Download Economics 100 In Class Assignments Spring 2007

1
Economics 100
Class 2:
In-Class Assignment
Form into groups of three or four people. Since this is your first in-class assignment, take a few
minutes to introduce yourselves. Then, do the following two questions. Write your answers as a
group in the space provided.
1. We have described four factors of production: natural resources, labor, capital, and
entrepreneurship. Think of any restaurant you have ever been to: Dennys, MacDonalds, Taco
Bell, Pizza Hut, or any other.
Write a list of some of the things used by that restaurant that would qualify as
natural resources.
Write a list of some of the things used by that restaurant that would qualify as labor.
Write a list of some of the things used by that restaurant that would qualify as capital.
Who is the entrepreneur in this restaurant and what does the entrepreneur do?
2. We have defined opportunity cost as the value of everything that is sacrificed when one
decides to do something. You have decided to take Principles of Microeconomics this semester.
What is the opportunity cost of this decision? Try to consider all of the sacrifices you expect to
make. Then, try to put a dollar value on them so that you can determine exactly what you are
giving-up.
The opportunity costs are composed of:
I estimate that the dollar value of the opportunity costs of taking Principles of Microeconomics is:
$_____________________________________ Show how you arrived at this number.
3. This class is concerned with rational decision-making. This involves considering the marginal
benefit and marginal opportunity cost for each unit. Form into groups. Discuss among
yourselves how you would use the procedure for rational decision making in each of the
following situations. Then write briefly in the space what you have concluded.
1. A family must decide how many children to have.
2. You have taken a quiz and received a grade of 3 out of a possible 10 points (F). You are
allowed to take a second version of the quiz. If you do so, you can raise your grade to a
maximum of 7 out of 10 (C) as long as your score on the second quiz is at least 7. Since you
scored poorly on the first version, you will need to study carefully. There are 570 maximum
possible points in the course. Will you take the second version of the quiz? Why?
3. You are driving home from Phoenix. You stop at a Dennys in a small town for dinner. You
have never been in this small town before and are not likely to ever be there again. Your dinner
is fine and so is the service. Your bill is $10. Use the procedures for rational decision-making to
determine whether or not you will leave a tip for the person who waited on your table.
2
Economics 100/102
Name________________________
Class 3: In Class Assignment
1. In each case, state whether you believe the demand for the product is relatively elastic
or relatively inelastic? Then, provide reasons for your conclusion.
1. American Online (AOL).for access to the Internet as well as other services
2. Paying a bill by first class mail
3. Services of a doctor to fix a broken arm
4. Services of a doctor for plastic surgery (changing one's appearance)
5. Japanese automobiles (such as Toyota or Nissan)
6. A burger at MacDonalds
7. Use of cigarettes
8. Flights on American Airlines to see New York City as a tourist
9. Tickets to the movies
10. Courses at Palomar College
3
Economics 100
Name_______________________
Class 5: In Class Assignment #1
In Class 4, you were given a demand schedule for new homes. Earlier in this chapter,
you were given a supply schedule for new homes. These are repeated here.
Price
Quantity Demanded
Quantity Supplied
1
2
3
4
5
6
7
8
9
$340,000
$320,000
$300,000
$280,000
$260,000
$240,000
$220,000
$200,000
$180,000
$160,000
$140,000
$120,000
$100,000
10
11
12
13
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
12000
14,000
13,000
12,000
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
If the price of homes is $320,000, there will be a _______________(shortage or surplus?)
equal to _____________________ homes.
If the price of homes is $120,000, there will be a _______________(shortage or surplus?)
equal to _____________________ homes.
The equilibrium price is equal to $_________________ and the equilibrium quantity of
homes is equal to ___________________.
Draw the demand curve and the supply curve on the graph paper on the back of the page.
Show the equilibrium price and the equilibrium quantity on the graph.
In Chapter 5, there was a shift in the demand for new homes to the right. The data are
given below.
