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50 Cards in this Set
- Front
- Back
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at profit maximizing output...
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marginal revenue = marginal cost
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Marginal Revenue Product
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MRP = marginal product x marginal revenue or marginal product
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derived demand
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the demand for labor is derived from demand for something else, a final prouct.
example: the demand for psych professors is derived from the demand for psych major education |
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How are capital and labor related?
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-capital replaces labor (substitute)
-capital increases value of labor (complements) demand is more elastic when capital and labor are substitutes |
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labor unions
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workers who bargain collectively
craft union- workers at different firms with similar trade industrial union- grouped in an industry with different occupations |
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what do unions want?
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they generally bargain for better hours, more pay, benefits, conditions, etc.
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how do you increase demand for union labor?
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-restrict hours
-train workers to be more efficient -lobby for trade and immigration restrictions * a pay raise may lead to unemployment unless a union can somehow increase demand for workers... |
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monopsony
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a single buyer of labor
example: mill town where everyone employed lives there. |
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what determines savings?
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income, expectations, population demographics
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supply of financial capital or loanable funds
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is determined by savings of households (from bank who invest their money)
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present value
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present value =
future value / (1 + interest rate) + future value / (1+interest rate)^2 |
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GDP
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gross domestic product
the market value of all final goods and services produced in a year within a country only goods traded in a formal market price--this excludes underground activities |
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inventory
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we need to track inventory. GDP looks at final goods produced in a time period (produced, not sold)
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measuring GDP...
expenditure method |
C + I + G + X - M = output
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measuring GDP...
output method |
all value-added in the economy
value added = difference between selling price and input price |
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measuring GDP...
income method |
income = product
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GNP
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gross national product
GNP = GDP + Net Factor Income From Abroad (NFIFA) GNP is income earned from assets (includes people) owned by residents of a country |
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NFIFA
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payments to foreign assets in the U.S.
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How does GDP change if..
Bill Gates orders and receives Cadillac |
It would increase. Cadillac is a U.S. product; C increases
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How does GDP change if he would buy a BMW
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it would decease because BMW is a german car, imports would increase
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how would GDP change if the car sat on a lot for a year
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GP would increase because investment increases as inventory
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how would GDP change if he bought a 1984 cadillac
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there would be no change because that car was factored into 1984's GDP
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how would GDP change if he hired a housekeeper to do labor that she previously did her self
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GDP would increase because she's increasing consumption
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GNP
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GNP = GDP + income from abroad
this excludes income earned domestically by assets owned by foreigners |
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nominal GDP
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is equal to ...
(price of C x quantity of C) + (price of I x quantity of I) + (price of G x quantity of G) + (price of x x quantity of x) - (price of M x quantity of M) -nominal GDP uses current prices. |
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real GDP adjusts for...
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inflation. we want to track the growth rate.
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real GDP
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GDP or this year - GDP of last year /
GDP of last year |
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constant price real GDP
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pick a base year, and calculate GDP using this base year's prices
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substitution bias with GDP
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a year with high (or low) prices leads to lower (or higher) quantities, as compared to other years
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chain weight
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method to mitigate substitution bias by taking average of two growth rates using 2 different baseline years
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GDP deflator
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a measure of inflation, the amount by which all goods and services must be deflated in order to compare over time.
dt = nominal GDP / real GDP x 100 |
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purchasing parity prices (PPP)
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adjusts prices such that GDP is comparable across countries
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unemployment
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actively seeking work, but not working
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the labor force
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the employed + the unemployed
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labor force participation rate
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labor force / working age population
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employment to population ratio
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# employed/ working population
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structural unemployment
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changes in jobs and technology that make jobs obsolete
ex: stenographer |
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frictional unemployment
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exists because information about jobs - employers and employees is imperfect
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seasonal unemployment
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due to change in seasons - ski instructor
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cyclical unemployment
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unemployment over the business cycle
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natural rate of unemployment
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unemployment with no business cycle
-includes structual, frictional, and seasonal unemployment |
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recession
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period of negative GDP growth
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expansion
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period of positive GDP growth
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indicators
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leading- tells us where economy is going (factories)
lagging- tells us where we were (unemployment duration) coincidental - tells us where we are (unemployment rate, payroll) |
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at natural rate of unemployment...
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GDP = potential GDP
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CPI (consumer price index)
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CPI = cost of basket in given period /
cost of basket in base x 100 |
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inflation rate
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CPI this year - CPI last year / CPI last year
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biases in the CPI
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no adjustment for the quality of goods
new products aren't added right away substitution |
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core inflation
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inflation that excludes food and energy
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Producer price index
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measures prices faced by producers (input prices)
1st measured price of a good |
