AP GOVERNMENT SUMMER WORK 10-11

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1 AP GOVERNMENT SUMMER WORK $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ In this class we will study U.S. Government at Advanced Placement level. The class will also include high school level Economics. Your summer work consists of reading from the AP Macroeconomics textbook and answering questions from several chapters. We will have a test on these chapters at the end of the first week of school. Your written summer work is due on the first day of school. Please note that the written questions can be downloaded as a Word document. Answers can be typed in following the question. Doing your summer work by this method means that you do not need to answer in complete sentences. If you cannot download the work and insert your answer following each question, then you will need to type out each question and answer or, if you do not type the question, type each answer in a complete sentence. Step One: From the library, check out MACROECONOMICS: PRINCIPLES AND POLICY 9 TH Edition, William J. Baumol and Alan Blinder, Thompson/South-western, (Tan paperback book.) Step Two: Read Chapters 2-3 (parts of ch1) and answer the questions that begin on the following pages. Download and answer the questions. Step Three: Turn in the written portion of this work on the first day of school. It must be typed. If you have questions about this assignment, please send me an at agilbertro@aol.com. I will answer you ASAP.

2 AP GOVERNMENT SUMMER WORK $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$ Chapter 2 (& Parts of 1): Scarcity and Choice: The Economic Problem 1. What is the definition of a market system, also known as a market economy or the market? (You will find the definition on page 29, then resume reading on page 19.) 2. How does the 2000 debate between Bush and Gore about how to use the surplus illustrate the problem of scarcity? 3. Define each of the three categories of resources: land, labor and capital. (Hint: capital is not money.) 4. What other terms are used to describe resources? (See side insert p. 20.) 5. Define opportunity cost. 6. What are the opportunity costs of fighting a war? 7. How does the money cost of attending college differ from the opportunity cost of attending college? 8. Why do some items that are given away free nevertheless have an opportunity cost? 9. What is another term for inputs of production? 10. Production possibility frontiers (AKA: production possibility curves) show that resources are limited and to produce more of one output something must be given up. What economic concepts do they illustrate? 11. In the first conversion of resources from soybean production to wheat, Jones gave up 10,000 bushels of soybeans and produced thousand bushels of wheat (moving from point A to point on the graph. In the second conversion, he gave up another 10,000 bushels of soybeans and this time produced thousand bushels of wheat. 12. Why does each additional ten thousand bushels of soybeans given up translate into less additional wheat? 13. Why is the production possibilities frontier for black shoes and brown shoes flat instead of bowed outward? 14. What do missiles and autos represent in Figure 2-3? 15. What does economic analysis tell us about the true cost of increasing military spending?

3 Correction: On p. 25 your book refers to the Democratic Senate. The Democrats lost control of the House and Senate in 1994, briefly regained the Senate in 2001 and lost it again in 2002 just after your book was written. The Congress was controlled by the Republican Party from 1994 until 2006, with this brief interruption. 15. When a country or a firm is producing a combination of outputs corresponding to a point on its production possibility curve, it is using all of its resources e. 16. Define efficiency. 17. Why does point G on Figure 2-3, p. 24, represent inefficient output? (It is not enough to say, because it is not on the production possibility frontier. ) 18. List all of the causes of economic inefficiency explained in your textbook. Of these, which is the most important? 19. In your own life, you will decide what to produce (your career), how to produce (where you will go to school to learn skills, etc.), and for whom to produce (who you will sell your goods or services to). What factors will you consider in making these decisions? 20. In deciding how to produce, societies seek efficient methods. How does specialization increase efficiency? 21. How does the organization of teaching different subjects at this high school reflect the concept of division of labor and specialization? 22. After college, what will you choose to produce. (Make something up if you don t know yet.) What will you obtain by trading with others? 23. Why does it usually make sense for a country to import some goods that it could produce more efficiently for itself? What is the name of this important economic concept? 24. If you offered to buy a used car from another student for $1000, and he/she accepted, which of you is worse off because of the agreement? (Assume both parties have the same information about the condition of the car.) 25. How does the market price that producers can charge consumers provide incentives to producers? 26. How does self-interest (profit-motive) give firms incentives in the use of resources? 27. How do prices facilitate the distribution of goods and services answering the question for whom to produce? 28. What limits the ability of a market system to distribute goods and services fairly?

