AP Microeconomics Final Project
Concept Commentary
Assignment: Your task in this assignment is to locate an article from a reputable, international
newspaper or magazine (e.g. The Guardian, The New York Times, The Wall Street Journal, The
Los Angeles Times, The Economist) from the last year that relates to concepts discussed in
microeconomics this year. You will write a 750-word essay that analyzes these concepts, and
prepare a 5- to 7-minute presentation to share your findings.
Due: All essays will be due on Wednesday, May 31. Presentations will take place on May 31,
June 2, and June 6.
Grading: This assignment will count toward your grades in knowledge and understanding,
transfer of learning, and communication of learning.
K&U
ToL
CoL
Commentary
Presentation
Average
Question: A part of your grade will come from your ability to ask at least one open-ended,
economics-based question of another presentation. Please note one question below that you posed:
Name of
Presenter
Question I Posed
Practice: Another part of your grade will come from showing evidence that you practiced your
presentation at least 3 times in class with a peer. Please note each time you practiced below.
Peer I
Practiced With
1
2
3
Date
Time
Major Feedback
Essay Rubric
4
Diagrams
3
Relevant, accurate
and correctly
labeled diagrams
are included, with a
full
explanation.
Terminology
2
Relevant, accurate
and correctly
labeled diagrams
are included, with a
limited
Explanation
Terminology
relevant to the
article is used
appropriately
throughout the
commentary.
1
Relevant diagrams
are included but not
explained, or the
explanations are
Incorrect
0
Does not meet
requirements of
a 1.
Terminology
relevant to the
article is included
in the commentary.
Does not meet
requirements of
a 1.
Knowledge & Understanding
7=5 marks
6=N/A
5=4 marks
4=3 marks
3=2 marks
2=1 mark
1=0 marks
Relevant economic Relevant economic Relevant economic
concepts and/or
concepts and/or
concepts and/or
theories (at least 3) theories (at least 2)
theories (at least 1)
are applied to the
are applied to the
are applied to the
article
article.
article.
appropriately
throughout the
commentary.
There is effective
There is appropriate There is limited
economic analysis
economic analysis
economic analysis
relating to the
relating to the
relating to the
article.
article.
article.
Marks earned: ________ (out of 5 possible)
Application
Analysis
Does not meet
requirements of
a 1.
Does not meet
requirements of
a 1.
Transfer of Learning
7=6 marks
6=5 marks
5=4 marks
4=3 marks
3=2 marks
2=1 mark
1=0 marks
Judgments are
Judgments are
Judgments are
made that are
made that are
made that are
supported by
supported by
unsupported, or
appropriate
limited reasoning.
supported, by
reasoning.
incorrect
reasoning.
Four rubric
Three rubric
requirements are
requirements are
met.
met.
Marks earned: ________ (out of 6 possible)
Evaluation
Judgments are
made that are
supported by
effective and
balanced
reasoning.
Requirements
Does not meet
requirements of
a 1.
Does not meet
requirements of
a 1.
Communication of Learning
Marks earned: ________ (out of 6 possible)
7=6 marks
4=4 marks
1=0,1 marks
6=N/A
3=3 marks
5=5 marks
2=2 marks
Requirements:
–– Essay is written in MLA format (A4 paper, 2.5 cm margins, Times New Roman size 12 font, double spaced, proper
headings with title, quotes included throughout essay, works cited page).
–– Each commentary does not exceed 750 words.
–– The article is taken from an appropriate, reputable source and was included in the essay.
–– The article was published no earlier than one year before the writing of the commentary.
Presentation Rubric:
4
Diagrams
3
Relevant, accurate
and correctly
labeled diagrams
are included, with a
full
explanation.
Terminology
2
Relevant, accurate
and correctly
labeled diagrams
are included, with a
limited
Explanation
Terminology
relevant to the
article is used
appropriately
throughout the
presentation.
1
Relevant diagrams
are included but not
explained, or the
explanations are
incorrect
0
Does not meet
requirements of
a 1.
Terminology
relevant to the
article is included
in the presentation.
Does not meet
requirements of
a 1.