Price
The quantity demanded is:
The quantity supplied is
Demand1
Demand2
1
2
3
4
5
6
7
8
9
10
11
12
$340,000
$320,000
$300,000
$280,000
$260,000
$240,000
$220,000
$200,000
$180,000
$160,000
$140,000
$120,000
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
12000
13000
14000
13000
12000
11000
10000
9000
8000
7000
6000
5000
4000
3000
4
Page 2
What is the new equilibrium price? $_______________
What is the new equilibrium quantity of new homes? ________________
Show the shift on the graph on the back of the page. Show the new equilibrium price and
quantity of new homes.
Because of the shift in the demand, there is now a _________(shortage or surplus?) equal
to _________ new homes. This will cause the price of new homes to ________(rise or
fall?). The change in the price will __________(increase or decrease?) the quantity
demanded for new homes and ___________(increase or decrease?) the quantity supplied
of new homes.
In Class 5, there was a shift in the supply of new homes to the right. The data are given
below:
Price
quantity demanded
quantity supplied
new quantity supplied
1
2
3
4
5
6
7
8
$340,000
$320,000
$300,000
$280,000
$260,000
$240,000
$220,000
$200,000
9 $180,000
10 $160,000
11 $140,000
12 $120,000
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
11000
14000
13000
12000
11000
10000
9000
8000
7000
6000
5000
4000
3000
16000
15000
14000
13000
12000
11000
10000
9000
8000
7000
6000
5000
What is the new equilibrium price? $_______________
What is the new equilibrium quantity of new homes? ________________
On a different graph on the next page, redraw the original demand and supply curves.
Then, show the shift in supply. Show the new equilibrium price and quantity of new
homes.
Because of the shift in the supply, there is now a _________(shortage or surplus?) equal
to _________ new homes. This will cause the price of new homes to ________(rise or
fall?). The change in the price will __________(increase or decrease?) the quantity
demanded for new homes and ___________(increase or decrease?) the quantity supplied
of new homes.
5
Class #5:
Case Using Demand and Supply Analysis
Assume there is a well-defined geographic area of a city. The area is composed
exclusively of apartments and is populated by low-income residents. The people who
live in the area tend to stay in that area because (1) they cannot afford to live in other
areas of the city, (2) they prefer to live with people of their own ethnic group, or (3) there
is discrimination against them in other areas of the city. Rents paid are a very high
percent of peoples' incomes.
(1) Would the demand for apartments in this area be relatively inelastic or relatively
elastic? State why.
(2) Would the supply of apartments in this area be relatively inelastic or relatively
elastic? State why.
(3) Draw the demand and supply curves as you have described them, showing the initial
equilibrium price and quantity. Label carefully.
Price
0
Quantity
(4) Now assume the government creates a rent supplement program. Under this
program, the renter is required to pay 30% of income in rent. Any additional rent is paid
by the government --- up to a limit. For example, a low-income person with an income
of $500 a month would be required to pay $150 in rent (30%). If the rent is $350, the
other $200 would be paid by the government. Analyze the results of this program. Show
the changes on the graph and explain what will result. Who gains and who loses from
this program?
(5) Instead, now assume that the government decides to provide a building subsidy to
people who build apartments in this low-income area. A certain percent of their costs
will be paid by the government. Analyze the results of this program. Show the results on
the graph and explain what will result.
6
Economics 100
Class 6
In Class Assignment #1
Under the Immigration Act of 1990. the United States grants permits for legal
immigration to approximately 800,000 people each year (not considering refugees).
While there is a great opportunity cost for people migrating to the United States, the
charge for the permit is virtually zero.
(1) Draw the demand for immigration rights into the United States on the graph.
Draw the supply as perfectly inelastic (at 800,000 permits). Show that, at a price of zero,
there is a large shortage.
Price
0
Quantity
(2) Since there is a price ceiling on entry permits, name some ways that the shortage
might be resolved. That is, how might it be decided who will be allowed to enter?
(3) Is there a black or gray market in this case?
(4) How might the market be used to resolve the shortage problem? What would be the
advantages and the disadvantages of a market solution?
7
Economics 100
Class 6
In Class Assignment #2
Assume there are two products: gas-guzzling cars and small fuel-efficient cars. Show the
demand and supply curves for each on the graphs as well as the equilibrium prices and quantities.
