Monday, January 17, 2011

Honors Business Economics: 18 January 2011

Beyond the sound bites:
Thomas Sowell: Federal Reserve a 'Cancer'

Economist Thomas Sowell explains why he supports Ron Paul's stance on abolishing the Federal Reserve. When asked by Peter Robinson what should replace the Fed, Sowell replies: "When someone removes a cancer, what do you replace it with?"

Thomas Sowell has studied and taught economics, intellectual history, and social policy at institutions that include Cornell University, UCLA, and Amherst College. Now a senior fellow at the Hoover Institution, Sowell has published more than a dozen books, the latest of which is a revised and updated edition of his classic volume, Basic Economics.

"Through its various editions," Sowell writes, "the fundamental idea behind Basic Economics remains the same: Learning economics should be as uncomplicated as it is informative."

Here, Sowell seeks to uncomplicate some of the economic issues confronting the country today, from the financial crisis and the role of the Fed to the economics of health care and trade imbalances. - Hoover Institution

Thomas Sowell is an American economist, political writer, and commentator. He is currently a senior fellow of the Hoover Institution at Stanford University. In 1990, he won the Francis Boyer Award, presented by the American Enterprise Institute. In 2002 he was awarded the National Humanities Medal for prolific scholarship melding history, economics, and political science.

Peter M. Robinson is a research fellow at the Hoover Institution, where he writes about business and politics, edits Hoover's quarterly journal, the Hoover Digest, and hosts Hoover's television program, Uncommon Knowledge.

China's President Lays Groundwork for Obama Talks

WSJ's Jake Lee speaks to Heard on the Street Asia Editor Mohammed Hadi about Chinese President Hu Jintao's comments on currencies, balancing the Chinese economy and China's growing clout abroad.

The Chapter 4 Section 2 Quiz Prep Page is available for the Quiz on Friday.

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The Make-Up for the Chapter 3 Section 1 Quiz is today.

The Chapter 2 Make-Up Test is today.


The Ch. 2 Sec. 3 American Free Enterprise Make-Up Quiz is today.

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Chapter 5: Supply

Section 3: Cost, Revenue, and Profit Maximization

Reading Strategy

Complete the graphic organizer below by explaining how total revenue differs from marginal revenue. Then provide an example of each.

Fixed Costs, Revenue, Break-even point

What are fixed costs? As applied to sneakers, explain fixed costs. Draw a sample graph as demonstrated in the video. Do the costs stay constant? Then, draw the second graph to understand the cost function. What if the cost is not stagnant? What is the difference between a linear and a non-linear revenue function? What is the formula for profit? What is the intersection of revenue and cost called?

Marginal Cost and Average Variable Cost

Draw the one graph demonstrated here. What is the first point that you should look for on the variable cost curve? When does the marginal curve reach a minimum? Where does the variable cost reach?

total costs

Micro average total cost

In-class assignment, working with a partner, answer the following questions.

What elements (they start from the very beginning of the clip) add up to the total cost?
As we add units, is the total cost going up, or down?
What happens when you add the fourth unit?
Do we have decreasing marginal return?
How much is the average total cost when we add the fourth unit?
Do the 5th and 6th units add to our production costs?
Why do production costs rise?

marginal costs

Deriving the Marginal Cost Curve

In-class assignment, with a partner, answer the following questions.

Draw the marginal cost curve.
Why does the marginal cost of production vary as you change the quantity you are producing?


e-commerce - evolution

In-class assignment, with a partner, answer the following questions.

How has commerce changed over the years?
What happened in 1994?
What happened in the early days? What was it like then?
What happened with growth?
What do we expect to happen when looking ahead?
Summarize the first ten years in ecommerce.

break-even point

total revenue

marginal revenue

marginal analysis

profit-maximizing quantity of output

Companies in the News

FedEx Saves the Day

Measures of Cost

Fixed Costs

Variable Costs

Figure 5.6 Production, Costs, and Revenues

Total Cost

Marginal Cost

Reading Check


If a firm's total output increases, will the fixed costs increase? Explain.

Applying Cost Principles

Costs and Business Operation

Break-Even Point

Reading Check


What are the differences between an e-commerce store and a traditional business?

The Global Economy and You

6 January 2011, Napolitano in Brussels

In-class assignment: with a partner, answer the following questions.

