2015 day 9
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Transcript of 2015 day 9
On ½ sheets, Assume the price of Filters = $10
Filters /day
0123456789
10
FC
25
VC
010162022242732405475
TC MC
X
Revenue Profit
At which filter does diminishing returns begin?
How many filtersshould the firm produce?
Explain your answer to #3
0
20
-25-25
1.
2.
3.
4.
Practice one, Assume the price of Filters = $10
Filters /day
0123456789
10
FC
2525252525252525252525
VC
010162022242732405475
TC
25354145474952576579
100
MC
X106422358
1421
Revenue
0102030405060708090
100
Profit
How many filtersshould the firm produce?
-25-25-21-15-718
1315110
8, because the profit is 15, the highest. Profit Maximization point
Rational behavior experiment
Get into 4 groups
Using two slates, draw a large X and large O
X O
Let’s play a game for points If all X’s are played everyone loses 1 point 3 Xs and 1 O played each x gets 1 point, O loses 1 point 2 X and 2 O’s played each X gets 2 points, O loses 1 point 1 X and 3 Os played each x wins 3 points each O loses 1 point
All O’s played everyone wins 1 point
X O
Lack of Competition
• Oligopolies sometimes figure out competition hurts their profits, so……….
Dentists?
Pay?Why?Market Structure?Hours?
If firms discuss and agreed on new prices…
This is called collusion. And you formed a cartel.
Collusion = setting of prices by rival firmsCartel = groups of rival firms that try to fix prices
to increase profits
**Drug cartels – don’t compete on priceIn the United States, it is illegal
Meanwhile….• OPEC – Organization of Petroleum Exporting
Countries (1960-present)
How does OPEC indirectly set prices?
$/Barrel
Q/barrels
S
D
50
10 billion
Every 6 months, OPEC representativesand economists meet in Vienna to decideproduction.S after meeting
100
75
8 bi
Most Economists think cartels don’t work in the long term, why?
Problems with larger group assignments?
• Strategy?• Incentives?
On slates• 3 + goods that if you consume it, your friends
can’t consume it at the same time
• 1.5 + goods that if you consume it, your friends are unaffected by your consumption
Private Goods• Rivaled consumption• A person’s consumption affects
others’ consumption
• Excludable• Firms can exclude people who
don’t pay
Public Goods• Goods that are both non-excludable and
non-rivaled in consumption
Free Rider Problem• Free Rider – a person who does not pay for,
but benefits from a public good
• Incentives?
How does society pay for public goods?
TaxesUser fees
Private GoodsFor example: food
Common GoodsEX: Open ocean fishing
Club goodsEX: Golf Course, movie theatre
Public goodsEX: National DefenseStreet lights
Excludable? Rivaled Consp.?Market structure?
Excludable? Rivaled Consp.? Market structure?
Excludable? Rivaled Consp.? Market structure?
Excludable? Rivaled Consp.? Market structure?
Excludable? Rivaled Consp.? Market structure?
Excludable? Rivaled Consp.? Market structure?
On Slates1. Write a building in your neighborhood you
wish didn’t exist. 2. Why does that building bother you?
Externalities
• Economic question: would you want to live next to the airport? Why or Why not?
• Different question: Would you want to own a business next to the airport?
Externality: any external effect due to economic activity
Positive Externalities
Brings customers to other businesses in Anaheim
Positive Externalities
Prevents the spread of future diseases
Positive Externalities
Brings customers to Food City, Walgreens and El PotisinoAlso educates future workers
Also a negative?
Negative Externalities
Negative Externalities
Negative Externalities
Brings traffic to Anaheim
Negative Externalities
Remember Public Goods?• Any good which is non-rivaled consumption
AND non-excludable• EXAMPLES?
Rosemont Copper Mine
2-3 paragraph letter re: Rosemont Mine• Write a letter to the Star either in support or
opposition to the Rosemont Copper mine in the Santa Rita Mountains south of Tucson
• Use at least 2 economic externalities to support your letter
Dear editor, last Sunday’s Star discussed the Rosemont Copper
mine, I would like to express my support/opposition to the mine.
US government spending on mostly non-public goods
Show US debt clock
1. How much money you want to be
earning (per year) when you are 30.
