Answers to Homework, January 10th, 2013

1. Marty’s Frozen Yogurt

a Fixed inputs: machines, refrigerators

b. Mix, cups, sprinkles, workers

c. Output on y-axis, input on x-axis, upward sloping curve showing increasingly flat at larger levels of input

d. 110, 90, 70, 30, 20, 10

e. Each additional worker added adds less to total production (output) than the previous worker added, causing diminishing marginal returns.

2. 

Q of labor column: 0 1 2 3 4 5 6

Q of cups column: 0 110 200 279 300 320 330

VC column: 0 135 260 375 470 560 645 (need to add cost of workers + cost of cups)

FC column: $100

TC column: 100 235 360 475 570 660 745

ATC column: – 2.14 1.80 1.76 1.90 2.06 2.26

MC column: 1.23 1.39 1.64 3.17 4.50 8.50

Efficient scale = minimum ATC, which is when ATC = 1.76.  Efficient scale is the quantity at that level, which equals 3 workers, 270 cups.

3. AFC decreases as quantity increases due to the spreading effect: FC is getting spread out over greater and greater quantities of output

AVC increases as quantity increases (to larger levels of output) due to the diminishing returns effect: each additional variable input (worker) adds less to total production than the previous variable input (worker) added, making each additional worker increasingly costly to hire (because they don’t add to production as much as earlier workers added).

Answers to Study Guide and Price Controls Handout

Study Guide Answers:

1. None because above the equilibrium price.

2. QD increases to 55, QS decreases to 40, resulting in a shortage of 15 bikes.

3. No because of the shortage.

4. QD falls to 40, QS rises to 70, resulting in a surplus of 30 bikes.

5. No impact because equilibrium price is already obeying the law.

6. Shortage, price falls, QD rises, QS falls.

7. Shortage, sellers worse off because the price is lower, some buyers are worse off because they can’t buy the good due to the shortage.

8. No impact because equilibrium price is already obeying the law.

9. Surplus, price rises, QD falls, QS rises.

True/False.

1. False, no impact.

2. False, a shortage.

3. True

4. False, some teens won’t be able to find a job due to the surplus of available workers.

5. False, only if the price floor is set above the equilibrium price.

Multiple Choice

1. B

2. A

3. D

4. B

5. C

6. C

7. E

8. A

9. C

10. E

11. D

12. A

Answers to Price Controls Handout

1. Market for cheese:

a. Binding price floor: set above equilibrium price.  Price rises, quantity of cheese sold falls.  Surplus.

b. Yes because they lost customers, so even though price is higher, they’ve lost too many buyers to sustain their revenue.

c. Farmers benefit.  Government loses.

2. Market for Frisbees:

a. $8, 6 million Frisbees

b. $10, 2 million Frisbees sold

c. Price ceiling of $9 is above the market equilibrium price of $8; therefore, we return to equilibrium because the new price ceiling is ineffective/non-binding.  6 million Frisbees will be sold at $8 each.

3. Market for labor and minimum wage:

a. Employment will decrease, wages of employed workers will increase.

b. Unemployment will increase (surplus of labor).

Argentina and Peru problem

1.

Argentina: opp cost of beef is 1/2 fruit, opp cost of fruit is 2 beef

Peru: opp cost of beef is 1 fruit, opp cost of fruit is 1 beef

Argentina has comparative advantage in beef.

2. Peru will export fruit because it exports the item in which it has a comparative advantage.

3. Between 1 and 2 metric tons of beef/month

4. Argentina because it can produce more beef with the same resources as Peru.

Answers to Comparative & Absolute Advantage Problems

Thursday, Sept 27th, 2012:

1. Canada wheat and cars problem: 

a. Draw table.

b. 1/15 of a car

c. PPF w/ straight line.  20 million cars, 300 million bushels of wheat

d. 150 million bushels of wheat, halfway point on the frontier/line

e. 200 bushels of wheat, outside the frontier

2. England and Scotland scones and sweaters problem:

a. England: scones, Scotland: sweaters

b. Draw table.

c. Scones: England

d. Sweaters: Scotland

e. Scotland trades sweaters because it has a comparative advantage in sweater production.

f. Yes, because Scotland still has a comparative advantage in sweaters, and England would still produce scones.  Both would still end up consuming outside of their frontier.

Friday, September 30th, 2011

Answers to the PPF problems at the end of the review packet:

Germany and Poland problem:

This is an output problem (Foregone item goes on top!)

