Name: period Economics

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1 Name: period Economics UNIT 3.1 MARKETS, FAILURES AND REGULATION The purpose of the guided reading and note-taking packets is to help guide you through the textbook, and help you prepare for inclass discussions and activities. You can choose to use all or part of each packet and/or another method that serves your learning. Only the enduring understanding response(s) portion of the packet will be formally assessed. Additionally, you are expected to master the content outlined in the packets, and that content mastery will be formally assessed. Enduring Understandings 1. Given the economic principle of trade increases wealth, when is a monopoly an appropriate way to structure a market? 2. What is the connection between public goods and the economic principle that incentives matter? 3. In a market economy, why do labor unions exist? 4. Since the circular flow of the economy coordinates trade, why does government regulation exist? 1

2 Objective: COMPETITION AND MARKET STRUCTURE Analyze examples of different market structures and identity characteristics of each structure in order to gain a better understanding of the role of competition in the market place. Directions: 1. Read about each market structure and fill in the chart. 2. Identify 2 more examples of each market structure beyond the ones provided in the descriptions. Do not use the same product as a different type. For example, do not use tomatoes instead of cucumbers. Type of Market # of Firms in the Industry Similar or different products Ability to Control Prices Ease of entering the industry Existence of non-price competition List other examples pure competition monopolistic competition oligopoly monopoly Discussion Questions 1. Economists agree that it is better to have competitive industries in an economy than monopolies. Think of a competitive industry in this area such as fast food. What are some of the advantages of having competition in the fast food industry? Discuss prices, quality, and amounts of goods available in your answer. 2. Think of a situation in which a monopoly may be better for the consumer. Specifically describe why this particular industry as a monopoly is better for the consumer. 2

3 Read Chapter 7.1 and 7.2: Sketch a consumer and a producer. Add a thought bubble for each person that explains one of the benefits of perfect competition. 1. Why are firms in perfect competition price takers? Read Section 7.3: Explain the three types of legal monopolies: Term Definition Identify an example and explain why it is that type of monopoly governmental monopoly resource monopoly natural monopoly 2. Why and when would the government prosecute a company for anti-trust violations? 3. How do consumers benefit from anti-trust protection by the government? Read Section 7.4: 4. Use the following terms to explain how an oligopoly can end up acting like a monopoly: price leadership, collusion, cartel. 3

4 Read Section 7.5: 1. What is a brand that you have a lot of brand loyalty for? Why? 2. For each of the four types of nonprice competition, list a product or service that you always purchase based on that criterion. Explain why you purchase that good or service. Example: I buy New Balance sneakers for their physical characteristics because they come in wide sizes and they fit my feet well. physical characteristics service location status and image Section 7.6 Create two simple political cartoons. Try to be original! One should represent a positive externality and the other a negative externality. Write a short caption for each cartoon explaining what the externality is in each example. Positive Externality Negative Externality 3. What are public goods and why do governments provide them? 4. Explain the free rider problem: 4

5 Externalities What Would You Do? Pollution from a factory A tire factory pollutes a nearby river, much to the displeasure of the residents of the town who live downstream. At a town meeting, residents discuss three proposals for solving the pollution problem. Proposal 1 Proposal 2 - Proposal 3 - Because the downstream residents will receive the benefits of pollution control, they should pay for it. This is a clear case of external benefits or positive externalities. A property tax should be placed on the residents downstream. The government should force the tire factory to close. That is the only way to stop all the pollution. There is no reason for downstream residents to suffer. Any other solution still leaves some dirty water. The tire company is not counting all of its costs of production. Keeping the river clean should be one of these costs. A tax, called an emission tax, should be placed on the company for each cubic foot of polluted water it releases into the river. Based on your understanding of externalities, choose the best proposal and write a paragraph that defends your choice using the key concepts of market failure, cost-benefit analysis, externalities, positive externality and negative externality in your response. 5

