Principles of Economics

I. More opportunity cost problems to be solved using economic analysis. Consider both implicit and explicit costs, now and in the future:
a. What is the opportunity cost of going to college?
b. What is the opportunity cost of your current job?
c. What is the likely future of a city or town which has no more open land for development?
d. What decision rule do you use in choosing a mode of transportation to go to work?
e. What is the connection between your wage and your firm's profitability?
f. What is the connection between inflation and productivity?

II. The economists tool kit?
a. Why should economists be good historians?
b. Why should economists be good mathematicians?
c. Why should economists be good statisticians?

III. Graphs
a. Where is the origin of any graph?
b. Can you define the slope of a line? Distinguish between steep and shallow slope?
c. What is the visual impact of changing the scale of one axis but not the other? Is there any numerical impact on the slope?
d. In addition to the examples given in the book, can you cite additional instances of squeezing multi-dimensional information into a two dimensional picture?

Principles of Economics

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I. Scarcity and Choice
a. Which comes first, the want or the good?
b. What items in your budget are not indispensable? What items in your office budget?
c. Why is water so cheap while diamonds are so expensive?
d. In the text the production possibilities frontier is concave. Can you find a pair of commodities for which it is convex?
e. In the sense of the text, do you use all of your resources efficiently?
f. Can you cite examples of specialization and the division of labor in the household?

II. Supply and Demand
a. What is the most you would be willing to pay for an Eagles home game? Is it greater or less than the price at the gate? Have you ever bought a ticket from a scalper, for any event? Can you use your answers to explain why the demand curve is downward sloping?
b. What does the supply curve for seats at the First Union Spectrum look like? What does the demand curve for insulin amongst diabetics look like?
c. Must an equilibrium be stable? Is equilibrium a phenomenon we observe in the real world?
d. Is there a freely traded commodity for which you think the laws of supply and demand are inappropriate?
e. Are the laws of supply and demand at work in the offering of courses at Temple University? If not, why not?
f. What are the likely effects of incorrect price ceilings and price floors?

Principles of Economics

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1. How many aspects of your life can you enumerate which involve some form of marginal analysis?

2. Law implies universal applicability and immutability. Can you think of goods for which there is not diminishing marginal utility?

3. Do you allocate your study time on the basis of how much an extra hour of study will raise the grade in a particular course? If not, why not? What does this behavior suggest about the P = MU rule?

4. Is it possible for a demand curve to slope upward? Can you construct an example?

5. The market demand curve is an aggregation of individual demand curves. Should product definition and geographic considerations enter into this aggregation?

6. What elasticities, other than own price, would be useful for a corporate economist? In what situations would you use elasticities?

7. In the textbook discussion of elasticities it is assumed that all movements are along the demand curve. When we actually compute elasticities for the real world, are the movements along the demand curve or between demand curves? Does this matter?

8. When we collect data on price and quantity, how do we know we have identified a supply curve or a demand curve?

Microeconomics

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I. INPUT SUBSTITUTION

a. Are you aware of different input combinations your firm could use to produce its product? Give some details.

b. Do dishwashers, washers and dryers, food processors, etc. really help us get the same work done in less time?

c. What is the product at Temple University? Is marginal physical product a meaningful concept? Are the marginal returns to additional units of labor increasing, decreasing, constant?

d. Does your firm hire additional labor to the point where the added revenue resulting from selling the output of an additional worker equals the price of labor? Could you determine this kind of behavior from the usual accounting data reported by the firm?

e. What government policy is likely to have the reverse effect of rate of return regulation, i.e., induce the firm to hire too much labor?

f. Does the firm consider your services a long run or a short run input? What about the president's services?

g. What items purchased by your firm are variable only in the long run? If you consider your household a firm, which inputs are variable only in the long run?

h. Is your household characterized by decreasing, constant or increasing returns to scale?

i. When insuring your house do you buy coverage for its historical or replacement value?

II. PRICE AND OUTPUT

a. Does your firm consciously maximize profits? What does your firm do to instill the profit maximizing motive in its employees?

b. Does your firm price where marginal cost equals marginal revenue? Is it possible to determine this point from the usual accounting data?

c. Does your firm distinguish between classes of customers in the price it charges for a particular product? Who does make this distinction? Why? Who should be considered the marginal customer?

