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Do Now

Are the following statements normative or positive? Explain why.

1. Microsoft has bad business models and should go out of

business soon.

2. Capitalism is a horrible way of managing a nations economy.

3. 3 Million people didnt pay their taxes this past year.4. Taxes are due April 15th.

5. Taxes should be due later to give people time to organize them

better.

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Objectives T8, T9, T10Objectives T8, T9, T10

The Economic Way of Thinking

- AP Microeconomics

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Agenda

1. Discuss Do Now (5 minutes)

2. Homework Review (5 minutes)

3. OBJ T8 (20 minutes)

4. Birka! (20 minutes)



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T8 Explain the concept of marginalism.

Looking at the 8 Ways we mentioned marginalism. It

meant one unit of change or the change that happens

at the edge.

Example Questions:What does it cost when I make one more unit of shoes?

What do I get when I buy one more unit of video games?

Does it benefit me to get one more unit of A and one less

ofB? Does it cost me?

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Notice we are not examining the total. In really complex

situations this is not feasible. It would take forever.

Therefore, we examine each individual choice we have to

make.

If each choice is a good one, then we make it, and

theoretically our overall total should be better for it.

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Example Situation:

You collect rare coins. You have hundreds of them, and

you want your collection to be the best in Chicago.

Someone offers you a 1949 misprint dime, but they want a

1931 all-copper penny from your collection as a trade.

When making this decision, you consider the value of that

single dime and decide if it is worth more to you than the

penny. If so, you make the trade and your collection is

worth more.

You do NOT need to total the value of your entire

collection to make the decision.

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To demonstrate this principle, we are going to play Birka!

Here are the basics:

1. You get into a group of 4 (or 3). Everyone gets 13

cards.2. The only thing that matters in this game is the suit (not

the number/face value of the card).

3. Your goal is to make trades, one at a time, to make

your hand the most valuable at the end of the game.

4. Each person makes a trade 2 times, and then the game

is over (twice around the circle).

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Premise: You are Vikings returning from pillaging anearby town. You bring back iron spades, heart shaped

amulets, sparkling diamonds, and wooden clubs.

Rules:

1. The first of every item is worth the most. Every item

after that adds value, but less. (See the scoring sheet.)

2. During a buy, you propose a trade. (You put out a

spade and ask for a club, for instance.)

3. If someone wants to make that trade, they put therequested card on the table and the deal is done.

4. If no one wants the trade, the buyer can either

withdraw the trade or add another card to sweeten

the deal.

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Rules (cont):5. Play continues to the left until all 4 players have made

2 trades (or trade proposals) each. This means twice

around the table.

6. Make sure to count the value of the table before and

after the game to compare later on.

7. The winner is the person with the highest valued hand

according to the scoresheet.

8. NO FIGHTING over whose card was down first.

Demerits for fighting. You arent real Vikings. Its agame.

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Sample Game:

South is the first to

serve as buyer. Shehas a 6-4-2-2 hand (6

spades, 4 diamonds, 2

hearts, and 2 clubs)

which is worth 961

points. She wants totrade a spade for a club

or heart.

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Sample Game:

South says, "I want a

club." She then bids aspade by putting it in

the middle of the table.

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Sample Game:

The role of buyer

rotates to West, who

has a strong 4-4-3-3hand.

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Sample Game:

West says "I want a

club and a spade" and

bids a heart by putting itin the middle of the

table. None of the other

players would benefit

from the trade, so

nobody accepts thebid. West withdraws his

bid and the role of

buyer moves to North.

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Sample Game:

So North says "I want a

heart" and bids a spade

by putting it in themiddle of the

table. East would

benefit from the trade

since he would give up

a sixth heart (worth 4 points) and gain a

fourth spade (worth 10

points).

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Sample Game:

But East doesn't accept

the bid, gambling that

North will sweeten itwith another card. When

nobody accepts the

spade bid, North adds a

diamond to it.

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Sample Game:

East quickly responds

by slapping a heart on

the bid. Notice thatWest also would have

benefited from the

trade, but he responded

too slowly.

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Sample Game:

It's East's turn to serve

as buyer. He

desperately needs aclub since he's short in

that suit.

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Sample Game:

East says "I want a

club," and bids a

heart. None of theothers respond to the

bid.

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Sample Game:

East therefore adds a

diamond to his

bid.S

outh wouldbenefit slightly from the

trade, but doesn't

respond in hopes that

East will add another

card to his bid.

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Sample Game:

East adds another heart to

the bid and South accepts

the trade by putting a club

on top of the cards. Eastgained a second club (worth

70) but gave up a fourth and

fifth heart (worth 10 and 7

points) and a fifth diamond

(worth 7 points).S

outh gaveup a third club (worth 25

points) but gained a third

and fourth heart (worth 25

and 10 points) and a fifth

diamond (worth 7 points).

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Sample Game:

The role of buyer now goes

back to South, who will try to

trade away a spade and a

diamond for a club. None ofthe other players gain from

the trade, so it's

rejected. West, North, and

East will also fail in their

attempts to trade. After Eastpasses, the hand is over.

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Sample Game:

South has a 5-5-4-2 hand, worth 999 points. West has a 4-4-3-3

hand, worth 1,000. North has a 4-3-3-3 hand, worth 990 points,

and East has a 4-4-3-2 hand, worth 975. The total value of the four

hands after trade is 999 + 1,000 + 990 + 975 = 3964. Recall thatbefore trading began, South had a 6-4-2-2 hand worth 961, West

had a 4-4-4-2 hand worth 985, North had a 5-4-3-2 hand worth 982,

and East had a 6-4-3-1 hand worth 916. The total value of the

hands before trade was therefore 961 + 985 + 982 + 916 = 3844. By

trading, the Vikings increased their wealth by 3964 - 3844 = 120.

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While you are playing, consider:

How does this demonstrate marginalism?

What situations can you think of in life that

demonstrate principles similar to this?

Why do you think value is added from the beginning to

end of the game?

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Summarize!

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T9 Define marginal cost and marginal benefit.

Marginal Cost: how much it costs you to add one moreunit. (= total cost after adding 1 unit)

Marginal Benefit: how much it benefits you to add one

more unit. (= total benefit after adding 1 unit)

How is marginal cost and benefit demonstrated in Birka?

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T9 Define marginal cost and marginal benefit.

Summarize!

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T10 Identify possible opportunity costs of

decisions.

All decisions have opportunity costs, as we have alreadydiscussed.

These opportunity costs consist of both explicit and

implicit costs.

Explicit cost: something that is obvious such as a price

tag.

Implicit cost: something that is not obvious but you haveto sacrifice to make the decision.

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decisions.

In the following, describe the explicit and implicit costs ofthe decisions.

1. Buying a new house.

2. Eating 21 cheeseburgers.

3. Cheating on an exam.

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decisions.

You Dont Have to Spend a Buck Activity

When I say go, you are going to get with a partner and

complete the activity. We will share out answers after 10

minutes.

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decisions.

Summarize!

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AP Microeconomics

Documents

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