topic 1

positive economics: what is out best guess- based on objective data analysis, relevant facts and associated figures - measurable, can be tested - objective: based on data and facts - can be tested- “what is”

normative economics: what is the goal? subjective value judgements, matter of opinion or ethics - how someone thinks the world should be - cannot be tested - should we?

gdp: gross domestic product - stuff produced

gdp per capita: per person- adjusted for price changes over time - inflation

counterfactuals: considering the alternative possibilities for some event “what might’ve happened”

sketch a lorenz curve:

Gini Coefficient formula: A/(A+B)

Gini Coefficient: mathematical indicator of inequality

High Gini Coefficient: more unequal (perfect inequality:1)

Low gini coefficient: more equal (perfect inequality: 0)

How to sketch a lorenz curve: 1. order by increasing order (80 people $500= $40,000) + (20* $30,000= 60,000)= $100,000 2. calculate the % of the total wealth each group holds (income/total income) *100 3. calculate the weight of each subset of the population (x axis= % of total population y axis= % of total income) and plotting the points of your population and then your income

How to calculate a gini coefficient from the lorenz curve: 1. after plotting your lorenz curve, the area above the lorenz curvature should be A and below should be B. 2. look at your proportions, what looks easier to break down? use the area of a triangle (1/2 * b * h) 3. whichever triangle you didn’t calculate you’re going to solve for it in the formula (A/(A+B) {start with finding B because you already know A+B then subtract that from B to find A} 4. remember to finish it off with A/(A+B)

what economic policies would influence the level of wealth (rather than income) inequallity?: wealth taxes, estate taxes, baby bonds, policies to promote home ownership, antitrust policy

what economic policies would influence the level of income (rather than wealth) inequallity? marginal taxes, tax credit, subsidies for education, minimum wage, social safety net programs