met by a weakened supply as Canada is hit by bad weather. The article also continues to discuss the rising demand for grain as it is replacing oil as an energy source in some areas. It further emphasizes the idea that "desires are unlimited", but "scarcity exists". There is only so much land available to plant grain. Also, the article also indicates a chain reaction in inflation as the result of grain- causing the costs of raising livestock to increase, causing the price of poultry to increase.

Chan Min:
Why oil won't hit $100
Around a year ago, all I saw on TV was about the oil, how the price is rising. Scarcity, a very important concept we learned, ties in very well with the oil resources. If resources are scarce, and at the rate of how we are using up that scare resource, I find it interesting how oil prices have actually been dropping. So scarcity isn't always about getting more and more expensive, but economics could actually solve this problem I guess.

Jack Lo:
Quantity or Quality?
Recently, all the talk has been about China's economyChina's economy is growing by double digits every year and is soon set to take over Germany and become the third largets in the world. This article mentions the recent recall of the thousands of flawed toys that were manufactured in China. This ties in with the concept of opportunity costs. The Chinese manufacturers had two options: make better quality toys at a higher cost, or make more toys at a cheaper cost. The Chinese factories decided to give up the opportunity to make higher quality toys and instead decided to produce more toys, but the toys were of cheaper quality. As the GREAT Mr.Welker said, "an opportunity cost is an opportunity lost. The chinese manufacturers ended up miscalculating and made a bad choice.

Margaret Liu:
Where Can I Go With Economics?
Since we've just started AP econ, I found this article intriguing in the sense that it manifested how useful this class is, and where we can take it. With a major in economics, you can virtually attain any job you want, not to mention the field of economics and finance is in high demand, meaning great pays for all econ majors. Questions posed at the beginnning of the article resemble those we are dealing with in class (the first chapter of the textbook involving opportunity costs, scarce resources, and choices).

Jacques Zhang:
More on the current events side, I found an article on New York Times that talks about legislation set to pass in the next week or so by the Chinese government. Here it is.
Click here and win a free iPod. Oh wait, it's never free.
According to this article, China is set on its course to pass legislation that basically states that foreign companies "should go through national security checks." Why? Connie Barbucci explains it as, the Chinese government trying to "ensure [that] the crown jewels are not pillaged away by foreign invaders." This article is a great example of how China used to require "foreign capital" and "foreign managers" (aka. entrepreneurs) as the article phrases it, but no longer needs these resources from other nations, as it can obtain these resources through ways of its own. China wins again, yes? Whether this Chinese law is passed or not has yet to be answered.

Jeff Ye:
In the Market for fresh and old corpses?
Chinese superstition demands that husbands get buried with their wives when they die, but what if a man doesn't have a wife to be buried with? The family then buys corpses from gravediggers and murderers. Chinese locals are constanly caught digging up graves and kidnapping the corpse, or murdering people as fresh corpses are worth more than old ones, to sell to families who need somone to bury their deceased relative with. This market for dead bodies has been growing larger recently, and is proving to be very profitable to some people.

Kristie Chung:
Skype vs. Jaxtr
Jaxtr, aprivately held social networking and Internet phone company, has decided to offer a new service in order to compete with other rival internet phone services such as Skype and Ooma. Voice in social networking is unprecedented, and Jaxtr sees potential in this market. By adding voice, Jaxtr will not only attract "tech-savvy kids and twenty-somethings" who use social networking sites such as Facebook and Myspace, but also corporate users.Due to competition with other rival companies, Jaxtr is using innovation and adjusting to consumer tastes, in hopes of acquiring a greater profit.

David Xu:
Home sales hit slowest pace in 5 years
Okay. So I saved this once already but it didn't show... So I have to add it again. How that tied into Economics I don't know, but I want to voice my frustration. Anyways, houses have lost value for the 5th straight month in July. This ties into what we are learning because the market will adjust itself to consumer demand. When the prices of the houses fell, it signified a change in consumer trends that people are not as interested in buying houses. As a result, houses have lost value. The article discusses how the government is trying to lessen the fall of prices in housing by encouraging more loans.

Cassy Chang
IM Chats on Cellphones-Yahoo
Basically, cellphones can be used like msn messenger. Introducing another feature to cellphones is a way of responding to competition. Cellphones are constantly renewing with new technologies and ideas, and people pay for those ideas for practical and fashionable reasons. There is obviously a trend in customers' demand of cheaper, faster, and more sociable ways of communication, and IM chats on cellphones is just another variation.