Knowledge & Understanding
7=5 marks
6=N/A
5=4 marks
4=3 marks
3=2 marks
2=1 mark
1=0 marks
Relevant economic Relevant economic Relevant economic
concepts and/or
concepts and/or
concepts and/or
theories (at least 3) theories (at least 2)
theories (at least 1)
are applied to the
are applied to the
are applied to the
article
article.
article.
appropriately
throughout the
presentation.
There is effective
There is appropriate There is limited
economic analysis
economic analysis
economic analysis
relating to the
relating to the
relating to the
article.
article.
article.
Marks earned: ________ (out of 5 possible)
Application
Analysis
Does not meet
requirements of
a 1.
Does not meet
requirements of
a 1.
Transfer of Learning
7=6 marks
6=5 marks
5=4 marks
4=3 marks
3=2 marks
2=1 mark
1=0 marks
Judgments are
Judgments are
Judgments are
made that are
made that are
made that are
supported by
supported by
unsupported, or
appropriate
limited reasoning.
supported, by
reasoning.
incorrect
reasoning.
Six rubric
Five rubric
requirements are
requirements are
met.
met.
Marks earned: ________ (out of 6 possible)
Evaluation
Judgments are
made that are
supported by
effective and
balanced
reasoning.
Requirements
Does not meet
requirements of
a 1.
Does not meet
requirements of
a 1.
Communication of Learning
Marks earned: ________ (out of 6 possible)
7=6 marks
4=4 marks
1=0,1 marks
6=N/A
3=3 marks
5=5 marks
2=2 marks
Requirements:
–– The presentation uses slides that adhere to MLA format (proper title and headings, clear text, citations for all information
and images)
–– The presentation lasts at least 5 minutes, but not more than 7 minutes.
–– The presenter speaks 2 times slower and 3 times louder than normal conversation, and is able to be heard by all.
–– The presentation includes: an introduction, a summary of the article, and slides for each theory that is applied, and space
for questions (not included in your 5-7 minutes).
–– The presenter asks at least one open-ended, economics-based question of another presentation in the class.
–– There is evidence that the presentation was practiced at least 3 times in class with space for others to give feedback.
Holiday 1
Sean Holiday
Mr. Teacher
AP Microeconomics
3 June 2016
AP Microeconomics Presentation: Cell Phone Wars
Article
Wireless price war drives down costs for consumers, sales for carriers
By Paresh Dave
Verizon Wireless once promised customers an unrivaled network with clear calls and fast downloads in exchange for expensive cellphone service.
But no longer. With network improvements industrywide, a price war is breaking out.
Verizon Wireless and AT&T Inc. warned separately this week that their fourth-quarter profits probably would take a hit because they had to keep
up with discount pricing in an increasingly competitive market in the last year.
Shares of all four major U.S. carriers tumbled Tuesday, ranging from about 3% at AT&T to more than 8% at T-Mobile US Inc.
For the first time in recent years, industry analysts said, many customers have strong options. Verizon Wireless, the nation's largest carrier by
customers, is feeling the heat because of revamped networks at Sprint Corp. and AT&T Inc. and an expanding list of unlimited packages at TMobile, including one announced Tuesday.
The question now is, 'Is Verizon going to risk losing business or keep following the crowd?'— Jeff Kagan, a telecommunications industry analyst
Though customers are still coming through Verizon's doors at a good pace, they're paying less because of promotional offers such as a $150 credit
for every smartphone line switched to Verizon. It's a dynamic that "will put short-term pressure" on profit margins and earnings per share, Verizon
said.
"The question now is, 'Is Verizon going to risk losing business or keep following the crowd?'" said telecommunications industry analyst Jeff Kagan.
"We're watching the wireless industry transform itself because No. 1 right now is customers want to pay less for service."
The shift began about 20 months ago when T-Mobile began discarding two-year contracts, eliminating the subsidies of several hundred dollars for
new phones and offering customers the ability to pay for devices in monthly installments.
The aggressive tactics continued into this year. T-Mobile sharply reduced the price of international plans and allowed music streaming that would
not count against data usage.
On Tuesday, T-Mobile said it would reduce the price of a two-line plan with unlimited calling, texting and data to $100, from $140. Each additional
line costs $40, meaning a family of four would save 50% compared with a comparable Verizon plan, according to T-Mobile.
