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Discussion 1

To prevent gasoline prices from having devastating effects on the economy it has been proposed that all gasoline prices in the United States be fixed at the average price for the last two years. For simplicity it will be assumed that this price is $2.50 per gallon. When equilibrium prices are under $2.50 per gallon the excess payments will be kept in a government fund. When retail prices exceed $2.50 per gallon money from this fund will be distributed to pay the difference. Do you think that this plan would help the economy? What affect would the plan have on the supply and demand curves? Would gas stations and oil companies be able to stay in business?

Guided Response: Respond to at least two of your fellow students’ postings.

Discussion 2

Review the economic statements for this lemonade stand (see page 1 of the Season Three Sample PDF). What do these statements tell you about the operation? Focus on Economic Profits, including Implicit Revenue and Expenses. Explain and support your answer.

Sample Reports for Season Three

Balance Sheet Season 1 Season 2 Season 3

Assets

Cash $ 185.90 $ 425.65 $ 679.40

Inventories $ 10.05 $ 14.85 $ 1.59

Equipment $ 9.00 $ 14.75 $ 14.75

Total Assets $ 204.95 $ 455.25 $ 695.74

Liabilities

Account Payables $ 39.00 $ 58.00 $ 21.25

Total Liabilities $ 39.00 $ 58.00 $ 21.25

Equity

Owner Capital $ 40.00 $ 40.00 $ 40.00

Retain Earnings $ 125.95 $ 357.25 $ 634.49

Total Equity $ 165.95 $ 397.25 $ 674.49

Total Equity & Liabilities $ 204.95 $ 455.25 $ 695.74

Accounting Income Statement

Revenue $ 185.90 $ 328.00 $ 404.00

Expenses $ 59.95 $ 96.70 $ 126.76

Earnings $ 125.95 $ 231.30 $ 277.24

Financial Report

ROE 75.9% 58.2% 41.1%

ROA 61.5% 50.8% 39.8%

Profit Margin 67.8% 70.5% 68.6%

Inventory Turnover 5.97 6.51 79.72

Asset Turnover 0.907 0.720 0.581

Current Ratio 5.02 7.59 32.05

Cash Ratio 4.77 7.34 31.97

Debt-Equity Ratio 0.235 0.146 0.032

Economic Profit Report

Explicit Revenue $ 185.90 $ 328.00 $ 404.00

Implicit Revenue $ 75.00 $ 50.00 $ 50.00

Total Revenues $ 260.90 $ 378.00 $ 454.00

Explicit Expenses $ 59.95 $ 96.70 $ 126.76

Implicit Expenses $ 156.00 $ 177.13 $ 210.25

Total Costs $ 215.95 $ 273.83 $ 337.01

Economic Profits $ 44.95 $ 104.18 $ 116.99

Page 2

Notes for Economic Profit Report

Implicit Revenue includes $50 for the value of being one own boss for each season plus

$25 for season one for learning about running a business. (In your report these need to

be justified.)

Implicit epenses are the number of hours worked times $6 for season one, $6.50 for

season two, and $7.25 for season three. (In your report these need to be justified.)

Explicit Revenue is the same as Revenues from the “Accounting” Income Statement.

Explicit Expenses is the same as Expenses from the “Accounting” Income Statement.

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