Tools and Equipment Things that are used to produce other things... Computers, trucks, factories, machines

1. Income 2. Price of related goods 3. Tastes and preferences 4. Expectations 5. Population and demographics

1. Technology 2. Price inputs 3. Expectations 4. Number of firms 5. Substitutes in production

Exam 1 Flashcards by Mallory Fredricks

Brian is sitting in a bar drinking vodka tonics that cost $3 each. It is happy hour. According to economic reasoning, which is correct?
A. Brian should stop drinking when the benefit of an additional vodka tonic is greater than $3
B. Brian should keep drinking as long as the benefit of an additional vodka tonic is exactly equal to $3
C. Brian should stop drinking when the benefit of an additional vodka tonic is less than $3
D. None of the above

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equity

fairness

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efficiency

no waste

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economics (def)

how does a person, firm, country allocate resources

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Three assumptions of economics

People are rational
People respond to incentives
Optimal decisions made at the margin

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Positive

Statement of fact; “What is”

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Normative

Statement of what should be; contains judgement

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market (def)

set of buyers and sellers whose actions affect the price of a product or service

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Market economy

Goods and services produced (or not produced) based on supply and demand
-More efficient than centrally planned economy

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Centrally planned economy

Goods and services produced (or not produced) based on government decision

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Product Efficiency

Goods and services are produced at lowest cost

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Allocative Efficiency

Goods and services are produced in accordance with consumers’ preferences.

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Capital

Tools and Equipment
Things that are used to produce other things…
Computers, trucks, factories, machines

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Human Capital

• Training, skills, education, knowledge
• Right NOW you are building up your human
capital

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Opportunity cost

the highest valued alternative that must be given up to engage in that activity

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DODs (Demand Shifts)

Income
Price of related goods
Tastes and preferences
Expectations
Population and demographics

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DOSs (Supply Shifts)

Technology
Price inputs
Expectations
Number of firms
Substitutes in production

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When both curves move, if they move in the same direction you know ______.

quantity but not price

When both curves move, if they move in the opposite direction you know ______.

price but not quantity

Opportunity cost

the value of the best alternative that you are giving up to do something else

Nominal GDP

Not holding prices constant

Real GDP

-Prices don’t change; hold the price constant using the base year

The current value of US GDP is closest to (Nominal)

$18.8 trillion

As discussed in lecture, which of the following would not be included as a component of “G” in GDP?
A. The value of a new tank purchased by the army
B. The value of a new police car purchased by the city of Leawood KS
C. The value of a social security check sent to a KS resident by the Federal gov
D. All of the above are a component of “G”

In the order of largest dollar amount to smallest dollar amount, the components of GDP are...

C, G, I, X-M

Two houses are sold, one that is brand new construction (never lived in) and one that was built and sold in 1980. The new house sold for $400,000 and the 1980 house sold for $500,000. Which of the following is correct. A. GDP would increase $900,000 and it would show in "C" B. GDP would increase $400,000 and it would show up in "C" C. GDP would increase $500,000 and it would show up in "I" D. GDP would increase $400,000 and it would show up in "I"

You are looking at the supply and demand for corn muffins. The price of corn decreases. On the graph you will see ______ and the result will be ______. A. Supply shift left; a lower equilibrium price and higher equilibrium quantity B. Supply shift left; a higher equilibrium price and lower equilibrium quantity C. Supply shift right; a lower equilibrium price and higher equilibrium quantity D. Supply shift right; a lower equilibrium price and a lower equilibrium quantity

You're looking at supply and demand for laptops. You open up the paper and read that all laptop manufacturers expect that the price of laptops to increase in the near future. On the graph you will see _____ and the result will be ________. A. Supply shift left; lower equilibrium price and a higher equilibrium quantity B. Supply shift left; higher equilibrium price and a lower equilibrium quantity C. Supply shift right; lower equilibrium price and a higher equilibrium quantity D. Supply shift right; higher equilibrium price and a lower equilibrium quantity

You are looking at the supply and demand for Diet Coke. You open the paper and read that the price of Diet Pepsi has increased significantly while, at the same time, the technology used to produce Diet Coke has improved significantly. What can we say about the graph you're looking at? A. Supply will shift left; demand will shift right; equilibrium price will go down but we cannot say about quantity B. Supply will shift right; demand will shift right also; equilibrium quantity will go up but we cannot say about price C. Supply will shift right; demand will shift left; equilibrium price will go down but we cannot say about quantity D. None of the above

GDP (def)

The market value of all final goods and services produced in a country during a given period of time (typically a year)

ceteris paribus

all other things constant | all else constant

US GDP grew at about ____ in the fourth quarter of 2016

1.9%

The components of GDP

C: Consumer goods I: Investment goods G: Government purchases X-M: (AKA NX) Net exports or exports minus imports

Consumer goods

- About 12.9 tril of the 18.8 - Durable goods - Nondurable goods - Services (about 8.8 tril of the 12.9) * We are a service economy without a doubt*

Investments

- 3 tril of the 18.8 - Companies buying stuff, and houses - Residential: houses (NEW) - Business structures - Equipment - software and intellectual property - Changes to inventory: if we make something but didn't sell it and it sits on our shelves

Government

- about 3.3 tril - State and local is about 2.06 of the 3.3 - Federal is about 1.25 - --Defense: 732 bil - --Non defense: 521 bil * *Unemployment and social security is not included**

NX or X-M

- Net exports = exports - imports - Ours is negative because imports > exports - Ours is about -$538 bil - Exports of g&s is $2.26 tril - Imports of g&s is $2.8 tril - We have a trade deficit - It has been this way since 1981

The current value of US GDP is closest to (Real)

$16.8 tril

Current GDP Deflator of US

112.2 or 12.2% (which is about 1.5% per year)

Calculating GDP Deflator

(Nominal / Real) * 100

Calculating GDP Per capita (per person)

(Total GDP) / (Total Population)

Current US GDP per capita

about $58,000