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Main Point - Economics is the study of decision-making.
Main Point - Economics is the study of decision-making.
Main Point - Economics involves using models to organize thinking.
Main Point - Economics involves using models to organize thinking.
Main Point - Basic ideas in economics can be very powerful tools for understanding the world.
Main Point - Basic ideas in economics can be very powerful tools for understanding the world.
Homework # 1 - Introduction to Economics
Homework # 1 - Introduction to Economics
Reading - Introduction to Economics - Click Here
Classwork # 1 - Problems with Opportunity Cost
Classwork # 1 - Problems with Opportunity Cost
# 1 - Recognizing Opportunity Cost - You are planning to go out on Friday night and you have the choice of doing three things. You could go to a concert that will cost you $50 and give you $90 in benefit*, you could go to the movies which would cost $20 and give you an $65 benefit or you could go get a pizza and hang out which would cost $10 and give you $40 in benefits. What should you do?
*the benefit is measured by the most you would pay to do that activity.
Link to Video Answer of this Problem - click here
# 2- Production Possibilities - Explain how each of the following events affects the location of the production possibilities curve (Shift inward, shift outward, move to a different point along the curve, remain unchanged).
Criminal justice spending is reduced to allow the government to spend more on health care during a pandemic.
The government spends additional money on building new hospitals and funding medical education as the result of a pandemic.
A pandemic forces businesses to temporarily close and workers to stay home.
The government reduces spending on schools and education.
Link to Video Answer of this Problem - click here
Link to Video About How the Production Possibilities Curve Works - click here
# 3- Making Another Choice - You have paid $50 for a concert on Tuesday night that will give you a benefit of $60. The ticket is nonrefundable and cannot be sold. On Tuesday morning, you learn that there is another concert the same night that will give you a benefit of $70 and costs $45. What should you do?
Link to Video Answer to this Problem - Click Here
# 4 - Consistency in Choice - Suppose you go to a store to buy something with the expectation that it will cost you $100. After getting to the store, a quick Google search tells you that a store 2 miles away is selling the same good for $50. Would you drive to the second store to buy the good?
Now, suppose you go to a store to buy something with the expectation that it will cost you $1000. After getting to the store, a quick Google search tells you that a store 2 miles away is selling the same good for $950. Would you drive to the second store to buy the good?
Homework # 2 - Economic Thinking
Homework # 2 - Economic Thinking
Printable Copy of Assignment - click here
Video - Welcome to Microeconomics - EdX - click here
Reading - Accidental Theorist - click here
Video - Tim Harford - Examples of Simple Economic Systems - click here
Classwork # 2 - Economic Thinking Through Problems
Classwork # 2 - Economic Thinking Through Problems
# 1 - Recognizing Opportunity Cost - You are thinking about what to do for a summer job. One option is to work at the local supermarket which pays $10 an hour. The other option is to have your own business of mowing lawns. You can make $12 an hours from mowing lawns and being your own boss is worth $2 an hour to you. However, running your own business generally costs $3 an hour. What should you do?
# 2 - Opportunity Cost & Trade - You want to paint your your home office and the only time you have available to do this job is Saturday - you expect that it will take you about six hours to do this. Your boss tells you on Friday that he needs you to work all day on Saturday and that he will pay you double time or $150 (six hours at $25). You tell your friend about this and they say that they will paint your home office for $100. How does the opportunity of trade allow you to go beyond your production possibilities curve?
Link to Video Answer to this Problem - Click Here
# 3 - Choice with Uncertainty - You a thinking about starting a small home business doing desk top publishing for local small businesses to make some money. You will need to buy a computer for $1000 in order to start this business. You are fully confident that you can make $4000 if you business focuses on providing editing and proofreading services. However, you would like to do more creative design work, but that work is more uneven. You learn through talking to people already working in creative desktop publishing that there is a 50% chance that you could make $7500 doing this work. What should you do?