4 29. What does the market do well and what does it do badly? Skip to page 8: Inside the Economist s Tool Kit 30. Why is economics inherently more complex that chemistry? 31. Your textbook compares the usefulness of two maps on p. 9. Why is Map 2 more useful for getting from the Civic Center to the L.A. County Museum of Art than Map 1? 32. How does this example help to explain the need for abstraction in economics? 33. Can you find Culver City on Map 2? 34. Why is Map 2 a better analogy of economic analysis than Map 3? 35. What is the difference between a theory and an hypothesis? 36. Why must economists theorize instead of simply examining facts or statistical evidence? 37. Define and contrast correlation and causation. 38. How does theory help us explain the difference between correlation and causation? 39. What is an economic model? 40. In what form will many economic models be presented in this book? 41. Why does there appear to be so much disagreement among economists? 42. Why can t economics answer many important questions that confront policy-makers (government officials)?

5 Chapter 3: Supply and Demand: An Initial Look 43. Why do you need to study the concepts of supply and demand? 44. The quantity demanded for any product is not a given amount, it depends primarily on p. 45. In order to more closely examine the interaction of two variables, economists often find it helpful to assume that other variables are constant. This is expressed in the phrase 46. In the 1990s, gas was very cheap. What happened to the size of cars? What happened to quantity demanded for gas? 47. As the price of gas increases, how are consumers changing their behavior? For example, what is happening to the demand for SUVs? 48. What do demand schedules indicate? 49. In Figure 3-1, what happens to the quantity demanded of milk as the price increases? What happens when the price decreases? 50. Why does the demand curve have a negative slope? 51. On Figure 3-1, p. 37, what happens to the quantity demanded of milk when the price of milk increases from $1.00 to $1.40? 52. If any variable other than price changes, how do we represent that on a graph? 53. Which way would the demand curve shift if consumers want to buy more at every price? 54. If the price of milk changes (other things being equal), will the demand curve shift? If not, how will the change be represented on a demand graph? 55. How is an increase in consumer income represented on a demand graph for milk? 56. (Not answered in you book) Used cars are sometimes considered inferior goods because as consumer income increases, what happens to the demand for used cars? What do consumers choose instead? 57. Why does a change in the size or composition of the consumer population shift the demand curve? 58. If the medical profession issues a warning that eating eggs increases the risk of high blood pressure, how will this appear on a demand graph?

6 59. If Pepsi increases its price, what will happen to the demand for Coke? Draw a demand graph illustrating the change in the demand for Coke. (You don t need a scale of numbers on the axes of these graphs.) (Use D o and D 1 to show this change.) 60. If the price of milk increases, what will happen to the demand for cereal? Illustrate the change in demand for cereal on a demand graph. (Use D o and D 1 to show this change.) 61. Why does an increase in the quantity supplied require that suppliers charge a higher price for the good or service? 62. What do supply schedules show? 63. Why does the supply curve have a positive slope? 64. Using Fig. 3-4, if the price of milk is $1.00, how much milk will be produced? If the price is $1.30, how much milk is will be produced? 65. If only the price changes, how is that read on a supply curve? Will this look like Figure 3-4 or 3-5? 66. If any other variable changes, how is that represented on a supply graph? 67. How will an increase in the number of producers change the supply curve for milk? 68. Draw a supply graph with a single supply curve S o. Assume this is the graph for cars. Show the effect of Henry Ford s adoption of the automated assembly line with a second curve S 1. Hint: the supply curve looks like it is falling when it shows an increase and rising when it shows a decrease, as in Figure 3-10, p. 46. Try to think of it as a shift away from the origin