Then, the price of gasoline rises to over $2.00 per gallon as a result of a decrease in the
production of oil (oil is used to produce gasoline). Show the changes on the two graphs as well as
the new equilibrium prices and equilibrium quantities.
Price
Price
0
Quantity
Gas-Guzzling Cars
0
Quantity
Fuel-Efficient Cars
When oil becomes scarce, it is desired that people will conserve on oil and oil products. Based on
your graphs, does the market lead people to do so? WHY or WHY NOT? What is the function
of the price in the case of each type of car?
8
Economics 100
Class 7 In Class Assignment #1
Name____________________
Janice decides to quit her $20,000 a year job and open a small store selling high fashion.
To start her store, she takes $100,000 out of her savings account. She had inherited this
money from her parents. During the first year, her expenses are as follows:
Rent for the Store
Four Hired Workers
Clothes
Accounting Firm
Electricity
Insurance
$15,000
$80,000
$100,000
$3,000
$2,000
$5,000
Janice also works in the store ordering the clothes and doing some selling. During the
first year, Janice’s store sold $250,000 worth of clothing.
Her Explicit Costs were
$___________________
Her Implicit Costs were
$___________________
Her Total Economic Costs were
$___________________
Her Fixed Costs were
$___________________
Her Variable Costs were
$___________________
Her Economic Profit was
$___________________
9
Economics 100
Class 7 In Class Assignment #2
The following is a Production Function for sewing blue jeans in a day:
Capital
(Sewing Machines)
0
1
Labor (Workers Per Day)
2
3
4
5
6
7
1
0
15
34
44
48
50
51
47
2
0
20
46
64
72
78
81
80
1. Assume that there is only one sewing machine (this is the short-run). Calculate the
marginal physical product of each worker:
Labor
Marginal Physical Product
Marginal Cost
1
2
3
4
5
6
7
2. Assume that each worker is paid $80 per day ($10 per hour for an 8-hour shift). Assume also
that there are no other variable costs of production besides labor. In the table above, calculate
the marginal cost. (Hint: if one worker is paid $80 and produces 15 pairs of blue jeans, the
marginal cost of each pair of blue jeans must be $80 divided by 15 = $5.33.)
3. If the marginal physical product is rising (falling), the marginal cost must be ____________
(________________). Answer “rising” or “falling”.
10
Economics 100
Class #9 In Class Assignment
1. San Marcos Market is a grocery store of about 5,000 square feet. Albertsons is a
grocery store of about 20,000 square feet. Albertsons can sell groceries at a lower
price than San Marcos Market because its costs of production are lower. Explain why
Albertson’s costs of production are lower. That is, what cost advantages does
Albertsons (or Vons or Ralphs) have just because it is a larger company?
2. When new products first are introduced, they are very expensive. So, for example,
the first color television sets sold more over $2,000 in today’s money, the first VCRs
sold for over $3,000 in today’s money, the first pocket calculators sold for over $300
in today’s money, and so forth. After the products are on the market for awhile, the
prices tend to fall greatly. Use the principles of economies of scale and dynamic
increasing returns to scale to explain why this phenomenon occurs.
3. Recently, there have been many mergers. Large banks have merged with other large
banks. Computer companies have merged with other computer companies. These
mergers are justified by the cost savings that occur if the two competing companies
become one. In this question, let us consider gas stations. Exxon and Mobil, have
merged together into one company, as have Chevron and Texaco. Use the principle of
economies of scale to explain why there might be a reduction in the cost of
production of selling gasoline if these companies merge into one.
4. In each case, state whether you believe the industry should be characterized as perfect
competition, pure monopoly, monopolistic competition, or oligopoly. STATE
YOUR REASONS.
1. Growers of avocados
_____________________________
2. Fast-food restaurants
_____________________________
3. Automobile Producers
_____________________________
4. Television stations
_____________________________
5. Computer manufacturers
_____________________________
6. Owners of Radio Stations
_____________________________
7. Producers of Electricity
_____________________________
11
Economics 100
Class #10 In Class Assignment
1. Assume that this housing construction company sells homes in perfect competition at a market
price of $200,000 per home.
