August 22

1. August 22 • Class Introduction • Roster, syllabus, grading, etc. • What is Economics? • 5 basic definitions

2. August 27 • What is Economics? (Continued) • 5 basic definitions • The Economic Way of Thinking • Using Scare Goods is Costly • Opportunity Cost 1 • Individuals Economize 1 • Incentives Matter 11a2 • Marginal Thinking • Good and bad economists • Normative and positive economics

3. August 29 • Economic Way of Thinking (Continued) • What’s scientific about economics? • Ceteris Paribus • Chapter 2 • Voluntary Trade • Transaction costs • definition • Middlemen • Definition • examples

4. September 3 • Property Rights • Four good things • 1234 • Specialization and Division of Labor • Adam Smith and The Wealth of Nations12 • Pin Factory • Law of Comparative Advantage

5. Last week (in case you missed it), El Economista newspaper of Madrid (Spain) reported a brewing trade war between the European Union and China. Here’s an excerpt (translated with the help of Google): From El Economista (July 2, 2013) China Declares War on Wine The Chinese government has decided to launch an investigation into the European wine sector with the intention to apply a punitive tax if necessary, as Chinese authorities accuse wine producers in the European Union (EU) of unfair trade tactics such as dumping and subsidies. The temporary imposition of a tariff on Chinese solar panels by the EU started a trade war whose greatest victim is wine. "There is a thorough research on European wines for export, in all formats, whether bottled in barrels or in bulk," say sources familiar with the process, which warned that the wineries are going to have to face a complicated administrative processes that could derail Asian exports. And that is bad news for an industry whose domestic sales in their home markets are already complicated by the financial crisis. Chinese authorities have given wine exporters 20 days to register as companies subject to investigation, and if they are not registered before July 21, China will automatically apply a punitive percentage. Analyze the full cost of this trade war using David Ricardo’s Law of Comparative Advantage. Note: Your answer should apply the two graphs similar to the ones utilized in class (as well as the book).

6. September 5 • Capitalism and Socialism 12 • Chapter 3: • Consumer Choice and the Law of Demand • Law of Demand • Demand Schedule • Demand Curve • Consumer Choice and the Law of Demand (cont) • Substitutes and Complements • What affects Demand and Quantity Demanded?

7. September 10 • Producer Choice and the Law of Supply • Profit and Loss • Law of Supply 1 • Supply Schedule • Supply Curve • What Affects Supply and Quantity Supplied? • Supply and Demand Interact • Equilibrium Quantity and Price • Competition and Perfect Markets • Real World: Shortages and Surpluses 1 Test 1: September 12

8. Alabama plays Texas A&M this weekend in College Station, Texas. Use the appropriate diagrams to answer the following questions. • This weekend, hotel rooms in College Station are renting for $500 a night. On non-game weekends, they rent for $100 per night. Why? • What will happen to the availability of hotel rooms if the College Station city government imposes an “anti-gouging” ordinance that caps rooms at $100 per night? • Does this make people better or worse off? Why or why not? • How might hotel owners fix the problem the ordinance causes? • How might local residents solve the problem?

9. Which of the following Miley Cyrus quotes best corresponds to a positive economic statement? • You appear like a dream to me. • Cuz I’m hot like that. • We won’t stop. • We can’t stop. • So la da di da di.

10. September 17 • Prices are signals • Chapter 4: Some S+D Applications • Resource or Input Markets • Labor, money • Input and Output Market Relationships • Resource or Input Markets (Cont) • Price Controls: ceilings and floors 12 • Definitions • Rent controls and peanuts • Blood and kidneys

11. September 19 • Resource or Input Markets (Cont) • Tax Incidence • Legal and economic incidence • Deadweight loss • 1 • Chapter 5: Economic Role of Government • Government Definitions 1

12. September 24 • Competitive Behavior • Consumption-Payment Link 12 • Voluntarism vs. Majority Rule • Full Cost of Government 1 • Protective and Productive Function • Competition and Antitrust 1, 2

13. From the Washington Post (July 7, 2013) on some interesting details of emails sent by Defense Information Systems Agency (DISA) contracting and budget officers to their colleagues: “Our available funding balances remain large in all appropriations — too large to spend” just on small supplemental funds often required by existing contracts, the June 27 e-mail said. DISA’s budget is $2 billion.“It is critical in our efforts to [spend] 100% of our available resources this fiscal year,” said the e-mail from budget officer Sannadean Sims and procurement officer Kathleen Miller. “It is also imperative that your organization meets its projected spending goal for June. . .” • Full memo here.

