ECO 202 SUSC Alternative Entertainment Methods Essay

Description

The availability of alternative entertainment methods has resulted in a large decrease in theme-park visitors. To help the theme-park operators, the government is contemplating imposing a price floor for theme-park tickets or provide a subsidy to theme park visitors. Appraise the welfare effects of these two policies with suitable theme-mark market diagrams. Your diagrams should take into consideration of the price elasticity of demand and supply of theme-park in general

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Course Development Team
Head of Programme
: Assoc Prof Huong Ha
Head, Business and
: Assoc Prof Chang Young Ho
Management Minors
Course Developer(s)
: Assoc Prof Chang Young Ho
: Dr Tan Khay Boon
Technical Writer
: Lynn Lim, ETP
Video Production
: Danny Chin, ETP
©
2022 Singapore University of Social Sciences. All rights reserved.
No part of this material may be reproduced in any form or by any means without
permission in writing from the Educational Technology & Production, Singapore
University of Social Sciences.
ISBN 978-981-5008-10-4
Educational Technology & Production
Singapore University of Social Sciences
463 Clementi Road
Singapore 599494
How to cite this Study Guide (APA):
Chang, Y. H., & Tan, K. B. (2022). ECO202 Economic ideas and models for business (study
guide). Singapore University of Social Sciences.
Release V1.1.0
Build S1.0.5, T1.5.21
Table of Contents
Table of Contents
Course Guide
1. Welcome…………………………………………………………………………………………………… CG-2
2. Course Description and Aims…………………………………………………………………. CG-3
3. Learning Outcomes…………………………………………………………………………………. CG-5
4. Learning Material……………………………………………………………………………………. CG-6
5. Assessment Overview……………………………………………………………………………… CG-7
6. Course Schedule…………………………………………………………………………………….. CG-11
7. Learning Mode………………………………………………………………………………………. CG-12
Study Unit 1: Market and Elasticity Analysis
Learning Outcomes……………………………………………………………………………………. SU1-2
Overview……………………………………………………………………………………………………. SU1-3
Chapter 1: Demand and Supply…………………………………………………………………. SU1-4
Chapter 2: Elasticity and Equilibrium………………………………………………………. SU1-23
Summary………………………………………………………………………………………………….. SU1-47
Formative Assessment……………………………………………………………………………… SU1-48
References………………………………………………………………………………………………… SU1-62
Study Unit 2: Market Efficiency, Cost and Production
Learning Outcomes……………………………………………………………………………………. SU2-2
Overview……………………………………………………………………………………………………. SU2-3
i
Table of Contents
Chapter 1: Market and Efficiency……………………………………………………………….. SU2-4
Chapter 2: Cost and Production……………………………………………………………….. SU2-21
Summary………………………………………………………………………………………………….. SU2-40
Formative Assessment……………………………………………………………………………… SU2-42
References………………………………………………………………………………………………… SU2-58
Study Unit 3: Perfect Competition and Monopoly
Learning Outcomes……………………………………………………………………………………. SU3-2
Overview……………………………………………………………………………………………………. SU3-3
Chapter 1: Competitive Markets………………………………………………………………… SU3-4
Chapter 2: Monopoly Market…………………………………………………………………… SU3-24
Summary………………………………………………………………………………………………….. SU3-41
Formative Assessment……………………………………………………………………………… SU3-42
References………………………………………………………………………………………………… SU3-55
Study Unit 4: Simultaneous Game, Sequential Game and Business
Strategies
Learning Outcomes……………………………………………………………………………………. SU4-2
Overview……………………………………………………………………………………………………. SU4-3
Chapter 1: Simultaneous Game and Business Strategies…………………………….. SU4-4
Chapter 2: Sequential Game and Business Strategies……………………………….. SU4-18
Summary………………………………………………………………………………………………….. SU4-30
Formative Assessment……………………………………………………………………………… SU4-31