Germany: 1500 computers, 500 tons of grain opportunity cost of computers (forego grain): 1/3 tons of grain, opportunity cost of grain (forego computers): 3 computers

Poland: 400 computers, 400 tons of grain, opportunity cost of computers (forego grain): 1 ton of grain, opportunity cost of grain (forego computers): 1 computer

In your PPF make sure you have the following:

-title

-axes labeled

-straight line frontiers

-frontiers labeled for each country

-numbers for amounts produced (Germany: 1500 computers, 500 tons of grain, Poland: 400 computers, 400 tons of grain)

Absolute advantage in computers: Germany (greater number of outputs with the same number of inputs)

Comparative advantage in grain production: Poland because the opportunity cost of producing grain is less for Poland than it is for Germany

If Poland could only produce one ton of grain/worker (100 tons of grain total), Poland’s opportunity cost of production would change.  The opportunity cost of producing computers for Poland would be 1/4 tons of grain.  The opportunity cost of producing grain is 4 computers.  Therefore, Poland would now have a comparative advantage in computer production because the opportunity cost of producing computers is less than Germany’s.

 

Argentina and Peru problem:

Argentina has a comparative advantage in beef production (opp. cost of beef is 1/2 fruit compared to Peru’s 1 fruit).

Peru will export fruit because it has a comparative advantage in fruit production (opportunity cost of fruit production is smaller for Peru than it is for Argentina).

The price of fruit, measured in beef, is between 1 and 2 metric tons of beef.

Absolute advantage in beef: Argentina because it can produce more beef with the same amount of inputs as Peru.

Monday, September 19th, 2011

Mapping Activity: Napoleon’s Grand Empire.

Use the maps below to color and label the maps you received for homework.

AP Microeconomics Summer Assignment

AP Microeconomics Summer Assignment

Congratulations, and welcome to the wonderful world of economics!! As a student in next year’s class, you are also the lucky recipient of a summer assignment giving you a preview of the topics we will focus on in the coming school year. Below, you will find the details of this assignment. My email address is rstern2@boston.k12.ma.us should you need to contact me for any reason.

Your task:
• Read the assigned chapters from the book, Naked Economics: Undressing the Dismal Science by Charles Wheelan.
• Answer the accompanying questions about the reading.
• For each section, please write one question related to the reading that you would like answered.

***Make sure to acquire the fully revised and updated 2010 version of the book!!!! ***

Written responses to the questions below must be turned in on Friday, September 16th, 2010.
Responses must be written in complete sentences and must be typed, double-spaced, 12 point Times New Roman font with standard margins. For each response, you must support your answer with specific evidence from the book.

Foreword by Burton G. Malkiel

1. The study of economics has often been criticized for a variety of reasons. What are those reasons?

2. The influence of economics is present in many business, financial, and government communities. What are some institutions and agencies that rely on economics in some significant way?

Introduction

3. Give one example of a politician (in the United States or abroad) who has failed to understand economics and as a result, failed to understand how to solve a problem society faces.

Chapter 1: The Power of Markets

4. What does it mean to “maximize your utility?”

5. What are some “barriers to entry” that make it so only seller can provide a good or service? Why are barriers to entry important?

6. What is meant by “price discrimination?” Why do you think airlines are able to price discriminate?

7. What does Wheelan mean when he says the market economy operates as an “amoral force?”

8. Besides prices, what is another way that firms can compete in order to outperform their competition?

9. According to Wheelan, what makes markets a good way to organize economic activity?

Chapter 2: Incentives Matter

10. What problem do communal resources present, as compared to privately owned resources?

11. Why do incentives matter? Use an example from the book as well as from your own life to explain your response.

12. The law of unintended consequences states that “actions of people – and especially of government – always have effects that are unanticipated or unintended” (The Concise Encyclopedia of Economics). While important to recognize, politicians often fail to understand its significance. Provide one example mentioned in the reading that illustrates this point.

13. “Capitalism can be a brutal, cruel process…But ‘creative destruction’ (Joseph Schumpeter) is a tremendous positive force. Competition means losers, which goes a long way to explain why we embrace it in theory and fight it bitterly in practice.” Explain this statement, and give an example.

Chapter 3: Government and the Economy

14. What positive and negative externalities are associated with cigarette smoking? Can you make the case that the positives outweigh the negatives?

15. What makes taxation a good solution the problem of negative externalities?

16. List all of the ways that government is essential in order for a market economy to operate successfully.

You are an AP student. Lesson # 1: Do Not Procrastinate!