Jeewon Oh:
MySpace reportedly may allow member ads
MySpace, the popular social networking site, might allow its members to send commercial messages and advertise products. Until now, MySpace has prohibited "any commerical endeavors." However, MySpace is re-examining its policy, as it could make profit from advertising sales. MySpace has recently selected Google as the Web site's search system. This is all about costs and benefits, as MySpace would be able to profit from lifting ban on sales and ads. Also, competition is a significant reason why MySpace is trying to make these changes. MySpace is currently competing with its rival Facebook, which has fewer restrictions advertising and sales. Likewise, competition among economic units promotes change and improvement.

Timothy Sun:
Jersey City Landlords Prosper in New York’s Shadow
New Jersey, probably notorious for their incredibly dense metropoles, is a great example of scarcity. Land (not the collective resource, but the actual acreage) is the central topic of this article. Linking to Ch.1, a 14% increase in rent is indicating a decrease in available land, which means that soon enough, there will be hardly any in this populous city.

Charlie Gao
Fed minutes: We'll step in if economy tanks
According to an August 7 meeting, The Federal Reserve acknowledged that a policy response might be necessary if financial market conditions worsened. As we all know, the US economy has not been very stable recently and if this continues the government may intervene. This contradicts the laissez-faire capitalism that the US has and history has shown that a restricted economy never thrives. However, although policy-makers agree that recent strains in financial markets pose risks to overall economic growth, they believe that their forecast of moderate growth would be supported by job gains, rising incomes and foreign demand for goods and services. We'll just have to wait and see.

Taka Ono
Gaijin at the gates
This is a pretty decent example of Entrepreneurship and FDI or foreign direct investment. This article explains the government's action to allow easy access for foreign investors into Japanese markets. Although Japan's incentive is not for money but for the ideas and people that the foreign investors will bring. The Japanese predicts that with the increase of FDI, there would be reform to the already crumbling Japanese markets and a brighter future for Japan despite the fact of cultural barriers.

Sharon Li
Power Outages are result of economic tradeoffs
I actually posted this yesterday, but it never appeared so I'm reposting. This article basically explains how power outages are costing the community and compares preventive measures. Power outages could be avoided if power lines were installed underground rather than suspended overhead, because they are mainly caused by broken tree branches. However, in completely preventing all power outages, underground installation is very expensive, up to ten times more than overhead installation. In this case, the marginal benefit of no power outages is outweighed by the marginal cost of underground installation. Some believe that this efficient preventive measure is not worth the price.

Howard Lin
Why The Economy Is A Lot Stronger Than You Think
This article interests me because it teaches you how to understand the economy in a very weird way. There are many stories of induestries and analysis there stats. It give people a new perception of Economy. It disproves many opinions that people use to have and introduce new thinkings.

Claire Moon
Wages Up in China as Young Workers Grow Scarce
As the China economics grow, average Chinese workers' wages are on the rise. In contrast, factory owners and experts who monitor the nation’s labor market say that businesses are having a hard time finding able-bodied workers and are having to pay the workers they can find more money..etc Kai Lin Fu:

How to Beat the High Cost of Gasoline. Forever!

This article provides the answer to our gasoline problem. Now drivers can use a biomass-derived fuel call celluliosic ethanol. There are about five million Explorers, Suburbans, and other vehicles that can run on this energy source that costs less than gasoline. This way people can avoid the high price of gasoline.

Kristie Chung
Housing troubles worsen for the poor
Rent controls intends to protect low-income families from rising rents and also to make housing more affordable to the poor. However, as many American cities have either abaonded or are in the process of getting rid of rent controls, many low-income families have housing troubles. Many low-income households have been forced to spend more than half of their earnings on housing costs. The article discusses the problem of increasing housing costs, and the effect it has on low-income families, and suggests a few solutions.

Katherine Yang:
Demand for Organic Food Growing Faster Than Domestic Supply
This article highlights the organic food industry and some of the steps (i.e. ceasing to use synthetic pesticides) farmers have to take in order to call their produce "organic". The article addresses an increase in demand for organic foods because consumers view organic foods as a healthier and more nutritious choice. In addition, organic farmers must compete price-wise with other inorganic farmers who have a bigger advantage.