References………………………………………………………………………………………………… SU4-51
ii
Table of Contents
Study Unit 5: Information, Externality and Public Goods
Learning Outcomes……………………………………………………………………………………. SU5-2
Overview……………………………………………………………………………………………………. SU5-3
Chapter 1: Information and Externality……………………………………………………… SU5-4
Chapter 2: Public Goods and Social Welfare…………………………………………….. SU5-28
Summary………………………………………………………………………………………………….. SU5-36
Formative Assessment……………………………………………………………………………… SU5-37
References………………………………………………………………………………………………… SU5-51
Study Unit 6: Nation’s Income, Inflation and Economic Growth
Learning Outcomes……………………………………………………………………………………. SU6-2
Overview……………………………………………………………………………………………………. SU6-3
Chapter 1: Nation’s Income and Inflation………………………………………………….. SU6-4
Chapter 2: Inflation and Economic Growth……………………………………………… SU6-29
Summary………………………………………………………………………………………………….. SU6-35
Formative Assessment……………………………………………………………………………… SU6-36
References………………………………………………………………………………………………… SU6-49
iii
Table of Contents
iv
List of Tables
List of Tables
Table 1.1 Demand Schedule for Bread……………………………………………………………. SU1-5
Table 1.2 Supply Schedule of Bread……………………………………………………………… SU1-14
Table 1.3 Information for a Product X………………………………………………………….. SU1-46
Table 2.1 Total Product and Marginal Product……………………………………………… SU2-26
Table 2.2 Fixed Cost, Variable Cost and Total Cost……………………………………….. SU2-30
Table 2.3 Average Fixed Cost, Average Variable Cost, Average Total Cost and
Marginal Cost……………………………………………………………………………………………….. SU2-31
Table 2.4 Quantity of Labour and Output…………………………………………………….. SU2-39
Table 2.5 Quantity of Labour and Marginal Product…………………………………….. SU2-50
Table 2.6 Quantity of Labour, Revenue, Cost and Profit……………………………….. SU2-50
Table 2.7 Labour and Total Soccer Ball Output…………………………………………….. SU2-43
Table 3.1 Optimal Output for Perfectly Competitive Firm……………………………… SU3-9
Table 3.2 Single Pricing Monopolist Price and Marginal Revenue………………… SU3-28
Table 3.3 Optimal Output for Single Pricing Monopolist……………………………… SU3-31
Table 4.1 Payoff Matrix…………………………………………………………………………………. SU4-5
Table 4.2 Payoff Matrix for Prisoner’s Dilemma…………………………………………….. SU4-9
Table 4.3 Payoff Matrix for CLM and KDD………………………………………………….. SU4-12
Table 4.4 Payoff Matrix for Uber and Grab…………………………………………………… SU4-13
Table 4.5 Payoff Matrix for Toyo and Honto………………………………………………… SU4-14
v
List of Tables
Table 4.6 Payoff Matrix for Eagle Airway and Phoenix Airline…………………….. SU4-35
Table 4.7 Payoff Matrix for Firm A and Firm B…………………………………………….. SU4-37
Table 4.8 Payoff Matrix for Firm A with Investment and Firm B………………….. SU4-38
Table 4.9 Payoff Matrix for Toyo and Honto………………………………………………… SU4-19
Table 4.10 Payoff Matrix for Uber and Grab………………………………………………… SU4-22
Table 4.11 Payoff Matrix for CLM and KDD……………………………………………….. SU4-25
Table 4.12 Payoff Matrix for Firm A and Firm M…………………………………………. SU4-29
Table 4.13 Payoff Matrix for Firm A and Firm B…………………………………………… SU4-32
Table 5.1 Searching Internet for Resale Cars…………………………………………………. SU5-26
Table 5.2 Classification of Product………………………………………………………………… SU5-29
Table 6.1 Calculation of GDP using Output Method………………………………………. SU6-8
Table 6.2 Nominal GDP and Real GDP………………………………………………………… SU6-13
Table 6.3 Representative Household Consumption Basket of Goods and
Services…………………………………………………………………………………………………………. SU6-16
Table 6.4 Calculate Inflation Rate from CPI………………………………………………….. SU6-18
Table 6.5 Substitution Bias in CPI…………………………………………………………………. SU6-20
Table 6.6 Calculation of GDP……………………………………………………………………….. SU6-27
vi
List of Figures
List of Figures
Figure 1.1 Demand Curve………………………………………………………………………………. SU1-6