Quantity Price Total Revenue Marginal Revenue
0
$200,000
1
$200,000
2
$200,000
3
$200,000
4
$200,000
5
$200,000
6
$200,000
7
$200,000
8
$200,000
9
$200,000
10
$200,000
11
$200,000
12
$200,000
Total Cost Marginal Cost
$180,000
$340,000
$160,000
$480,000
$140,000
$600,000
$120,000
$740,000
$140,000
$900,000
$160,000
$1,080,000
$180,000
$1,280,000
$200,000
$1,500,000
$220,000
$1,740,000
$240,000
$2,000,000
$260,000
$2,280,000
$280,000
$2,580,000
$300,000
Fill in the table. Ultimately how many units will be produced?_______________
What is the Economic Profit? _____________________________
2. Now assume that the market price falls to $160,000. Fill in the table.
Quantity Price Total Revenue Marginal Revenue
0
$160,000
1
$160,000
2
$160,000
3
$160,000
4
$160,000
5
$160,000
6
$160,000
7
$160,000
8
$160,000
9
$160,000
10 $160,000
11 $160,000
12 $160,000
Total Cost Marginal Cost
$180,000
$340,000
$160,000
$480,000
$140,000
$600,000
$120,000
$740,000
$140,000
$900,000
$160,000
$1,080,000
$180,000
$1,280,000
$200,000
$1,500,000
$220,000
$1,740,000
$240,000
$2,000,000
$260,000
$2,280,000
$280,000
$2,580,000
$300,000
How many units will be produced? _________________
The economic profits are now equal to $_________________.
Since there is an economic loss, should the company continue to produce in the short-run? Or
should the company shut-down temporarily? ___________________________
Why? _________________________________________________________________
12
Page 2
3. Now assume that the market price falls to $120,000. Fill in the table on the back side.
Quantity Price Total Revenue Marginal Revenue
0
$120,000
1
$120,000
2
$120,000
3
$120,000
4
$120,000
5
$120,000
6
$120,000
7
$120,000
8
$120,000
9
$120,000
10 $120,000
11 $120,000
12 $120,000
Total Cost Marginal Cost
$180,000
$340,000
$160,000
$480,000
$140,000
$600,000
$120,000
$740,000
$140,000
$900,000
$160,000
$1,080,000
$180,000
$1,280,000
$200,000
$1,500,000
$220,000
$1,740,000
$240,000
$2,000,000
$260,000
$2,280,000
$280,000
$2,580,000
$300,000
How many units will be produced? _________________
The economic profits are now equal to $_________________.
Since there is an economic loss, should the company continue to produce in the short-run? Or
should the company shut-down temporarily? ___________________________
Why? _________________________________________________________________
4. Fill-in the following table. Assume there are 1,000 companies in this industry.
Price
Supply of One Company
Market Supply
Market Demand
$140,000
10,000
160,000
9,000
180,000
8,000
200,000
7
7,000
7,000
220,000
6,000
240,000
5,000
260,000
4,000
280,000
3,000
300,000
2,000
320,000
1,000
340,000
0
The equilibrium quantity produced in the market is ______________________.
The equilibrium price is $__________________________.
5. What price would have to exist in the market so that each of the 1,000 companies earned an
economic profit equal to zero? ____________________ What does “economic profit of zero”
mean?___________________________________________________________________
13
Economics 100
Class #11 In Class Assignment
The following demand and total cost prevail for a monopolist:
Quantity
Price
Total Revenue
Marginal Revenue Total Cost
0
$11
$ 7
1
$10
$11
2
$ 9
$16
3
$ 8
$22
4
$ 7
$29
5
$ 6
$37
6
$ 5
$46
7
$ 4
$56
Marginal Cost
Fill in the Table. Remember that the total revenue is equal to the price time the
quantity. The marginal revenue is the change in the total revenue from
producing one more unit. And the marginal cost is the change in the total cost
from producing one more unit.
Using the principles developed in the class, the quantity this monopolist should
produce in order to maximize profits is ________________.
The price that this monopolist should charge is $_________________.
The economic profits earned will equal $______________________.
