Economics- Unit 1

What is Economics?

the study of how people interact with each other and with their natural surrounding in producing livelihoods and how this changes over time

When did the capitalist revolution begin?

18th century

What book is Adam Smith most known for?

An Inquiry into the Nature and Causes of the Wealth of Nations

What are the advantages of specialization?

learning by doing, difference in ability, and economies of scale

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 _____________

-2.35%

What is a firm?

A business organization which pays wages and salaries to employ people, and purchases inputs to produce and market goods and services to make a profit

What is a developmental state?

A government that takes a leading role in promoting economic development through public investments, subsidies of particular industries, education, and other public policies

What was the Industrial Revolution?

A wave of technological advances and organizational changes in Britain

What does a ratio scale do?

makes it possible to compare growth rates across countries and at different periods

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?

GDP per capita, labor productivity, and atmospheric CO2

What do we see an upward turn for?

GDP per capita, productivity of labor, connectivity of various parts of the world, and impact of economy on the environment

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?

Spain was able to grow at a higher growth rate than Germany between 1950 and 1990

Look again at Figure 1.10. Which of these conclusions is suggested by the graph?

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

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?

The linear scale graph would be an upward-sloping curve with increasing slope and the ratio scale graph would be an upward-sloping straight line

What is private property?

The right and expectation that one can enjoy one's possessions in ways of one's own choosing, exclude others from their use, and dispose of them by gift or sale to others

What is technological progress?

a change in technology that reduces the amount of resources needed to produce a given amount of the output

What is a labour market?

a market in which employers offer wages to individuals who may agree to work under their direction

What are Markets?

a means of transferring goods and services from one person to another

What is GDP?

a measure of the total goods and services produced in a country

What is GDP per capita?

a measure of the total goods and services produced in a country divided by the country's population

What is technology?

a process that takes a set of materials and other inputs (work and labour) to produce an output

What is Capitalism?

an economic system in which private property, markets, and firms play an important role

What is a centrally planned economic system?

an economic system in which the government controls production, how goods should be distributed, and to whom goods should be distributed

Which of the following are examples of markets?

auction websites such as eBay, touts selling tickets outside a concert, and sale of illegal arms

Why is disposable income a major influence on wellbeing?

because it allows us to buy the goods and services that we need or enjoy

Why are technological innovations important?

because they reduce the amount of time and resources needed to produce an output

What is an important part of private property?

capital goods

Which of the following are examples of private property?

computers belonging to your college and shares in a company

What are some examples of organizations that are not firms?

family businesses, non profit organizations, employee owned cooperatives, and government owned entities (railways, water company, electric company)

Describe the hockey stick trajectory of atmospheric CO2

growth in atmospheric CO2 began in mid 19th century due to burning of fossil fuels as technologies introduced in the industrial revolution spread

How to calculate growth rate?

growth rate = change in income/original level of income x 100

Where does production take place in a capitalist system?

in firms

What is disposable income?

income available after paying taxes and receiving transfers from the government

Why are Markets and Private Property essential parts of how firms function?

inputs and outputs are private property and firms use markets to sell outputs

A growth rate series that grows at a faster rate __________________

is a steeper line

A growth rate series that grows at a constant rate ________________

is a straight line

How did the technological revolution affect the environment?

it brought about our dependence on fossil fuels

Describe the hockey stick trajectory of GDP per capita

it grew slowly or not at all in economies prior to industrialization, whereupon it began to grow at an increasing rate

Describe the hockey stick trajectory of labor productivity

it grew slowly or not at all in economies prior to industrialization, whereupon it began to grow at an increasing rate

Where are employers in the labor market?

on the demand side

Where are employees on the labor market?

on the supply side

Capitalism can be a dynamic economic system when it combines ___________________________ (4)

private incentives for cost-reducing innovation, firms led by those with proven ability to produce goods at low cost, public policy supporting these conditions, and a stable society, environment, and resource base

What are some explanations for why capitalism may not be dynamic?

private property is not secure, markets are not competitive, and firms are owned and managed by people who survive because of connections to govt or privileged birth

What are some examples of firms (4)?

restaurants, banks, large farms, and supermarkets

What do technological innovations allow for?

significant increases in living standards through reducing the amount of time and resources needed to produce an output

How did technology enhance the productivity of workers?

technology allows goods to be produced more efficiently

What major changes accompanied the emergence of capitalism and enhanced the productivity of workers?

technology and specialization

When did the Industrial Revolution begin?

the 18th century

What does GDP per capita tell you?

the average income of people in a country

What is a crucial reason why conditions have begun to change so drastically?

the capitalist revolution

What is the capitalist revolution?

the emergence of a way of organizing the economy that we call capitalism

Who was Adam Smith?

the founder of modern economics

What are Capital Goods?

the inputs used in producing goods and services

What does GDP measure?

the output of the economy in a given period

What factors does disposable income leave out?

the quality of our social and physical environment, the amount of free time we have, goods and services that are provided by the government (education, healthcare), and goods and services that are produced within the household (meals, childcare)

What is the supply side?

the side offering a service in exchange for money

What is the demand side?

the side offering money

How do Markets differ from theft, gifts, and government orders?

they are reciprocated and they are voluntary

What did the Industrial Revolution do?

transformed an agrarian and craft-based economy into a commercial and industrial economy

How did specialization enhance the productivity of workers?

we become better at producing things when we can devote more time and energy to it

What is the relationship between the economy and the environment?

we use natural resources in production which affect the environment and its capacity to support future production