Figure 1.2 Individual and Market Demand Curve………………………………………….. SU1-7
Figure 1.3 Effect of Income Increases for Normal Good………………………………….. SU1-9
Figure 1.4 Effect of Income Increases for Inferior Good………………………………… SU1-10
Figure 1.5 Change in Quantity Demanded and Change in Demand……………… SU1-13
Figure 1.6 Supply Curve……………………………………………………………………………….. SU1-15
Figure 1.7 Individual and Market Supply Curve………………………………………….. SU1-16
Figure 1.8 Decrease in Supply………………………………………………………………………. SU1-18
Figure 1.9 Increase in Supply……………………………………………………………………….. SU1-19
Figure 1.10 Change in Supply versus Change in Quantity Supplied…………….. SU1-21
Figure 1.11 Decrease in Demand…………………………………………………………………… SU1-51
Figure 1.12 Increase in Demand……………………………………………………………………. SU1-52
Figure 1.13 Increase in Supply……………………………………………………………………… SU1-53
Figure 1.14 Decrease in Supply…………………………………………………………………….. SU1-53
Figure 1.15 Market Equilibrium……………………………………………………………………. SU1-24
Figure 1.16 Surplus in the Market………………………………………………………………… SU1-25
Figure 1.17 Shortage in the Market………………………………………………………………. SU1-26
Figure 1.18 Decrease in Demand…………………………………………………………………… SU1-27
vii
List of Figures
Figure 1.19 Increase in Supply……………………………………………………………………… SU1-28
Figure 1.20 Elastic Demand Curve……………………………………………………………….. SU1-32
Figure 1.21 Inelastic Demand Curve…………………………………………………………….. SU1-32
Figure 1.22 Unit Elastic Demand Curve……………………………………………………….. SU1-33
Figure 1.23 Perfectly Inelastic Demand Curve………………………………………………. SU1-34
Figure 1.24 Perfectly Elastic Demand Curve…………………………………………………. SU1-35
Figure 1.25 Elastic Demand Curve and Revenue………………………………………….. SU1-36
Figure 1.26 Inelastic Demand Curve and Revenue……………………………………….. SU1-36
Figure 1.27 Elasticity and Linear Demand Curve…………………………………………. SU1-37
Figure 1.28 Inelastic Supply Curve……………………………………………………………….. SU1-42
Figure 1.29 Elastic Supply Curve………………………………………………………………….. SU1-42
Figure 1.30 Unit Elastic Supply Curve………………………………………………………….. SU1-43
Figure 1.31 Perfectly Inelastic Supply Curve………………………………………………… SU1-43
Figure 1.32 Perfectly Elastic Supply Curve…………………………………………………… SU1-44
Figure 2.1 Consumer Surplus…………………………………………………………………………. SU2-6
Figure 2.2 Producer Surplus…………………………………………………………………………… SU2-7
Figure 2.3 Market Efficiency…………………………………………………………………………… SU2-8
Figure 2.4 Welfare Effect of Under-Production……………………………………………… SU2-10
Figure 2.5 Welfare Effect of Over-Production……………………………………………….. SU2-11
Figure 2.6 Effects of Price Ceiling…………………………………………………………………. SU2-13
Figure 2.7 Effects of Price Floor……………………………………………………………………. SU2-14
viii
List of Figures
Figure 2.8 Effects of Tax on Consumers………………………………………………………… SU2-16
Figure 2.9 Effects of Tax on Producers………………………………………………………….. SU2-17
Figure 2.10 Consumer Surplus and Producer Surplus………………………………….. SU2-46
Figure 2.11 Effect of Tax on Sellers……………………………………………………………….. SU2-47
Figure 2.12 Short Run Production Function………………………………………………….. SU2-27
Figure 2.13 Short Run Cost Curves………………………………………………………………. SU2-33
Figure 2.14 Long Run Average Total Cost Curves………………………………………… SU2-35
Figure 2.15 Average Total Cost Curves in Short Run and Long Run……………… SU2-37
Figure 3.1 Perfect Competition Market and Firm…………………………………………… SU3-7
Figure 3.2 Short Run Optimal Output……………………………………………………………. SU3-9
Figure 3.3 Profit Making Firm………………………………………………………………………. SU3-11
Figure 3.4 Firm Earning Normal Profit…………………………………………………………. SU3-12
Figure 3.5 Loss Making Firm………………………………………………………………………… SU3-13
Figure 3.6 Supply Curve of Perfectly Competitive Firm……………………………….. SU3-16
Figure 3.7 Long Run Adjustment of Profit Making Firm………………………………. SU3-18
Figure 3.8 Short Run Optimal Output………………………………………………………….. SU3-19