Application: Government-Set Prices

jeetendarladher@yaho — Tue, 06 Oct 2009 09:17:03 CDT

Price Ceilings:
With price ceilings, Qd>Qs=Shortages!
- A price ceiling is the HIGHEST legal price a seller may charge for a product or service
  - Rationale: A price ceiling allows consumers to obtain some "essential" good or service that they could not afford at the equilibrium price because it was too high before.
  - a price above the ceiling is illegal; a price below is not
- The government puts a price ceiling on gasoline to keep it affordable to households unable to afford gasoline at the equilibrium price
- Problems: a price ceiling is below the equilibrium therefore it creates a shortage; See diagram on right
  - An unregulated shortage would mean unequitable distribution of gasoline.
  - Gas Stations must decide how to distribute the short supply of gasoline (first come first serve)
  - rise of a black market
  - prevents usual market adjustmnet in which competition among buyers bids up price, inducing more production ad rationing some buyers out of market
  - market disequilibrium
- Solutions: Ration coupons (fixed amounts for every family). Governments can also give subsidies to the producers, shifting supply curve right, and meeting the Qd at the price of the price ceiling.

EXAMPLE of price ceiling: Rent Controls
Rent controls are MINIMUM rents established by law (or maximum rent increases for existing tenants).

Goals of Rent Controls:

Meant to protect low-income families from rising rents caused by perceived housing shortages
- Although rent controls are often established to lessen effects of perceived housing shortages, they are actually a primary cause of such shortages.
Intended to make housing more affordable to the poor.

Economic Effects of Rent Controls:

On demand side: As long as rents are below the equilibrium, more families are willing to consume rental housing; the quantity of rental housing demanded increases at the lower price
On supply side: price controls make it less appealing for landlords to offer housing in the rental market.

In the short-run:

Owners may sell rental units or convert them into condos

In the long-run:

Even though rent can rise each year, the amount of growth that is allowed is so small that rent remains low and makes it unprofitable for owners to repair or renovate their rental units
As there are no rent controls when it comes to office buildings, shopping malls, or motels, many potential investors would rather invest in those than in rental housing.

Rent controls distort market signals resulting with misallocated resources:

Too little resources are being allocated to rental housing, and too many are allocated to other uses.
Thus, many American cities have either already abandoned or are in the process of getting rid of rent controls.

Price Floors:Qs>Qd=Surplus!

Price floor - MINIMUM price of a good fixed by the government.
Price greater than to the price floor is legal, while a price that is lower than the price floor is illegal.
rationale: Governments set price floors to protect the welfare of certain suppliers by maintaining a higher price and thus maintain a sufficient income.
In addition to agricultural price supports, another form of price floor is minimum wage regulations
According to the laws of supply and demand. A higher price = more quantity supplied and less quantity demanded, thus creates a surplus in goods
How the government deals with the surplus from the price floor
- They could restrict supply or increase demand, thereby closing the gap of surplus.
- Or they could purchase all the surplus output at market price (i.e. subsidies)

Side Effects:

Distorted resource allocation/ Inefficiency - too many resources are devoted into the product that could otherwise have satisfied another market of higher demand.
Retaliative tariffs - as the government imposes tariffs to keep out imports in order to reduce competition and protect the domestic price floor, foreign countries will impose retaliative tariffs on American imports
The government has to manage the surplus of wheat which is not demanded by the consumers; the government has to export wheat to other countries that is short of it or dispose the leftovers.
higher taxes to pay for subsidies
The government then has to keep getting involved in the economy to right a mistake, and thus lassaiz-faire economics will be destroyed.
There will always be a surplus because the producers are unable to lower the price to reach equilibrium.

Example of Price Floor

Wheat farmers have very low incomes
So the government decides to intervene and raise the price of wheat, from the market price of $1 per bushel to $3 per bushel
Hooray! Now the wheat farmers incomes have rose!
Unfortunately, some consumers are no longer willing to buy wheat, and turn to cheaper substitutes
Additionally, other farmers attempt to cash in on the increased price of wheat and invest in the wheat growing business
There is now a surplus of wheat that goes unsold, and some farmers go out of business (although other farmers do benefit)
The BEST way to increase wheat farmers' wages is for the government to introduce subsidies to the industry so that the wheat market may be efficient while farmers' incomes increase.

