lecture 2 Flashcards
recall lecture 1
what do economists study?
economists study the systems “societies” use to allocate “scarce recourses” to the production of goods and services and to distribute these goods and services to “consumers”
Ie. we study how societies (groups of people) manage the use of scarce recourses
what is positive economics?
economists usually study how things work which is referred to as positive economics
what is normative economics?
economists are often called upon to evaluate and recommend i.e we conduct policy analysis to recommend what ought to be done
what does GDP stand for?
gross domestic product
what is GDP?
Its a measure of the value of a countrys economic activity
what does GDP aim to measure?
market value
i.e sale price times quantity sold of all final goods and services
its comprehensive and includes exports of “intermediate” inputs
is GDP produced within a country or
it only includes domestic production (not imports) it doesn’t include second hand sales
what time period is GDP measured in?
a given year
what things can GDP miss?
the market value of goods/services not traded in formal markets
home production ie home cooked meals (includes supermarket sales)
off the book transactions ie weekend work for cash, cash sales of illegal goods or services
what is the estimates of missed value in countries?
ranges from 10% to 15% of GDP
what do we observe about GDP over time?
from 1972 to 1985:
from 1972 to 1985:
goods production contributed 45% to GDP
what do we observe about GDP over time?
from 1986 to 1990:
that proportion fell sharply - production of services as a proportion of GDP increased sharply
the choice of what to produce seems to have changed abruptly
what do we observe about GDP over time?
from 1991 on..
the proportion of services continued to increase
what is a model in economics?
a model is a useful simplification of reality
what do economists investigate something complex?
by breaking it into simpler parts and then work to understand each part
a model depicts a
partial, essential and valuable aspect of a complex process it helps us explain interesting phenomena
what does the quantity of goods produced/t depend on?
Qgoods = f(Qresources, Qtechnology, Qtime, Qservices)
what are the three types of resource?
- Land: natural recourses used up to make outputs aka materials
- Labour: essentially, human time and effort aka human resources
- Capital: physical manufactured inputs aka plant and equipment also includes ‘human’ capital eg skills, knowledge
a potential source of confusion
we use financial capital to purchase physical capital
the quantity of goods we can produce per day or year depends on what
the quantity of services we chose to produce holding recourses and technology constant
Graphs:
we have two types of output:
goods and services
all of our resources are employed in production of goods and services
to graph we,
make a set of axes with Qgoods on the vertical axos and Qservices on the horizontal axis
production possibility frontier
- represents the most efficient allocation of resources between goods and services
- aiming to get the smallest possible opportunity cost
- real GDP growth is gained by an outwards shift of the PPF
