GDP: C+I+G+(X-M) how to manage the economy

C : consumption
I : investment
G : government
X : exports
M : imports

Essay questions:

1.Trade is good discuss:
Product variety
Lower costs
Competition
Specialization (do what you do best, adam smith)
Effencies economic scale
Create jobs
Interdependance
Keep inflation in check

2.Why are people poor:
Uneducated
Lack of natural resources
Geographic placement
Physical / emoional limitation
Discrimination
What can be done?

3. Business cycle order from left to right:
Expansion
Peak
Recession
Contraction
Trough
Expansion(recovery)
Boom peak

Economic indicators:
Unemployment rate
Inflation rate
GDP
Exports/imports
Exchange rates
%rates
Retail sales
Housing stats/building permits
Expectations

Four main market structures:
Perfect competition
Monopolistic competition (gas station)
Oligopoloy competitiom (hydro companies)
Monopoly (passports) (LCBO)

Perfect competiton:
Monopolistically competitive companies include:
Many buyers sellers
A standard products
Easy entry and exit

Three types of monopoly:
Pure monopoly: industry is the firm
Actual monopoly: firm has > 25% market share
Natural monopoly: high fixed costs (gas, electricity)

Six main entry barriers in oligopolies and monopolies:
Increasing returns to scale
Market expierence
Restricted ownership of resorces
Legal obsticles
Market abuses (such as prddatory pricing)
Advertising (most common in oligopolies)

Average and marginal revenue:
Total revenue: is used to find two other revenue concepts
Average revenue: total revenue divided by output
Marginal revenue: changed in total revenue divided by change in output

Marginal revenue: change in total revenue divided by change in output


Definitions:

Market power: is a business's ability to affect the price it charges varies with market structures, such that monopolists have the most and perfect competitors have the least

Automatic stabilizers: are built-in measures such as taxes and transfer payments to lessen the effects of the business cycle.
Either: contracting economy decreases which increases spending incomes or expanding economy increases which decreases spending incomes

The multiplier effect: is the magnified impact of a spending change on AD. An initial spending change produces income and part of this new income becomes new spending. This process is repeated with each spending round smaller than the last

Marginal propensity to consume (MPC): which measures the effect of an income change on domestic consumption.

Fiscal policy: benefits and drawbacks:
Two benefits:
It can be focused on particular regions
It has a relatively direct impact on spending
Two drawbacks:
Subject to delays
It is closely related to public debt (from previous gov. Oweing)

Inflation effects: redistributes purchasing power in arbitrary ways because of various types of indexation:
Full indexation (nominal income rises at inflation rate)
Partial indexation (less than inflation rate)
Fixed incomes (stays constant)

Types of unemployment:
Frictional: unemployment due to being temporarily between jobs or looking for a first job (nothing done for you)
Structural: unemployment due to mismatch between people and jobs (no longer needed)
Cyclical: uneployment is due to fluctuations in output and spending
Seasonal: unemployment due to seasonal nature of some occupations/ industries (snow plowing)

Break even point: the resault of neither profit or loss; the stage at which income equals expenditure

Consumer price index (CPI): an index of the changes in a cost of goods or services to a typical consumer, based on costs of the same goods and services

Automatic stabalizers: are built in measures such as taxes to lesen the effects of busisiness cycle

Economics: the study of how society manages its scarce resources to satisfy the unlimited needa and wants of people

Price ceilings:
A price ceiling is a legal maximum that can be charged for a good. Results in a shortage of a product. Common examples incluee apartment rentals and gas prices

Price floors:
a price floor is a legal minimum that can be charged for a good. Results in a surplus of product. Common examples of include milk and minimum wages