*Note*: An easy way to remember the different between a price ceiling and price floor is to imagine/draw an upside down house on the graph, so as to be able to differentiate between the two concepts effectively and without confusion

Economic effects on monopoly

sweetestlucy — Fri, 15 May 2009 11:23:57 CDT

Price, Output, and Efficiency:

In monopoly:

P exceeds MC
P exceeds lowest ATC
an effeciency loss (dead weight loss) occurs (sum of consumer surplus + producer surplus is less than maximum)

Income transfer:

transfers income from consumers to stockholders who own monopoly
monopoly charges a higher price than a PC firm with the same costs
- Can be seen as a "private tax" on consumers since the higher price generates higher economic profit that is distributed amongst shareholders of the company, who are mostly from high-income groups
- owners benefit at the expense of the consumers
Since owners have more income than the consumers, monopoly increases gap between rich and poor
- exception: when buyers are richer than owners of the monopoly, then income transfer from consumers to owners may decrease income inequality (usually not the case)

Cost Complications:
- A purely monopolistic industry will charge a higher price, produce a smaller output and allocate economic resoures less efficiently than a purely competitive industry assuming they have equal costs. This is because of the entry barriers that characterize monopoly.

- However, costs may not be the same for purely competitive producers and monopolistic producers: the unit cost that a monopolist has is either larger or smaller than a purely competitive firm's.

4 Reasons Why Costs May Differ:
Economics of scale:
- Simultaneous consumption: a product's ability to satisfy a large number of consumers at the same time
- Network effects are increases in the value of a product to each user

A factor called "X-inefficiency":X-efficiency occurs when a firm produces output, whatever its level, at higher than the lowest possible cost of producing it.

The need for monopoly-preserving expenditures
- Rent-seeking behavior: firms acquire monopoly granted by government through legislation

The "very long run" perspective, which allows for technological advance

If the monopoly is achieved and sustained through anticompetitive actions, creates substantial economic inefficiency, and appears to be long-lasting, the government can file charges against the monopoly under the anti-trust laws. If found guilty of monopoly abuse, the firm can either be prohibited from engaging in certain business or be broken into two or more competing firms.

Assessment and policy options:
How should the government act towards monopolies in the real world?

If the monopoly is achieved and sustained through anticompetitive actions, creates substantial economic inefficiency, and appears to be long-lasting, govt can file charges against the monopoly under anti-trust laws. Thus, government breaks up monopolies that are seen to be abusive
If it is a natural monopoly, government will allow it to profit since it is better for society. Yet govt will also regulate the prices and operations of the monopoly to protect consumers
If the monopoly is earning and lost and seems to be unsustainable, govt can ignore it since it has no potential threat to consumers.

Characteristics of Monopolistic Competition

JasmineMearday — Tue, 21 Apr 2009 11:49:10 CDT

Characteristics of Monopolistic Competition
A relatively large number of sellers
Differentiated products
Easy entry and exit from the industry

Relatively Large Number of Sellers:

Small Market Shares: Each firm has a small percentage of the total monopolistic market and thus has only limited control over market price.
No Collusion: A relatively large number of firms will not combine to restrict outputs and set prices. With so many firms, collusion is almost impossible because it is too easy for one firm to cheat and charge the lower price.
Independent Action: Each firm is independent and can determine its pricing policy without considering its rivals. eg. A firm could moderately increase its sales by cutting its prices, but that would have no significant effect on its competitors sales.
Differentiated Products:

Product Attributes: product differentiation may entail physical or qualitative differences in the products themselves. Real differences in functional features, materials, design, and workmanship are the vital aspects of product differentiation.
Service: Service and the conditions surrounding the sale of a product are forms of non-price product differentiation too.
Location: Accessibility of stores that sell certain products or placement of products in stores eg. products at eye level would have an advantage over those that are not.
Brand Names and Packaging: Brand loyalty and packaging can affect demand.
- ie. Apple's iPhone. It's pretty much the same as any other phone. It has touch screen capability, can surf the web, can listen to music, but the apple brand as well as advertising makes it a big hit on the market of cell phones.
Some Control over Price: Producers can charge extra for extra features, etc.
- Generally, firms are "price makers" since each firm owns such a small percentage of the total market; if a firm changed the pirce of their product, there would not be much of an effect on the market.
The firms in monopolistic competition will DIFFERENTIATE their products and make them more appealing to the customers in order to maximize their profits.

