Macro exam 1
working age population (employeed)
-16 or older -not in military -not institutionalized -Bureau of Labor Statistics
factors of technological progress
-new ideas -resources toward creating new ideas (patents protect new ideas) -new ideas= economic growth -freely shared -don't depreciate -ideas promote more ideas
structural unemployment
-wages fail the labor market into equilibrium -high wages= surplus of workers= structural employment-> alot of people want to work for a high wage(surplus) and firms don't want to hire as many ppl at a high wage (demand) -efficiency wage= higher wage paid to encourage worker productivity
source of comparative advantage
1. Abundant Inputs 2. specialized skills 3. mass production
Limitations of GDP
1.Prices are not values -market power distorts prices -Externalities -Public goods 2. Non market activities are not included 3. Shadow economy is missing- illegal markets not shown to the government 4. Environmental degradation is excluded 5. Leisure does not count 6. GDP ignore distribution
measuring GDP: total income
?
progressive tax
A tax where those with more income tend to pay a higher share of their income in taxes
the market value of all final good and services produced within a country
Anything produced domestically -produced by foreign owned business Does not include production in other countries by domestically owned business
specialized skills
Better production techniques
or GDP =
C + I + G + (Exports - Imports) -Increase exports= increase GDP -Imports do not impact GDP
GDP=
C+I+G+NX (Consumption, Investments, Govt. purchases/ spending, and Net exports)
the market value of all
Comprehensive measurements- everything bought and sold in markets excludes non market goods and services
Which of the following groups is most likely to oppose international trade?
Domestic produces of imported goods
mass production
Economies of scale -Specialized production lines -Bargaining power
social insurance
Government provided insurance against bad outcomes such as unemployment, illness, disability, or outliving your savings
arguments against trade
National Security Protections for infant industry - acting more as monopoly domestically, Unfair competition and Dumping - more established industry Enforcing minimum standards Restrict trade to save jobs 3
the market value of all final goods and services
Not intermediate good and services
the world market
Not maximizing surplus/ restricting exports = dead weight loss
effects of imports
Price Domestic: falls Quantity demanded domestically: rises Quantity supply: falls Total surplus= increase -winners= consumers -losers= producers
effects of exports
Price domestic: increase Quantity demanded domestically: decrease Quantity supply: increase Total surplus: increase -Winners: producers -losers= consumer
costs of redistribution
Reduced incentive to work Administrative cost Tax avoidance, evasion, and fraud
measuring GDP (what is produced in the country)
Total spending- add by every dollar of spending Total output Total income
Solow Model
Traditional growth theory with focus on capital. Because 1. increase output per worker and 2. Wealthy have more capital goods and investment and growth are correlated. -consider the production function and capital accumulation stock -capital accumulation can't sustain long-term economic growth
measuring GDP: total output
Value added = total sales - cost of intermediate inputs
the market value
assign value all goods and services
goal of allocating tasks
at the lowest cost producer
social safety net
cash assistance, goods, and services provided by the government to better the lives of those at the bottom of the income distribution
what do markets do?
connect buyers and sellers to trade, Allows us to allocate goods and services based on price, Goods and services are scarce (not everyone can have them) - do that thru these markets, We use price to help determine how resources should be distributed and used -marketers reallocate resources, goods and services, better uses, generating gains from trade.
gov. stability
corruption/ political instability= decrease investment
limitations of unemployment
discouraged worker: someone who wants to work, but can't find a job and gives up-->
logic of comparative advantage
do more tasks where his opportunity cost is low and rely on others for tasks where u have a high opportunity cost -do more of what you are relatively good at, and less of the other stuff -the time and energy you save on tasks other people do is time you can allocate to tasks for which you do have a comp. adv.
cyclical unemployment
due to temporary downfall in economy
Labor Force participation rate=
employed + unemployed (labor force)/ working age population x 100
Labor Force=
employment + unemployment
trade costs
extra costs associated buying/ selling internationally rather than domestically
specialization
focus on specific tasks, spending more time on what they are relatively good at and less of their time doing other stuff
import goods (buy from a foreign seller)
foreign price + trade cost less than domestic price
export goods (sell to foreign buyers)
foreign price - trade costs greater than domestic price
abundant inputs
geography , climate, natural resource People, businesses, and strategic investments
property rights
gov needs to help protect these rights
policy to encourage innovation
help economic growth
hysteresis
high employment leads to higher unemployment equilibrium in long run
equality
how the pie is divided
globalization
imports and exports are a rising share of the US economy
measuring Inequality
income inequality and wealth
Underemplyed
job does not fully utilize skills or want more hours
opportunity cost principle
marginal cost should include all relevant opportunity costs and consider the full set of costs
GDP
market value multiplied by the quantity produced , it is a flow.
internal markets
markets that managers set up within their organization so that different divisions can buy and sell scarce resources
relative poverty
measure of adequacy of resources relative to the material living standards of your society -What is essential depends on what others have -Can change over time
absolute poverty
measure the adequacy of resources relative to an absolute standard -focus on basic needs being met -does not change over time
do imports lower GDP
no
not in labor force
not looking for a job
unemployment
not working, trying and looking to get a job
world price
price that is traded good sells at the world market -price that consumers pay to buy imported shirts, and the price that producers can get for exporting their shirts
efficient regulation
red tape, excessive oversight, hinder people to work-> no over regulate-> hurt our labor force
opportunity cost
reminds you that the true cost of something is what you must give up to get it. -focus on opp. cost because you want to minimize what you have to give up to get the task done -advantage bc lower opp. costs = give up less to get a task done and more efficient for you to do that task.
unemployment rate
share of labor force who are unemployed -unemployed/ labor force x 100
technological progress
shift upward, giving more output bc more efficiently using that capital
Price
signal: sending messages that are heard around the globe, an incentive: including people to make better choices--> high incentive= increase production= create new profit margins a bundle of information: prices guide every decision we make, helping organize and coordinate economic activity
efficiency
size of the economic pie
Government Redistribution
social safety net, social insurance, progressive tax
quintiles
sort families from low to high income, and then divide them into 5 equal sized groups
micro
study of individual decisions and their implications for for specific markets
macro
study of the economy as a whole
proportional tax
tax rate is the same for everyone
cost benefit principle
tells you to pay careful attention to the price.
absolute advantage
the ability to do a task using fewer inputs - tells you who is best at a task, but not who should do the task. -same person can hold for both
comparative advantage
the ability to produce a good at a lower opportunity cost than another producer -produce more if you use this to assign tasks- assign to the person who can do it at the lowest opportunity cost. -delegate tasks whenever you can delegate them to someone w a lower op. costs- upside: free you up to spend more time on those tasks where you hold a comparative advantage. -cannot have same
gains from trade
the benefits that come from reallocating stuff to its better uses
regressive tax
the higher your income the lower your tax rate
marginal principle
this means that when you compare the price of an imported shirt with the price of the domestically produced shirt, you're effectively comparing their marginal costs
frictional unemployment
unemployment that occurs when people take time to find a job and workers to search for employees -job search resources reduce unemployment -skills mismatch increase unemployment -unemployment insurance or other gov. support for the unemployed= increase unemployment
Marginally attached
want a job, they have looked in past year, not looking now
involuntary part time
working part time but would rather be full time
four categories that make up GDP
y= C+I+G+NX
does investment increase GDP
yes