14. September 26 • Competition and Antitrust (cont.) 1, 2 • Externalities 1 • Public Goods • Asymmetric Information 1 • From an article this week about Michael Jordon: Jordan, in a video for the NBA 2K14 game that is being released today, says he’d like to have gone one-on-one against Jerry West, Elgin Baylor, Julius Erving, Carmelo Anthony, Dwyane Wade, and [LeBron] James. Only one player causes doubt to creep into his mind and even that guy does it in the most Michael Jordan way ever. “I don’t think I would lose — other than to Kobe Bryant because he steals all of my moves.”Yes, no, and explain: Are Michael Jordan’s moves a public good?

15. October 1 • Chapter 6: The Economics of Collective Decision-Making, or Public Choice • Public Interest or Interest Group? • Public Choice 12 • Rational Ignorance • Why Vote? 1 • Reasons to vote • Majorities and Bundling • Test 2 on October 3

16. The imposition of price ceilings on a market often results in a. an increase in investment in the industry. b. a persistent surplus in the market. c. an increase in expenditures in the “extra legal” market. d. lower prices being offered on the “extra legal” market. • When a tax is imposed on a good, a. the supply curve for the good always shifts. b. the demand curve for the good always shifts. c. the amount of the good that buyers are willing to buy at each price always remains unchanged. d. the equilibrium quantity of the good always decreases. e. the good becomes a bad.

17. A hurricane blows through New Orleans and destroys windows throughout the city, causing the price of new windows to skyrocket. A coalition of community leaders has asked that the city place a price cap on new windows because, in the words of the coalition, “they shouldn’t be allowed to charge more than their costs.” Using what you’ve learned this semester, answer the following:

18. a. Why are window makers likely to raise their prices?b. What concept of “costs” does the coalition have in mind?c. How will rising prices actually make more windows available to the community?d. What might local window makers do to increase prices without angering the coalition?

19. October 8 Chapter 6 (cont.) • Special Interest Effect • Welfare Effects 1 • Rent Seeking 1234

20. From a January 4, 1979, newspaper op-ed by U.C.L.A. labor economist Finis Welch: “A mandated minimum wage is a kind of lottery in which a worker must find employment at or above the specified level.  There is no constraint on the number of jobs, but employers who would otherwise pay some workers lower wages must pay the minimum or not hire them.  The result is that winners receive increased wages and losers lose their jobs.  Paradoxically, the losers are those who would have earned the least in any case.”

21. From Tim Harford’s 2009 book, The Logic of Life: Three hundred million people [American consumers] are losing from the protection for the sugar industry, and fifty thousand are gaining, with most of the gains going to a very small elite. That seems an extraordinary and irrational outcome for a democratic society to produce, but the apparent paradox should not be quite so confusing.  As we’ve seen in earlier chapters, individually rational behavior does not necessarily lead to a socially rational outcome.  As a voter, you can be excused for being rationally ignorant of how you’re being hosed by the sugar industry: Why bother making the effort to understand the issue and find out which candidates at the next election are opposed to sugar subsidies?  You might be seething with righteous indignation, but your vote would likely have no effect whatsoever.  Even if it did penetrate your rational ignorance that sugar tariffs are costing you six dollars a year in higher grocery bills, how much do you care?  Would you change your vote as a result?