Easy Entry and Exit:

In the SHORT RUN, a firm may obtain economic profits or losses.
However, since there are little barriers from preventing companies to enter or leave the industry, in the long run, the firms will only obtain normal profits
Remember: entry eliminates profits; exit eliminates losses!

Advertising:

A unique feature of a monopolistic competitive market is that there are product differentiations.
Therefore, companies rely on advertising to flaunt their products and try to get consumers to buy their product over another.
Goal of product differentiation and advertising (non price competition) is to make price less of a factor in consumer purchases and make product differences a greater factor.
A successful advertisement would shift the firm's demand curve to the right and make demand more inelastic.
Some examples of non-price competition
- store loyalty cards
- Banking and other financial services
- Home delivery systems
- Child services
- Extension of opening hours
- Internet shopping for customers
- Warranties

Monopolistic Competitive Industries:

Shoes -Nike, Addidas, Reebok
Jewelry
Asphalt paving
Signs
Bottled water
ice cream-Breyers, Tom & Jerry
Mobile Phone- Nokia, Samsung, Sony Ericcson

Applications and Extensions

AnkeSlabbert — Sun, 15 Mar 2009 04:12:33 CDT

DVDs and DVDPlayers:
DVDs and DVD players are complementary goods. Price of DVDs have declined only slightly, but the price of the DVD player has decreased significantly, from $1000 from the time of its introduction to the market in 1997 to less than $100 now. The lower price for DVD players has expanded their sales and increased the demand for DVD movies. The greater technology of the DVD has made the VCR obsolete.
The Diamond-Water Paradox:

The paradox asks: Why would water, essential to life, be priced below diamonds, which have much less usefulness?

Based on the supply relativity, diamonds are much more rare and costly to produce than water; hence one of the reasons why the price is much greater despite being a luxury good.
Also, water provides less marginial utility than diamonds as it can be consumed readily; thus, based on the utility maximizing rule provided above (in DVDs and DVD Players), the equilibrium reached creates the price difference in prices of water and diamonds.*MU of water (low) / Price of Water (low) = MU of diamonds (high) / Price of diamonds (high)
The total utility of water is high since it is consumed in large quantities. On the other hand, the total utility

of diamonds is lower than those of water due to its low consumption.
The relative prices of water and diamonds is related to the marginal utility, not total utility.
This paradox is illustrated in the graph below:

The Value of Time:
- consumption and production time are both valuable economic commodities because that time could have been spent on something else like earning money
- different people rate time with differing importance;
  - businessmen who are constantly short on time will be willing to spend the extra money for a flight rather than to save money and drive
  - In developing countries they would consider goods very highly prized and carefully used, whereas in the developed countries they consider time as the most valuable factor.
Medical Care Purchases:
- insurance allows the consumer to pay less of the actual price, and therefore encourages the consumer to purchase more medical care than they normally would
- this is why so much is spent on health care
Cash and Noncash Gifts:
- people are incredibly different and hence would gain satisfaction with different things. The reason people would prefer cash gifts is they can spend the cash on products or services they may enjoy more than a noncash gift they receive worth the same amount of money.

Chapter 14: Interest Rates and Monetary Policy

nschoepfer — Sun, 01 Mar 2009 09:57:28 CST

Interest Rates

The demand for money
Equilibrium Interest rates
Interest rates and bond prices

Tools of Monetary Policy

Open-market operations
Reserve ratio
Discount Rate
Relative importance

Targeting the Federal Funds

Expansionary Monetary Policy
Restrictive Monetary Policy

Monetary Policy, Real GDP, and the Price Level

Cause-effect chain
Effects of expansionary monetary policy

Effects of a restrictive monetary policy

Mr. Welker's Class: Podcast Assignment Sign-up Sheet

chofer08 — Thu, 05 Feb 2009 04:28:05 CST

CLICK HERE to go back to the Podcast Assignment Instructions

Guidelines for podcast assignment sign-up:

Teams should consist of two people. Teammates may be from either of Mr. Welker's classes.
Due dates are on a first-come, first-serve basis. Only one team per date.
Topics must be posted to the wiki three weeks before your due date.
Descriptions must be posted two weeks before your due date.
A draft of the script must be submitted to Mr. Welker one week before your due date.