(Remember that economic profits equal total revenue minus total cost.)
1. Explain why the price is greater than the marginal revenue.
2. Explain why this monopolist cannot change any price she wants, such as $11.
14
Economics 102
Name___________________________
Class #14 --- In-Class Assignment
1. Use the principles of price discrimination to explain the following:
1. Why do students and the elderly pay a lower price for movies than others?
2. Why does SDG&E charge a lower price to business users than to household users?
3. Why do long-distance companies charge a higher price to business users than to
household users?
4. Other than cost savings, why do grocery stores charge a lower price to people
who clip coupons than to people who do not?
2. In this section, the reasons for the phenomenon of natural monopolies were
described.
The bus system in North County is a natural monopoly while the airline industry is
not. Using the reasons discussed in this section, explain why this is so.
3. In the solid waste and hazardous waste control industries, government
environmental regulations have imposed substantial costs on companies. These costs
include purchasing control equipment, paying for permits, and hiring lawyers, engineers,
and scientists. Before the imposition of these environmental regulations in the 1970s,
this was a reasonably competitive industry. Today, two companies control over 50% of
the market. Many companies with landfills to dispose of this waste have shut down. The
result has been higher prices and increased profits for the two companies. Use the
material of this section to explain why the imposition of the environmental regulations
would contribute to the domination of a former competitive industry by only two
companies. (Hint: the costs imposed by the environmental regulations are fixed costs.)
15
Economics 100
Assignment for Class #15
Name___________________
1. Fill in the table below. Assume that all workers are hired in a perfectly competitive labor
market at a wage of $9.
Labor Total Product MPP Price MRP MRC = Wage
1
10
$1
2
21
1
3
33
1
4
44
1
5
54
1
6
63
1
7
71
1
8
78
1
How many workers will a profit maximizing employer hire? ______________
If the wage were to fall to $8, how many workers would be hired? ______
If the wage were to rise to $10, how many workers would be hired?______
In the graph below, draw the MRP curve and the MRC curve (assuming a wage of $9). Show
the profit-maximizing number of workers hired.
$
___________________________________
0
Number of Workers
2. Would the demand for the following workers be relatively elastic or relatively inelastic? Why?
1. Free agent football players try to raise their salaries by switching teams.
Elastic or Inelastic? __________________________________
Why?____________________________________________________
2. The Presidents (CEOs) of corporations try to get raises in their own salaries.
Elastic or Inelastic?___________________________________
Why?____________________________________________________
3. Those who run cash registers at grocery stores try to get increases in their wages.
Elastic or Inelastic?__________________________________
Why?____________________________________________________
16
Economics 100
In Class Assignment for Class #16
The previous class discussed the derivation of the demand for labor. Wages are
determined by the demand for labor and the supply of labor. This class will discuss the
factors that are responsible for the fact that some people receive higher wages than other
people. Before we do this, take a few minutes to try to provide some reasons why certain
people might earn higher wages than others. In particular, what reasons can you give
for the fact that, on average, men receive higher wages than women do?
1.
2.
3.
4.
5.
17
Economics 100
Class #17 In Class Assignment
1. State whether the following mergers are horizontal, vertical, or conglomerate:
1. Washington Mutual buys Home Savings Bank
_______________
2. ABC buys ESPN (A TV sports network)
_______________
3. The owner of the Fox TV network
buys the Los Angeles Dodgers
______________
4. Disney buys ABC
_______________
5. Albertsons buys Lucky
______________
6. RJR, a maker of cigarettes, buys Nabisco,
maker of cookies, crackers, etc.
______________
7. Ralston Purina, maker of dog and cat food,
buys Jack in the Box
______________
8. ITT buys Hartford Insurance and Continental
Baking
______________
9. Chevron buys Texaco and Unocal
______________
10. AOL Time Warner owns AOL, Warner Brothers
Studio, CNN, Time Magazine, Sports Illustrated,
People Magazine, Turner Broadcasting, and so forth._____________
2. An industry has 10 companies with the following share of sales:
A
20% F 10%
B
20% G 5%
C
10% H 5%
D
10% I 5%
E
10% J
5%
Under the Merger Guidelines, would companies A and B be allowed to
merge? Why or why not? Under the Merger Guidelines, would companies I and J be
allowed to merge? Why or why not? Show Calculations.
