Supply

1. Briefly discuss the difference between a fixed cost and a variable cost. Give an example of each.

A fixed cost is independent of output which means that no matter how much you produce the cost will always be the same. An example would be the rent on a factory, the cost will always be the same even if you are making more money.

A variable cost is dependent on output which means that the price is based off of something else. An example would be if you are producing a thousand products instead of a hundred then the supply and labor costs would go up which would be considered variable costs.

2. Discuss a supply factor that could lead to more expensive prices for Taco Villa.

A supply factor that would lead to more expensive prices for Taco Villa would be input costs, if the price of a necessary ingredient to make a taco goes up then the taco will cost more money. Another example would be if minimum wage increases, the labor costs require Taco Villa to increase the price to be making a profit.

Demand

1. Why does Bernie sell more hamburgers when they are priced at $1.00 than $5.00?
               Bernie sells more hamburgers when he prices them at $1.00 instead of $5.00 because of the demand schedule. The demand schedule is what people are willing and able to pay for a product at a certain price. In the consumer's mind when the hamburger is priced at $5.00 they decide it's not worth it to them but when Bernie lowers the price to $1.00 they suddenly feel as if it is a great option and a great deal. It's all based on the law of demand, as price goes down, quantity demanded goes up.


2. Why does Bernie sell more hamburgers when they are priced at $5.00 than Sally's sells salads at the same price?
                    Bernie sells more hamburgers then Sally sells salads when they are both price for $5.00 because of the determinants of demand. People's tastes and preferences really contribute to the fact that Bernie is selling more hamburgers then Sally is selling salads. If both are being sold for the same price and the consumer feels as if the hamburgers from Bernie is a better deal then the salads from Sally then they will end up getting the hamburgers from Bernie.

3. Discuss one demand factor that can lead to more entree sales for both Bernie's and Sally's?
            For both Bernie and Sally they should know the law of demand, as price goes down then quantity demanded goes up. If both Bernie and Sally lower their prices further then they can expect their sales to increase. Bernie and Sally should understand that if an item is not a necessity then it will be more price sensitive because consumers aren't hesitant to substitute.

Extra Credit
If demand is elastic, how would a raise in price on a particular good affect total revenue? Discuss one factor that could affect elasticity.
             If demand is elastic which means that it is price sensitive then a raise in price on a particular good could affect the total revenue either way. By raising the price on a particular good, there will be a loss of consumers buying your item but if that loss is made up for in money by the price difference then it is worth it. The problem is that it is a very thin line, you need to calculate how many products are sold at that particular price with the price of the product to make sure that you are not turning your clients away in search for a substitute. If an item is a necessity then it won't be elastic because it is needed no matter the price, but if an item has many substitutes then it will be more elastic.

Flat tax vs. Progressive tax

     Flat tax or progressive tax - the million dollar question. Different people like different taxes but we live in one country under one government and the question is flat or progressive? 

     A progressive tax seems to some like a good idea. Under a progressive tax, the tax rate increases as the income increases - the tax breaks taxpayers into select groups called tax brackets, based off of their income. The tax bracket marginally increases based off of how much more you earn per year. A persons average tax rate will be less than the amount that they marginally pay. Instead you calculate based off of each marginal dollar and the tax bracket that it fits into. But the problems with a progressive tax are far worse then the benefits. A progressive tax pushes the nation’s brightest and most talented individuals with a high earning potential to leave the country to avoid being taxed. A progressive tax also discourages investments and business expansion because the additional profit would be taxed at a higher rate. Therefore many argue that with a progressive tax system there is less motivation to make more money. In some situations a raise can push a person into a higher tax bracket but after being taxed there is no increase in income. One of the most concerning arguments is that a progressive tax is unconstitutional. By raising the tax rate for people earning more money all citizens are not being treated equally. 

     A flat tax on the other hand is much more simple, there is one tax rate that applies to everyone regardless of income. There are no possible deductions, exemptions, or loopholes - all you do is multiply your income times the tax rate. A flat tax would be fairest because everyone would be paying the same ratio of their income. Everyone would be paying their fair share of taxes, in a reasonable way. A flat tax encourages growth and investment, because additional profit would not be taxed at a higher rate. A flat tax would be fair to all and wouldn’t punish the productive by taxing them higher when they are working harder for their money. Just because you make more money that doesn’t mean that more money should be taken from you. 

    After hearing both sides of the spectrum - progressive and flat tax - the answer should be obvious. A progressive tax doesn’t benefit the productive and encourages laziness while a flat tax is the simplest, fairest, and obvious answer. 

Taxes

Give two specific examples of how taxes and/or government programs can affect incentives according to Whelan.

• Whelan points out that by making the taxes higher on luxury items that mostly the rich will be buying, the rich decide to go elsewhere to avoid taxes. They will move someplace where the tax burden is not as high or the rich will just end up not buying the items that they tax. For example, if you tax red sports car then the simple answer is that no one will be buying a red sports car but it doesn't improve the situation in any way. The government end up making no money because people aren't buying red sports cars and now people can't buy a sports car in the color they love.

• Whelan also focuses on how higher taxes affect the poor, instead of encouraging them to work we are giving them incentives to stay at home and collect welfare. If they start working they will only be taxed on their earnings and will end up with less money than if they were staying home on welfare. Another point he makes is that higher taxes are discouraging married women from working because the taxes that a married women would be charged is marginally less than staying home and taking care of the house. A married women ends up almost making only 50 cents of every dollar she earns.

In the end both the rich and poor are less off. 

Who feeds Paris?

What did Wheelan mean by "who feeds Paris?"

            When Wheelan asked "who feeds Paris?" he was referring to the global markets of the world. Somehow around the world, stores are fully stocked with goods that were shipped from almost anywhere you can imagine. Yet you hardly ever walk into a CVS or Walgreens and find out that they don't have the medicine that you need. The market uses supply and demand to determine the price of an object which helps to make sure that objects don't get either over or under produced. There is a certain formula that comes up with the exact price of an object based on how many you have to sell. You don't want to the price to be over-expensive because then you won't sell enough but if you underprice it then you sell out when you could have made more money. He uses an example of airplane tickets, and explains to us how the airlines are smart enough to market to two different types of customers in order to get as much money as possible.

Decision Making

Based on what you have learned in class, discuss at least three economic concepts that are significant when making a personal decision. Use a personal or social example to address how the concepts that you have identified are relevant.


A marginal cost is when a person makes a decision on the margin which means that the cost cannot be greater than the benefit. For example, if your friend invites you to go shopping on Black Friday but the night before it you go to sleep really late - you must evaluate if you would rather sleep or go shopping for sales. Depending on what seems like a better option to you, you will decide what to do. If the sleep sounds better than a few sales, it wouldn't make sense to go shopping at 4am.

A trade-off is a situation where in order to do something you must give something else up. For example, if I wanted to go visit colleges today I would have to give up and miss school because I would not be able to do both.

An opportunity cost would be the next best thing you would be able to do. So if I use the same example as earlier and decide to go visit colleges instead of going to school then the next best thing I would be doing would be going to school. My opportunity cost for visiting colleges would be going to school.

After these three examples, it becomes obvious that we are always making decisions whether we think about it or not.