Notes on Section 3.3
Text Coverage: Pages 75-83. For text discussion on indifference curves, see Figure 4.A.2 on page
153. Also, you might want to review your ECO 401 discussion of indifference curves.
Background: We are going to argue, by an
Notes on Section 3.2
Text Coverage: Pages 67-75
Our production function, Y = A*F(K,N), shows the technical (engineering) aspects of
production. That is, it shows what is technically possible. It does not, however, tell us how much of either
NOTES ON SECTION 3.1
TEXT COVERAGE: Pages 58-67.
In chapter 3, we describe the technical features of production and then determine how optimizing
firms and labor suppliers meet in the labor market to determine employment and, ultimately, the su
Section 3.4: LABOR MARKET EQUILIBRIUM:
TEXT COVERAGE: Pages 83-92, 311-312, and 339-341
We can combine the aggregate labor demand and supply curves derived above into one diagram and obtain
the equilibrium level of labor usage, which is at the point of in
NOTES ON SECTIONS 2.1 AND 2.2
TEXT COVERAGE: Pages 22-36.
Three ways to measure gross domestic product (GDP), the most comprehensive measure of economic
activity we have.
I. Measuring GDP by output or production.
(Nominal) GDP is the market
NOTES ON SECTION 2.3
TEXT COVERAGE: Pages 36-41
SAVING AND WEALTH
The various income concepts are examples of flow variables variables that are meaningfully
measured only with reference to units of time (examples: income is $1000 per month, the wage is $1
SECTION 2.4: REAL VS. NOMINAL VARIABLES, PRICE INDEXES, INFLATION, AND
TEXT COVERAGE: Pages 41-52, 86-92
Recall that earlier we defined nominal GDP:
Nominal GDP = pit qit
The problem with this in terms of determining the health o
Answers to suggested exercises for notes titled: ECO402_ch2_sections_2-1_and_2-2.pdf
1. The three approaches to measuring national economic activity are to use production, income and expenditures.
Conceptually, each should give the same
Answers to notes titled ECO402_ch3_section_3-4
Full-employment output is the level of output that firms supply when wages and prices in
the economy have fully adjusted; in the classical model of the labor market, this occurs when the
Answers to notes titled ECO402_ch3_section_3-3
In general, if a rise in the wage rate leads to an increase in labor supplied in some setting,
then it must be that the substitution is larger (in absolute value) than the income effect.
Answers to notes titled ECO402_ch3_section_3-2
5 (third part) The MPN curve is the same thing as the labor demand curve by virtue of
profit maximization. That is, since firms maximize profits when W/P = MPN, at a market
Answers to notes titled ECO402_ch3_section_3-1
1. A production function shows the quantity of output that result from various
combinations of capital and labor inputs. Shifts (i.e., rises in output for given inputs) can
occur due to supp
Answers to suggested exercises for notes titled: ECO402_ch2_section_2 -4.pdf
8. Nominal GDP is not appropriate for assessing economic growth since it may change due to price variations along
with output variations. Of course, in the real
Answers to suggested exercises for notes titled: ECO402_ch2_section_2-3.pdf
6. Private saving is private disposable income less consumption:
Sp = (Y + NFP + TR + INT T) C
Note that disposable income includes income from production by dom