18
Economics 100
In Class Assignment for Class #18
For each of the following, state whether the particular function is acceptable under laissez faire.
If so, under which of the functions is it acceptable?
1. Government provides the national parks and the national forests.
2. Government requires you to have a smog control device on your automobile.
3. Government requires nutritional information be made available on all food packages.
4. Government has tax deductions for contributions to charities and churches.
5. Government makes it illegal to use cocaine and marijuana
6. Government provides Social Security and Medicare for those who are age 65 and up
7. Government has a price support program for farmers
8. Government subsidizes public television and public radio
9. Government provides the court system
10 Government sues Microsoft for violations of the anti-trust laws
19
Economics 100
In Class Assignment for Class #19
1. Form into groups of three or four people. Discuss the following: If a household had an
annual income of each of the following, would you consider the household “rich”?
$1,000,000
_____
$ 500,000
_____
$ 250,000
_____
$ 125,000
_____
$ 100,000
_____
$ 75,000
_____
$ 50,000
_____
2. If you have not examined the data in the chapter, consider the following questions:
1. How much income did a household need this year to be in the 80th percentile (80% of
American households would have less income while 20% would have more income)?
___________________
2. How much income did a household need this year to be in the 95th percentile (95% of
American households would have less income while 5% would have more income)?
___________________
3. Using your answer to question 1, what percent of American households would
your group consider “rich”? _______________
3. Based on your best guess as to your own family’s income this year, approximately what
percentile in the income distribution did your family fall? Do this for each person in the group.
___________________
4. In 2002, the poverty threshold for a single person residing in San Diego was approximately
$1,200 per month. Form a budget for yourself, assuming that you have exactly this income.
Consider all of your expenses. (If you are not single, the poverty thresholds are different: about
$1,400 for 2 adults, $1,500 for one adult and one child, $1,800 for 2 adults and one child or for
one adult and two children, $2,200 for 2 adults and 2 children, etc. Use these numbers to prepare
your budget.
5. Ethics Question
Consider the following proposition: taxes should be raised on the richer people, with the
money given as transfers to the poorer people, so as to make the distribution of income more
equal. You will be assigned to argue either for or against this proposition. Name as many
arguments as you can for the position you are assigned.
1.
2.
3.
4.
5.
20
Economics 100
In Class Assignment -- Class #21
Name_________________
Go to the following site: http://www.whitehouse.gov
Your Government. then Office of Management and Budget. then Budget Information
then A Citizen’s Guide to the Federal Budget then Where the Money Comes From and
Where It Goes (Or Click on Citizens Guide on my web site)
1. What will be the estimated total government spending in the current year?
2. In the current year, what percent is expected to be spent on defense? On Social
Security? On Medicare? On other Health Care? On Income Security?
3. In the current year, what percent of the federal budget will be discretionary?
4. Over the next few years, what is projected to happen to each of the following (in
total and as a percent of the total budget): (1) defense; (2) social security; (3) Medicare
5. Over the next few years, what is projected to happen to total government
spending?
6. Besides defense, what categories of spending are considered discretionary? And
besides Social Security, which categories if spending are considered mandatory?
21
Economics 100
1. Income
In Class Assignment for Class #22
Taxes Paid
0
Average Tax Rate
Name_________________
Marginal Tax Rate
0
$10,000
$ 500
$20,000
2,000
$30,000
4,500
$40,000
8,000
$50,000
12,500
Fill-in the table above. Is the tax above progressive, regressive, or proportional? Why?
2. Given the definitions of progressive, regressive and proportional taxes, do you believe
each of the following taxes to be progressive, regressive, or proportional. In each case,
state WHY.
1. Federal Income Tax
_____________________
2. State Income Tax
_____________________
3. Sales Tax
_____________________
4. Social Security Tax
_____________________
5. Tax on Gasoline
_____________________
6. Property Tax
_____________________
(Remember that renters also pay property taxes --- included in their rent.)
