Econ Wizard User s Manual

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1 1 Econ Wizard User s Manual Kevin Binns Matt Friedrichsen Purpose: This program is intended to be used by students enrolled in introductory economics classes. The program is meant to help these students understand essential concepts to both macro and micro economics. The topics included in the program include: fixed cost and marginal cost tables and graphs situations in both perfect competition and monopolistic situations, the money multiplier and bank supplies, consumer and producer surplus with and without taxes, and an elasticity calculator for supply and demand. This program will accomplish these goals by allowing the user to choose which area to focus on, and, once a specific topic is chosen, requiring the user to input basic starting values and then producing tables and/or graphs according to the user input. The goal is help the user understand these basic economics principles by connecting the input values with visible connections to the outputted graphs and tables. Table of Contents: I. Introductory Screen II. Main Menu III. Concepts Pages a. Fixed Cost and Marginal Cost i. Input Screen ii. Sample Output Table and Graph for Perfect Competition iii. Sample Output Table and Graph for Monopolistic b. Money Multiplier and Bank Supplies i. Input Screen ii. Sample Output Table c. Consumer and Producer Surplus i. Input Screen ii. Sample Output for Without Taxes iii. Sample Output for With Taxes d. Supply/Demand and Elasticity i. Input Screen ii. Sample Output Screen

2 2 Main Menu The main menu consists of buttons to redirect the user to the four main concepts covered in the Economics Helper. The Exit button will also be at the bottom left hand corner of the screen, as before. The layout of the main menu is shown in Fig. 1 below. If you ever want to close only the screen you are on, click on one of the buttons on the previous screen twice. If you want to exit the program, close one of the windows that are open. Cost Curves Menu Elasticity Money Multiplier Supply/Demand Fig. 1 The button in the top left redirects the user to the Cost Curves input screen, the bottom directly below it to the Money Multiplier input screen, the button in the top right to the Supply/Demand input screen, and the button in the bottom right to the Elasticity input screen.

3 3 Concept Screens Cost Curves: One option is to investigate the ideal amount of production for a firm. From the main menu screen, click on Cost Curves. This will take you to the input screen which has mandatory inputs and some other options of how you want to calculate the numbers.. Input Screen: Fixed Cost Cost Curves Initial Marginal Cost Marginal Increase Click for Monopoly Profit Price at 0 Output Decrease in price per output Click for Perfect Profit Unit Price See Output Fig. 2 On this input screen, shown in fig. 2, you will first have to choose between a perfectly competitive market and a monopolistic firm if you want to calculate profit. There are different equations to calculate for each of these options because of the demand curve so it is important to choose the correct option that you want. To calculate profit, check the box under either Monopoly Profit or Perfect Profit. If you choose this option you will need to enter the price that the firm can sell the product at for Perfect, or the Price at 0 Output and the Price Decrease for Monopolistic. After you have completed these options, you now need to enter the mandatory inputs to calculate. First, enter the fixed cost in the box labeled Fixed Cost. Finally, under Initial Marginal Cost, enter the marginal cost of producing the first unit of output. In the next box, labeled Marginal Increase, enter how much the marginal cost increases for each extra unit of output. This input will make the curve exponential because the difference in marginal costs between two outputs will go up by this amount.

4 Price 4 Sample Output: Optimal Output Optimal Price Profit (Price-ATC)xOutput = Profit Quantity Output AFC AVC ATC MC Fig. 3 On the output screen, shown in fig. 3, you will see a side with a graph and a side with numerical output vales. The graph shows the number of outputs as the independent variable and price in dollars as the dependent variable. The graph shows labeled curves of the Average Total Cost (ATC), Averaged Fixed Cost (AFC), Average Variable Cost (AVC), and Marginal Cost (MC). If you chose to calculate profit or loss, there will be a curve representing Demand (D) and Marginal Revenue (MR) for a perfectly competitive market or separate curves for the two if it is a monopolistic firm. On the left, there is multiple values of numerical output for profit. If you chose to calculate the profit margin, there is also a value that represents the profit. Below these values, there is a chart showing the AFC, AVC, ATC, and MC for each whole number output between 1 and 10.