7 (zero) and therefore an increase, or a shift toward the origin and therefore a decrease rather than rising or falling. 69. Draw a supply curve with a single curve S o. Label the horizontal axis Quantity of OJ. Now show with a second supply curve the effect of a long heat wave that shriveled much of the Florida orange crop. Use S 1 to show the change. 70. If the supply of beef increases, what will happen to the supply of leather? Why? 71. At a $1.50 per quart (Table 3-3, Figure 3-7), what is the quantity demanded? What is the quantity supplied? What two points on Figure 3-7 represent demand and supply at $1.50? 72. Which is greater at $1.50, the quantity supplied or the quantity demanded? What is the term for this imbalance? What will happen to the price? Why? 73. (Figure 3-7) At the price of $1.00, what is the quantity demanded (QD) and the quantity supplied (QS)? Which is greater QD or QS? What is the name for this imbalance? What will happen to price? Why? 74. At what price are supply and demand equal? What is the term for this point? Why is this point stable or sustainable? 75. What is the law of supply and demand?

8 76. When demand increases, and the demand curve shifts to the right, what happens to the equilibrium price and quantity (Figure 3-8a)? When demand decreases, what happens to equilibrium price and quantity? (Point E to point T.) 77. When demand decreases (for a reason other than price) the demand curve shifts in which direction? How does the equilibrium price and quantity after the shift compare to the equilibrium price and quantity before the shift? 78. When more dairy farms are started or the size of existing dairy farms increases, what happens to equilibrium p and q? (Figure 3-9) Why does this happen? 79. Draw a supply/demand graph showing the effects on equilibrium price and quantity of many new companies offering cell phones. Show this as a shift from S o to S Draw a supply/demand graph showing the effects of a bird flu epidemic in the U.S. on the market for KFC. Use S o to S A price ceiling is a legal maximum price for which producers can sell their product to consumers. Producers can sell for a lower price but not for a price higher than the ceiling price. Why is this called a ceiling.? 82. How do price ceilings cause shortages? 83. What is a black market? 84. Why is the black market price higher than the ceiling price or even the equilibrium price the good would normally sell for?

9 85. (Inset POLICY DEBATE top of page 48) In the war on drugs, why do attempts to reduce the supply of drugs often backfire? 86. What would work better than trying to decrease the supply of illegal drugs according to most economists? 87. If drugs were legalized, what would happen to the price? What would happen to the quantity demanded at the new price? 88. (Bottom of page 48) How do price ceilings lead to a further decrease in supply? 89. In the example represented in Figure 3-11, at the rent-controlled price of $1200, what is the quantity demanded for apartments? What is the quantity supplied? Which is greater? What is this imbalance called? 90. Who is generally hurt by rent control? Who is generally helped? A note of reality: The last two Republican mayors of New York City began the slow elimination of rent control. While some buildings are still under rent control, most are not. The result has been an overall increase in rent, the conversion of most affordable (middle to low income) housing to very expensive apartments and condos. Many of those who work in the City can no longer afford to live there and have become commuters, increasing the traffic into the city. This shortage of low skilled workers has driven up wages and therefore the cost of living. Life is often more complicated than simple graphs can represent. 91. Price floors are legal minimum prices. Goods or services can be sold for higher but not lower prices. Why are they called floors? 92. What is the result of an artificially high price such as those imposed by a price floor? 93. What happens to many agricultural surplus goods in the U.S.? 94. When we encourage over-production through subsidies, we are giving businesses incentives to waste scarce resources. Explain why. 95. How do surpluses cost taxpayers twice? 96. By what methods does the government artificially restrict the U.S. supply of sugar? 97. Who benefits from the price supports for U.S. sugar? Who pays? How much do they pay? 98. Why do U.S. sodas (soft drinks) use high fructose corn syrup? 99. Many Caribbean countries are ideally suited for sugar cane production. How are they affected by U.S. sugar policies?

10 100. Briefly describe other problems arising from price controls imposed by governments? 101. What ironic result occurred when the President of Kenya burned elephant tusks?