7. Cigarette Tax
_____________________
8. Overall Tax System
(All taxes together)
_____________________
22
Economics 100
Name_______________________
In Class Assignment
Class #23
Form into groups of three or four people.
1. Assume that there are only four goods produced. The following represent the prices
and quantities sold in the base year (2000) and the current year (2005):
Pizza
Cola
T – Shirts
Bus. Equipment
Price00
$4
12
6
25
Quantity00
10
20
5
10
Price05
$8
36
10
30
Quantity05
12
15
15
12
What was the Nominal Gross Domestic Product (GDP) in 2000? Show calculations.
What was the Nominal Gross Domestic Product (GDP) in 2005? Show calculations.
What was the Real Gross Domestic Product (Real GDP) in 2005? Show calculations.
23
Economics 100
Name_______________________
Class #24: In Class Assignment
1. In a certain month, the Labor Department estimated the following:
Worked full-time for the whole Month
80 million
Worked part-time for the whole month
10 million
Did not work but did search for work
10 million
Discouraged workers
1 million
Full-time students
5 million
The official unemployment rate is _________________________ .
SHOW CALCULATIONS.
2. In each of the following situations, state whether the person is employed,
unemployed, or not in the labor force:
1. William works part-time and attends school part-time
_______________
2. Jose is a full-time student who does not want a job
_______________
3. Jane does not work now but she is looking for a part-time job
_______________
4. Mary is a single mother; she looked for a job for six months
without luck. Last month, she gave up looking.
_______________
3. In each of the following cases, state whether the unemployment would be classified as
"frictional"; “seasonal”; "structural"; or "cyclical".
1. Robert lost his job at General Dynamics. There is a job available
at 7 - 11, but he refuses to take it. He has been looking for a job
similar to his old job for nine months.
_______________
2. Mary quit her job at Sears and found a better-paying job at
Nordstroms. She was unemployed for one month while she
found her new job.
_______________
3. Maria lost her job with a construction company because of the
recession. When the economy improves, she will be called back
to her old job.
_______________
24
Economics 100
Name__________________
Class 25 --- In Class Assignment
Assume there are three goods in the economy:
Quantity 1982
Quantity 2005
Price 1982
Price 2005
A
10
15
$1
$3
B
5
10
$3
$4
C
20
20
$5
$10
1. Using this data, calculate the Consumer Price Index (CPI) for 2005. Assume that
A, B, and C are all consumer goods and that the Base Year is 1982.
2. Assume that you have a COLA tied to the CPI. In 1982, you earned $15,000. How
much do you need to earn in 2005 to have the same purchasing power as you had in
1982?
3. Using the numbers above, calculate the GDP Deflator. Assume that the Base Year is
1982 (in reality, it is 2000).
4. In reality, the GDP Deflator number is likely to be different from the CPI number?
Why is this so?
5. In 1979, the CPI was 72.6. In 1980, the CPI was 82.4. What was the percentage
increase in the CPI in 1980?
25
Economics 100
Class 25
In Class Assignment #2
1. Assume that Mary lends Linda $1,000 for one year at a time when there is no
inflation. They agree on an interest rate of 5%. After the loan is made, inflation
begins! During the year, prices rise 5%. What is the real rate of interest Linda
receives?
2. In 1979, I was driving to work when my car (a Fiat) caught on fire. After getting the
fire out, I realized that I had to have a new car. But I didn’t have the money. So I
borrowed from the bank for a three year loan at 9% interest. In 1980, to the surprise
of everyone, prices rose 13 1/2%! For 1980, what was my real rate of interest?
3. In 1982, Joe bought a house. Figuring that inflation would continue at least 10% a
year, Joe accepted a 30 year loan at 17% nominal interest. In reality, by 1983, prices
were rising at a bit over 3% per year. What real interest rate did Joe expect he was
paying? What real interest rate did Joe actually pay in 1983?
4. Between borrower and lender, who is better off and who is worse off because of
unexpected inflation?