Figure 3.9 Effect of Demand Changes…………………………………………………………… SU3-20
Figure 3.10 Effects of Demand Increases………………………………………………………. SU3-21
Figure 3.11 Perfectly Competitive Market and Firm for Q-Shirt……………………. SU3-45
Figure 3.12 A Perfectly Competitive Firm Diagram……………………………………… SU3-23
Figure 3.13 Natural Monopoly……………………………………………………………………… SU3-26
ix
List of Figures
Figure 3.14 Demand Curve and Marginal Revenue Curve……………………………. SU3-29
Figure 3.15 Profit Making Monopolist………………………………………………………….. SU3-30
Figure 3.16 Long Run Equilibrium of a Perfectly Competitive Firm……………… SU3-32
Figure 3.17 Profit Making Monopolist in Long Run Equilibrium………………….. SU3-33
Figure 3.18 Welfare under Perfect Competition and Monopoly…………………….. SU3-35
Figure 3.19 Monopolist Profit u nder Single Pricing and Perfect Price
Discrimination………………………………………………………………………………………………. SU3-38
Figure 3.20 Monopolist Profit under Single Pricing………………………………………. SU3-40
Figure 4.1 Decision Tree Diagram (Toyo as First Mover )……………………………… SU4-20
Figure 4.2 Decision Tree Diagram (Honto as First Mover )……………………………. SU4-21
Figure 4.3 Decision Tree Diagram (Uber as First Mover)………………………………. SU4-23
Figure 4.4 Decision Tree Diagram (Grab as First Mover)………………………………. SU4-24
Figure 4.5 Decision Tree Diagram (CLM as First Mover)………………………………. SU4-26
Figure 4.6 Decision Tree Diagram (KDD as First Mover)………………………………. SU4-27
Figure 4.7 Decision Tree Diagram (H as First Mover)…………………………………… SU4-40
Figure 4.8 Decision Tree Diagram (T as First Mover)……………………………………. SU4-41
Figure 4.9 Decision Tree Diagram (A as First Mover)…………………………………… SU4-42
Figure 4.10 Decision Tree Diagram (Firm A as First Mover)…………………………. SU4-33
Figure 5.1 Marginal Benefit and Marginal Cost of Information………………………. SU5-6
Figure 5.2 Marginal Private Benefit and Cost Curves…………………………………… SU5-12
Figure 5.3 Marginal Social Benefit and Cost Curves……………………………………… SU5-13
x
List of Figures
Figure 5.4 Negative Externality…………………………………………………………………….. SU5-16
Figure 5.5 Positive Externality………………………………………………………………………. SU5-19
Figure 5.6 Tax to Rectify Negative Externality……………………………………………… SU5-22
Figure 5.7 Subsidy to Rectify Positive Externality………………………………………… SU5-23
Figure 5.8 Command and Control Policy to Rectify Positive Externality………. SU5-24
Figure 5.9 Negative Externality…………………………………………………………………….. SU5-42
Figure 5.10 Individual and Market Demand Curve for Private Good…………… SU5-31
Figure 5.11 Individual and Total Demand Curve for Public Good………………… SU5-32
Figure 5.12 Total Demand Curve for Public Good………………………………………… SU5-44
Figure 6.1 Circular Flow Diagram………………………………………………………………….. SU6-5
xi
List of Figures
xii
List of Lesson Recordings
List of Lesson Recordings
Demand and Supply…………………………………………………………………………………….. SU1-21
Elasticity and Equilibrium…………………………………………………………………………….. SU1-45
Market and Efficiency…………………………………………………………………………………… SU2-18
Cost and Production……………………………………………………………………………………… SU2-37
Competitive Market………………………………………………………………………………………. SU3-21
Monopoly Market…………………………………………………………………………………………. SU3-38
Simultaneous Game and Business Strategies………………………………………………… SU4-15
Sequential Game and Business Strategies……………………………………………………… SU4-27
Information and Externality………………………………………………………………………….. SU5-25
Public Good and Social Welfare……………………………………………………………………. SU5-34
Nation’s Income and Inflation………………………………………………………………………. SU6-26
Economic Growth………………………………………………………………………………………… SU6-33
xiii
List of Lesson Recordings
xiv
Course
Guide
Economic Ideas and Models for
Business
ECO202
Course Guide
1. Welcome
Presenter: Dr Tan Khay Boon
This streaming video requires Internet connection. Access it via Wi-Fi to
avoid incurring data charges on your personal mobile plan.
