lecture 2

Question 1

recall lecture 1
what do economists study?

Answer 1

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

Question 2

what is positive economics?

Answer 2

economists usually study how things work which is referred to as positive economics

Question 3

what is normative economics?

Answer 3

economists are often called upon to evaluate and recommend i.e we conduct policy analysis to recommend what ought to be done

Question 4

what does GDP stand for?

Answer 4

gross domestic product

Question 5

what is GDP?

Answer 5

Its a measure of the value of a countrys economic activity

Question 6

what does GDP aim to measure?

Answer 6

market value

i.e sale price times quantity sold of all final goods and services

its comprehensive and includes exports of “intermediate” inputs

Question 7

is GDP produced within a country or

Answer 7

it only includes domestic production (not imports) it doesn’t include second hand sales

Question 8

what time period is GDP measured in?

Answer 8

a given year

Question 9

what things can GDP miss?

Answer 9

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

Question 10

what is the estimates of missed value in countries?

Answer 10

ranges from 10% to 15% of GDP

Question 11

what do we observe about GDP over time?

from 1972 to 1985:

Answer 11

from 1972 to 1985:

goods production contributed 45% to GDP

Question 12

what do we observe about GDP over time?

from 1986 to 1990:

Answer 12

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

Question 13

what do we observe about GDP over time?

from 1991 on..

Answer 13

the proportion of services continued to increase

Question 14

what is a model in economics?

Answer 14

a model is a useful simplification of reality

Question 15

what do economists investigate something complex?

Answer 15

by breaking it into simpler parts and then work to understand each part

Question 16

a model depicts a

Answer 16

partial, essential and valuable aspect of a complex process it helps us explain interesting phenomena

Question 17

what does the quantity of goods produced/t depend on?

Answer 17

Qgoods = f(Qresources, Qtechnology, Qtime, Qservices)

Question 18

what are the three types of resource?

Answer 18

1. Land: natural recourses used up to make outputs aka materials
2. Labour: essentially, human time and effort aka human resources
3. Capital: physical manufactured inputs aka plant and equipment also includes ‘human’ capital eg skills, knowledge

Question 19

a potential source of confusion

Answer 19

we use financial capital to purchase physical capital

Question 20

the quantity of goods we can produce per day or year depends on what

Answer 20

the quantity of services we chose to produce holding recourses and technology constant

Question 21

Graphs:

we have two types of output:

Answer 21

goods and services

all of our resources are employed in production of goods and services

Question 22

to graph we,

Answer 22

make a set of axes with Qgoods on the vertical axos and Qservices on the horizontal axis

Question 23

production possibility frontier

Answer 23

• 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