The company also restored a previously offered deal of $100 for four lines with 10 gigabytes of data a month and unlimited calling and texting.
T-Mobile's so-called uncarrier effort has pushed it close to overtaking Sprint as the nation's third-biggest cellular service provider. Even though TMobile's service might be spotty in some areas, boisterous Chief Executive John Legere has won the marketing and pricing games, analyst Kagan
said.
Both AT&T and Sprint have rolled out their own offers this year to keep pace.
AT&T Chief Financial Officer John Stephens warned Tuesday that AT&T would see an uptick in the percentage of customers leaving its network
this quarter. Between the customer losses and the promotions to new ones, margins will be down, he said.
Stephens also pointed to the latest iPhone as adding to the competition. In September, Apple Inc. launched the iPhone 6 on all four carriers for the
first time. Despite the pressures, he said, profit margins for the entire year will be comparable or better than last year.
"In all this noise, in all these promotional offers and all this stuff going on, we're having one of our best years for churn," Stephens said at a
conference hosted by research firm UBS.
Holiday 2
Customers are seeing through all the headlines and finding unacceptable details in the promotions, Stephens said. Having a broad and fast network
coverage will be the ultimate thing that wins over customers, he said.
Verizon social media workers are making similar pleas. They've jumped into Twitter conversations to hold on to frustrated customers who post
online about their desire to switch to deals with other carriers.
Sprint regional Vice President Kevin Kunkel said his company is counting on a combination of an improved network, especially in Southern
California, and good pricing to attract customers. Last weekend, Sprint began offering to cut service charges in half for customers switching from
AT&T and Verizon.
"We wanted to rumble with the big guys," Kunkel said. "It's the boldest statement we've made that Sprint is the best place to be in this supercompetitive marketplace."
The deal has drawn scorn from customers annoyed that they have to buy new phones from Sprint to take advantage of the offer. And T-Mobile's
Legere blasted Sprint for not making a similar deal available to existing customers.
"That makes my head spin, and it's exactly the kind of BS we're on a mission to end," Legere said.
Meanwhile, Sprint said it could offer 20 gigabytes, or double T-Mobile's new deal, for $100 on a four-line plan.
Analysts worried that the escalating price competition would hurt customers in the long run if it limits the investment that service providers can
inject into network upgrades. The providers said that shouldn't be an issue for now, though costs for new signal space are exceeding expectations.
Wall Street, though, pushed shares of AT&T down 99 cents, or 2.9%, to $32.89. Sprint tumbled 18 cents, or 3.8%, to $4.57. Verizon
Communications Inc., parent company of the mobile carrier, lost $1.98, or 4%, to $46.92. And T-Mobile sank $2.35, or 8.3% to $25.85.
At the end of June, Verizon Wireless controlled 34.4% of the U.S. wireless market, followed by AT&T with 32.6%, Sprint with 14.7% and TMobile with 14.2%, according to equity research firm Oppenheimer & Co.
The short-term outlook, though, looks great for smartphone users like Michael Galli.
The 39-year-old wanted to leave a Verizon plan that he shared with a stepbrother. Galli walked into a Sprint store in Glendale nine days ago and
came out with a Samsung Galaxy Note Edge that's costing him $35 a month for two years.
He said he could afford the fancy gadget because of the money he's saving on the service.
"For the same price, I'm getting unlimited data versus 2 gigabytes at Verizon," Galli said of his $45 unlimited-everything plan. "To me, that's a nobrainer."
He has had issues receiving texts and calls near his Lake Balboa home. Sprint told him he would have to accept slower service near home because
of a technical glitch.
"I still wouldn't switch back to Verizon," he said. "I like the honesty. I like the rate plan."
Source: Dave, Paresh. “Wireless price war drives down costs for consumers, sales for carriers.” Los Angeles Times, 9 Dec. 2014,
http://www.latimes.com/business/la-fi-cellphone-price-war-20141210-story.html. Accessed 5 May 2016.
Outline
I.
Overview of Article & Main Economic Theory Application
a. Summary of article
b. Link between number of firms and the concentration ratio
c. Link between price leadership and the “kinked” demand curve
d. Link between price, elasticity, and revenue
II.