22. October 10 • Ethics Assessment Here • Time Horizons • Wealth Transfers Chapter 7: Demand and Consumer Choice • Utility, Marginal Utility, and Marginal Benefit • Diminishing Marginal Utility • Computations 1

23. October 15 • Consumer Equilibrium (cont.) • Substitution and Income Effects • 1 • Elasticity: Definition • Measurement • Equations 1 • What Affects Elasticity?

24. October 17 • Income, Cross, and Supply Elasticity • Chapter 8: Producer Theory Assumptions • Types of Firms • Economic Costs and Profits

25. Car manufacturer’s total costs of producing cars:a. What are the manufacturer’s fixed cost?b. For each level of output, calculate the total variable costs, average variable costs, average total cost, average fixed cost, and then marginal cost.c. What are the minimum cost of output? (ATC is lowest at 8 units.)d. Calculate marginal cost for each level of output.

26. October 22 • Economic Time • Seven Short Run Costs • TFC, AFC, TVC, AVC, TC, ATC • Total and Averages Together • MC • Three Product Curves and the Law of Diminishing Marginal Returns • Test 3 on Thursday, Oct. 24

27. October 29 • 12 • Long Run Costs • U-Shaped Curve and Different Short-Run Levels of Output • Economies of Scale 123

28. October 31 • Diseconomies of Scale • Returns to Scale (RTS)What Causes Cost Curves to Shift? • 1

29. November 5 • Chapter 9: Price Takers and Perfect Competition • Four assumptions • Marginal Revenue and Marginal Cost • How Much to Produce? • Relation to Market Supply and Demand • Average Total Cost and Profit and Loss • Terms: Economic Profit, Normal Profit

30. November 7 • Economic Loss, Shutdowns 1, 2, 3, 4 • Economic Losses and Shutdowns • Supply Curve for the Competitive Firm • Long Run Analysis • Constant Cost Industries • Increasing Cost Industries • Perfect Competition as a Benchmark

31. Things to Think About • Farmers are often heard to complain about the high costs of machinery, labor, and fertilizer, suggesting that these costs drive down their profits. Does it follow that if, for example, the price of fertilizer fell by 92 percent, farming (a highly competitive industry with low entry barriers) would be more profitable? Explain.

32. Things to Think About • If the firms in a price-taker market are making short-run profits, what will happen to the market price in the long run? Explain. • “In a price-taker market, if a business operator produces efficiently—that is, if the cost of producing the good is minimized—the operator will be able to make at least a normal profit.” True or false? Explain.

33. Things to Think About • Suppose the government of a large city levies a 5 percent sales tax on hotel rooms. How will the tax affect • prices of hotel rooms, (b) the profits of hotel owners, and (c) overall spending on hotel rooms (spending that includes paying the tax)?

34. Things to Think About • Suppose that the development of a new drought-resistant hybrid seed corn leads to a 50 percent increase in the average yield per acre without increasing cost to the farmers who use the new technology. If the producers in the corn production industry were price takers, what would happen to the following? • the price of corn • the profitability of corn farmers who quickly adopt the new technology • the profitability of corn farmers who are slow to adopt the new technology • the price of soybeans, a substitute product for corn

35. Things to Think About • “When the firms in the industry are just able to cover their cost of production, economic profit is zero. Therefore, if demand falls, causing prices to go down even a little bit, all of the firms in the industry will be driven out of business.” True or false? Explain.

36. November 12 • “Things to Think About” • Chapters 10 & 11: Price Searchers and Monopolies • Price searchers with low entry barriers and price searchers with high entry barriers • Pure monopoly definition • Barriers to Entry (3)

37. November 14 • Graphical and Monopoly Profits (and Losses) • Price Discrimination • Oligopoly and Cartels 1 • Monopolistic Competition (Contestable Markets) • Test 4: November 19

38. Problem • A new musical group called Novella cuts a debut single, and a record company determines the number of price points for the group’s first single, “Mary’s Gun.” The record company can produce the song with fixed costs of $10,000 and no variable costs. • What is TR and MR at each price? • What price would maximize the record company’s profits? How much would the company make? • If you were the agent for Novella, what signing fee would request from the record company? Explain your answer.