Click here to watch the video. i
Click here for the transcript.
Welcome to the course ECO202 Economic Ideas and Models for Business, a 5 credit unit
(CU) course.
This Study Guide will be your personal learning resource to take you through the course
learning journey. The guide is divided into two main sections – the Course Guide and
Study Units.
The Course Guide describes the structure for the entire course and provides you with an
overview of the Study Units. It serves as a roadmap of the different learning components
within the course. This Course Guide contains important information regarding the
course learning outcomes, learning materials and resources, assessment breakdown and
additional course information.
i


CG-2
ECO202
Course Guide
2. Course Description and Aims
This course provides students with fundamental knowledge from economic methods
that are applied to business. It is the science of decision making for allocating scarce
resources in the management of a business or other organisation. This course is designed
in two parts. The first part of the course covers the principles of microeconomics focusing
on consumers’ and producers’ decision making for welfare and profit maximisation,
respectively while the second part covers a few key principles of macroeconomics. The
course covers the framework of demand and supply, market and efficiency, cost and
production decision in an economy, game theories applied to business, information and
externality, and a nation’s income and economic growth in the long run.
Course Structure
This course is a 5-credit unit course presented over six weeks.
There are six Study Units in this course. The following provides an overview of each Study
Unit.
Study Unit 1 – Market and Elasticity Analysis
This unit helps you understand the basic building blocks of economics, including demand,
supply, market equilibrium and the concept of elasticity.
Study Unit 2 – Market Efficiency, Cost and Production
This first part of this unit focuses on the concepts of market efficiency, explores why market
outcome is efficient and analyses how an unregulated market can generate the largest
total surplus. The second part of this unit explores the production and cost concepts and
analyses the behavior of firms in the short run and long run equilibrium.
CG-3
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Course Guide
Study Unit 3 – Perfect Competition and Monopoly
The aim of this unit is to introduce two market structures, perfect competition and
monopoly, and analyse how firm(s) behave under these market structures to fulfill their
objectives of profit maximization and the efficiency of these two market structures.
Study Unit 4 – Simultaneous Game, Sequential Game and Business
Strategies
This unit covers the concepts of game theory and the methods to solve game theoretic
questions, focusing on using Nash equilibrium to solve for simultaneous games and a roll
back method with decision tree diagrams to solve sequential games.
Study Unit 5 – Information, Externality and Public Goods
This unit describes issues of business decisions in imperfect markets. It discusses
various types of market failures, including externalities, public goods and asymmetric
information. It also focuses on the solutions to these market failures and in particular the
role of government interventions in imperfect market.
Study Unit 6 – Nation’s Income, Inflation and Economic Growth
This unit introduces the concepts of the Gross Domestic Product to measure nation’s
income, focusing on the components of the Gross Domestic Product, the methods to
measure it and its limitations in measuring well-bring. It also brings in the concepts of
inflation and economic growth, in particular the use of the Consumer Price Index to
measure inflation and the determinants of labour productivity in promoting economic
growth.
CG-4
ECO202
Course Guide
3. Learning Outcomes
Knowledge & Understanding (Theory Component)
By the end of this course, you will be able to:
• Explain the fundamental framework of economic analysis and workings of market
equilibrium.
• Appraise market efficiencies and production decisions with cost constraints.
• Examine various market regimes and behavior of market participants.
• Apply game theoretic considerations into developing business strategies.
• Analyse how deviations from standard economic methods affect behavior of
market participants.
• Measure a nation’s income and inflation and interpret economic growth.
• Discuss contemporary topics.
Key Skills (Practical Component)
By the end of this course, you will be able to:
• Employ fundamental economic methods to determine business behavior.
• Demonstrate how a nation’s economy influences an individual business.
