Chapter 1,2 Flashcards
What is the problem of economy and how do we solve it
Limited resources, but our wants are unlimited
To solve than: we have allocation, production, redistribution and trade
Trade is a solution for
Scarcity
Economics is ___ science, but we use ___ approach
Social science ( because it is concerned how to improve society)
Bit it uses scientific method to approach it ( mathematics, models, data)
Slope of PPF is
opportunity cost
Challenges for today’s society
Unemployment for young people
Government balance sheets are in disarray
Inequality is on the rise
Overpopulation
Climate change
Political instability
Globalization
Good news for economy
- Literacy is rising
- Child mortality has plummeted
- Family size - smaller
- Prosperity is on the rise in much of Asia
- Life expectancy is rising
- Deaths through wars are decline since WW2
Difference between microeconomics and macroeconomics
Macro- the economy as a system ->national output, employment, prices, government, policies and inflation
Microeconomics- the study of individual behavior in the context of scarcity
What is a mixed economy
Goods and services are supplied both by private suppliers and government
What is the role of the government in economy
Regulating, redistributing and enforcing contracts. Without this legal structure the private sector should decline into a state of Hobbesian anarchy
-Monetary policies ( prodcuing money, interest rate)
Taxation, expenditure policies-fiscal policy
What is a model
Formalization of theory that facilitates scientific enquiry
What is a theory
A logocal view of how things work, and is frequently formulated on the basis of observation
What is an opportunity cost
When you take decision, you need to sacrifice something-> cost
Different opportunity costs result in __
Specialization
Assumed initial consumption
If half of the time was spent on production of each product
Specialization is useful if ___
Both parties win from the trade
Trade is not ___
A zero-sum game->so every party wins
How many canadian export is going to US
80%
An agreement between Canada, Us and Mexico called
North America Free Trade Agreement(NAFTA)
The trade between Canada and EU
CETA- Comprehensive Economic and Trade agreement-> to eliminate virtually all tariffs between Canada and the Eu
What is TPP
Trans Pacific Partnership
12 countries around Pacific, including Canada, US signed out
What is economy -wide PPF
The set of products combinations that can be produced in the economy when all available productive resources are in use
How to create a graph for economy wide PPF
PPF is a concave of the individual capabilities
The most efficient way of increasing F production
at the point a is to use the individual whose opportunity cost is lower. Zoe can produce one unit
of F by sacrificing just 0.5 units of V, whereas Amanda must sacrifice 1.5 units of V to produce
1 unit of F. Hence, at this stage Amanda should stick to V and Zoe should devote some time to
fish. In fact as long as we want to produce more fish Zoe should be the one to do it, until she has
exhausted her time resource.
What is productivity of the economy
Output per worker
Productivity of labour depends on
The skill, knowledge and experience of the labour force
The capital stock: buildings, machinery, equipment, and software the labour has to work with
The current technology embodied in the labour force and the capital stock
What is full employment and what does it mean for the country
Everyone who is willing to work at current wage rates and normal hours of work is actually working
In this state the economy of the country is termed as capacity output or full employment output
What is the rate for full employment,over and under
Normal-6%
5%-over ( work on weekends, 10 hours per day)
8% under (no job)
Canada’s unemployment is 7,1%, but it is said that it is in full employment, why is that?
Some workers are “between jobs”: reeducating themselves, moving from one province to another, etc.
How can we see shift in PPF
If new technologies available-> PPf moves outward -> the economy can produce more in both sectors
If natural disaster-> concave inward
What is recession and boom
Recession-output falls below the economy;s capacity output
Boom is a period of high growth that raises output above normal capacity output
Production possibility frontier is
The combination of goods that can be produced using all the resources available
What is consumption possibility frontier (CPF)
The combination of goods that can be consumed of a given production choice
Economy-wide frontier is
The set of goods and services combinations that can be produced in the economy when all available productive resources are in use
Economy’s output formula
Number of workers employed* output per worker
What are economic variables
Measures that can take on different values
What is economic data
Actual recorded values of variables
Forms of data
Time series data
Cross-section data
Longitudinal data
what is time series data
Checking data ( one data) over time
What is cross-section data
One period and many samples
What is longitudinal data
A survey of the same participants every year yielding data that define the group-for example a health survey that follows individuals through time
Index numbers facilitate___
Percentage interpretations of data
Formula for value of index
Absolute year in year/Absolute value in base year*100%
The base year value of the index is
100
What reflects the prices of all consumer goods and services
Consumer Price Index->cost on lliving
What is an inflation rate
Delta CPI
How to calculate composite index numbers
Calculate individual index before
2)Sum of all weights of the product*Individual index of the product
Weight indexes sum is
1
CPI formula
Cost of products in year 1/cost of products in base year prices*100
Deflation rate is
Annual % decrease in CPI
Real price change
Nominal price change-inflation rate
Formula for percentage price change
Price index This year-base year/by base year
What economists use to explain behavior and predict policy outcomes
Economic theories and models
Regression line suggests
A negative relationship-(higher mortgage rates associated with lower prices)
What is econometrics
The science of quantifying relationships between economic variables
Theory->models->data->econometrics
Regression line and the equation of the regression line
Regression line shows average relationship between variables- the mortgage rates and house prices
Equation of the regression line quantifies the relationship between mortgage and house prices
What is a better illustration of economic relationship:straight line or curved
Curved
What is positive economics
Objective and scientific explanations of how the economy functions
Econometics is positive economy, because it is using real data and wants to check the reality
What is normative economics
Recommendations that incorporate value judgement
What is economic equity
The distribution of well-being among members of society
What is essential to market functions
Legal institutions, property rights and enforceable contracts
Role of the government is the economy
Provides legal framework
Intervenes to support efficient market functions through -Competition policy and regulatory frameworks
- Social policy -an educated workforce
- International trade policy-reduce protectionism
- Monetary policy and fiscal policy-to foster growth
What is data
Recorded values of variables
What is high (low) frequency data
Series with short (long) intervals between observations
Scatter diagram is a ___
Graph of relationship between x and y
Why economists
believe that markets are critical?
because they facilitate exchange and therefore
encourage efficiency.
