Economics Section 1, 2, 3 facts I need to know

How many items does the average supermarket carry?

31530 items

Economics is the study of ______

how individuals make choices for allocating scarce resources to satisfy unlimited human wants

AND

how individuals interact with each other.

What does Economic analysis rely on?

1. Observation of activity

2. Description of activity

3. Measurement of activity

4. Theory (models)

In Economics , models are often

diagrams or formulas

At first glance, economic models may appear hopelessly ______

simplistic

What nationality is Vilfredo Pareto?

Italian

What is similar and different in microeconomics and macroeconomics?

They are similar in that they both share the same assumptions about human behavior.

BUT they analyse different scales of the economy, and their modes of analysis are sufficiently different.

The interaction of supply and demand within markets create a high degree of ______

coordination

Examples of highly formal/ highly organized markets?

New York Stock Exchange

Chicago Mercantile Exchange.

When is a market perfectly competitive?

1. Good is standardized

2. Number of buyers and sellers is large

3. The participants are well informed of the price

What is the elastcity of demand (practical formula)

(1/e) * (P/Q) where e is the slope of the demand curve

Formula for total revenue?

PxQ

Empirical estimates suggest the demand for milk is

relatively inelastic

- a necessity

- does not have many close substitutes

The supply of milk is

relatively elastic over a time horizon of a year or more

What has been happening in the farm sector over the past 200 years?

Successive tech have increased the ability of farmers to produce greater quantities of crops, but accompanied by a decline in the number of farmers

The US established minimum prices of what?

Major food crops such as corn and wheat

minimum wage

Some communities want legislation for a "living wage" paid by employers

What city controls residential housing costs through rent regulations?

New York and other cities.

How does rent controls disrupt allocation of apartments?

At first everyone who values the apartment above the equilitbrium or at can buy while everyone who cost less than that to supply can rent.

But now, landlords can select tenants through

- finders fee

- friends

- discriminate through personal characteristics

Apartments no longer goes to those who value them the most.

Taxes are less disruption when the supply and demand curves are

less elastic

- because this means that the tax has less effect on the quantity.

What does "firm" mean?

The economic actors who are responsible for supplying goods and services in the economy.

Bob's fixed and variable costs

Fixed (cannot be changed in the short run and does not depend on how much quantity of bread he makes)

- time

- rent

- equipment

Variable

- labor

- materials

Oligopoly market examples

1. commercial airplanes

2. automobiles

3. ride sharing services

4. Tennis balls

5. cereal

6. washing machines

7. light bulbs

8. cigarettes

Monopoly market examples

1. electricity

2. water

3. cable television

Examples of monopolies due to ownership of a key resource

1. Electricity: a single company owns the retail electricity distribution system

2. Diamonds: Until recently, DeBeers' mines produced 80% of the world's diamonds

Exampels of government-created monopolies

1. Patents (20 years)

2. copyright laws

Natural monopolies examples

Railroads, pipelines and cable television

What are natural monopolies>

When there are large fixed costs so that one supplier can supply at a lower cost than many (because of scale)

In a monopolistic market, there is a transfer of surplus from

the consumers to the monopolist

When was Sherman Antitrust

1890

Government control of monopolies and their examples?

1. Antitrust and breaking em up

- AT&T in 1984

2. Regulation

- most natural monopolies such as electric and cable

3. Public ownership

- local water, sewer and sanitation services are operated by municipal governments.h

OPEC price changes

In 1970s, from $3.39 a barrel in 1972 to $31.77 a barrel in 1981

In 1986, because cheating, oil porices dropped below $10 a barrel.

In April 2020, in response to reductions in demand, OPEC initiated a record reduction in oil output.

Entrepreneurs can differentiate their product by

defining its desirable characteristics or by possession of trade secrets

Innovation also breaks down market imperfections, how?

By buillding around barriers to entry (eg. mobile phones mimicking Apple)

So you see, Coase's Theorem should solve externalities. Why does it not?

Because at times

- property rights are poorly defined

- costs of negotiating are prohibitively high.

Example of taxes as regulating externalities (and when is it most effective?)

NY congestion pricing starting in 2019

BUT public hearings on pricing and will conduct environmental reviews before implementing the plans.

Uber, Lyft and other for-hire vehicles (taxis) already pay fees in some areas.

Most effective when it is possible to estimate the value of the externality.

Quotas as regulating externalities examples

EPA for sulfur dioxide emissions: auction the rights off which can be bought and sold.

CA emissions trade in 2013

Examples of collective goods, who usually supply them?

satellite radio and pay per view television, monopolies can profitably supply them but has incentive to set price too high and supply too little, leading to government regulation or provisioning.

domestic sugar producers rent seeking

it is almost twice world levels

2017 found total household losses are 2.4-4 billion dollars

Is government essential to a market economy?

No, but it allows for a much broader range of transactions than without it and correct market failures.

Since 1900, US population and output

Ouput increased by 40

Population increased by over 4

Output per capita increased by 9

(9xmore than 4) = basically 40

Per capita means

per head in Latin

The average output per person in US in 2019

over 65000

The US and China's output and population comparison

China has a population nearly 5 times as large, but output is 2/3 of US and production per person is around 15%

India's output compared with the US

3.2 percent

Is unemployment in the US increasing long-term?

