[ECON 212] - Midterm Exam Guide - Comprehensive Notes for the exam (17 pages long!)

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7 Feb 2017
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UNL
ECON 212
MIDTERM EXAM
STUDY GUIDE
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o 6. Markets are usually a good way to organize economic activity
Communist countries, central planning
Government officials (central planners)
o Alloate eooy’s sare resoures
What goods and services were produced
How much was produced
Who produced and consumed these goods and
services
Market economy, allocation of resources
Through decentralized decisions of many firms and households
As they interact in markets for goods and services
Guided by prices and self-interest
Adas “ith’s iisile had
Households and firms interacting in markets
o At as if they are guided y a iisile had
o Leads them to desirable market outcomes
Corollary: Government intervention
o Preets the iisile had’s ailities
o 7. Governments can sometimes improve market outcomes
We need government
Enforce rules and maintain institutions that are key to a market
economy
Enforce property rights
Promotes efficiency, avoid market failure
Promotes equality, avoid disparities in economic wellbeing
Property rights
Ability of an individual to own
Market Failure
Situation in which the market left on its own fails to allocate
resources efficiently
Externalities
Market Power
Externality
Ipat of oe perso’s atios o the ell-being of a bystander
Pollution
Market power
Ability of a single economic actor (or small group of actors) to
have a substantial influence on market prices
Disparities in economic wellbeing
Market economy rewards people
o According to their ability to produce things that other
people are willing to pay for
Government intervention, public policies
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o Aim to achieve a more equal distribution of economic
well-being
o May diminish inequality
o Process far from perfect
How the economy as a whole works
o 8. A outry’s stadard of liig depeds o its aility to produe goods ad
services
Large differences in living standards
Among countries
Over time
Average annual income, 2011
$48,000 (US); $9,000 (Mexico)
$5,000 (China); $1,200 (Nigeria)
Explanation: differences in productivity
Productivity
Quantity of goods and services produced from each unit of labor
input
Higher productivity
o Higher standard of living
Groth rate of atio’s produtiity
o Determines growth rate of its average income
o 9. Prices rise when the government prints too much money
Inflation
An increase in the overall level of prices in the economy
Causes for large or persistent inflation
Growth in quantity of money
o Value of money fails
o 10. Society faces a short-run trade-off between inflation and unemployment
Short-run effects of monetary injections:
Stimulates the overall level of spending
o Higher demand for goods and services
Firms- raise prices; higher more workers; produce more goods
and services
Lower unemployment
Short-run trade-off between unemployment and inflation
Key role- analysis of business cycle
Business cycles
Fluctuations in economic activity
o Employment
o Production
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