Connection Between Number of Firms and Concentration Ratio
a. Expand upon quote: “Verizon Wireless, the nation's largest carrier by customers, is
feeling the heat because of revamped networks at Sprint Corp. and AT&T Inc. and
an expanding list of unlimited packages at T-Mobile, including one announced
Tuesday.”
b. Define concentration ratio
c. Research the market share of each firm and explain each firm’s share of the market
Holiday 3
d. Explanation of graph, explaining how each firm’s market share connects to its
concentration ratio
III.
Connection Between Price Leadership & the “Kinked “Demand Curve
a. Expand upon quote: ““The shift began about 20 months ago when T-Mobile began
discarding two-year contracts…and offering customers the ability to pay for
devices in monthly installments…Both AT&T and Sprint have rolled out their own
offers this year to keep pace.”
b. Make link between the concept of price leadership, and the kinked demand curve.
c. Graph: Kinked demand curve
d. Explanation of graph, emphasizing how when one firm raises prices, others do
nothing, so demand is elastic; when one firm lowers prices, others follow, so
demand becomes inelastic
IV.
Connection Between Price, Elasticity, and Revnue
a. Expand upon quote: “Though customers are still coming through Verizon's doors at
a good pace, they're paying less because of promotional offers such as a $150 credit
for every smartphone line switched to Verizon. It's a dynamic that "will put shortterm pressure" on profit margins and earnings per share, Verizon said.
The question now is, 'Is Verizon going to risk losing business or keep following the
crowd?'" said telecommunications industry analyst Jeff Kagan. "We're watching the
wireless industry transform itself because No. 1 right now is customers want to pay
less for service."
b. Make link between why lowering prices within a non-colluding oligopoly leads to
inelastic supply. When supply is inelastic and prices fall, so do revenues.
c. Graph: Kinked demand curve and marginal cost curve.
d. Explanation of graph, emphasizing how at any point of the inelastic demand curve,
MR is negative, meaning that revenues are falling as prices fall. As revenues fall,
profits might fall as well.
V.
Summary
a. Oligopolies can be very powerful—they generally have the ability to overcharge
and underproduce, resulting in long-run profits
b. Non-colluding oligopolies must watch the pricing of their competitors.
c. If everyone prices high, then demand remains elastic.
d. If one firm breaks away and prices low, the others must follow, making demand
inelastic, and resulting in lower revenue, and possibly lower profits. This seems to
be happening in the current price war among cell phone companies in the US.
Holiday 4
Analysis
In his Los Angeles Times’ article “Wireless price war drives down costs for consumers, sales
for carriers,” Paresh Dave analyzes how “price wars” within the US cell phone industry have driven
down prices and, simultaneously, revenues. This article highlights the connection between various
concepts related to oligopolies, including the concentration ratio, the “kinked” demand curve, price
elasticity, and the total revenue test.
Dave writes, “Verizon Wireless, the nation's largest carrier by customers, is feeling the heat
because of revamped networks at Sprint Corp. and AT&T Inc. and an expanding list of unlimited
packages at T-Mobile, including one announced Tuesday.” In this section, Dave highlights some of the
key players in the US cell phone market, including Verizon, Sprint Corp., AT&T, and T-Mobile.
When the market is shared by a small number of producers and sellers, in this case four, the market
can be defined as an oligopoly. The four-firm concentration ratio, which consists of the market share
(expressed as a percentage) of the four largest firms in an industry, is a commonly used concentration
ratio (“Concentration Ratio Definition”). The concentration ratio highlights the relative market share
of oligopolistic firms within the market. In this case, the 2014 concentration ratio of each firm is as
follows: Verizon, 34 percent; AT&T, 24 percent; T-Mobile, 15 perrcent; Sprint, 14 percent (“Market
share of wireless subscriptions held by carriers in the U.S. from 1st quarter 2011 to 4th quarter 2014”).