CG-5
ECO202
Course Guide
4. Learning Material
To complete the course, you will need the following learning material(s):
Required Textbook(s)
Mankiw, N. G., Quah, E., & Wilson, P. (2021). Principles of economics: An Asian edition (3rd
ed.). Cengage Asia.
Png, I. (2016). Managerial economics (5th ed.). Routledge.
If you are enrolled into this course, you will be able to access the eTextbooks here:
To launch eTextbook, you need a VitalSource account which can be created via
Canvas (iBookStore), using your SUSS email address. Access to adopted eTextbook is
restricted by enrolment to this course.
Other recommended study materials (Optional)
Frank, R. H., Bernanke, B., Antonovics, K. L., & Heffetz, O. (2019). Principles of economics
(7th ed.). McGraw Hill.
CG-6
ECO202
Course Guide
5. Assessment Overview
The overall assessment weighting for the evening classes for this course is as follows:
Assessment
Description
Weight Allocation
Pre-Course Quiz 1
2%
Pre-Class Quiz 1
2%
Pre-Class Quiz 2
2%
Assignment 2
Tutor-Marked Assignment
18%
Assignment 3
Group-Based Assignment
20%
Participation
Participation
6%
Examination
Written Examination
50%
Assignment 1
TOTAL
100%
The overall assessment weighting for the daytime classes for this course is as follows:
Assessment
Assignment 1
Assignment 2
Description
Weight Allocation
Pre-Course Quiz 01
2%
Pre-Course Quiz 02
2%
Pre-Course Quiz 03
2%
Tutor-Marked Assignment
18%
CG-7
ECO202
Course Guide
Assessment
Description
Weight Allocation
Assignment 3
Group-Based Assignment
20%
Participation
Participation
6%
Examination
Written Examination
50%
TOTAL
100%
The overall assessment weighting for the full online classes for this course is as follows:
Assessment
Assignments
Examination
Description
Weight Allocation
Pre-Course Quiz
2%
Pre-Class Quiz 1
2%
Pre-Class Quiz 2
2%
Discussion
10%
Participation
6%
Tutor-Marked Assignment
18%
Group-Based Assignment
10%
Written Examination
50%
TOTAL
100%
CG-8
ECO202
Course Guide
The following section provides important information regarding Assessments.
Continuous Assessment:
There will be continuous assessment which takes up 50 percent of the overall assessment
for this course. The assignments will test your understanding of both the fundamental
and more advanced concepts and applications that underlie economics. It is imperative
that you read through your Assignment questions and submission instructions before
embarking on your Assignment.
Examination:
The final (2-hour) written exam constitutes the other 50 percent of overall student
assessment and will test your ability to apply economics-related concepts, theories, and
strategies to particular situations commonly faced by business decision makers. All topics
covered in the course outline will be examinable. To prepare for the exam, you are advised
to review Specimen or Past-Year Exam Papers available on the Learning Management
System.
Passing Mark:
SUSS’s assessment consists of two components: the Overall Continuous Assessment Score
(OCAS) and the Overall Examinable Score (OES), which make up the overall course
assessment score.
a.
OCAS: OCAS constitutes 50% of the final grade for this course.
b.
OES: OES constitutes 50% of the final grade for this course.
To be sure of a pass result, you need to achieve scores of 40% or above in each component.
Your overall rank score is the weighted average of both components.
Non-graded Learning Activities:
Each study unit consists of activities for self-directed learning. These learning activities
are meant to help you assess your own understanding and achievement of the learning
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ECO202
Course Guide
outcomes. The activities can be in the form of Formative Assessments, Review Questions
and Application-Based Questions. You are expected to complete the suggested activities
either independently or collaboratively.
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Course Guide
6. Course Schedule
To pace yourself and monitor your study progress, pay special attention to your
Course Schedule. It contains study-unit-related activities including Assignments, SelfAssessments, and Examinations. Please refer to the Course Timetable on the Student
Portal for the most current Course Schedule.
Note: Always make it a point to check the Student Portal for announcements and
updates.
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Course Guide
7. Learning Mode
The learning approach for this course is structured along the following lines:
a.
Self-study guided by the study guide units. Independent study will require at
least 3 hours per week.
b.
Working on