Two-Minute Drill -- CPI and Inflation Rate

Summary: Calculate the inflation rate.

Assume that you are given data on the Consumer Price Index for four years. in 2006, 100; 2007, 110; 2008, 119.1; and 2009, 114.9. Calculate the inflation rate for 2007, 2008, and 2009.

My answers respectively are: 10%, 9.1%, and -4.2%.

Extra Credit. What is the real interest rate in 2009 if the nominal interest rate is 8%

Usually in AP Macroeconomics we exclude food and energy from the index since these items are volatile. I think a more accuate measure of prices would be to include all good for urban consumers since that would eliminate rural monopolies? I welcome your thoughts.

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About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, IA. He is also an EconEdLink.org author.

Oligopoly Lesson Plan for AP Microeconomics

Summary: Jason Welker's plan. Two-Minute Drill.

An interactive plan for teaching oligopoly behavior is here.

Did you know that "oligopoly" comes from a Greek root meaning "few"? Usually, an oligopoly market is taught with four firms sharing the market or few firms. When teachers teach game theory, these use a duopoly, or two firms.

After reviewing the plan linked above, I have two questions. 1. What is a prisoner's dilemma? Would the game between Starbucks and SF Coffee be a prisoner's dilemma if it looked like the payoff matrix shown in here?

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About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, Iowa.

Two-Minute Drill Real Interest Rates

Summary: Calculate the real interest rate. Interpret the results.

While reading the Wall Street Journal, you note that the interest rates on 1-year Treasuries are 8%. You expect inflation to be 2% over the next year. What is the real interest rate?

The real interest rate equals the nominal interest rate minus the expected rate of inflation. In my example, the real interest rate equals 6% (8% - 2%).

A real interest rate of 6% means that if I forgo $1 in spending today, I'll be able to consume $1.06 in the future. Remember to use the real interest rate, r, on the vertical axis when plotting the Loanable Funds Market.

Extra Credit: Can you show that 1+r = (1 + i) / (1 + e) is roughly equivalent to r = i - e? Assume that i is the nominal interest rate and e is the expected rate of inflation.

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About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, IA. He is currently working on a model to easily teach the Loanable Funds Market in AP Macroeconomics classes.

Two-Minute Drill -- Real Interest Rates

Summary: Real interest rates.

In January, 1981, the nominal interest rate on 1-year T-bills was 12.6%. The inflation rate in 1981 was 12%.

In January, 1999, the one-year T-bill rate was 4.5% and the inflation rate was 2%.

What was the real interest rate in each year? What year was the return in terms of a basket of goods the highest?

Answers: The real interest rate equals the nominal - expected rate of inflation. The real rate in 1981 was .6%. In 1999, 2.5%. In 1999, an investor would find that after adjusting for inflation, they could purchase a larger basket of goods than in 1981.

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About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, IA. He blogs at Mikeroeconomics.

Production Possibilities Review for AP Economics

Summary: A guide to aid review of PPF or PPC.

A guide with two-minute drill questions over production possibilities curve is here.

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About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, IA. He is an EconEdLink.org author blogging at Mikeroeconomics. In his book, Steven Levitt makes the case that microeconomists have a more interesting career than macroeconomists.

Two-Minute Drill--Taxes

Summary: Drill over taxes.

As a warm up, have your students answer the following questions on a tax to correct a negative externality. My answers are: $320; $6; $50; $90; $150; 1.769.

If the demand curve were steeper, then the effect on quantity demanded would have been less. Students also have problems determining who bears the burden of the tax. In this case the buyer and seller bear the burden equally. The consumer pays $3 more for the good and the producer keeps $3 less.

In AP Microeconomics, the tax is placed on the producer.





About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, IA. He is an EconEdLink.org author and blogs at Mikeroeconomics.

Two-Minute Drill Total Revenue and Cost Curves

Summary: Total revenue and total cost questions for review.

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All answers are "true".

Students often do not understand why marginal revenue equals marginal cost maximizes profit. This graph shows that the distance between total revenue and total cost is the greatest so profit is the greatest. At point Q1, the slopes of both the TR and TC curves are equal so MR = MC.

The TC curve intersects the Y-axis at a point higher than zero. The firm has both fixed and variable costs.

As more workers are hired, workers become specialized and fixed costs are spread out over a larger amount of output. As a result, the TC curve becomes flatter.


About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, IA.

Two-Minute Drill--Mono Comp

Summary: A worksheet to drill your students on long run mono-comp equilibrium.

The link is here.

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About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, IA. He is an EconEdLink.org author bloggin at Mikeroeconomics.

Two-Minute Drill--Natural Monopoly

Natural Monoply Worksheet -

A natural monopoly is characterized by a broad sweeping ATC curve that reflexs high fixed costs and relatively small variable costs. In this diagram, the monopoly would charge a higher price and produce less if it were unregulated. A socially optimal price would require a subsidy but would satisfy the greatest amounts of wants especially during peak times. Regulating the monopoly at its breakeven point, might lead to wasteful spending. Clearly, regulating the monopoly at the P = MC prince is socially optimal.

About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, IA. He is an EconEdLink.org author, and also publishes the Mikeroeconomics and iMacroeconomics VB blogs.

Two-Minute Drill--Pure Monopoly

Monopoly Worksheet -

What do your students do when you take attendance? Why not give them a review problem that reinforces content and also prepares them for the AP? This Two-Minute Drill is intended to be projected to a white board with the students able to self-check their work.

About the Author: Mike Fladlien is an AP Economics teacher from Muscatine High School in Muscatine, IA. He is an EconEdLink.org author, and blogs at Mikeroeconomics.