Microeconomics

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A. How would you characterize the market structure of the 'Italian Market' in south Philadelphia? What geographic and product considerations went into your ruling? How would you characterize the market for lunch at the main campus?

B. How would you characterize ease of entry into the university education market (as a provider of same)? What are the entry barriers in starting a new MBA program?

C. Is the firm ever in equilibrium? Is equilibrium a useful concept?

D. How do we determine the normal, economy-wide, accounting rate of profit? Is this the same for all industries? What adjustments must be made in inter-industry comparisons?

E. How are marginal revenue and marginal cost related to the notion of economic efficiency?

F. Is it likely that a large number of firms will provide a product using a production process characterized by increasing returns to scale?

G. There are many CPAs, JDs, and MDs. Are these markets competitive? If not, why not? What is the source of market failure?

H. What is the role of information in market structure determination? Does advertising make a market more competitive?

Microeconomics

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1. In any discussion of efficiency it is important to distinguish between two types of efficiency in the economic system. What are thse two types of efficiency?

2. How do we choose among all of the efficient points on the production possibilities frontier? Go to an econ textbook and find a statement of Arrow's Impossibility Theorem. Does it have disturbing implications for the question of choice you just answered?

3. What is the common denominator for stating the prices of all goods and services?

4. In the choice of output, certain individuals can cast more votes than others. Is this in accordance with the democratic principles with which you have grown up? Does this bother you? Will democracy and meritocracy always produce such a conflict?

5. 'How to produce' is a crucial problem in economics. The text asserts that the choice of inputs is based on current relative prices. Is this perhaps excessively myopic? What mechanisms do we have for correcting this kind of myopia?

6. Do you recall the situations we discussed earlier in which the price system was inappropriate as an allocation mechanism? Why have we chosen to reduce the role of relative incomes in these situations?

7. Do you find the allocation rule MC=P=MU compelling? Can you enumerate instances of market failure in which an outside force must impose this rule?

Microeconomics

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1. If you had a friend starting a business would you advise him to incorporate? Why do dentists and physicians incorporate?

2. If your friend wants to expand his business, what source of funds do you recommend he use?

3. In stock market parlance, what is a syndicate? Why do such things exist?

4. Who assumes the risk up front of a new debt or stock issue?

5. Is there a difference between gambling on the stock market and gambling in Atlantic City?

Microeconomics

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1. Which monopolist can pass on a greater share of the effluent charges levied against his output, the monopolist with the elastic or inelastic demand curve?

2. Is the size of a firm related to its being a monopoly? If not, why are we so concerned about big business?

3. Name some sources of monopoly power in addition to those cited in the text. Other than semantics, is there really a difference between a cost advantage and a barrier to entry?

4. Consider the definition of natural monopoly. Does this expand your list of firms which have monopoly power? What factors are important in making this determination?

5. Why does the marginal revenue curve lie below the demand  curve? Would the marginal revenue curve be the same as the demand curve if the monopolist could discriminate between customers? What are the necessary conditions for discrimination between customers? Can you think of examples where this sort of discrimination exists?

6. The authors make only a half-hearted attempt to think of redeeming qualities of monopolists? Can you think of additional redeeming qualities and why the monopolist should engage in these redeeming activities?

Microeconomics

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1. In answering the question "Why do the allegedly uncompetitive oligopolists make such heavy use of advertising while farmers do not?" consider aspects of the product as well as market structure and the assumptions we make in our models of the market?

2. Do you believe that there is a substantive and important difference between models of oligopoly and monopolistic competition? Enumerate your reasons.

3. If you look at data reported by the Board of Governors of the Federal Reserve Banks you will see that the economy never operates at full capacity.  If you look at data for individual firms you will find that they do not operate at full capacity. Can you think of a few reasons for maintaining excess capacity?

4. Cite the conditions under which a cartel or collusive oligopoly is likely to be effective.

5. Can you think of ways to measure the extent of monopoly power in a market?

6. Why are prices likely to be sticky in an oligopoly? Economists interpret prices as the signals of information about quality and relative worth. Does the information content of price have anything to do with sticky prices?

7. Why would a firm pursue a policy of sales maximization? What are the long and short run considerations?

Microeconomics

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1. In a merging of two banks' assets do either the Cellar-Kefauver or the Clayton Act apply? Under what circumstances?

