STAT 230- Midterm Exam Guide - Comprehensive Notes for the exam ( 33 pages long!)

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STAT 230
MIDTERM EXAM
STUDY GUIDE
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ECON 102 Notes, Fall 2016. Final mark: 96% Easiness: 9/10 Interest: 7/10
Professor: Dr. Mary Ann Vaughan
By: Jacky Zhai
Check out more of my notes at www.jackyzhai.ca
The economic problem (Chapter 2)
PPF- production possibility frontier
Boundary between obtainable and unobtainable. Given a curve, anything on inside is
obtainable, outside unobtainable. The boundary is where we should be. Anything inside the
boundary would be inefficient, and no tradeoff is required to obtain it.
In this model economy, everything remains the same (ceteris paribus), except the 2 goods we
are considering.
Every choice along the PPF involves some kind of tradeoff (i.e having to give up cola to make
more pizza)
This is the opportunity cost of the PPF. How much soda to give up to make one more pizza?
Because resources are not equally productive in all activities, the PPF bows outward
As the quantity of a good increases, so does the opportunity cost (pizza becomes more scarce,
soda plenty).
The opportunity cost is the cost of a good in terms of other goods foregone.
To determine alternative efficient quantities to produce, we compare costs and benefits
Economic growth
Using PPF of capital goods vs consumption, we pick a midpoint, allowing us to gain much more
capital while sacrificing less consumption = growth during the next period
Two key factors influence economic growth:
Technological change: development of new goods, and better ways to produce these goods
(robot manufacturers, computers)
Capital accumulation is the growth of capital resources, which includes human capital.
Cost of economic growth tomorrow is the decrease in our consumption today (we need to
allocate some consumption to research, capital accumulation, etc.)
Gains from trade coordination
To get gains from trade, we have to coordinate the choices of individuals
To make coordination work, four complementary social institutions have involved over the
centuries
Firms- an economic unit that hires factors of production and organizes those factors to produce
and sell goods and services.
Markets- any arrangement that enables buyers and sellers to get information and do business
with each other (i.e mall, internet)
Property rights- are the social arrangements that govern ownership, use, and disposal of
resources, goods, and services.
Money- is any commodity or token that is generally acceptable is a means of payment.
Circular flows through markets
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Factors of production and goods & services flow in one direction, money flows in the other
direction.
Households provide the factors of production. Goes to factor markets- firms- goods markets,
then back
Money from households goes to goods markets, to firms, then to factor markets. Households
pay for goods which represents revenue for firms. Firms pay for factors of production which
represents income for households.
Households own the factors of production – are sellers in the factor markets, buyers in the
goods markets.
Firms use the factors of production to produce goods and services. Are buyers in the factor
markets, sellers in the good markets.
Coordinating decisions through price adjustments
Price is the coordinating mechanism
If there is not enough of a good available, more supply or less demand is required and a higher
price will accomplish this outcome.
Measuring GDP and Economic Growth (Chapter 20)
Gdp (gross domestic product) is the market value of all final goods and services produced within
a country in a given period of time
This definition has 4 parts: market value, final goods and services, produced within a country, in
a given time period
Market value – goods and services are valued at an arbitrary market value price. We add
everything together (popcorn and computers, apples and carrots, etc.)
a final NEW good/service is an item bought by its final user during a specified time period (ex.
buying tires at an auto shop to put on a car by yourself)
A final good contrasts with an intermediate good – which is an item produced by one firm but
bought by another firm and used as a component of the final good (ex. Toyota purchases tires
to put on their final good of cars).
Excluding the value of intermediate goods and services avoids counting the same value more
than once (i.e we don’t double count the tires and the cars with the tires).
Produced within a country – must be produced in our country (does not matter if it’s an
international company)
In a given time period, usually annual or quarterly
GDP and the circular flow of expenditure and income
Households sell and firms buy factors of production in factor markets.
Firms sell and households buy goods in the goods market.
Consumer expenditure is the total payment for consumer goods and services by households.
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