Assignment List

“A Cartoon Introduction to Economics”

*Incentives and Opportunity Cost Online Assignment (Graded
separately)
Incentives
Perverse Incentives
Marginal Decision Making – Marginal Utility
Marginal Analysis
The Kingdom of Mocha
/40
Production Possibilities Frontier
Circular Flow of Economic Activity
Total
*=Posted online at mrbeem.weebly.com
Points

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"A Cartoon Introduction to Economics" - The Optimizing Individual

Directions - Read the Optimizing Individual Cartoon handout and answer the following questions.

1. This book is about what very important person?

2. What is the main assumption in economics?

3. What is the stereotype of the "Optimizing Individual"? What other types of "Optimizing
Individuals" are there?

4. What does it mean to be an "Optimizing Individual"?

5. What is economics about?

6. What is the difference between macroeconomics and microeconomics?

7. What is the big question in microeconomics?

8. What are the possible downfalls of the "Optimizing Individual"?

9. What are the benefits of the "Optimizing Individual"?

10. What is the "Invisible Hand" and why is it a true miracle?

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Incentives
Incentives - a thing that motivates or encourages someone to do something or work harder (Merriam-
Webster Dictionary)

Directions: Answer the following questions about Incentives. The first two questions are multiple choice. The
rest are “Yes/No” questions.

1. Which of the following is not an example of an economic incentive?

a) A factory is required to pay a fine for each unit of pollution it produces in excess of the legal limit.
b) A tax is imposed on each bottle of French wine imported into the country.
c) A jewelry salesman is paid on commission.
d) Tremper beginning school at 7:30am

2. What incentive would a sumo wrestler with a winning record in a tournament have to help an opponent
who is “on the bubble”?
a) The good feeling he gets from helping his fellow man.
b) The knowledge that the opponent would do the same thing for him in the next tournament, which
translates into one less win he has worry about the next time around.
c) By losing an occasional match, the wrestler with the winning record can lull future opponents into
believing that he is not that good.
d) A sumo wrestler with a winning record in a tournament has no incentive to help an opponent who is
“on the bubble.”

Are each of the following incentives? (Yes or No)

____1. Power T

____2. Bonuses for employees

____3. Amazon hires more workers because business is booming

____4. A family does not take a vacation during spring break but instead goes to a concert in town

____5. Studying hard leads to higher grades

____6. A furniture store offers low interest financing for the first 3 years of a loan.

____7. Electric shock for answering question wrong in a trivia game.

____8. Paying electric bills.

____9. Working hard to win a State Title.

____10. Fishing because it is satisfying.

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 Perverse Incentives
Perverse Incentive - An incentive that produces an adverse consequence due to the actions undertaken
to receive the incentive. (businessdictionary.com)

Directions - Read each of the following scenarios, identify what the intended outcome of each incentive was.
Then attempt to identify how it resulted in unintended and undesirable result.

1. In Hanoi, under French colonial rule, a program paying people a bounty for each rat pelt handed in was
intended to exterminate rats.

2. Funding fire departments by the number of fire calls made is intended to reward the fire departments that
do the most work.

3. 19th century paleontologists traveling to China used to pay peasants for each fragment of dinosaur bone
(dinosaur fossils) that they produced.

4. In 1696, the English Parliament adopted a tax under which dwellings were to be assessed according their
number of windows.

5. No child left behind imposed pay cuts and layoffs for teachers whose students performed poorly on
standardized tests.

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 Marginal Decision Making – Marginal Utility
Directions: Complete the graphs and tables using available data.

1. Mary loves chocolate and derives a great deal of utility from consuming it. The table below shows the total utility Mary
receives after consuming each chocolate bar. Use the available data to complete the table and plot the graph. Then
answer the following questions.
Marginal
100
Quantity Utility Utility 90
0 0 80
1 20 70
2 37 60

Utility
3 49 50
4 59 40
5 66 30
6 71 20
7 74 10
8 74 0
9 70 1 2 3 4 5 6 7 8 9 10
10 55 Quantity of Chocolate Bars

a. What was Mary’s total utility after consuming 8 chocolate bars?

th
b. What was Mary’s marginal utility from consuming her 6 chocolate bar?

c. Assuming the chocolate bars are free, when should Mary stop consuming chocolate bars?

2. Cody owns and operates a widget production facility. He operates in a perfectly competitive market and can sell all the
widgets he wants at $10 each. Each worker he hires to run the machines cost $50 in wages per day. Use the data below to
complete the table and graph and answer the following questions.

