Session 1 Flashcards
What is the GDP per capita and what are its issues?
Gross Domestic Product of a country, divided by its population
- leaves out: non-traded goods and services that affect well-being (e.g. clean air, household work) unpaid work, volunteering work, black market, intermediate goods
- conflates taxes (which differ vastly across countries) and income of multinationals (will discuss more in relation to GNP)
What is the disposable income and what does it leave out?
- all incomes of typical person after accounting for positive (e.g. unemployment benefits) and negative (e.g. taxes, alimony) transfers
-leaves out: non-traded goods and services that affect well-being (e.g. clean air, household work), as well as government supplied services (e.g. healthcare, roads, education)
Whats the nominal GDP and how is it calculated?
- The market value of all goods and services produced in an economy within a given time period
- Calculated by multiplying each good or service’s price by its quantity and then summing up these values
What is the Real GDP and how is it calculated?
- Similar to nominal GDP but adjusts for price changes
- Calculated by multiplying each good or service’s baseline price by its quantity and then summing up these values
o Need to choose a baseline time period
Whats the Easterlin Paradox and why does it exist?
Explores the relationship between income and happiness (Richard Easterlin, 1974). Happiness increases as average income increases but only up to a point. Changes in income are not associated with changes in happiness at the population level. This paradox applies both between and within nation comparisons.
- Adaptation (hedonic treadmill)
- Non-material well-being factors: health, community, relationships, etc.
- Relative vs. absolute income comparisons (inequality)- most important!
What are the three ways of measuring the GDP?
- Output Method. Total value of what’s produced
- Income Method. Sum of gross profits of companies, the self-employed, and employees’ wages
- Expenditure Method. Total spending on goods and services.
o Consumption + Investment + Government Expenditure + Exports - Imports
o Usually: C + I + G + (X − M)
o Most common approach, Imports are excluded, because they are consumed but not produced
Whats Purchasing Power Parity?
- Accounts for price differences across countries, important when comparing GDP between Countries
o Example: if an apple costs $2 in the U.S. and $1 in another country, then the PPP between these countries for this apple would be 2:1
o Limitation: hard to account for quality differences
What are economic measures of income and well-being?
- GNP (Gross National Product): similar to GDP based on citizenship rather than location
- NDP (Net Domestic Product): similar to GDP but accounts for depreciation of capital goods. (Factoring worsening of infrastructure etc.)
- Green GDP: GDP adjusted for environmental damage.
What are anthropometric measures of income and well-being?
- Life expectancy at birth
- Stunting (low height for age): an indicator for long-term nutritional deprivation.
What are other additional measures of income and well-being?
- HDI (Human Development Index): combines income, education, and life expectancy.
- Happiness Indicators: surveys and studies measuring subjective well-being and life satisfaction
What are the three components of capitalism? Short description
- Private property: the freedom to use, exclude others from, and transfer one’s possessions
- Market: reciprocal and voluntary exchanges of goods and services
- Firm: a way of organizing production, with the following characteristics:
o Some individuals (owners) have a set of capital goods used in production.
o Owners pay employees and direct them in the production of goods and services.
o Owners sell the produced goods and services on markets to make a profit. - Firms lead to the emergence of labor markets, where firms offer jobs to people who are looking for work.
Whats the difference between firms and familys?
o Firms can rapidly expand or contract based on profitability
o Families remain stable and bounded by familial ties rather than economic outcomes
What two major changes linked with capitalism played a key role in enhancing productivity and boosting living standards?
Technology
o Market competition provided strong incentives to innovate
o Firms had the capacity to invest in capital goods on a scale beyond what small family enterprises could manage
Specialization
o The rise of globalization and large firms led to historically unparalleled levels of specialization
Why do we become better at producing certain things when we each focus on a limited range of activities?
- Learning by doing
- Difference in ability: some people are better at producing some things than others
- Economies of scale: producing a large number of units of some good is often more cost-effective than producing a smaller number
- Task juggling: reducing interruptions and multitasking leads to enhanced productivity
Whats the difference between absolute and comparitve advantage and how do you calculate the latter?
Absolute Advantage means who can produce the most of a certain good.
Comparative Advantage means who has the lower opportunity cost. Weizen wird durch Äpfel geteilt, um rauszufinden wie viel die Apfelproduktion kostet. (Zu erst das was aufgegeben wird)
