Lecture 4 measuring the cost of living
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Macroeconomics Lecture 4 Measuring the Cost of Living
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Transcript of Lecture 4 measuring the cost of living
Macroeconomics
Lecture 4
Measuring the Cost of Living
Questions?
1. Is economics a hard science or a soft science? 2. What does GDP stand for? 3. What is the definition of GDP? 4. What is GDP per capita? 5. Which country has a higher GDP, Japan or Germany? 6. Which country has a higher GDP per capita, Japan or Germany? 7. What is the formula for estimating GDP? 8. If I marry the person I used to buy my dinner from, what happens to GDP? (Assume she no longer charges me for dinner). 9. I sell my used car this year. What will it do for GDP? 10. If the government gives people money to go to college, where does it show up in GDP? 11. If I buy a new house this year, where does it show up in GDP? 12. I grow and eat my own carrots. Where does this produce show up in GDP? 13. What is the world GDP per Capita? 14. When did things start to change in China? 15. Calculate GDP based on: Consumption = 150, Investment = 50, Government = 25, Exports = 50, Imports = 60 16. According to Warren Buffet if you don't have ________ what two things will kill you? 17. What are the two elements of trust? 18. What generally happens to a country as people trust each other? 19. Which country would you expect to have a brighter economic future: Philippines or Vietnam and why? 20. Please read the essay by Basiat. Provide an example of what is seen and unseen in Rexburg.?
StudentIntroductions
Yabut
What to make?
How much to make?
Who will make it?
Who will consume it?
Four Questions
How you slice the pie
determines the size of
the pie
Who decides? Government
or Individuals
Planned Economy vs.
Market Economy
Government Economy vs.
Individual Economy
Adam SmithMarket Economy
Individual Economy
Karl MarxPlanned Economy
Government Economy
Adam Smith The Wealth of Nations
1776
Invisible Hand
individualself interestpromotes
wealth
Price System is a
Knowledge System
buyer and seller both win
Voluntary Exchange
One Price Two values
Every Exchange
Buyer Value
Seller Value
PriceRange?$
100
70What if the price
was 120?
What if the price was 60?
Buyer Value
Seller Value
PriceRange?$
100
70
Opportunity Cost
The highest valued alternative
What else could you be doing?
It’s cheaper to pay someone else than
to do it myself
Opportunity Cost is too high
Absolute Advantage
Produce more with the same resources
Comparative Advantage
Produce at a lower opportunity cost
Comparative Advantage
My opportunity costis lower than your opportunity cost
Comparative Advantage
I don’t have to give up as much as you do
The basis for trade is comparative advantage,
not absolute advantage.
Who should mow my lawn?Me - one hour
Son - three hours
Who should mow my lawn?Who is best is not important
Must know the opportunity costs
Me - Can earn $100 doing economics
Son - Can earn $25 working at McDonalds
Who ever has a lower opportunity cost has a comparative advantage.
The son has a lower opportunity cost
Adam EveTotal
Hours
Make a Hook
3 2 5
Catch a Fish
4 1 5
TotalHours
7 3 10
No Trade2 Hooks and 2 Fish
10 Hours - 5 Hours per Fish
Adam EveTotal
Hours
Make a Hook
2 hooks6 hours 6
Catch a Fish
2 fish2 hours 2
TotalHours
6 2 8
With Trade2 Hooks and 2 Fish
8 Hours - 4 Hours Per Fish
Markets Where Buyers and
Sellers Trade
CircularFlow
Diagram
Households
Individuals in a home
Sell Factors of Production
Buy Goods & Services
Firms
Buy Factors of Production
Sell Goods & Services
Product Markets
Markets for finished goods and services
- Stores -
Factor Markets
Markets for goods and services used to make
products
LaborCapitalNatural
ResourcesEntrepreneurs
SpendingWages & Payments
for Factors
Goods & Services
Households
Firms
FactorMarkets
ProductMarkets
