Economics for Leaders Lesson 4: Markets In Action.

Economics for Leaders


Lesson 4: Markets In Action


1 vs. 100EFL - Style


All problems mentioned in the guidelines and sugggestions are included here. Choose the problems you like but please make sure that students practice at least 3 different analysis problems.


Economics 1 vs. 100

Sit with a partner. Your team will start with $3 to play 3 rounds.Each question is worth $1. If you answer the question correctly, you keep your $. If you answer is incorrect, you forfeit your $.Answers must be in written form and complete when time is called.Decisions of the judges are final re: whether your answer is correct.Every team must play every round. There are no drop-outs, only forfeiture of $1.


Round 1


Ethanol & Tortillas


1. Why is the price of tortillas increasing?

A. Big restaurant chains have Big restaurant chains have driven up prices by adding tortillas to their menus.

B. Farmers have had a bad year with weather in the Midwest, so there is less corn available.

C. Trade agreements between Mexico and the US have set a high price on corn in both countries.

D. The demand for corn by ethanol producers has increased.


2. Restaurants in Mexico have announced higher prices for tortillas in the past year. How do we explain these announcements in an open market?

A. Because the demand for tortillas has decreased in favor of other foods, restaurants face higher marginal costs of production.

B. Because the supply of tortillas has decreased, restaurants face higher marginal costs of production.

C. Demand for tortillas is increasing, which raises the market price that restaurants must charge.

D. Demand for tortillas is decreasing so restaurants make up for lost revenue by raising prices.


3. One Mexican consumer was quoted as saying, “…as long as [tortilla prices don’t] go up like gas prices I think that I would be ‘OK’ with paying an extra 20 to 25 cents for a good tortilla.” Can this claim be true for all consumers at their current quantity demanded? Which of the following statements about the market is correct?

A. It cannot be true because it would imply that the previous price of tortillas was not a market equilibrium price.

B. It cannot be true because so many restaurants serve tortillas that they have a great deal of market power.

C. It can be true because restaurants keep prices below cost in order to keep from losing customers.

D. It can be true because restaurants do not know if or when the demand for tortillas decreases.


Round 2


Minimum Wage


1. According to the video, the minimum wage in North Dakota has not changed in 10 years. If we assume that the minimum wage was binding on the unskilled labor such that the equilibrium price of labor would 10% per hour less than the minimum wage in the market 10 years ago, what is the effect of that same minimum wage today?

A. It still contributes to unemployment because it makes employers pay more than they would if the law didn’t exist.

B. It has little or no affect on unemployment or wages because inflation has likely raised wages above what the law requires.

C. It causes poverty in North Dakota because employers don’t have to pay more than the minimum wage even though there has been inflation for the past 10 years.

D. It reduces poverty in North Dakota because it keeps production costs down and the prices of goods and services are more affordable.


2. In the video, Don Morrison (NDPeople.org) said the “whole point” is that a higher minimum wage works its way up, so that skilled workers also earn higher wages than before. What of the following would make his prediction inaccurate?

A. The new minimum wage increases unskilled workers’ demand for training.

B. The new minimum wage increases unemployment among less skilled workers

C. Skilled workers move out of North Dakota for higher wage markets.

D. Employers move out of North Dakota for lower cost labor markets.


3. Over 21,000 North Dakotans will be affected by the new Federal law that raises the minimum wage from $5.15 to $5.85 per hour. The wage will rise again in July 2008 to $6.50 per hour and in 2009 to $7.25 per hour. Which of the following statements is true about labor conditions in North Dakota during these changes?

A. The 40% increase in minimum wage will increase incomes of all workers.

B. The 40% increase in minimum wage will keep workers and firms from leaving North Dakota.

C. The supply of labor will increase as people move to North Dakota seeking higher paying jobs.

D. Unemployment rates among lower skilled workers will increase.


Round 3


Ghana and EU Banana Imports


1. What is the effect of restrictions on banana length and weight (i.e., bananas must be long and heavy) on the market for bananas in the European Union?


2. Since EU member countries don’t have commercial banana growers, why does the EU place such restrictions on its own consumers? (Who benefits?)


3. The bananas shown in the video bear the Fairtrade certification mark meaning that they have been produced by small farmer organizations or in plantations that meet very high social and environmental standards. Farmers who produce Fairtrade Certified Bananas are guaranteed a floor price (Fairtrade Minimum Price) to cover the average cost of production, and a Fairtrade Premium of 1US$ per box of bananas to invest in social and economic initiatives in their communities. What effect does FairTrade labeling have on the quantity demanded for Fair Trade labeled bananas?


Negotiating with the Dentist


1. What principle of economics is illustrated in this video?

Economics for Leaders Lesson 4: Markets In Action.

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Transcript of Economics for Leaders Lesson 4: Markets In Action.