Intro to Economics
What is the definition of economics?
Economics is the study of the allocation of resources in a world of scarcity
What does the law of demand state?
Law of supply: As price increases, quantity supplied increases; as price decreases, quantity supplied decreases
Law of demand: As price increases, quantity demanded decreases; as price decreases, quantity demanded increases
What can GDP tell us about an economy?
GDP is the market value of all final goods and services produced within a country within a given time frame. It can give us an idea of the overall health of an economy.
Why is some unemployment considered "healthy" for an economy?
A growing economy is a changing/developing economy. Some unemployment is considered healthy as it means new products, goods, or services are being introduced. It can also be considered healthy as people have options to change jobs.
What is inflation caused by?
An overall increase in prices
Is the following statement normative or positive?
"People who have a college degree should be paid more than those without one."
This statement is considered normative, as it is a "what should" or "what ought to be" statement. It is not testable, as we are unable to test what something "should" or "shouldn't" be.
Let's assume we are looking at the market demand for Apple Phones.
What happens when there is a decrease in the price of Samsung Phones?
Demand curve for Apple Phones shifts outwards towards the right.
What are some shortcomings of GDP?
Who is included in the labor force?
Those with jobs and those without jobs who are actively seeking employment
What price level is typically used to calculate inflation? What does this price level measure?
Consumer Price Index (CPI)
CPI measures the price of a "basket" of goods, to give us a sense of what the average cost of living is in a year.
Below is Chris's production possibilities schedule:
Fish Ducks
0 8
16 0
What is the opportunity cost of fish when going from catching 0 fish to 16 fish?
Loss: 8 ducks; Gain: 16 fish
OC = loss/gain
Opportunity cost of fish = 8 ducks/16 fish
Opportunity cost of fish = .5 ducks per fish
What are all of the shifters of supply?
1) Population of suppliers
2) Price of related goods
3) Price of inputs
4) Technology
5) Price expectations
(and natural disasters)
You buy a used car for $2,000. What factor of GDP does this affect? How does it affect GDP?
No effect on GDP, as it is not a new good or service.
Jill recently lost her job as a cashier due to the introduction of self-checkouts at her workplace. What type of unemployment is Jill experiencing?
Structural unemployment
In 2013, the basket price was $15,000. That same basekt was $5,000 in our base year, 1950. What is the CPI in 2013?
CPI in 2013 = (Basket Price in 2013/Basket price in 1950) * 100
= (15,000/5,000) * 100 = 300
Below is Chris and Jess's production possibilities schedule:
Chris Jess
Fish Ducks Fish Ducks
0 8 0 12
16 0 4 0
Who has the comparative advantage in catching fish? In hunting ducks?
OC of fish:
Chris: 8 ducks/16 fish = .5 ducks per fish
Jess: 12 ducks/4 fish = 3 ducks per fish
Chris has comparative advantage in catching fish
OC of ducks:
Chris: 16 fish/8 ducks = 2 fish per duck
Jess: 4 fish/12 ducks = 1/3 fish per duck
Jess has comparative advantage in hunting ducks
Let's assume we are looking at the market for Smart TVs, which is currently in market equilibrium. Suddenly, there is a decrease in the population of suppliers of Smart TV's.
What happens to equilibrium quantity and equilibrium price due to the decrease in the population of suppliers?
Supply curve shifts to the left. Equilibrium price increases, equilibrium quantity decreases.
A U.S. firm buys $1M worth of Samsung Phones made in Korea. What factor of GDP does this affect? What affect does it have on GDP?
Increases investment by $1M, decreases net exports by $1M. No affect on GDP.
What is considered the worst type of unemployment and why?
Cyclical unemployment is the worst type of unemployment.
It is caused by recessions. There are not enough jobs to go around for people that want them. We do not know how long someone may face cyclical unemployment, as we cannot predict when a recession will end.
The CPI in 2018 was 275. In 2019, the CPI was 289. What was the inflation rate from 2018 to 2019?
Inflation rate = [(CPI in 2019 - CPI in 2018)/CPI in 2018] * 100
= [(289-275)/275] * 100 = Approximately 5.09%
Below is Ted's production possibilities schedule
Cake Cookies
20 0
15 100
10 150
5 175
0 190
Does Ted have increasing, decreasing, or constant opportunity cost?
Increasing.
You can either tell by plotting the points on a graph (bowed-out curve), or by calculating the opportunity cost of either cake or cookies for each point.
Let's assume we are looking at the market for Smart TV's, which is currently in equilibrium. Suddenly, there is an increase in the price of streaming services (complement good). At the same time, new technology comes out which makes it cheaper to make Smart TV's.
What happens to equilibrium price and equilibrium quantity due to these scenarios?
Demand curve shift inwards towards the left and supply curve shifts outwards towards the right. Equilibrium price decreases, ambiguous change in equilibrium quantity.
In 2022, GDP was $25,460,000,000,000.00 (25.46 trillion).
The GDP deflator was 121.
What was real GDP in 2022?
Real GDP = (Nominal GDP/GDP Deflator) * 100
Real GDP in 2022 = (25.46 trillion/121)*100 =
Approximately $21,041,322,314,049.6
In 2022, there were 163,500,000 individuals included in the labor force. 5,700,000 of those individuals were considered unemployed.
What was the unemployment rate in 2022?
Unemployment rate = (# of unemployed/labor force) * 100
Unemployment rate in 2022 = (5,700,000/163,500,000) * 100
= Approximately 3.5%
In 1861, you could have bought a horse for $120. In 2023, the average horse costs about $3,500.
The CPI in 2023 is 296. The CPI in 1861 was 8.
Compute the price of a horse in 1861 in today's dollars.
Price in today's dollars = price in earlier time * (CPI today/CPI in earlier time)
= 120*(296/8) = $4,440.