2. What percentage do you think that
income has to pay to the government in
taxes (in the US)
Bellringer on your ½ sheet
Taxation“In this world nothing can be said to be certain,
except death and taxes.”Benjamin Franklin
In reality…• US Federal Tax Rates: (only 3 % of Americans make over $250,000)
• Add 3 -15 % more depending on which state you work in
3. On your ½ sheet how much in tax dollars would you would pay?
Net Income
• Gross income: How much you earn• Net income: how much you keep
• Net income = gross income - gross income*tax rate
• For example: Mr. Klein made $37,500 last year.
• Net income = $37,500 - $37,500(.25)• Net income = $37,500 - $9,375 = $28,125
4. How much is your “net income”?
World Tax Rates
United Kingdom
21-28%0-40 %
17.5%
Ireland 12.5 %20-41%
21 %
Mexico 29%3-29 %
15 %
Sweden 28 %0-59 %
25 %
Slovakia 19 %19 % 19 %
Hong Kong 15 %0-15 %
0 %
United Arab Emirates
0 %0 % 0 %
Country CorporateTax rate
Income Tax
SalesTax
What are “Good Taxes”?• According to Adam Smith:• Simple to understand• Don’t mess up incentives• Avoid loopholes
• IRS manual – 70,000 pages – (4 X size of the Bible)
Loopholes• Reading, other problem in USA? Why difficult
to solve?
• Tax incentives• Really, ways to not pay tax• “write offs”
• Thousands of examples, hybrid cars, college loan debt, 2nd home mortgage
Income Tax in USA
• IRS – tax collection agency in USA• Taxes are deducted throughout year• Every citizen must file every year by:• If you paid more during the year then
you need to: you get a refund• If you paid less during the year then
you need to: pay the difference
Taxes: For Example• For example: Mr. Klein made
$37,500 last year.• Net income = $37,500 -
$37,500(.25)• Net income = $37,500 - $9,375 =
$28,125
5. If Mr. Klein paid $10,375 in 2010, what happens after he files?
6. Why is a BIG refund not such a great idea?
7. Does the US have a good tax system? Explain your answer & remember Adam Smith’s
definition
With your partner• Imagine the state of Arizona was
going to simplify its tax structure and adopt only 1 tax method. How it works, why it’s the best, why the other two are not as good
1. Sales tax2. airport tax3. Corporate tax4. Alcohol tax5. rental car tax
6. Income tax7. property tax8. Gasoline tax9. Hotel room tax
What would be good about each tax, one change in behavior tax payers/consumers/businesses would make.
Tax on a household income% increases b/c income
“tax the rich more!”The more you make, the
higher your tax %For example: Tax $12/hour
labor or accountant $55,000/year
Why common in USA & EUIncentive?
Progressive Income Tax
IncomeTax Rate
$0-$15,000 0%
$15,001-$20,000 10%
$20,000-$30,000 15%
$30,000-$50,000 25%
$50,000-$100,000 33%
$100,001 + 38%
Proportional Income Tax• Tax on a household
income• % of stays the same• “flat tax”• For example: 5% tax,
$25,000/year or $100,000/year
• Why rare in USA?• Incentive?
But wait, the government isn’t done yet!
• Other taxes
Property tax• Tax on something you own• Usually expensive like your
house or boat• For example: $100,000
home– 5% property tax rate
• 100,000 X .05 = $5,000 property tax
• Incentive?8.01 % ave Pima Co rate
Regressive Tax• Smaller % taken the higher your
income• Sales tax• Sin tax• For example: 5% tax, $25,000/year
w/$10,000 consumption pays: 10,000 X .05 = $500, or 2% of total income
• $50,000/year w/$15,000 consumption pays: 15,000 X .05 = $750, or 1.5% of total income
• Incentive?• Why don’t poor people get upset?
Regressive taxes
Regressive taxes
Capital Gains Tax• Tax on real estate, stock
sales or dividends, or collectables.
• Why not only for the rich?
Gift tax• Tax on gifts or rewards• Games shows, gambling,
lottery• Rate depends on gift• 35-60 %• Is this a bad incentive?
Tucson painter Ted DeGrazia
Estate tax• Tax on inheritance• Sometimes called
“death tax”• In US today,
$5,000,000 and up• 40% rate
• Is this a bad incentive?
If you are curious…• US estate taxes over the years• GW Bush worked to repeal in
2001• Came back in 2011 when law
expires• Barack Obama supports
estate tax• Next president?
