ECON 102 – Chapter Reviews.docx

ECON 102 – Chapter Reviews.docx - ECON 102 Chapter 2...

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ECON 102 – Chapter 2 - Production Possibilities Frontier Model o Points that are: Attainable, unattainable and efficient points o Trade-offs o Opportunity Costs o Increasing Opportunity cost (shape of PPF) o Economic growth - Circular Flow Model o Economic co-ordination - Factors of Production – inputs to the productive process o Land – natural resources o Labor – the work time and effort of the people who produce goods and services o Capital – building and machines o Entrepreneurship – organization of land, labor and capital - Principles of Economics Illustrated by the PPF o Scarcity – cannot produce outside the PPF o Efficiency – producing on the PPF is more efficient than producing inside the PPF o Trade-offs – more of one good can be produced only if some units of another good are given up (idea) o Opportunity Costs – increasingly more of one good requires giving up even more of another good (measures) o Economic Growth – over time, the PPF can shift outward
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Chapter 20 - GDP is calculated in practice as P 2015 xQ 2015 ( nominal GDP – simple calculation) o If, in the following year GDP increased it is possible that either price increased or quantity increased or both o We want to measure changes in production only. We want a figure for GDP that is “adjusted for price” Why? So that we can compare GDP figures over time o The adjusted figure is called real GDP - Real GDP – is the output valued at constant base year prices o Ex Assume Base Year is 2002 o P 2002 x Q 2015 - The Lucas Wedge (20.5 pg 473) o By 2013, real GDP per person was 45 000 per year lower than it would have been without the productivity slowdown o The accumulated gap (1970 – 2013) was 640 000 per person - Limitations of Real GDP o Household Production – productive activities not traded in markets (ex. Housework) o Underground economic activity – unreported economic activity (ex. Avoiding taxes, illegal activity) o Health and Life Expectancy – good health and long life, although desirable, do not show up directly in GDP o Leisure Time – another desirable economic goal that is not valued in GDP o Security – safety and security are valued on many levels but not in GDP o Environmental Quality – valuable aspect of life which, when present, is not added to GDP or, when absent is not subtracted from GDP o Political Freedom and Social Justice – valued but very difficult to quantify 2
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Chapter 21 - The Labor Force Survey deliberately excludes individuals in all of the following categories: o Persons younger than 15 years of age o Persons residing in the Yukon, Northwest Territories, Nunavut and Aboriginal settlements o Full-time Members of the armed forces o Inmates in institutions - Natural Unemployment o The Age distribution of the population – a younger or older population will influence the number of new job seekers and the amount of frictional unemployment o The Scale of Structural Change – if technological change is swift and foreign competition is fierce, structural unemployment is high o
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