AP ECONOMICS SUMMER ASSIGNMENT FINAL REVISION

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1 Instructor: Molly Lane Phone: I will be out of town for most of the summer so if you have questions your best bet to reach me will be . Required book: Common Sense Economics James Gwartney, Richard Stroup, Dwight Lee, Tawni Ferrarini ISBN: For each of the 15 modules you will have 2 types of questions. Questions you must answer before reading, then revise with citations after reading (pre reading and post reading), and questions that are to be answered after reading the sections (Additional post reading questions). All answers should be sectioned by module and typed. Your post reading revisions should be underlined. Pre reading questions should have 1 to 2 sentences before reading and an additional 1 or 2 with citations after reading. Post reading questions should be answered with a 3-5 sentence paragraph with citations. Module 1(Pages 1-13) Is every decision an economic one? Explain. Can the government provide services like education and health care for "free"? Explain. Is perfection ever worth achieving? For example, should we eliminate all pollution? Explain No additional post reading question Module supplemental A (Pages 13-21) If government substantially expands the availability of low-interest loans to college students, what will happen to the demand for and price of a college education? When property rights are well defined and enforced, will businesses in a market economy have a strong incentive to undertake productive projects and avoid counterproductive ones? Why or why not? Explain

2 Module 3 (Pages 21-29) How do people earn income? If you pursue a career and become incredibly rich, have you done so at the expense of others? Explain. Additional post reading question (3-5 sentences the first 5 bullet points should be answered together in the same 5 sentences) Suppose T-shirt Bobbie has a shop next to a large sports stadium. If T-shirt Bobbie sells 1,000 shirts for $20 each, how much does she generate in total revenue? It costs T-shirt Bobbie s $18,000 per month to lease a building, rent t-shirt equipment, purchase plain t-shirts and various decals, pay herself, and employ some part-timers to help when business is buzzing. What are her monthly costs of operation? How much does T-shirt Bobbie receive in monthly profit? Is it positive or negative? Recall, T-shirt Bobbie sells 1,000 shirts for $20 each. Per month, it costs $18,000 to lease a building, rent tt-shirt equipment, purchase plain t-shirts and various decals, pay herself, and employ some part-timers. What does a positive profit indicate? Does it make sense for T-shirt Bobbie to stay in business? Explain Sales decline, revenues fall and T-shirt Bobbie starts losing $5,000 a month. What does this indicate and how should T-shirt Bobbie respond? Use economic reasoning to evaluate the following statement: I propose that we hire all of the unemployed people as government workers and pay half of them to dig holes and the other half to fill them back up. This way everyone who wants a job can have one! Use economic reasoning to evaluate the following: The unemployment rate is high and therefore it is time to stimulate the economy! I propose that we use tax dollars to pay car dealers to destroy older cars and send them to the dump. This will cause people to buy new cars which will increase economic activity and put us on the path to recovery. Module 4 (Pages 30-39) In 2014, the states of Colorado and Washington legalized the recreational use of marijuana. What are some of the secondary effects? When you have a nice steak dinner at a local restaurant, literally thousands of people engage in actions that make your dinner possible. What coordinates their actions?

3 Module 5 (Pages45-57) Competition encourages producers to innovate, keep costs low, and satisfy customers. However, Walmart is often vilified for doing just that. Is competition bad for the economy? Explain. Do businesses operating in a competitive market have an incentive to keep costs low and produce goods that consumers value highly relative to cost? Do they have an incentive to innovate and develop improved products? Explain. Module 6 (Pages 57-63) Is government regulation necessary to make sure that businesses serve the interests of consumers? Explain. Compare and contrast competitive markets and government regulation with regard to their ability to promote efficient use of resources and direct producers toward wealth-creating activities that serve the interests of consumers. Module 7 (Pages 73-89) Would Americans be better off if they bought less from foreigners? Would employment in Cheap goods from China are destroying the American economy. If we are going to reduce the unemployment rate and maintain our living standard, we must stop the Chinese from selling goods at such low prices in the United States. If I am elected, I will fight hard for a 50 percent tariff that will save American jobs for American workers. Evaluate this statement. Explain why you either agree or disagree with it.

4 Module 8 (Pages ) According to Thomas Jefferson, A wise and frugal government, (is one) which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvements, and shall not take from the mouth of labor the bread it has earned. Using your own words, explain what Jefferson meant. What is the difference between a productive and a counterproductive project? Explain. Module 9 (Pages ) Does the democratic political process provide politicians with a strong incentive to spend tax funds wisely and control the growth of government debt? What is the special interest effect? What does it imply about the efficiency of how goods and services will be allocated through the political process? When political officials are elected democratically, can they be counted on to pursue policies that promote the general welfare of the populace? Module 10 (Pages ) Do you think central planners can direct sectors of the economy such as health care, energy and education more efficiently than markets? Explain your response A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy. Evaluate this statement made more than 150 years ago by the Scottish philosopher Alexander Tytler. Indicate why you either agree or disagree with it.

5 Module 11 (Pages ) Many governments around the world confront a problem of excessive debt. What constitutional change would you recommend to deal with this problem? Explain. The final section of Part III of Common Sense Economics proposes eight constitutional modifications that would comprise an Economic Bill of Rights. Read this material carefully. Then choose one of the elements and explain why you either favor or oppose it Module 12 (Pages ) Does high income guarantee financial security? Why or why not? No Additional post reading question Module 13 (Pages ) Do credit cards help people achieve financial success? Why or why not? No Additional post reading question Module 14 (Pages ) If you were saving for a down payment on a house or the education of a child, which would you choose: an investment portfolio that includes only high-tech stocks or one that is made up of different types of stocks, bonds, and cash? Explain your choice. No Additional post reading question

6 Module 15 (Pages ) Pre reading and post reading Suppose your parents or close friends announce that retirement is only 5 years away. They have invested in stocks and saved a substantial nest egg. What advice would you give them with regard to the steps they should take now to plan for their retirement years? Additional post reading question Introduction: Supply and demand forces coordinate the actions and interactions of millions of buyers and sellers even in the job market. Through price signaling, people communicate what they value. The Bureau of Labor Statistics Occupational Outlook Handbook (OOH) helps you determine what markets value in a long list of occupations. Additionally, the OOH describes (i) what is valued by employers in terms of education and training, (ii) what to expect in terms of job prospects and earnings, and (iii) the associated responsibilities and working conditions for a vast variety of occupations. This information will help you identify your potential income stream and, in turn, help you better plan for the future. Visit the Bureau of Labor Statistics Occupational Outlook Handbook (OOH) (Links to an external site.) at and pick one occupation of interest given your major, talents, and/or hobbies. Apply the economic way of thinking to describe the supply and demand conditions of this occupation, using the OOH data and Common Sense Economics (2010) Part I. Explain why your instructor (that would be me) earns less than the entrepreneurs who created Facebook, Google, Apple, and Box.net.