Tax Game• Each of you has a job• Present a tax proposal before the end of
class• You can use: proportional, progressive or
regressive taxes, or a combination of both• You can cut $100,000 in services
The group with the most votes wins 5 points of extra credit.
In reality…• US Federal Tax Rates: (only 3 % of Americans make over $250,000)
Let’s do your taxes
• 1040 Form for IRS• 1040EZ• W2 from employer (s) – shows wages• 1099 (other forms for interest, stock income,
etc)
• Plus you must file in every state except: TX, NV, NH, FL, WA.
On Slates1. How old will you be in
2070?2. Do you think $13/hour
is a lot of money?
10 richest people in the WorldForbes (2014)
1. Bill Gates $79 B2. Carlos Slim Helú $69 B 3. Warren Buffett4. Amancio Ortega5. Larry Ellison 6. Charles Koch7. David Koch8. Christy Walton9. Jim Walton10. Liliane Bettencourt
1, 3, 5, 6, 7, 8, 9
2 10
4
10 richest people in the USAForbes (2014)
1. Bill Gates $79 B Operating Systems2. Warren Buffett $68 B Investments3. Larry Ellison $54 B Cisco systems4. Charles Koch $41 B oil production5. David Koch $41 B oil production6. Jeff Bezos $ 39 B Amazon.com7. Michael Bloomberg $37 B computerized
investments
8. Christy Walton $36 B Walmart family9. Mark Zuckerberg $35 B Facebook10. Jim Walton $35 B Walmart family
BusinessName
Credit Cards• Loan from the
bank• High interest
rates• Keep control
• Bankruptcy• Video clip
• http://www.nbc.com/saturday-night-live/video/dont-buy-stuff/n12020 https://vimeo.com/50044167
Chances are….Only 3% of the US earns
over $250,000/year You will workYou will have a limited
supply of wealthYou will need to think
about your income and make good choices
You need a budgetYou need to think about
investing
Do you want to be?• Rich & Retired
Social Security
Specifics about investing• Opportunity cost of
investing?
• Things to consider:– Liquidity– Risk– Diversify
Liquidity• “How easy is it to turn this investment into
cash”?
Cash under mattress
• Bad idea, why?• No return, risky• 100% liquid• Inflation, you will lose
the inflation rate
Savings Account• Low interest rate• No risk in USA• Today: 1%, yuck! Money Market Acct 3-3.5 %
Pension Plan
• Employee plan• Usually union or large firm• For example: 10% from
State employees, 80% of salary when you retire, after 30+ years
• Not liquid at all• Low risk, long term
Bonds• Issued by
government or large corporation
• Low risk, low return• Must wait for
maturity• Can be traded
(liquidity!!)• WW1 & WW2 War
Bonds
Mutual Funds• Managed stocks• Lower risk, lower
control• Some sort of
theme• Saves you time
Traditional IRA• Individual Retirement
Account• You have to set it up• You can deposit up to
$5000 per year• (into mutual funds,
stocks or bonds)• Tax loopholes (breaks) • Can’t touch until 60• Not liquid
At 10% interest, a $5000 IRA becomes $226,000 over 40 years! $10,000 is over $400,000!
Roth IRA• Individual Retirement
Account• You have to set it up• You can deposit up to
$5000 per year• (into mutual funds,
stocks or bonds)• No tax break, but tax
free when you retire• Can’t touch until 60• Not liquid
At 10% interest, a $5000 IRA becomes $226,000 over 40 years! $10,000 is over $400,000!
401 K Plan• Set up by employer• Payroll deduction• Invested into stock
market• Lowers tax incidence• Tax break for
employee• Employee match• Not liquid
Investment calculator
• http://www.moneychimp.com/calculator/compound_interest_calculator.htm
• .
Real Estate• Risky, high capital• Relatively liquid• Speculation • Average real estate in
Tucson in 1970 $23,000• Average real estate in
Tucson in 2013 $164,900!!!
Rank in order by liquidity• Traditional IRA• Roth IRA• 401 K• Real Estate• Stocks• Mutual Funds• Pension plan• bonds
Rank in order by liquidity
• Traditional IRA• Roth IRA• 401 K• Real Estate• Stocks• Mutual Funds• Pension plan• bonds
Cable company article for portfolio