5 5 Money Multiplier/Bank Supply: The Money Multiplier/Bank Supply section of the program is comprised of two screens, the input screen and the table and explanation in the output screen. The input screen comes up first in the program. Input Screen: An example of the input screen in shown below in Fig. 4 Money Multiplier/Bank Supply Input Initial Investment $ Required Reserve % See Output Fig. 4 The three boxes with blanks lines are intended for user input. The box on the far left is the Initial Investment input and requires an integer dollar amount as input. The box to the right of that is the Required Reserve % and requires percentage in decimal notation, any decimal between 0 and 1. The button labeled See Output brings up another window, which contains a table based off of the information given in the input boxes. For the See Output button to function, the user must have entered acceptable values into all three of the input boxes. The layout of the Output window is discussed in the next section.

6 6 Sample Output: The sample output table is shown in fig. 5 below. Individual Bank # Amount Deposited Amount Loaned Reserves Total Deposits: Total Loaned: Total Reserves: Change in Money Supply: 500 Money Multiplier: 5 Fig. 5 The above figure is an example output table based of the inputs 100,.2, and 9 for Initial Investment, and Required Reserve %. The Total Deposit box is a sum of all of the values in the Amount Deposited column, the Total Loaned box a sum of the Amount Loaned column, and the Total Reserves box a sum of the Reserves column. The Money Multiplier value given is calculated based off of the input given in the Required Reserve % box also seen in Fig 5. The Change in Money Supply is displayed in the bottom right corner of the screen.

7 7 Consumer/Producer Surplus and Taxes: To choose this option click on the button that says Surplus and Taxes. This will take you to the input screen. Input Screen: Consumer/Producer Surplus and Taxes Calculate Tax Tax Rate Supply Curve Demand Curve Point 1 Point 2 Point 1 Point 2 Q Q P P Taxes Tax Rate (In Dollars) See Output Fig. 6 On the input screen, shown in fig. 6, first you must choose if you want to calculate the effect on market equilibrium from taxes. To do this, check the box next to where is says Taxes. If you do this, you will need to enter the tax rate under where it says Tax Rate. This should be the dollar amount that is added to each unit sold. Then you must enter the coordinates of the Demand and Supply curves. For each of these, enter two (X,Y) coordinates that will represent the two curves. After entering all the inputs, click See Output to proceed to the output screen.

8 Price Price 8 Sample Output Without Taxes: Consumer/Producer Surplus Equilibrium Quantity _ Equilibrium Price Consumer Surplus Producer Surplus Quantity Sample Output With Taxes: Fig. 7 Final Equilibrium Quantity Final Equilibrium Price Consumer Surplus Producer Surplus Dead Weight Loss

9 9 Quantity On the left of the output screen, shown in fig. 7, you will see a graph. This graph shows the Demand and Supply curves and the point of equilibrium. The triangle representing the Consumer Surplus is shaded in a labeled. Fig. The 8 triangle representing Producer Surplus is also shaded in a labeled below it. If you chose to calculate tax, shown in fig. 8, you will also see the new demand or supply curve, called D or S depending on how the tax is implemented. There will also be a third shaded area for Dead Weight Loss. On the right side of the screen, you will see numbers representing the area of Consumer Surplus, Producer Surplus, and Dead Weight Loss if it was calculated. You will also see the point of equilibrium and new point of equilibrium if it was calculated. Supply/Demand and Elasticity: The Supply/Demand and Elasticity section is comprised of two screens, the input screen and the results and explanation screen. The input screen comes up first in the program. Input Screen: The input screen can be seen below in Fig. 9 below. Supply/Demand and Elasticity Input Price Elasticity of Supply Price Elasticity of Demand Point 1 Point 2 Point 1 Point 2 Q Q P P In Fig. 10, Q represents the quantity of a certain product and P represents the price of a product Fig. 9 See Output The layout of the Supply/Demand and Elasticity input screen is such that it requires the user to input integer values for the Q inputs for both Supply Elasticity and Demand Elasticity, and dollar amounts for the P inputs for both Supply Elasticity and Demand Elasticity. All inputs must be entered before being able to proceed to the output window via the See Output button.

10 10 Sample Output Screen: A sample output screen can be seen in Fig. 10 below. Elasticity Output Price Elasticity of Supply Price Elasticity of Demand = = Fig. 10 The calculated results for the Price Elasticity of Supply and the Price Elasticity of Demand will be displayed in the small boxes next to the equal signs. An explanation of the outputted values will be given in the boxes directly to the left of the result boxes. The user can choose to exit the Elasticity Output window by clicking on the Close button. As before, the input window will still be available when the output window is up and the values in the input window can be changed without and a new output window created without destroying the older output window. There is also a graph showing the supply and demand curves for the inputs.