5. Do you believe that each of the following would be better off or worse off because of
unexpected inflation:
1. People who already own homes
____________
2. People on fixed incomes
____________
3. People with considerable funds in a savings account ___________
4. The Federal Government
___________
5. The Middle Class
___________
6. The Rich People
___________
6. If you believed that large inflation was coming soon, what would happen to each of
the following:
1. The amount you would save in a bank
___________
2. The amount of debt you would want to be in
___________
3. The number of homes you would want to own
___________
26
Economics 100
Class #26 In Class Assignment
Name_____________________
1. Assume that, there is only one product produced, which we will call a "widget". If
there were full-employment, production would equal 1,000 widgets to sell at $100 per
widget. Therefore production in the United States is valued at $100,000. Domestic
income also must equal $100,000. This income involves 10 workers being paid $10,000
per year. (Ignore profits for now.) Each worker produces 100 widgets.
Of their $100,000 of income, the workers pay $10,000 in taxes, save $5,000, spend
$85,000 on consumer goods, of which $80,000 were produced in the United States and
$5,000 were imported.
Businesses wish to spend $10,000 on private business investment spending, that is, on
capital goods produced in the United States.
Foreigners are spending $6,000 on American exports.
If the government spent the same amount that it raised in taxes ($10,000), what would
happen to production in this economy (inflation, recession, or neither?)? Why?
In order to avoid any problem of unemployment or inflation, how much should the
government spend? Why?
If it did so, the government would have a (budget deficit or surplus?) equal to
$_________________.
If there is a deficit, where would the government get the money to pay for this deficit?
If there is a surplus, what would be done with the surplus?
27
Economics 100
Name_______________________
Class #27
In Class Assignment
1. Go to the Money Supply link on my web site.
What is the total value of M-1 for the most recent period? _________________ What is
the value of each component of M-1?
2. Take out some currency. Any amount will do. Examine the front of the bill.
Based on your examination, what does this piece of paper represent? That is,
what is currency?
3. "I have $200 in my checking account." If I go into the bank and tell them that I want
to see my $200, what will they show me? That is, what is a checking account?
4. What is a credit card?
5. What is the total value of M-2 in the most recent period? ___________________
6. Go to the site: http://www.bankofamerica.com
Find the Annual Report
What are the main assets of Bank of America?
What are the main liabilities of Bank of America?
What percent of the assets of Bank of America was provided by owners? (Calculate
the stockholders’ equity as a percent of the total assets)
28
Economics 100
Assignment for Class #29
Name______________
1. Assume that Bank A has $10,000 in checkable deposits, $2000 in reserves,
and $8,000 in loans when the reserve requirement is 20%. If the
reserve requirement (ratio) is lowered to 10%,
Bank A's excess reserves increase by $_____________________
the money supply will ultimately ___________(increase or decrease?)
by $______________________.
The money multiplier increases from _________ to ______________.
2. Assume that the discount rate is lowered from 6% to 4%. As a result, Bank A
(see question #1) borrows $1,000 from the Fed.
The monetary base ____________(increases or decreases?) by $_________________
Bank A's excess reserves ________(increase or decrease?) by $_________________
With a reserve ratio of 20%, the money supply will ______________(increase or
decrease?) by $______________________.
3. Now, assume that the Fed buys $1,000 worth of Treasury Bills from Bank A.
The monetary base ______________(increases or decreases?) by
$________________
Bank A's excess reserves ____________(increase or decrease?) by
$_______________
With a reserve ratio of 20%, the money supply will ______________(increase or
decrease?) by $__________________.
4. If the Fed wishes to increase (ease) the money supply, it should
___________________ the reserve requirement (raise or lower?)
___________________ the discount rate (raise or lower?)
___________________ Treasury securities (buy or sell?)
29
Economics 100 In Class Assignment for Class 30
The two cases discussed in class analyzed the effects on foreign exchange markets of an increase
in interest rates in the United States and of an increase in inflation in the United States. Do the
same analysis for each of the following cases:
1. Incomes rise in the United States and fall in Japan
2. Both Americans and Japanese believe that American goods are of higher quality than before
3. Both Americans and Japanese believe that the Japanese yen will depreciate in the near future
4. Laws change in Japan making it easier for Americans to buy or build companies in Japan
5. Interest rates fall in the United States while they rise in Japan