OUTCOMES

• Analyze the economic way of thinking
• Explain how free and competitive markets allocate resources efficiently through the interaction of supply and demand
• Evaluate the different effects caused by changes in demand and supply conditions

ASSIGNMENT OVERVIEWFor this project milestone, you will respond to the situations presented.
DELIVERABLES

• A one- to two-page (250- to 500-word) blog entry with calculations

Step 1Evaluate an economic day in the life.
Kyle is a notoriously motivated individual who thrives on a packed schedule. He has been the star pitcher for his college baseball team since freshman year, and balances that with his classwork and a full-time job at the local grocery store. Generally, Kyle trains for two hours every day after school. Then he studies his grammar class assignments for two hours. His average for the grammar class is 80%, which is required of anyone on the team. Kyle recently started training for three hours a day and has studied only one hour for his grammar class. Already he has seen his grade drop to 70%. That’s not even accounting for his job at the grocery store! Kyle lives 25 minutes from the grocery store, so he is always watching for news on gas prices. Economists believe that when gas prices rise by 10%, the quantity of gas purchased will fall by 1% or 2%. But as Kyle remembers from 2009, when the price of gas rose from $3 to $4, purchases of gasoline only fell by 3.5%. With the substantial increase in gasoline prices, the demand for ethanol has also increased. Because ethanol is made from corn, the price of corn has also risen. This, in turn, has increased the price of many of the items in Kyle’s grocery store. For example, the price of cheese has risen 25% from 2009 to 2010, and apple juice has risen 36%.
Step 2Answer the questions that follow.
Kyle would like to join the macroeconomics club, but with so much going on he is going to need some initial help getting his time and expenses under control. In a one- to two-page blog entry, illustrate for him how knowledge of economics can help the rest of his day fall into place. Address the following in your blog entry, making sure to show all calculations.

• What is Kyle’s opportunity cost for the extra hour training for baseball each day?
• Because Kyle has trained for three hours, what can be concluded about the marginal benefit and marginal cost of the third hour of training?
• Was Kyle’s decision to play an extra hour of baseball each day a rational decision? Why or why not?
• Calculate the price elasticity of demand for gasoline implied by what economists have found.
• Compare the elasticity implied by the gasoline data for the year 2009 with the gasoline data implied by the economic reports. Explain why there might be a difference.
• Explain why the demand for ethanol has increased the price of corn.
• Explain how food prices in the United States can rise as people in India and China become richer and can afford to buy more beef and chicken.

Step 3Create a demand-supply graph.
Create a demand-supply graph to show how the higher price of corn affects the price of milk, cheese, and other grocery items. Use (free) online graphing software such as “Padowan” to create your graph.

• Follow the instructions on the website to learn how to create and manipulate the graph.
• Save the graph to your computer as a jpeg file.
• Copy and paste the jpeg into the assignment document that you deliver to your instructor.
• Clearly identify your finished graph.

Remember, it is important that you exhibit superior knowledge of the subjects being covered, while still relating it in a way that is easily understood by someone without an extensive economics background. Follow these guidelines to further engage your audience:

• Use clear, concise sentences.
• Share your enthusiasm and interest in the subject matter.
• Relate the material back to your own personal experience when possible.
• Read the entry out loud to yourself before finalizing it.

Step 4Save and submit your assignment.
When you have completed the assignment be sure to save a copy for your own records, and submit a copy for evaluation using the button below.