1 | P a g eECON 1901002 SPRING 2017 Monday February 6, 2017
All you need to know is that GDP increase accured after the industrial revolution and Angus Madison was the one that came up with it
RELATED TO ECONOMIC HISTORY The above figure was derived from Angus Madison, an economic historian Humans switched from hunting & food gathering to farming and simple manufacturing around 10,000 B.C. Prior to the Industrial Revolution (starting around 1750 in England), humans lived at the subsistence level of output, just enough to maintain the species, through history Up to 1820, when the data became available, it was estimated that the human population and the global real GDP output were both growing at approximately, 01 percent a year, meaning that output per capita stayed the same through the period prior to the Industrial Revolution That meant that the standard of living was virtually unchanged for 99 percent of human history After 1820, things changed dramatically. For example, from 1820 to 1995: The world population grew fivefold The world real output increased fortyfold Per capita real output increased eightfold The industrial revolution has led to a rapid advance in technology and hence in productivity. At the same time, economic interdependence among countries rose sharply during the period due to liberalization of trade
Questions are divided among 3 chapters 17 questions from chapter 1 17 questions from chapter 2 16 questions from chapter 3 Closed book and notes Use the practice test as a resource to study from it
2 | P a g eECON 1901002 SPRING 2017 Monday February 6, 2017 CHAPTER 1 Human wants relative to resources Human wants are unlimited Resources are limited This results in scarcity or an imbalance These two concepts deal with trade off relationship Invisible hand concept Society will benefit from the selfish wants of an individual Adam Smith ∙ He made economics a social science; from Scotland in the 1700's; Wrote "An Inquiry into the Nature and Causes of the Wealth of Nations"; He wondered why some nations were wealthy while others were poor; answered this by emphasizing the role of the division of labor and free markets; He observed that dividing labor into individual and specialized small operations, more goods could be produced; But a large market is also needed to support the division of labor because you have to sell more to stay in business. Making choices at the margin Cost and benefit at the margin ∙ Cost at the margin ♦ The extra cost of adding one unit such as sleeping an extra hour or building ne extra house ∙ Benefit at the margin ♦ The extra benefit of adding the same unit, once the marginal costs outweigh the marginal benefit, no more units can be added Angus Maddison Industrial Revolution Difference between social and individual interest Social interest ∙ Choices made in social interest are best for the society as a whole Individual interest ∙ Choices made in the pursuit of selfinterest also promote the social interest Normative Statement vs. Positive Statement Normative Statement ∙ Statements which can be tested ∙ Are not based on opinion ∙ Statements are concerned with facts – that can be shown to be right or wrong, “What if” Positive Statement ∙ Opinion or value based statements ∙ An expression that something is right or wrong so often includes the words ought, should or better One question from the first e concepts Micro Economics vs. Macro Economics Micro Economics ∙ The study of how households and firms make decisions and how they interact in markets ∙ Specific unite Macro Economics ∙ The study of economywide phenomena, including inflation, unemployment, and economic growth ∙ At large How do you find the benefit (measure)? What you are willing to give up A decisionmaking process in which you compare what you will sacrifice and gain by a specific 3 | P a g eECON 1901002 SPRING 2017 Monday February 6, 2017
action Who do you measure opportunity cost? The most desirable alternative given up as the result of a decision Who do we describe economics? Manage resources Choices under scarcity 1. The study of how individuals and nations make choices about ways to use scarce resources to fulfill their needs and wants 2. Social science that deals with the study of the production, consumption, distribution of goods and services and the transfer of wealth to obtain those goods and services Economic model Economist rely on economic theories, or models, to analyze realworld issues. Economic models are simplified versions of reality One purpose of economic models is to make economic ideas sufficiently explicit and concrete so individuals, firms, or the government can use them to make decisions Economists use economic molds to answer questions Economic models make behavioral assumptions about the motives of consumers and firms. Economists assume that consumers will buy the goods and services that will maximize their wellbeing or their satisfaction. Similarly, economists assume that firms act to maximize their profits. The type of test Statistical Natural Economic Experimental Scarcity ideas Inability to satisfy all of our wants Limited by time we have, income and prices; societies wants are limited production resources
CHAPTER 2 Circle flow diagram Tells us how economy is organized It tells us the money flow A visual model of the economy that shows how dollars’ flow through markets among households and firms Players ∙ Households ∙ Businesses ∙ Sometime even the government Decision Makers ∙ Markets ∙ Factors of Production
We also discuss several other topics like l-hist total
4 | P a g eECON 1901002 SPRING 2017 Monday February 6, 2017 ∙ Goods Market Consumption vs Capital Goods Consumption ∙ 85% of production goes to consumption of goods and services. This includes both government consumption and individual consumption ♦ The biggest sector in this is health services ♦ Health services accounted for 17.6% in 2011 Capital Good ∙ 15% accounts for capital goods Physical Capital vs. Human Capital Physical Capital ∙ Factories and equipment used in production Human Capital The skills and knowledge gained by a worker through education and experience Components of government spending Federal Government Expenditure ∙ Medicaid and Medicare = 24% (will be on test) ∙ National defense, immigration, homeland security = 20% ∙ Social Security and Welfare Benefits = 20% ♦ 6.2% payed by employer ♦ 6.2% payed by employ ∙ Interest on national debt = 6% ∙ Transfer to state and local government = 21% ∙ NASA, Grants, Subsidies. Etc. = 9% Federal Government Income ∙ Personal Income Tax = 41% ∙ Social Security Tax = 40% ∙ Corporate Tax = 9% ∙ Other Taxes = 10% Resource, Labor, Capital, Land, Entrepreneurship Resource ∙ Both renewable and nonrenewable resources Labor ∙ wages Capital ∙ interest Land ∙ Rent Entrepreneurship ∙ Profit or loss Export, Import, Government Spending, Government Good, Economic Equality/Inequality Export ∙ goods/services produced in one country yet supplied to consumers in another Import ∙ Goods/services purchased by consumers from overseas producers Government Spending ∙ Salaries ∙ Infrastructure ∙ Private Enterprise 5 | P a g eECON 1901002 SPRING 2017 Monday February 6, 2017
Government Good ∙ Parks ∙ Buildings ∙ Wages Economic Equality ∙ Collective values we all make the same Economic Inequality ∙ This has declined at a global level, but it has risen within individual countries Personal Distribution of Income vs. Functional Distribution of Income Functional ∙ Among factors of production ♦ 69% of income goes to labor ♦ 31% of income goes to land, capital and entrepreneurship Personal ∙ Distribution of income among house holds ♦ Poorest 20% of poorest households receive 3% of income They have a wealth equivalent to 0 (in actuality it is negative due to debt) They owe more than they own ♦ Richest 20% of the riches households receive 50% of income They have a wealth that is close to 9899% Whom, How, What Whom ∙ Distribution of economy How The way factors of production are used What ∙ Variety of goods and services Developed Market vs. Emerging Market Majority of countries are developing Few are imaging with intensive use of technology U.S.A is the richest out of Canada, Mexico, China, India
CHAPTER 3 Production Attainable Unattainable Efficient Inefficient Opportunity cost Free Lunch Unemployment Inside the curve inefficiently Production Efficiency vs. Economic Efficiency Give up one something to gain something Production possibilities frontier Law of Increasing Cost vs. Law of Constant Cost Globalization Benefits losers and winners some benefit others don’t Factors of Production & Factors of Technology Economic growth will lead to sustained expansion
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We also discuss several other topics like in musical notation pitches are written on a set of five horizontal lines
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Don't forget about the age old question of ∙ How did Siddhartha Guatama’s experience lead to his Enlightenment?
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