There is no indication of such a notion

International trade has increased since the

1950s

Up to when was US and importer and an exporter?

Up to 50s, exporter, since 70s, importer

Conventionally, what time periods do economists consider for GDP?

Quarterly or Yearly

Earliest effort to measure output

mid 1600s by William Petty to assess the Irish people's ability to pay taxes to the crown.

When was Simon Kuznets commissioned to create GDP/

In 1932

When did Kuznets receive the Nobel Prize

In 1971

Over the past ___ years, women have increasingly entered the paid labor force

60 (but later, they say 70s and 80s)

What is not counted in government expenditures?

transfer payments and interest paid on government debt

Who calculates the CPI?

The BLS (Bureau of Labor Statistics)

What depends on the CPI?

Adjustments of

1. Social Security

2. Union employment contracts include cost-of-living adjustment

3. Employers and employees

The goal of the CPI is to measure ____, but what the CPI actually measures is ______

how changes in prices affect the ability of households to maintain well-being they enjoyed in base year;

how changes in prices affect the cost of a fixed bundle of goods and services.

When was the first cell phones introduced?

Mid-1970s

When did who evaluate teh CPI?

In 1996, Boskin Commission, headed by Michael Boskin said it overestimated by 1.3%

What is "an especially sensitive indicator of how well the economy is performing at any moment"?

Unemployment rate

What is working age?

Over 16 years old

July 2020

1. Working age population

2. Labor force participation

3. Unemployment rate

1. 260 million

2. 61.4% (160 million)

3. 10.2% (16.3 million) (earlier, it was just 3.4%)

In the 1980s, the US's what industry was contracting and expanding

steel industry in the NE was shrinking

Computer industry in Sunbelt was expanding.

When did sustained economic growth begin?

More than 200 years ago in the US and Western Europe

How did sustained economic growth spread?

In the 19th and 20th, to Latin America and Japan, and since 1950s, many other countries.

What has offsetted the increasing labor force participating rate?

Earlier retirement and longer education.

Examples of organized stock exchanges?

1. NYSE (New York Stock Exchange)

2. NASDAQ (National Association of Securities Dealers Automated Quotation System)

Bsides their role as financial intermediaries, what do banks do?

They facilitate purchases by providing checking accounts

Formulas for private saving and government saving

Private: Y-C-T

Government: T-G

Net capital outflow formula

purchase of foreign assets by domestic residents - purchase of domestic assets by foreigners

What does wealth mean?

All the stores of value in an economy

Examples of highly liquid wealth

1. Cash

2. Checking

3. Stocks and Bonds

4. Mutual Funds

World War 2 POWs used ______ as money

cigarettes

M1 and M2

M1:

- currency, savings, demand, and other checkable deposits

M2:

- small denomination time deposits, retail money funds

When was the Fed created?

1913

How many banks in the Fed?

12 regional banks, each with its own board of directors

What board runs the Fed?`

The Federal Reserve Board

- 7 governors appointed by Prez, confirmed by the Senate, whose terms are 14 years.

FOMC

controls money supply (monetary policy)

- 5 governors + 5 regional banks (NY)

Every 6 weeks.

The Fed adjusts the money supply primarily through

Ample reserve policy: Adjusting administered interest rates.

Limited reserve policy

When the banking system has limited reserves and therefore ample reserve policy is not possible: open market operations.

Fractional reserves doesn't increase wealth: instead it

makes the economy more liquid

What is the monetary base or high-powered money?

It is the amount of currency plus reserves

When did the US FOMC reduce the reserve requirement and how?

In 2020 to zero percent because it had transitioned to an ample reserve system.

What tool is used in both ample and limited reserve systems?

The discount rate

Increase in CPI since 1960

factor of 8.6

the price level fell by _____ during the Great Depression

25%

In the long run, the increase in prices will be proportional to the increase in

money supply (neutrality of money)

What is VM=PY called?

It is called the quantity equation

When did many consumers view inflaiton as the no.1 economic problem of the country,

in 1970s, when it reached double digits,

how can inflation reduce investment?

Confusion about the true value of goods in the future: uncertainty and risk about interest leads to a decline in both demand and supply of savings.

Since when has business cycles been a characteristic of industrial soceities?

Of industrial societies since the 18th century

Who determines the business cycle?

The NBER

How many months was the Great Depression

43 months, starting August 1929

Since WW2, periods of recession have tended to be relatively short or long? What about expansions?

Short, with only 3 longer than a year. Most expansions last over two years.

Businesses are slow to increase hiring when?

In the early phases of an expansion

What happens IN PARTICULAR when the economy is below its potential output?

The unemployment rate increases

When was Okun's Law?

In teh early 1960s (Kennedy's chief economic adivsors)

What book did Keynes publish?

The General Theory of Employment, Interest and Money (1936)

What nationality is Keynes?

British

How many satellites does SpaceX want to make?

12,000 satellites

When is OPEC embargo?

1973