ECON-102-Lecture-Notes.docx

ECON-102-Lecture-Notes.docx - ECON 102 CHAPTER 2 January 6...

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ECON 102 CHAPTER 2 January 6, 2015 Economic Growth Fig. 2.5 pg. 36 (slide 40) PPF 0 – shows the limit of production with the current level of factors of production and technology, other things remaining the same Point A – no resources devoted to the production of pizza ovens, 5 million pizzas produced Point B – if we decrease production of pizzas to 3 million, put those resources into production 6 pizza ovens After one period of time, the PPF pivots outward. Now we can produce outside the original PPF PPF 1 – shows the benefits of economic growth as more consumption in the future . Principles of Economics Illustrated by the PPF Scarcity – cannot produce outside the PPF Efficiency – producing on the PPF is more efficient than producing inside the PPF Trade-offs – more of one good can be produced only if some units of another good are given up Opportunity cost – increasingly more of one good requires giving up even more of another good Economic growth – over time, the PPF can shift outward Re-cap Chapter 2 Production Possibilities Frontier Model Attainable, unattainable, and efficient points Tradeoffs Opportunity cost Increasing opportunity cost (shape of PPF) Economic growth
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Circular Flow Model Economic co-ordination January 8, 2015 Factors of Production The inputs to the productive process: Land – natural resources Labour – the work time and effort of the people who produce goods and services Capital – buildings and machines Entrepreneurship – the organization of land, labour, and capital Circular Flow Diagram (in its simplest form) Fig. 2.7 pg. 43 (slide 61) Outside real flow Households Own the factors of production Are sellers in factor markets Are buyers in goods markets Firms Are buyers in factor markets Use factors of production to produce goods and services Are sellers in goods markets Inside money flow Households Pay for goods and services which represents revenue for firms Firms Pay for factors of production which represents income for households Coordinating decisions through price adjustments (slide 62) If there is not enough of a good available: i. More supply of the good is needed, or ii. Less demand is needed, or iii. Both. A higher price will accomplish this outcome; the problem will be resolved in time (coordinating mechanism) CHAPTER 20 January 8, 2015
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Real vs. Nominal GDP GDP is calculated, in practice, as: If, in the following year, GDP increased, it is possible that either price increased or quantity increased, or both 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. The adjusted figure is called real GDP . January 13, 2015 Supported Learning Group TW 6:00-7:30 [email protected] SCH 108A Re-cap Chapter 20 Gross Domestic Product Definition and meaning Relationship to the circular flow diagram Calculation of GDP by the Expenditure Approach Nominal and real GDP January 15, 2015 Re-cap end of Chapter 20
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