What is the U.S. doing to protect global supply?
What is the global supply chain?
What three areas does Napolitano address?
What are the consequences?
What might people lack?

Marginal Analysis and Profit Maximization

Total Revenue

Marginal Revenue

Marginal Analysis

Profit Maximization, 2:14

In-class assignment, with a partner, answer the following questions.

What do economists assume about businesses?
What is the formula?
How do firms maximize profits?
How do firms in perfect competition perform?

Reading Check


Why do people, especially business owners, use marginal analysis?

Steve and Barry's Rules the Mall

In-class assignment, with a partner, fill in the graphic organizer.

Use the graphic organizer to identify examples of both fixed and variable costs.


Chapter 6 Prices and Decision Making

Why It Matters

The Big Picture

Section 1 Prices as Signals

Price is the monetary value of a product, which is normally established by supply and demand and is an important economic concept. Prices can be described as signals to both producers and consumers. High prices are signals for businesses to produce more and for consumers to buy less. Low prices signal the reverse. Prices have the advantage of being neutral and flexible. In addition, they permit freedom of choice, have no administrative costs, are highly efficient, and are easily understood by everyone. Non-price allocations systems such as rationing exist, but they suffer from a number of problems, including the issue of allocating ration coupons in a fair and equitable manner. Therefore, economists prefer the price system.

In-class assignment: in two groups, we will do the:

Student Web Activity.


"Prices and Decision Making"

You have already learned that prices are the signals that help us make our economic decisions. You have also learned that markets are more efficient when there are large numbers of buyers and sellers and when the information about products in the market is relatively good. All of this results in a situation that results in more competitive prices and more satisfied consumers! The World Wide Web is helping consumers in this regard. For example, you can visit several bookstores to check prices without ever leaving home.

Destination Title:

Barnes and Noble





Start at the Barnes and Noble Web site.

1. Select a book of your choice from the Barnes and Noble Web site. What book did you select, and how much does it cost?

2. Next, go to the Web site. In the search box, type the same name of the book that you selected previously on the Barnes and Noble site. How much does the same book cost on the Web site?

3. Now, go to the Web site. In the search box, type the same name of the book that was selected previously on the other retailer sites. How much does the same book cost on this site?

4. Compare the three prices. Which was the lowest? The highest? Why do you think there were or were not differences in the prices? How do you think the free flow of information on the World Wide Web will affect consumer prices?

Ch. 6 Sec. 1 Reading Strategy

In-class assignment: with a partner, complete the graphic organizer by explaining the advantages of prices.

Guide to Reading

Section Preview

Content Vocabulary



In-class assignment, while working with a partner, in this satirical look at the possibility of health care rationing, what problem (s) (as noted in the textbook) are they pointing out?

Health Rations and You, 2:22

ration coupon


Academic Vocabulary



Reading Strategy

Products in the News

Katrina Fallout

The Economic Impact of the BP Oil Spill, 7:27

In-class assignment: working with a partner, answer the following questions.

Is the Gulf Oil spill worse than Hurricane Katrina?
Could the damage be worse on the area?
How much did the Hurricane cost?
What three reasons could make it worse than Katrina?
What is the economic disruption?
What are the three drivers of the economy in New Orleans?
How will the decimation of these industries affect the economy?
How will tourism be effected?
How many are employed in this industry?
How is the oil and gas industry effected?
How much off-shore drilling in the U.S. takes place in the Gulf?
What is the lesson to be learned in this disaster?
Has there been innovation in preventing a disaster?

Brookings expert Amy Liu has been tracking the recovery of the Gulf Coast ever since Hurricane Katrina hit in 2005. In this week's @Brookings podcast, she discusses the enormous economic impact of the catastrophic BP Deepwater Horizon oil spill on New Orleans, the Gulf Coast region, and the nation.

The Global Economy and You

Advantages of Prices

Reading Check


In what way do prices perform the allocation function?

Allocations without Prices


Problems with Rationing

Reading Check


What are the differences between the price system and rationing?

Prices as a System

Reading Check


How do prices allocate resources between markets?

Ch. 6 Sec. 1 Review

In-class assignment: with a partner, identify the problems associated with rationing.