Due Date	Team members	Topic or Market you wish to focus on	Short Description of podcast
February 4	Yael and Laura	How do facebook and Myspace differ? Are these online social networks really free?	We will research the ways online networks that are free to the consumer actually earn money. We will then make a comparision between two firms in that market; Facebook and Myspace.
February 6	Matthew, Nick and Josh	Specific Ski market in Flims/Laax	We intend to research and find out how shops in Flims vary the prices of selected Ski brands. Video
February 25	Daniel, Chris and Mike	Movie Theater or Home entertainment? Which provides more marginal utility?	Producers from BP productions intend to examine all aspects involving the decision between going to a movie theater or staying at home. We will bring you upclose and personal interviews from students, teachers, Theater employees, and movie rental owners. Our video documentary will be edited using the hottest technology out there known as "I-Movie" and scenes from our favorite movies will be included.
February 13	Markus and Zac	Is the local kebab market perfectly competitive?	Interview kebab shop owners in Thalwil and Adliswil. How do they set their prices, differentiate their products, etc.? Research market and individual firms through student/teacher interviews. We will be making a video.
February 11	Justus, Bjorns	Is the Mountainbike market Monopolistically Competative, and are Mountainbikes normal or inferior goods.	Interviewing consumers and producers/ sellers to answer the question: do they differentiate, etc. Also, questions of the effect of the financial crisis will be posed. We will use iMovie.
February 27	Jonny and Martin

Welcome to Welker's Wikinomics Page

welkerjason — Thu, 22 Jan 2009 16:08:58 CST

NEWS: Welker's Wikinomics Study Guides are available for download over at the blog. CLICK HERE to get the latest .pdf study guides for AP and IB Economics or to order the SMART Notebook files of the originals for use in your own class!

Introduction:

An experiment in learning the Wiki way, a collaborative tool for understanding the concepts from a principles of Economics course, welcome to Welker's Wikinomics. Anyone is welcome to join and contribute to this wiki, or simply use it as a study tool for your Economics course. The primary contributors are AP and IB Economics students at Shanghai American School and Zurich International School. Thanks for visiting, I hope you find the wiki useful! ~Mr. Welker

Visit Welker's Wikinomics Econ Blog and Netvibes Universe

Winner of "Best Educational Wiki 2007 Award" and the 2008 Golden Paint Can Award for Education 2.0 Wiki - Congratulations to all the students who have contributed to Welker's Wikinomics over the last two years.
-

-
Navigate Welker's Wikinomics:

- ZIS Econ Course Information: 2008-2009 -	- Resource Page for Econ Students -
- Intro to Economics and Microeconomics Syllabus (AP Micro, IB SL/HL) Microeconomics Wiki -	- Macroeconomics Syllabus (IB SL/HL) Macroeconomics Wiki -
- International Economic Syllabus (IB SL/HL) -	- Development Economics Syllabus (IB SL/HL) -

Rules of Conduct at Welker's Wikinomics:

All AP Economics students as SAS are required to contribute to this site.
Only constructive, well thought out and informed input is welcome. Any contributions that are inappropriate or incorrect will be either removed or corrected by students or Mr. Welker/Ms. Close.
Main unit pages may not be edited by students, only topic pages within main units are for student editing.
Links to external sites relevant to a particular topic are welcome.
Links to news articles, websites, blogs or other wikis (such as Wikipedia) can be included in an edit if it is deemed to be useful in understanding the topic.
Once each unit, every student must post a link and abstract for an article related to the unit's topics on the "AP Econ in the News Page."
Once each unit, every student must also post their opinion or views on the unit's "Student Thought Forum."
Graphs may be uploaded as picture files if they are deemed helpful for understanding a topic.
Videos appropriate to the topics covered may be added to pages as "widgets". Inappropriate videos will be removed.
Students who are not in Mr. Welker's or Ms. Close's AP Economics classes may not to contribute to Welker's Wikinomics Page without permission.

Chapter 21 - "Pure Competition"

JoshAppleton — Mon, 19 Jan 2009 12:17:00 CST

Four Market Models

Pure Competition
Pure monopoly
Monopolistic Competition
Oligopoly

Pure Competition: Characteristics and Occurrence

Very large number of firms
Standardized product
"Price takers"
Free entry and exit
Many substitutes

Demand as Seen by a Purely Competitive Seller

Perfectly Elastic Demand
Average, Total and Marginal Revenue

Profit Maximization in the Short-run: TR/TC Approach

Profit Maximization in Short-run: MR/MC Approach

Profit-maximizing case
Loss-minimizing case
Shut-down case

MC and Short-run Supply

Profit-Maximization in the Long-run

Assumptions
Long-run Equilibrium

Entry eliminates economic profits
Exit eliminates losses

Long-run Supply for a constand cost industry
LR supply for an increasing cost industry
LR supply for a decreasing-cost industry

