Econ Unit 1

Question 1

GDP

Answer 1

Total income of everyone in the country (total value of everything produced in a given period such as a year)

Question 2

GDP per Capita

Answer 2

Average annual income of each person in the country

Question 3

Is GDP a good measure of our wellbeing?

Answer 3

Not because it does not directly account for leisure, environmental quality, levels of health and education, activities conducted outside the market, and changes in inequality of income

Question 4

Disposable income

Answer 4

= Total income
+ transfer payments from the government (such as
unemployment or disability benefits) or from other people (e.g., gifts)
- any transfers the individual made to others (including taxes paid to the government).

Question 5

Is disposable income a good measure of our wellbeing?

Answer 5

• Yes because it is the maximum amount of food, housing, clothing and other goods and services that the person can buy without having to borrow or sell their possessions

Imperfect because it leaves the following out:
- The quality of our social and physical environment such as friendships and clean air.
- The amount of free time we have to relax or spend time with friends and family.
- Goods and services that we do not buy, such as healthcare and education, if they are provided by a government
- Goods and services that are produced within the household, such as meals or childcare (predominantly provided by women).

Question 6

Ratio scale

Answer 6

Shows GDP per capita doubling as we move up the vertical axis; used for comparing growth rates

Question 7

Growth Rate

Answer 7

change in income / original level of income

Question 8

Industrial Revolution

Answer 8

New era in the 1800s that brought ideas, discoveries, new methods, and new inventions

Question 9

Which of the following variables have followed the so-called ‘hockey-stick’ trajectory—that is, little to no growth for most of history followed by a sudden and sharp change to a positive growth rate?

Answer 9

1. GDP per capita
2. labour productivity
3. atmospheric CO2
4. also connectivity to world

Question 10

Capitalism

Answer 10

An economic system where the main institutions are private property, markets, and firms.

Question 11

Capitalism led to growth in living standards because of:

Answer 11

• impact on technology (firms competing in markets had strong incentives to adopt and develop new technologies)
• specialization (the growth of firms and the expansion of markets linking the entire world allowed historically unprecedented specialization in tasks and production)

Question 12

Capital goods

Answer 12

An important type of private property; includes equipment, buildings, and other durable inputs in producing goods and services

Question 13

Specialization

Answer 13

Increases productivity of labour because we become better at producing things when we each focus on a limited range of activities

Question 14

Market

Answer 14

A way of connecting people who may mutually benefit by exchanging goods and services through a process of buying and selling

Question 15

Firm

Answer 15

• A way of organizing production
• One or more individuals own a set of capital goods used in production
• Wages and salaries
• Direct employees in the production of goods and services
• The owners sell the goods and services on markets with the intention of making a profit

Question 16

Labor market

Answer 16

• Employers offer wages to individuals who may agree to work under their direction
• Employers are the demand side while workers are the supply side
• Can quickly be born, expand, contract, and die

Question 17

Private property

Answer 17

• Enjoy your possessions in a way that you choose
• Exclude others from their use if you wish
• Dispose of them by gift or sale to someone else…who becomes their owner

Question 18

Absolute advantage

Answer 18

A person or country has ________ in the production of a good if the inputs it uses to produce this good are less than in some other person or country.

Question 19

Comparative advantage

Answer 19

A person or country has ________ in the production of a particular good, if the cost of producing an additional unit of that good relative to the cost of producing another good is lower than another person or country’s cost to produce the same two goods.