Handout3 - Consumption Investment Government Purchases...

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Lecture 3 Overview Efficiency vs. Equality Welfare Economics: Efficiency: Equality: Example: Consider a pizza with 10 slices. Gina Kevin Equal? Efficient? 5 Slices 5 Slices 2 Slices 2 Slices 7 Slices 3 Slices Consumer and Producer Surplus Consumer Surplus: Producer Surplus: Market Efficiency
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Econ 1102-025 Page 2 of 4 Total Surplus : If the allocations are such that total surplus is maximized, we say that the market is efficient. Why would a market economy result in efficiency? Calculating GDP Example: Suppose that there exists 3 companies in a country (Macroland): A Wheat company, a plastic bag company and a bread company. The bread company purchases all the wheat from the wheat company. Consumers purchase plastic and bread. Nominal Expenditures for Each Company in 2005 Wheat Plastic Bags Bread Total Sales $ 300 100 500 Nominal GDP in Macroland in 2005 Total Per person
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Unformatted text preview: Consumption Investment Government Purchases Imports Exports GDP Suppose that, in addition to the story above the government spends $200: $150 buying imported peanut butter, and $50 buying bread. Total Per person Consumption Investment Government Purchases Econ 1102-025 Page 3 of 4 Imports Exports GDP NGDP vs. RGDP Nominal GDP: Real GDP: Base year: Suppose the entire economy consists JUST of the bread company, which sells goods directly to consumers. Example: Year Price per Loaf Loaves of Bread Price per bag Number of bags Nominal GDP Real GDP 2002 $2 100 $1 100 2003 $3 120 $1 140 2004 $4 115 $0.50 120 How does RGDP and NGDP compare for the USA? GDP and Quality of Life How does GDP relate to quality of life? Econ 1102-025 Page 4 of 4 GDP Deflator (Ch 10, p 213-214) GDP Deflator: Example: GDP Deflator 2002: 2003: 2004: GDP Inflation: Example:...
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This note was uploaded on 01/28/2012 for the course ECON 1102 taught by Professor Someguy during the Spring '07 term at Minnesota.

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Handout3 - Consumption Investment Government Purchases...

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