Link to Video Answer of this Problem - click here
# 4 - Choice with Uncertainty - You have $10,000 to invest for a year and have two investment choices. The first investment choice is to buy stock in a well established company which would pay a $1000 dividend (in addition to the $10,000 investment that you could get back for full value). The second choice is to invest the money in a start up company that has a 20% chance of returning $30,000 next year, a 40% chance of returning $10,000 and 40% of returning only $5,000. Where should you invest?
Homework # 3 - Opportunity Cost & Roots of Trade
Homework # 3 - Opportunity Cost & Roots of Trade
Reading - Opportunity Cost & The Root of Trade - click here
Classwork # 3 - Comparative Advantage & Trade
Classwork # 3 - Comparative Advantage & Trade
Sample Problem # 1 - Thor and Felix live together on an island. They are both able to build houses and grow food. The chart below shows the amounts of both that they can produce in period of time:
Who is better at building houses and who is better at growing food?
If Thor and Felix cannot trade or help each other and they need to produce their own houses and food how much could they expect to produce (assume they spend half of their time producing each thing)?
What would happen if they specialized and only produced what they are good at and then traded for the other product? How much more would be produced?
If Thor and Felix specialized and only produced what they are good at and then traded, what would be a good barter exchange rate between Thor and Felix for houses and food?
How is the rate of exchange based on mutual benefit?
Is this a fair rate of exchange?
Sample Problem # 2 - Consider a new situation where Thor is better than Felix at both making houses and growing food. This is shown in the chart below:
What is Thor’s opportunity cost for building houses? What is his opportunity cost for growing food?
What is Felix’s opportunity cost for building houses? What is his opportunity cost for growing food?
Considering Thor’s and Felix’s opportunity costs, is there any advantage to specialization and trade?
What would be a good rate of exchange for Thor and Felix to specialize and trade?
# 1 - The pirates Barracuda Barbara and Jellyfish Jake live on the island of St. Sol. They both have the ability to pick bananas and catch crabs. The chart to the right shows the amounts they can produce with one day of work.
How can Barracuda Barbara and Jellyfish Jake benefit from specializing in production and trade?
What would be a good rate of exchange?
Link to Video Answer of this Problem - click here
# 2 - After a few weeks of living on the island, Barracuda Barbara gets better at picking bananas. The chart to the right shows the amounts they can produce with one day of work.
How can Barracuda Barbara and Jellyfish Jake benefit from specializing in production and trade?
What would be a good rate of exchange?
Link to Video Answer of this Problem - click here
Homework # 4 - Overview of Statistics
Homework # 4 - Overview of Statistics
Reading - Economics & Statistics - click here
Classwork # 4 - Looking at and Thinking about Regressions
Classwork # 4 - Looking at and Thinking about Regressions
Understanding a Regression - The Federal Reserve did a study of the how much different macroeconomic statistics affect the way consumers view the economy, generally measured in a statistic called “consumer sentiment”. The study produced this regression equation:
CS = 104.8 + 0.0055Y – 1.55U – 4.28π – 1.33r R2 = 0.72
CS = Consumer Sentiment π = Inflation
Y = Income r = Interest Rate
U = Unemployment Rate
A. How well does the relationship shown by the regression equation match the data? Explain how you know this.
B. Which factor has the largest impact on consumer sentiment? Explain how you know this.
C. Which factor has the smallest impact on consumer sentiment? Explain how you know this.
D. In the process of recovering from the pandemic during 2022, the unemployment rate stayed around 3.7% while inflation has gone up by 6% (from 2% to 8%) and income has remained unchanged and interest rates have gone up. Based on the regression, how has consumer sentiment changed?
Homework # 5 - Videos & Articles on Statistics
Homework # 5 - Videos & Articles on Statistics
Printable Copy of Assignment - click here
Video - Jon Gruber Explains Empirical Economics (Part 1) - click here
Video - Jon Gruber Explains Empirical Economics (Part 2) - click here
Article - Statistics are Changing Economics - click here
Article - Regression: An Economists Obsession - click here
Classwork # 6 - Looking at and Thinking about Statistics
Classwork # 6 - Looking at and Thinking about Statistics
In this class activity, you will be using Google Sheets to analyze macroeconomic statistics.
