1. BR Quiz ½ sheet of paper
1. Which of the four market structures is this firm in?
2. Write 3 examples of FC for this firm
3. Write 3 examples of VC for this firm
4. What two ways could this firm increase its total
revenue?
5. Give an example of diminishing marginal returns
for this firm

2. Get into 4 groups of 7
On one paper write a large X and a
large O on the other paper like this
X O

3. 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

4. Lack of Competition
• Oligopolies sometimes figure out competition
hurts their profits, so……….

5. Dentists?
Pay?
Why?
Market Structure?
Hours?

6. If firms discuss and agreed on new
prices…
This is called collusion.
And you formed a cartel.
Collusion = setting of prices by rival firms
Cartel = groups of rival firms that try to fix prices to
increase profits
**Drug cartels – don’t compete on price
In the United States, it is illegal

7. Meanwhile….
• OPEC – Organization of Petroleum Exporting
Countries (1960-present)

8. How does OPEC indirectly set prices?
$/Barrel
Q/barrels
S
D
50
10 billion
Every 6 months, OPEC representatives
and economists meet inVienna to decide
production.
S after meeting
100
75
8 bi
Most Economists think
cartels don’t work in the
long term, why?

9. Problems with larger group
assignments?
• Strategy?
• Incentives?

10. Brainstorm at your tables
• 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

11. Private Goods
• Rivaled consumption
• A person’s consumption
affects others’ consumption
• Excludable
• Firms can exclude people who
don’t pay

12. Public Goods
• Goods that are both non-excludable and
non-rivaled in consumption

13. 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?
Taxes
User fees

14. Private Goods
For example: food
Common Goods
EX: Open ocean fishing
Club goods
EX: Golf Course,
movie theatre
Public goods
EX: National Defense
Street lights

15. Excludable? Rivaled Consp.?
Market structure?

16. Excludable? Rivaled Consp.?
Market structure?

17. Excludable? Rivaled Consp.?
Market structure?

18. Excludable? Rivaled Consp.?
Market structure?

19. Excludable? Rivaled Consp.?
Market structure?

20. Excludable? Rivaled Consp.?
Market structure?

22. US government spending on mostly
non-public goods
Show US debt clock

24. 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

25. Taxation
“In this world nothing can be said to be certain,
except death and taxes.”
Benjamin Franklin

26. 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 would you would
pay?

27. 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”?

28. 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 Corporate
Tax rate
Income
Tax
Sales
Tax

29. 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)

30. Loopholes
• Tax incentives
• Really, ways to not pay tax
• “write offs”
• Thousands of examples, hybrid cars, college loan debt,
2nd home mortgage
• Reading, other problem in USA? Why difficult to solve?

31. 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

32. 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
• If Mr. Klein paid $10,375 in 2010,
what happens after he files?
• Why is a BIG refund not such a
great idea?

33. 5. Does the US have a good tax system? Explain your
answer & remember Adam Smith’s definition

34. Tax research and debate
• Groups of 3-4
• 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
• Round 1: Progressive vs. Proportional vs. Capital Gains
• Round 2: Sales vs. property vs. “sin” taxes vs. estate taxes
• Round 3: Resort tax vs. rental car tax vs. airport tax
• Other groups vote, winners 5 QE points

35. 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 & EU
Incentive?
Progressive Income Tax
Income
Tax
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%

36. 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?

37. But wait, the government isn’t done yet!
• Other taxes

38. 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

39. 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?

40. Regressive taxes
• OPTIC

41. Regressive taxes

42. Regressive taxes

43. Capital Gains Tax
• Tax on real estate, stock sales or
dividends, or collectables.
• Why not only for the rich?

44. Gift tax
• Tax on gifts or rewards
• Games shows, gambling,
lottery
• Rate depends on gift
• 35-60 %
• Is this a bad incentive?

45. Tucson painter Ted DeGrazia

46. Estate tax
• Tax on inheritance
• Sometimes called
“death tax”
• In US today,
$1,000,000 and up
• 55% rate
• Is this a bad
incentive?

47. 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

49. 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.

50. In reality…
• US Federal Tax Rates: (only 3 % of Americans make over $250,000)
• Add 10 -15 % more depending on which state you work in
3. On your ½ sheet how much in tax would you would
pay?

51. 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.

52. Bellringer
You don’t have to write this down:
1. How old will you be in 2070?
2. Do you think $13/hour is a lot
of money?
3. Get out your notes

53. 10 richest people in the World
Forbes (2012)
1. Carlos Slim Helú $69 B
2. Bill Gates
3. Warren Buffett
4. Bernard Arnault
5. Amancio Ortega
6. Larry Ellison
7. Eike Batista
8. Stefan Persson
9. Li Ka-shing
10. Karl Albrecht
2, 3, 6
1
8 10
4
5 7
9

59. Credit Cards
• Loan from the
bank
• High interest
rates
• Keep control
• Bankruptcy
• Video clip

61. Chances are….
Only 3% of the US earns
over $250,000/year
You will work
You will have a limited
supply of wealth
You will need to think
about your income and
make good choices
You need a budget
You need to think about
investing

62. Do you want to be?
• Rich & Retired
Social Security

63. Specifics about investing
• Opportunity cost of investing?
• Things to consider:
– Liquidity
– Risk
– Diversify

64. Liquidity
• “How easy is it to turn this investment into cash”?

66. Cash under mattress
• Bad idea, why?
• No return, risky
• 100% liquid
• Inflation, you will lose
the inflation rate

67. Savings Account
• Low interest rate
• No risk in USA
• Today: 1%, yuck! Money Market Acct 3-3.5 %

68. 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

69. Bonds
• Issued by
government or
large corporation
• Low risk, low return
• Must wait for
maturity
• Can be traded
(liquidity!!)
• WW1 & WW2 War
Bonds

70. Mutual Funds
• Managed stocks
• Lower risk, lower
control
• Some sort of
theme
• Saves you time

71. 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!

72. 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!

73. 401 K Plan
• Set up by employer
• Payroll deduction
• Invested into stock
market
• Lowers tax incidence
• Tax break for
employee
• Employee match
• Not liquid

74. Investment calculator
• http://www.moneychimp.com/calculator/com
pound_interest_calculator.htm
• .

75. 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!!!

76. List by liquidity
• Traditional IRA
• Roth IRA
• 401 K
• Real Estate
• Stocks
• Mutual Funds
• Pension plan
• bonds

77. List by risk
• Traditional IRA
• Roth IRA
• 401 K
• Real Estate
• Stocks
• Mutual Funds
• Pension plan
• bonds