Pure Competition and Efficiency

Productive Efficiency
Allocative Efficiency
Maximum CS and PS

Unit 3.1: Measuring National Income and Unit 3.2 Intro to Development	U nit 3.3: Macroeconomic Models	Unit 3.4: Demand-side and Supply-side Policies	Unit 3.5: Unemployment and Inflation and Unit 3.6: Distribution of Income	Unit 4: International Economics
Unit 3.1: Measuring Domestic Output and National Income Wiki E-text ch. 6: Key Q's 3, 8, 11	Unit 3.3: Basic Macroeconomic Relationships Wiki E-text ch. 8: Key Q's 7, 8, 9	Unit 3.4: Fiscal Policy, Deficits, and Debt Wiki E-text ch. 11: Key Q's 2, 3, 10	Unit 3.5: Extending the Analysis of Aggregate Supply Wiki E-text ch. 15: Key Q's 3, 4, 6, 7	Unit 4: International Trade Wiki E-text ch. 35
Unit 3.1: Introduction to Economic Growth and Instability Wiki E-text ch. 7: Complete all the Key Q's from ch. 7	Unit 3.3: Aggregate Demand and Aggregate Supply Wiki E-text ch. 10: Key Q's 4, 6, 7	Unit 3.4: Money and Banking (AP only) Wiki E-text ch. 12: Key Q's 4, 6, 8	Income Inequality and Poverty Wiki E-text ch. 32: Key Q's 2, 5, 10, 12	Unit 4: Exchange Rates and Balance of Payments Wiki E-text ch. 36
	Unit 3.3: Economic Growth Wiki E-text ch. 16: Key Q's 5, 6	Unit 3.4: Money Creation (AP only) Wiki E-text ch. 13: Key Q's 2, 4
	Unit 3.3: Disputes over Macro Theory and Policy Wiki E-text ch. 17: No Key Q's	Unit 3.4: Interest Rates and Monetary Policy Wiki E-text 14: Key Q's 1, 2, 8

Unit 1: Introduction to Economics	Unit 2.1: Markets and Unit 2.2: Elasticities and 2.2.1 Theory of Consumer Choice (AP only)	Unit 2.3 Theory of the Firm	Unit 2.4 Market Failure and the Role of Government	Unit 2.5 Resource Markets (AP only)
Unit 1: Scarcity, Choice, Opportunity Cost and the PPC Wiki E-text ch. 1 Key Q's 5, 10, 13	Unit 2.1: Demand, Supply and Market Equilibrium Wiki E-text ch. 3: Key Q's 3, 6, 8, 9 14	Unit 2.3.1: The Costs of Production Wiki E-text ch. 20: Key Q's 2, 4, 7, 10	Unit 2.4: Government and Market Failure Wiki E-text ch. 28: Key Q's 1, 3, 4	Unit 2.5: Resource Markets Wiki E-text ch. 25: Key Q's 2, 5, 6, 7
Unit 1: Economic Systems and the Circular Flow Wiki E-text ch 2: Key Q's 8, 9	Unit 2.2.1: Consumer Behavior and Utility Maximization (AP only) Wiki E-text ch. 19: Key Q's 1, 3, 4	Unit 2.3.2: Pure Competition Wiki E-text ch. 21: Key Q's 3, 4, 6, 7	Unit 2.4: Public Choice Theory and the Economics of Taxation Wiki E-text ch. 29: Key Q's 7, 9	Unit 2.5: Wage Determination Wiki E-text ch. 26: Key Q's 3, 4, 6
The US in the Global Economy p. 84-92 Wiki E-text ch. 5: Key Q 4	Unit 2.2: Elasticities Wiki E-text ch. 18: Key Q's 4, 5, 9, 10 and 15	Unit 2.3.3: Pure Monopoly Wiki E-text ch. 22: Key Q''s 4, 5, 6		Unit 2.5: Rent, Interest, and Profit (AP only) NO WIKI E-text ch. 27:
		Unit 2.3.4 and 2.3.5: Monopolistic Competition and Oligopoly WIki E-text ch. 23: Key Q's 2, 8, 11		Web Chapter 27: Resource and Energy NO WIKI
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