Case Study

I Bought It On eBay

Section 2 The Price System at Work

Economists develop economic models of markets with supply and demand curves in order to analyze and predict outcomes. In a competitive market, the forces of supply and demand establish prices. A temporary surplus drives prices down; a temporary shortage forces prices up. Eventually, the market reaches the equilibrium price where there are neither shortages nor surpluses. Changes in supply or demand can disturb the market, but the market will tend to find its new equilibrium with the help of temporary shortages and/or surpluses. Whenever supply or demand for a product fluctuates, the elasticity of the two curves affects the size of the price change. Competitive markets represent the ideal, but the lessons learned from them apply to other markets as well.

In-class assignment, working with a partner, answer the following.

In your own words, explain the price system.
Does one person make a pencil?
Do it take many people and cultures to produce even simple goods such as pencils?
Does it take cooperation?
Is it likely that the differences between people would make them hate each other if they met?
Then what brought all these people together?
What does the price system foster if left unregulated according to Friedman?

Milton Friedman, Free to Choose (explains the price system), 2:11

Guide to Reading

Section Preview

Content Vocabulary

economic model

equilibrium price


In-class assignment, with a partner, answer the following.

As illustrated in the video, draw the graph.
Which direction does the demand curve go?
Which direction does the supply curve go?
Why (for each curve)?
What is the intersection of the curves called?
What does the idea of the surplus entail?
What is the red (in the video) section called?
What lines define the consumer surplus?
Can prices be determined as a result?

Equilibrium price and surplus, 6:27

Description of equilibrium price, consumer surplus, producer surplus and social surplus using supply and demand diagrams.


Academic Vocabulary

Reading Strategy

Companies in the News

Want prime seats? Get ready to bid?

The Price Adjustment Process

A Market Model

Figure 6.1 Market Equilibrium



Figure 6.2 Surpluses and Shortages


Equilibrium Price

Reading Check


How do surpluses and shortages help establish the equilibrium price?

Explaining and Predicting Prices

Change in Supply

Figure 6.3 Changes in Prices

Change in Demand

Change in Supply and Demand

The Importance of Elasticity


Real Estate Agent

Prices and Competitive Markets

Reading Check


How does the elasticity of a good affects its price?

Business Week Newsclip

What's Raining on Solar's Parade?

Section 3 Social Goals and Market Efficiency

Prices work as a system to allocate resources between markets. However, if prices are fixed in one market, temporary shortages and surpluses tend to become permanent. A price ceiling, such as rent control, is one form of fixed price; a price floor, such as the minimum wage, is another example. Agriculture is especially hard-hit by price changes, because demand and supply tend to be inelastic, while weather often causes the supply curve to change. Therefore, to help farmers, the federal government established the Commodity Credit Corporation (CCC), an agency in the Department of Agriculture. The CCC then used a target price, which is essentially a price floor, to help stabilize farm prices. As a result, over the years, the government has established other forms of support for agriculture in the economy.

Guide to Reading

Section Preview

Content Vocabulary

Academic Vocabulary

Reading Strategy

Issues in the News

Minimum Wage Rise Hurts Students

Ch. 4 Prep


Multiple Choice Quiz


Crossword Puzzle




Ch. 5 Prep

Chapter 5 Supply Multiple Choice Quiz


Chapter 5 Puzzle


Chapter 5 Supply Flashcards


Ch. 6 Prep

Chapter 6: Prices and Decision Making
Multiple Choice Quiz


ePuzzle Concentration


Academic, Glossary, People/Places/Events


Ian Hunter, How's Your House, for the New Orleans Musicians Relief Fund

Email (or hand in hard copy) to

Tuesday HW
1. p. 129, Reading Check, Analyzing, Why does the production function represent short-run production?
2. p. 130, Reading Check, Interpreting, What is unique about the third stage of production?
3. p. p. 131, #1-2

Wednesday HW
1. p. 134, Reading Check, Analyzing, If a firm's total output increases, will the fixed costs increase? Explain.
2. p. 135, Reading Check, Contrasting, What are the differences between an e-commerce store and a traditional business?
3. p. 137, Reading Check, Summarizing, Why do people, especially business owners, use marginal analysis?

Thursday HW
1. p. 140, #1-10
2. p. 140, #19-20

Friday HW
1. p. 140, #21-23