Topics for Exam 1
Principles of Economics
Monday October 7, 4th week
Chapters: Mankiw 1-4, 7, 15, 17
I. Introduction to Economics
A. Specialization, self-interest, global interdependence
B. Central questions
C. Economic Systems
1. tradition
2. command
3. market
D. Global Economy
1. interdependence
2. specialization
3. self-interest
4. financial connections
II National Income
A. Circular flow of income
a. income = spending
b. GDP = C + I + G + Net exports
B. The World Economy
1. relative size of US and
other countries
2. price differences complicate measurement (PPP vs exchange rate methods)
3. per capita GDP
a.
measure of economic performance
b.
correlation between per capita GDP and material well-being
C. Macroeconomic relations
1. consumption and income
(Consumption function)
2. inflation and unemployment
(Phillips curve)
III.
Scarcity and
A. trade-offs and efficiency
B. Production Possibilities frontier
a. efficiency
i. trade-offs
ii.opportunity cost
b. resources
c. growth
C. Exchange
1. Can not produce beyond PPF
2. Trade may allow consumption outside PPF
3. Comparative advantage
a. difference in relative costs
b. each country produces what it is best at producing
c. trade
d. both countries are better off
e. increase in global efficiency
IV. Growth
A. Growth, in the short run
1. stimulative
policies
2. GDP = C + I + G + Net exports
3. policies to increase spending
4. works when actual GDP<
potential GDP
B. Growth, in the long run.
1. shifting production
possibilities frontier
2. increasing resources (factors of
production)
a. investment
b. education, immigration, health
c. conservation, resource
enhancement, exploration
d. technological change
C. Geometric growth
1. Calculation
2. importance of compounding
a. growth rate (or interest rate)
b. time period
c. small differences in growth rates
yield large differences over time
V. The Market System
A. Advantages of trade
1. comparative advantage
2. efficient
3. both parties gain
B. Demand
1. inverse relation between price and quantity demanded
2. preferences,
income, complements, substitutes, number of consumers
3. increase
in demand (shift to right)
4. decrease
in demand (shift to left)
5. Shifts in demand vs.
changes in quantity demanded
C. Supply
1. direct
relation between price and quantity supplied
2. costs
of production, number of producers
3. increase
in supply (shift to right)
4. decrease
in supply (shift to left)
5.shifts in supply vs. changes
in quantity supplied
D. Demand and Supply
1. finding equilibrium price and quantity
2. effects
of changes in supply or demand
3. technological change
E. The social value of markets
1. consumer surplus
a. net benefits to consumer
b. difference between willingness-to-pay and price
2. producer surplus
a. net benefits to producer
b. difference between willingness-to-sell and price
3. optimal market outcome
a. maximizes social wellbeing
b. consumer surplus + producer surplus
4. deadweight loss
a. inefficiency
b. net loss in social welfare
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