Econ Quiz 1

Firm

A firm is a way of organizing production with the following characteristics: - One or more individuals own a set of capital goods that are used in production. - They pay wages and salaries to employees. - They direct the employees (through the managers they also employ) in the production of goods and services. - The goods and services are the property of the owners. - The owners sell the goods and services on markets with the intention of making a profit.

Imagine that the GDP per capita of a country had doubled every 100 years. You are asked to draw both linear and ratio scale graphs that plot GDP on the vertical axis, and the year on the horizontal axis. What will be the shapes of the curves?

An upward-sloping straight line on a ratio scale graph means that the growth rate of the GDP per capita is constant. An upward-sloping convex curve on a linear scale graph means that the GDP per capita increases by a greater and greater amount in absolute terms over time, consistent with a positive constant growth rate. a

Markets

Markets are a means of transferring goods or services from one person to another. There are other ways, such as by theft, a gift, or a government order. - reciprocated transfer - voluntary exchange of private property - a way of connecting people who may mutually benefit - by exchanging goods and services - through a process of buying and selling

INDEX OF REAL WAGES

The term 'index' means the value of some quantitative amount relative to its value at some other time (the reference period) which is usually normalized to 100. The term 'real' means that the money wage (say, six shillings per hour at the time) in each year has been adjusted to take account of changes in prices over time. The result represents the real buying power of the money the workers earned. The reference year is 1850 in this case, but the curve would have the same shape if any other year had been selected. It would be positioned higher or lower, but would still look like our familiar hockey stick.

Look again at Figure 1.10, which shows a graph of GDP per capita for West and East Germany, Japan and Spain between 1950 and 1990. Which of the following statements is correct? a. Having a much lower starting point in 1950 was the main reason for East Germany's poor performance compared to West Germany. b. The fact that Japan and West Germany have the highest GDP per capita in 1990 implies that they found the optimal economic system. c. Spain was able to grow at a higher growth rate than Germany between 1950 and 1990. d. The difference in East and West Germany's performance proves that capitalism always promotes rapid economic growth while central planning is a recipe for stagnation.

c

What does UK GDP per capita measure? a. the total output of London's economy b. the average disposable income of a UK resident c. the total output of the UK residents, divided by the number of the residents d. the total output of the UK's economy, divided by the country's population

d

Private property

things that can be owned, bought, and/or sold an important type of private property is the equipment, buildings, and other durable inputs used in producing goods and services. These are called capital goods. Private property may be owned by an individual, a family, a business, or some entity other than the government This means that you can: enjoy your possessions in a way that you choose exclude others from their use if you wish dispose of them by gift or sale to someone else ... ... who becomes their owner

Which of the following variables have followed the so-called 'hockey-stick' trajectory—that is, little to no growth for most of history followed by a sudden and sharp change to a positive growth rate? (as many that apply) a. GDP per capita b. labour productivity c. inequality d. atmospheric CO2

a, b, d There is no unidirectional trend in inequality over time. While early hunter-gatherer tribes were undoubtedly almost perfectly equal, economies in the modern era have varied from highly equal to highly unequal.

Which of the following are examples of private property? a. computers belonging to your college b. a farmer's land in Soviet Russia c. shares in a company d. a worker's skills

a, c

Look again at Figure 1.11. Which of these conclusions is suggested by the graph? - The Communist Party rule in the former Soviet Union before 1990 was a complete failure. - The contrasting performances of Botswana and Nigeria illustrate that rich natural resources alone do not guarantee higher economic growth, but that higher quality institutions (government, markets and firms) may also be necessary. - The impressive performance of South Korea's economy implies that other countries should copy their economic system. - The evidence from the Russian Federation and the former Soviet Union after 1990 shows that the replacement of central planning by capitalism led to immediate economic growth.

b

Which of the following are examples of markets? a. wartime food rationing b. auction websites such as eBay c. touts selling tickets outside concert halls d. sale of illegal arms

b, c, d

The GDP per capita of Greece was $22,494 in 2012 and $21,966 in 2013. Based on these figures, the growth rate of GDP between 2012 and 2013 (to two decimal places) was: a. -2.40% b. 2.35% c. -2.35% d. -0.24%

c

Which of the following is an economic rent? a. The amount you pay your landlord for the use of an apartment. b. The amount you pay to hire a car for a weekend. c. The extra profit that a successful innovator makes on bringing a new product to the market before its competitors. d. The extra profit that a firm makes when it doubles in size and there are no changes to costs or the price for each unit of its output.

c