2. If demand for a product triples, is it necessary that a firm's share of market demand decline?

3. Can you distinguish between resale price maintenance and price discrimination? Which antitrust laws cover these cases? Why should a firm engage in either?

4. One of the Brown Shoe cases involves vertical integration. Explain the circumstances. Why should we be concerned about vertical integration?

5. Under what circumstances can a large firm eliminate a small firm? What is predatory pricing? Is bigness necessarily bad?

6. Explain why price discrimination is undesireable? Physicians are said to practice price discrimination. Should they be allowed to do this?

7. Given the vague wording of the Sherman Act, how do the courts arrive at any decision? Do politics, should politics, play a role in antitrust enforcement?

8. Are patents an appropriate mechanism for the encouragement of R&D? What role should patents play in medical technology?

9. Should labor unions be exempt from the antitrust laws?

10. When it comes to R&D, do the antitrust and patent laws work at cross purposes?

Microeconomics

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1. It is reported that many banks today have a dangerously high number of high risk loans in their portfolios. As we enter a period of deregulation should we be concerned about this loan portfolio decision? Who is at risk when a manufacturing firm fails? When a bank fails?

2. What modes of transportation are currently subject to price regulation? Has deregulation of the airline industry been successful? Should we deregulate other transportation industries?

3. Is all regulation bad? Comment on both the 'old (economic)' and 'new (social and environmental)' style regulation.

4. Did concern for 'pay-as-you-go' enter into the breakup of AT&T? Is there increased competition in the terminal equipment market since the breakup? Is there increased competition in the provision of long distance services? Is there increased competition in the provision of local call service? Which phone rates have increased, which decreased?

5. Is nationalization of a firm an alternative to regulation?

6. Why have the agencies charged with protecting our health and welfare (OSHA,EPA etc.) not been particularly successful? Does the problem lie with problem definition, goal setting, rules for achieving the goal or in enforcement?

7. Distinguish between short run, long run and fully distributed costs in the railroad industry. Which should be used in the pricing of rail services?

8. Why has Conrail been so profitable recently? Should it be privatized? If privatized, should it be regulated? Would you make the same recommendations for the SEPTA high speed rail lines, bus lines or trolley lines?

9. Why might a regulated firm go bankrupt if forced to set price at short run marginal cost?

Microeconomics

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1. We charge firms for producing effluents which damage the environment.  When you drive your car you emit sulfur dioxide, carbon monoxide and nitrous oxide into the atmosphere.  These are effluents. In the case of the automobile who should pay effluent charges: the owner of the car, the manufacturer of the car, or the gasoline manufacturer?

2. What public goods are provided by the township in which you live? Your property taxes pay for these services, so there must be an implicit price for the services provided. If asked to reveal your preferences for these services would your revelations reflect the price you are currently paying? Why or why not?

3. The cost disease of the municipal service sector is often related to labor productivity. Many of these services are public goods. How do we define labor productivity in these instances?

4. In the presence of a negative externality it is often said that the offending firm produces too much of its product. Therefore, when we correct for the externality output will decrease and price will rise. As a consequence consumer surplus will decline. One might conclude then that the externality and change in consumer surplus are offsetting and we don't really need to do anything. Do you agree?

5. Can it be said that the market does a poor job of allocating resources between the present and the future?

6. Does the consumer pay for effluent fines or taxes imposed on a polluter? Are fines a way of monetizing the injury suffered by the victims of a polluting firm?

Microeconomics

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1. In general we expect the supply of funds to rise as interest rates rise. Suppose a particular individual has a fixed accumulation goal. Is his supply of funds schedule upward sloping?

2. Is the relationship between earnings and education the same in both the primary and secondary labor markets?

3. Recall that Ronald Reagan dismantled the Air Traffic Controllers Union. In spring 1998 the TWU threatened to strike SEPTA.  Do unions really have any bargaining power or do they exist at the whim of management?

4. If the forces of supply and demand really determine wage rates, why do firms leave the Northeast where there are abundant supplies of skilled labor?

5. Why does the President of the United States earn less than the president of any of the car manufacturers?

6. What fraction of your salary might be considered rent? What features of you and your job account for this?

Microeconomics