Market Failures 93 In competitive markets have 2 causes: 1.Demand curves that do not reflect consumers full willingness to pay 2.Supply curve that do not reflect producers full cost of operation
Consumer Surplus
Difference between the maximum price a consumer will pay verse the lower price actually paid.
Producer Surplus 95
Difference between the minimum price a producer is willing to accept for a product and the higher price actually received
Equilibrium Price vs Quantity Supplied
Marginal benefit=marginal cost, maximum willingness to pay=minimum willingness to accept.
Cost Benefit Analysis Deciding whether or not to provide a good or service Marginal Benefit-Marginal Cost
Finding Demand Curve Vertically adding the prices that all members are willing to pay
CH. 7
National Income Accounting -BEA-Bureal of Economic Accounting -Allows economics and policy makers to -Assess the overall health of the economy -Track the long-run course of the economy -Formulate policies to safeguard and improve the economy
GDP Gross Domestic Product -Annual total output of its goods or services (aggregate output)
Aggregate output
-Dollar value of all final goods or services produces within a nation
Intermediate goods -Products that are purchased for reseal or further processing
Final goods -Products that are purchased by their end users
Added value
-Market value of a firms output minus the value of its input from others GDP EXCLUDES -Public transfer payments- Social security, walfare veterans -Private transfer payments- Money transfers between citizens -Stock Markets trans- Buying and selling of stocks/bonds -Second hand sales- Anything resold after 1st purchase
Two ways of looking at GDP Expenditures Approach (Output approach) View of GDP as the sum of all money spent Personal Consumption Expenditures (C) Consumption by households -Durable Goods(10%)-expected lives of +3 years -Nondurable goods(30%)- less than 3 years of life -Services(60%)-work done by humans for a service
Gross Private Domestic (Ig)
-All final purchases of machinery, equipment and tools for businesses
-All construction
-Changes in inventories
Net Private Domestic Only investment in form of added capital Net investment= Gross Investment- Depreciation
Government Purchases (G) Consumptions by gov to provide public goods/services
Net Exports (Xn) Net Exports= Exports-Imports
Calculation of GDP GDP=C+Ig+G+Xn Income Approach Income deprived from creating Factors -Wages -Rents -Interest -Proprietors Income -Corporate Profits +Stat Adjustments National Income All income earned through American-owned resources
Net Foreign Factor Income
Taking out the income Americans gain from supplying products abroad and add in the income that foreigners gain by supplying resources in the US
Consumption of Fixed Capital Depreciation of capital each year (machinery)
Net domestic Product Market value of GDP minus consumptions of fixed capital
NDP=GDP-Consumption of fixed capital
Personal Income (PI) All income received by households
Disposable Income A person’s income minus personal taxes
Real GDP 141 Corrects for price changes within adjusted base year
Nominal GDP Current GDP
GDP Price Index 141
Measure of the price of a specific collection of goods and services “market basket”
PRICE INDEX=Price of market basket in specific year/Price of same market basket in base year X100
CH. 8
Economic Growth 1. An increase in real GDP occurring over a time period 2. An increase in real GDP per capita over time period
Started in 1776 in Scotland with the Steam Engine
Real GDP Per Capita 150 Amount of real output per person in the country
