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ECON 201 Unit 2 Study Guide

by: Yasmeen Mohamed

ECON 201 Unit 2 Study Guide ECON 201

Yasmeen Mohamed
University of Louisiana at Lafayette

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About this Document

Study Guide of concepts and definitions for Macroeconomics Unit 2
Principles of Macroeconomics
John Must
Study Guide
Economics, Macroeconomics
50 ?




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This 4 page Study Guide was uploaded by Yasmeen Mohamed on Thursday February 25, 2016. The Study Guide belongs to ECON 201 at University of Louisiana at Lafayette taught by John Must in Spring 2016. Since its upload, it has received 34 views. For similar materials see Principles of Macroeconomics in Economcs at University of Louisiana at Lafayette.

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Date Created: 02/25/16
Econ 201 Unit 2 Study Guide  Market Failures: unmet demand in economy (under producing) with public goods and externalities (not enough buyers and sellers).  Demand/Supply side market failure: Demand/Supply curve does not represent consumers’ willingness to pay or full cost of producing a good/service, respectively.  Consumer Surplus = Max price – Actual price (equilibrium) Most a person is willing to spend and have change left over.  Producer Surplus = Actual Price – Min price  company price minus producer’s true cost of a product. Public Goods Private Goods(Produced in Markets  Goods used by everyone by firms) ‘public’  Individually provided and used  Nonrivalry – shared goods  Nonexcludability – not  Rivalry – not shared restricted to one person  Excludability – for specific  “Free Rider Problem” – consumers  No profit made from providing everyone benefits except providers public goods to the market! (+) Externality: Underproduction, Demand-side market failures  Gov intervention: recipient provides subsidies, provisions, and bargaining. (-) Externality: Overproduction, Supply-side market failures  Gov intervention: pass legislation, limit activity, laws, taxes, bargaining.  How much of a public good should be produced? – When MC=MB GDP: value of final goods/services produced within an economy in given period of time. Nominal GDP  current prices of goods/services Nominal GDP = units of output x price per unit Real GDP  production of goods and services valued at constant prices (adjusted for inflation) Real GDP = Nominal GDP / Price index *Real GDP used over Nominal b/c shows how the economy's overall production of goods and services changes over time and measures the total quantity of goods and services the economy is producing that is not affected by changes in the prices of those goods Price index  price of a good compared to price of a similar good Price index = (Nominal GDP / Real GDP) x 100  Macroeconomics concerns – inflation (increase in prices, decrease in standard of living), unemployment (can’t get a job although willing and able; affects money flow and using all available resources), and economic growth (shift possibility curve right).  Modern Economic growth (Real GDP / population) due to education, tech, and resources  Financial Investment: purchase of assets (stocks, bonds, real estate).  Economic Investment: creating business on production and accumulation of capital goods (machines, tools, factories). Pric e Dead Weight loss Supply Shock: unexpected change in supply curve. Demand shock: positive or negative change in demand curve, flexible prices, gov assist STICKY PRICES: slow to change or inflexible leading to fluctuations in GDP and unemployment.  Aggregate output: total amount produced at a particular time. Final good: Products produced for immediate use, included in GDP. *To avoid multiple counting GDP includes FINAL goods and not INTERMEDIATE goods. Include value added.  Expenditures Approach: Gov Consumer Expenditure consumpti on Public on of Investment ongoods and durable construction,social capital (3yr) and inventory, equipment nondurabl e goods  Income Approach (2-Steps): NA = Wages + Rent + Interest + Propietors Income + Corporate Profits + Import Taxes GDP = NA – Net foreign factor income + consumption of fixed capital + Statistical Discrepancy Disposable Income = personal income – taxes (extra spending money) Shortcomings of GDP: Not Included in GDP: - Volunteering - Nonmarket transactions - Gambling - Leisure - Tips - Improved product quality - Cash only places - The underground economy - Transfer of money - Financial transactions - GDP and the environment (unfortunately included in GDP) - Composition of output and distribution of income - Noneconomic sources of well-being (crime reduction, courtesy)


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