The article continues, “The shift began about 20 months ago when T-Mobile began discarding
two-year contracts…and offering customers the ability to pay for devices in monthly
installments…Both AT&T and Sprint have rolled out their own offers this year to keep pace.” Here,
the concept of price leadership is illustrated. Price leadership is defined as “when a firm that is the
leader in its sector determines the price of goods or services. Price leadership can leave the
Holiday 5
leader's rivals with little choice but to follow its lead and match these prices if they are to hold onto
their market share” (“Price Leadership Definition”). Here, T-Mobile acted first by “discarding twoyear contracts.” Without contracts, customers had more
flexibility, and thus lower costs. The other firms, here AT&T
and Sprint, has little choice but to follow and lower their prices
as well. This activity is represented in the “kinked” demand
curve of a non-colluding oligopoly. In the kinked demand
Fig. 1. The kinked demand curve has
clear elastic and inelastic ranges.
curve, seen in figure 1, has clearly defined elastic and inelastic
ranges. The kinked demand curve highlights the behavior of
an individual firm. If a firm raises its price (here from Pe to P1), other firms will not follow the
increase. Therefore, the firm will lose significant market share (here from Qe to Q1) and their demand
will be price elastic. However, if a firm lowers its prices (here from Pe to P2), other firms will follow,
and the firm will not gain much new market share as other firms are still competitive (here from Qe to
Q2). With little change in quantity despite the change in price, demand will be elastic.
Dave continues:
Though customers are still coming through Verizon's doors at a good pace, they're
paying less because of promotional offers such as a $150 credit for every smartphone
line switched to Verizon. It's a dynamic that “will put short-term pressure” on profit
margins and earnings per share, Verizon said.
The question now is, “Is Verizon going to risk losing business or keep
following the crowd?” said telecommunications industry analyst Jeff Kagan.
Holiday 6
“We're watching the wireless industry transform itself because No. 1 right now is
customers want to pay less for service.”
As mentioned before, when a firm within a non-colluding oligopoly lowers its price, other firms will
follow, meaning that firms will remain competitive. As a result, market share for the firm that lowered
its price will not change significantly, making demand price
inelastic. As shown in figure 2, when demand is elastic,
marginal revenue is positive. When demand is inelastic,
marginal revenue is negative. As a result, marginal revenue
becomes an extended, vertical line at the kink. When a firm is
Fig. 2. Marginal revenue is positive
when demand is elastic, and negative
when it is inelastic.
producing in the inelastic range, marginal revenue is negative,
and total revenue is falling. The “‘short-term pressure’ on
profit margins” that Verizon alludes could thus be caused by falling revenues. However, it can be
noted that marginal cost (supply) intersects demand within the inelastic range. Thus, the socially
optimal quantity—where supply equals demand and there is no deadweight loss caused by under- or
overproduction—is in a range where revenues will be falling. When Kagan says “right now is
customers want to pay less for service,” he might be alluding to the fact that the socially optimal
quantity is occurring at a place of falling prices, and thus falling revenues.
Oligopolies can be very powerful—they generally have the ability to overcharge and
underproduce, resulting in long-run profits. Non-colluding oligopolies must watch the pricing of their
competitors; if everyone prices high, then demand remains elastic and rising prices mean rising
revenues. However, if one firm breaks away and prices low, the others must follow, making demand
inelastic, and resulting in lower revenue, and possibly lower profits. This seems to be happening in the
current price war among cell phone companies in the US.
Holiday 7
Works Cited
“Concentration Ratio Definition.” Investopedia. Investopedia, LLC, n.d.
http://www.investopedia.com/terms/c/concentrationratio.asp. Accessed 5 May 2016.
“Market share of wireless subscriptions held by carriers in the U.S. from 1st quarter 2011 to 4th
quarter 2014.” statista.com. Statista, Inc. n.d.
https://www.statista.com/statistics/199359/market-share-of-wireless-carriers-in-the-us-bysubscriptions/Accessed 15 May 2015.
Dave, Paresh. “Wireless price war drives down costs for consumers, sales for carriers.” Los
Angeles Times, 9 Dec. 2014, http://www.latimes.com/business/la-fi-cellphone-price-war20141210-story.html. Accessed 5 May 2016.
“Price Leadership Definition.” Investopedia. Investopedia, LLC, n.d. http://
www.investopedia.com/terms/p/price-leadership.asp. Accessed 5 May 2016.