revision for MGCR 294

What are economic problems all societies must solve

What goods and services will be produced?

How will the goods and services be produced?

Who will receive the goods and services produced?

what are the three economic ideas

• rationality

• incentives

• marginal thinking

how is rationality bounded

• Cognitive limitations: Thinking is hard.

• Limited attention: Some information is more salient/obvious.

• Rational inattention: Information is costly. Sometimes it’s not worth it.

• Rules-based reasoning: It’s efficient to use rules most of the time

what is allocative efficiency

Producing the right mix of goods (MB=MC)

what is productive efficiency

producing at the lowest possible cost where cost = Minimum(ATC)

what are economic models

Simplified representations of reality.

Testable and revisable.

Useful even if they are (a little) wrong.

what are the features of economic models

• assumptions

• hypothesis testing

• economic variables

what causes a shift in the PPF curve

• changes in productive capacity

• changes in resource quantity/quality

• technological advancements

what are the four factors of production

• labour

• capital

• natural resources

• entrepreneurship

what are the two important roles of government in a free market

• protection of private property

• enforcement of contracts and property rights

what explains demand

• substitution effect - consumers substitute to the goods who’s price has fallen

• the income effect - consumers have more purchasing power increase ability to pay for goods

what causes the demand curve to shift

• income of consumers

• price of related goods

• tastes

• population and demographics

• expectations

what causes supply curve shift

• prices of inputs

• technological change

• prices of substitutes in production

• number of firms in the market

• expected future price

define GDP

The market value of all final goods and services produced in a country during a period of time

what are the five components of the income approach

• Compensation of Employees

• Gross Operating Surplus

• Gross Mixed Income

• Taxes less Subsidies

• Statistical Discrepancy

what are the five components of expenditure approach

• Final Consumption

• Gross Fixed Capital Formation

• Investment in Inventories

• Net Exports of Goods and Services

• Statistical Discrepancy

what are the components of GDP

• consumption

• investment (capital not bonds or stocks)

• government spending

• net exports (exports - imports)

what is last way to measure GDP

value added approach

what are the problems of using GDP to measure total production

• household production

  • household production is not is not typically paid for with money but if paid for by a non-household person would count as GDP

• informal economy

  • concealed selling of goods and services (avoid taxes or illegal)

why can GDP not be used as a measure of wellbeing

• value of leisure

• pollution and other negative effects of production

• crime and other social problems

• distribution of income

what are otherways to meaure production and income

• gross national income

• net national income

• household income

• household disposable income