6 A baseball stadium The Oakland Athletics want to move from Oakland to San Jose once their lease with the Coliseum in Oakland expires. The move is based on San Jose building a stadium that is designed specifically for baseball to be called Cisco Field if Major League Baseball (MLB) votes to approve the requested move. The projected cost of the stadium is between $400-$500 million and the city of San Jose would be expected to pay some part or this entire total. Supporters argue that moving the team to San Jose will generate new business, provide jobs, increase tax revenues, and promote tourism in San Jose because of greater national exposure. Opponents argue that most of the money will be spent on baseball games by San Jose and other South Bay residents who will simply reduce their spending on other things. Thus there will be no net job creation or tax revenues, and few new tourists coming to San Jose in the summer. Others say that the stadium based on the proposed location near HP Pavilion, will cause property values to go down, create even more traffic problems, parking problems, and noise pollution. Voters have three proposals before them. Proposal 1 - Proposal 2 - Proposal 3 - No city money should be used in the construction of the stadium. It should be built with private funds alone. The city should place a tax on each ticket sold to pay for the stadium. The city should build the stadium and lease the right to play there to the Athletics, at a subsidized rate. This will cover the costs of construction over the long term. Based on your understanding of externalities, choose the best proposal and write a paragraph that defends your choice using the key concepts of market failure, cost-benefit analysis, externalities, positive externality and negative externality in your response. 6

7 Read Sections 11.3 & For each role below, provide a summary of how the government becomes involved and provide a specific example Role of Government Summary Example Maintaining competition Protecting consumers, savers & investors Protecting workers Addressing externalities Providing public goods 1. Which of the roles of government do you think represents an over reach of government power? Why? What role should the government expand? Why? 2. Why do economists prefer market-based policies to command and control policies? Do you agree or disagree why? 3. Think of a tragedy of the commons (or threatened common resource) in our community or state such as polluted air, water shortage, or too much traffic congestion. Describe the situation and explain what you think the government might do to preserve the resource. 7

8 Private, Public, or Mixed Goods Read pages and the slide that describes the different characteristics that define different types of goods and write a brief definition for each in the space provided RIVAL NONRIVAL EXCLUDABLE NONEXCLUDABLE Directions: Consider the list of goods provided and determine which characteristics describe that good and therefore, the type of good. The first one has been done for you with an explanation provided. You do not need to write an explanation but be prepared to share one with the class. GOOD RIVAL NONRIVAL EXCLUDABLE NONEXCLUDABLE TYPE OF GOOD Neighborhood beautification X The goods used for X Everyone in the Mixed beautification like flowers, plants and paint are rival. neighborhood benefits from beautification even if they didn t participate. Yosemite National Park Haircuts National defense Pizza Flu shots DJ at school dance Math tutor Police protection Discussion Questions: 1. Why does market failure make public goods necessary? Include externalities and the incentives matter principle in your response. 2. What can the government do to deal with the challenge of mixed goods? Consider taxes, incentives, and regulations in your response. 8

9 Read about labor and human capital on page 24 and note key ideas that define human capital. Read Section 10.2 For each trend you read about, identify how it will impact your ability to build and use your human capital in the workforce. TREND Impact on your human capital A larger, more diverse work force. A shift from manufacturing to service jobs. The growing importance of knowledge workers. Increased Outsourcing, Temping and Telecommuting The Globalization of Work: Offshoring, Inshoring and Foreign Competition 1. Explain which labor-market trend will have the greatest impact on your future. Be specific. How will this impact the decisions you make in the next 4-5 years? 9

10 Section Explain how the demand for labor and the supply of labor lead to an equilibrium wage. 2. For each spoke in the diagram below, describe a factor that affects wages other than the demand and supply of labor. Also provide an EXAMPLE of EACH factor. Other Factors that Affect Wages 3. Define wage gap. Explain why economists think discrimination in the workplace will decrease over time. What are some ways the US government has addressed discrimination in the workplace? Section 10.5 Complete the chart below based on the reading in the section. Origins of the Union Movement Golden Age of Labor Unions Modern Union Movement Time Period Union Actions and Successes Union Setbacks 4. Do you believe labor unions still have a role to play in the US economy today? If yes, what is that role? If not, why not? 10