This is a Guide to Google Sheets that you can use to do this class activity.
First Activity - Use the Data Set "Real GDP & Disposable Income" to replicate the statistical results and graphs (charts). You should open the link below and make a copy of the data in your own Google Drive. Then use the Guide to Using Google Sheets calculate the statistics and make the charts are shown (including the titles, labels and source citations).
Data Set - Productivity & Real GDP
Results you want to Replicate - Productivity & Real GDP
Video on using Google Sheets to answer first part - click here
Video on using Google Sheets to answer second part - click here
Second Activity - Use the the two data sets linked below to answer the questions in the assignment for Google Sheets & Economic Data.
Printable Copy of Assignment - Google Sheets & Economic Data
Data Set - Inflation & Unemployment
Homework # 6 - Review of Introductory Concepts (Answers)
Homework # 6 - Review of Introductory Concepts (Answers)
Printable Copy of Assignment - click here
# 1 - Suppose that on the basis of a nation’s production possibilities curve, an economy must sacrifice 10,000 pizzas domestically to get one additional industrial robot. However, this country can purchase a robot from another country for 9000 pizzas. How does the opportunity of trade allow this country to go beyond your production possibilities curve?
# 2 - You are trying to decide what to have for lunch at the food court. You see one option as to get a small pizza for $10 that will give you $20 in benefit and another option as a chicken burger and fries for $15 that will give you $24 in benefit. What do you do?
Right after you buy your lunch, your friend tells you the Indian restaurant around the corner has an all you can eat buffet for $15 - you love Indian food and know this would give you a $40 benefit. What do you do? (you cannot return the lunch you just bought)
Link to Video Answer to this Problem - click here
# 3 - Part A - The table to the right describes the number of yards of cloth and barrels of wine that can be produced with a week’s worth of labor in England and Portugal.
Why does Portugal have the Absolute Advantage in producing cloth?
Why does England have the Comparative Advantage in producing cloth?
Based on the information in the table, why does it make sense for England to make cloth and Portugal to make wine?
Which exchange rate would work for trade: 1 barrel of wine for 3 yards or 1 barrel of wine for 5 yards of cloth? Why?
Link to Video Answer of this Problem - click here
# 3 - Part B - The chart to the right shows the new productivity numbers for both countries after England has gone through an Industrial Revolution.
How has the Industrial Revolution affected England’s productive possibilities curve? In graph area below, using the information in this chart and to the information from the chart at the top of the test, show how the industrial revolution has caused a change in England’s productive possibilities curve. In the area next to the graph, explain the change.
After England goes through the Industrial Revolution, does it still make sense for England to trade with Portugal? Explain.
Would an exchange rate of 1 barrel of wine for 5 yards of cloth be a good exchange rate for both countries? Why?
How has Portugal gained from England’s Industrial Revolution?
Link to Video Answer of this Problem - click here
# 4 - In 1992, the state of New Jersey raised its minimum wage from $4.25 to $5.05 an hour. Economists David Card and Alan Krueger studied 410 fast food restaurants in New Jersey to see the impact of the increase in the minimum wage on employment. The table below shows the results from the Card and Krueger's study of the impact of an increase of the minimum wage on employment (note - Card and Krueger used the term "store" to mean a single fast food restaurant).
A. Why is this type of study called a "natural experiment"?
B. What does the results of the Card and Krueger's study show about the impact from increases in the minimum wage on employment?
# 5 - Use the following information and graph to answer the next two questions. In 1962, economist Arthur Okun showed a statistical relationship between GDP and unemployment. This relationship is called Okun's Law. Okun's Law says that a reduction in unemployment by 1% will increase GDP by 3%. In 2012, Federal Reserve economists re-examined Okun's Law with more recent data using regression analysis. The graph to the right shows their results.
The regression analysis produced the equation:
Y = 1.08 - 3.57U R2 = 0.82
(Y stands for GDP & U stands for unemployment )
A. Do the results of the 2012 study support the relationship between unemployment and inflation described by Okun’s Law?
B. How well does the data fit the equation produced by the regression?
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