From most liquid to least liquid: 1. Stocks 2. Mutual Funds 3. Bonds 4. Real Estate 5. Roth IRA 6. Traditional IRA 7. 401K 8. Pension plan Stocks and mutual funds can generally be sold quickly. Bonds can also usually be sold, though there may be some loss of value depending on current market rates. Real estate involves more time and paperwork to sell. IRAs and 401Ks involve some penalty for early withdrawal. Pension plans are the least liquid as the money cannot be accessed until retirement.

1. On ½ sheets,
Assume the price of Filters = $10
Filters
/day
0
1
2
3
4
5
6
7
8
9
10
FC
25
VC
0
10
16
20
22
24
27
32
40
54
75
TC MC
X
Revenue Profit
At which filter
does diminishing
returns begin?
How many filters
should the firm
produce?
Explain your
answer to #3
0
20
-25
-25
1.
2.
3.
4.

2. Practice one, Assume the price of Filters =
$10
Filters
/day
0
1
2
3
4
5
6
7
8
9
10
FC
25
25
25
25
25
25
25
25
25
25
25
VC
0
10
16
20
22
24
27
32
40
54
75
TC
25
35
41
45
47
49
52
57
65
79
100
MC
X
10
6
4
2
2
3
5
8
14
21
Revenue
0
10
20
30
40
50
60
70
80
90
100
Profit
How many filters
should the firm
produce?
-25
-25
-21
-15
-7
1
8
13
15
11
0
8, because the
profit is 15, the
highest. Profit
Maximization point

3. Rational behavior experiment

4. Get into 4 groups
Using two slates, draw a large X
and large O
X O

5. 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

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

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

8. 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

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

10. 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?

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

12. On slates
• 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

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

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

15. 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

16. 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

17. Excludable? Rivaled Consp.?
Market structure?

18. Excludable? Rivaled Consp.?
Market structure?

19. Excludable? Rivaled Consp.?
Market structure?

20. Excludable? Rivaled Consp.?
Market structure?

21. Excludable? Rivaled Consp.?
Market structure?

22. Excludable? Rivaled Consp.?
Market structure?

23. On Slates
1. Write a building in your neighborhood you
wish didn’t exist.
2. Why does that building bother you?

24. Externalities
• Economic question: would you want to live
next to the airport? Why or Why not?
• Different question: Would you want to own a
business next to the airport?
Externality: any external effect due to economic activity

25. Positive Externalities
Brings customers to other businesses in Anaheim

26. Positive Externalities
Prevents the spread of future diseases

27. Positive Externalities
Brings customers to Food City,
Walgreens and El Potisino
Also educates future workers
Also a negative?

28. Negative Externalities

31. Negative Externalities

35. Negative Externalities
Brings traffic to Anaheim

36. Negative Externalities

37. Remember Public Goods?
• Any good which is non-rivaled consumption
AND non-excludable
• EXAMPLES?

38. Rosemont Copper Mine

39. 2-3 paragraph letter re: Rosemont Mine
• Write a letter to the Star either in support or
opposition to the Rosemont Copper mine in the
Santa Rita Mountains south of Tucson
• Use at least 2 economic externalities to support
your letter
Dear editor, last Sunday’s Star discussed the Rosemont Copper
mine, I would like to express my support/opposition to the mine.

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

43. 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

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

45. 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 dollars
would you would pay?

46. 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”?

47. 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

48. 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)

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

50. 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

51. 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
5. If Mr. Klein paid $10,375 in 2010,
what happens after he files?
6. Why is a BIG refund not such a
great idea?

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

53. With your partner
• 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
1. Sales tax
2. airport tax
3. Corporate tax
4. Alcohol tax
5. rental car tax
6. Income tax
7. property tax
8. Gasoline tax
9. Hotel room tax
What would be good about each tax, one change in behavior tax
payers/consumers/businesses would make.

54. 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%

55. 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?

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

57. 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

58. 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?

59. Regressive taxes
• Conclusion?

60. Regressive taxes

61. Regressive taxes

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

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

64. Tucson painter Ted DeGrazia

65. Estate tax
• Tax on inheritance
• Sometimes called
“death tax”
• In US today,
$5,000,000 and up
• 40% rate
• Is this a bad
incentive?

66. 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
• Next president?

68. 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.

69. In reality…
• US Federal Tax Rates: (only 3 % of Americans make over $250,000)

70. 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.

71. On Slates
1. How old will you be in
2070?
2. Do you think $13/hour
is a lot of money?

72. 10 richest people in the World
Forbes (2014)
1. Bill Gates $79 B
2. Carlos Slim Helú $69 B
3. Warren Buffett
4. Amancio Ortega
5. Larry Ellison
6. Charles Koch
7. David Koch
8. Christy Walton
9. Jim Walton
10. Liliane Bettencourt
1, 3, 5, 6, 7, 8, 9
2 10
4

76. 10 richest people in the USA
Forbes (2014)
1. Bill Gates $79 B Operating Systems
2. Warren Buffett $68 B Investments
3. Larry Ellison $54 B Cisco systems
4. Charles Koch $41 B oil production
5. David Koch $41 B oil production
6. Jeff Bezos $ 39 B Amazon.com
7. Michael Bloomberg $37 B computerized investments
8. Christy Walton $36 B Walmart family
9. Mark Zuckerberg $35 B Facebook
10. Jim Walton $35 B Walmart family
BusinessName

82. Credit Cards
• Loan from the
bank
• High interest
rates
• Keep control
• Bankruptcy
• Video clip
• http://www.nbc.com/saturday-night-
live/video/dont-buy-stuff/n12020
https://vimeo.com/50044167

84. 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

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

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

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

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

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

91. 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

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

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

94. 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!

95. 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!

96. 401 K Plan
• Set up by employer
• Payroll deduction
• Invested into stock
market
• Lowers tax incidence
• Tax break for
employee
• Employee match
• Not liquid

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

98. 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!!!

99. Rank in order by liquidity
• Traditional IRA
• Roth IRA
• 401 K
• Real Estate
• Stocks
• Mutual Funds
• Pension plan
• bonds

100. Rank in order by liquidity
• Traditional IRA
• Roth IRA
• 401 K
• Real Estate
• Stocks
• Mutual Funds
• Pension plan
• bonds

101. Cable company article for portfolio