Marginal Value of Marginal

# of Workers Total Product Product Product Marginal Cost
0 0
1 20
2 44
3 70
4 100
5 140
6 170
7 196
8 206
9 206
10 202

a. What was the total product with 5 workers? Marginal Product?

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 b. When was the value of marginal product the highest?

c. If Cody is an optimizing individual how many workers would he hire? Why?

3. Larry enjoys eating chocolate ice cream and playing Pokémon. Larry’s weekly allowance is $24, the
price of a chocolate ice cream cone is $3, and the price of a pack of Pokémon cards is $4. Use the data
available to complete the table below and answer the following questions.

Marginal Marginal
Quantity of Utility from Marginal Utility from Marginal
Ice Cream Ice Cream Utility per Quantity of Card Packs Utility per
Cones (utils) dollar spent Card Packs (Utils) dollar spent
1 21 1 24
2 18 2 20
3 15 3 16
4 12 4 12
5 9 5 8
6 3 6 4

a. What is the per dollar marginal utility of Larry’s 2nd Ice Cream cone?

b. What is the per dollar marginal utility of Larry’s 6th Ice Cream cone?

c. Does Larry’s 1st Ice Cream Cone or his 1st Card Pack provide more utility per dollar spent?

d. What quantity of ice cream and cards will maximize Larry’s utility if he spends his entire allowance?
Explain your answer using marginal analysis.

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Marginal Analysis

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 The Kingdom of Mocha
1. Briefly note the talents / special skills of:
- Benny six toes:

- Cecil:

- Fingers Linguini:

- Ian:

- Pablo:

- Raquel:

- Big Daddy:

- Little Augie:

- Mary Jane:

2. Why did the barter system fail? How did Big Daddy resolve this problem?

3. What was the result of the introduction of foreign trade?

4. Where did Pablo get the capital (money) to form the Greater Mochan Wood Supply Company?

5. What did Big Daddy do to solve the problem of an empty royal treasury?

6. What did Pablo and Little Augie do that upset environmentalists? How did they solve this dilemma?

7. Tell how the big storm affected the Mochan economy?

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8. What was Big Daddy’s answer to the inflation problem?

9. What caused Mocha’s unemployment and resulting recession?

10. When price controls were lifted on Mocha, what was the result?

11. What effect did Cousin Henry’s invention have on the Mochan Economy?

12. How did the wood company deal with the problem of supply and demand?

13. How did the war between the Stoned Islanders and Garlic Isanders affect Mocha?

14. What are some possible solutions to Mocha’s Wood shortage problem?

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 Production Possibilities Frontier
Businesses, nations, and individuals make decisions about how to use their resources. Often these decisions
can be understood better by plotting a graph showing the “production possibilities” resulting from different
combinations of resources.
$200

Maria has four hours of free time each day. She

$150
can spend it studying or working at the Wang’s
Weekly Wages

Chinese Kitchen for $8.50 per hour. The PPF

$100 illustrates the trade-off between school grades
and the wages Maria could earn.
$50

$0

F D C B A

1. What are the maximum wages Maria could earn if she works five days a week?

2. What grades can she expect if she works 10 hours each week?

3. Lets assume Maria is earning $50 each week and earning Ds:
a. Plot the point on the PPF and label it “D”.
b. At this point on the PPF what can we assume about Maria?
c. What advice would you give Maria?

4. What advice would you give Maria if she were interested in becoming:
a. a pharmacist?
b. a restaurant owner/manager

900

The United States Congress must approve the federal budget.

Miles of Highway

600 This involves many difficult choices. For example, the Congress
can decide to spend money on national defense, health insurance
300 programs, roads and highway, education, and many other
worthwhile causes. This PPF illustrates a hypothetical trade-off
$0
between spending for defense and highways.
1 2 3
Aircraft
1 carriers1 1
5. What is the opportunity cost of one aircraft carrier?

6. What is the opportunity cost of 300 miles of highway?

7. What other information would you need to decide on the bet combination of defense spending and
highway construction?
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 Circular Flow of Economic Activity
Complete the Flow Chart below and use it to answer the following questions.

Use the Circular Flow Chart below to answer the questions below. Choose where the following transaction
would fall (a, b, c, or d).

1. ______ You walk into local Wal-Mart and buy soap. Where is the transaction of soap from Wal-
Mart to you?
2. ______ A local farmer expands his operations by buying the adjacent property. Where does the
purchase of that land fall.
3. ______ Amazon sells drones to local buyers. Where is the transfer of money from the buyer to
Amazon.
4. ______ You get a job at Woodman’s. Where is the sale of your labor to Woodmans?

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