Chapter One Review: GAMESHOW

Key Terms Introduced

goods services work consumption investment finance environment GDP economic growth prosperity security innovation choice equality sustainability democracy accountability capitalism production for profit wage labour

What does GDP measure?

The value of all the goods and services (or work) produced in a society for money.

How is GDP measured in the public and private sectors?

In the private sector, goods and services are measured at their market price or the price that they sell for.

In the public and non-profit sector, goods and services are measured at their cost of production

What is Value Added?

The value added in a particular stage of production equals the value of total output, less the value of intermediate products (including capital equipment, raw materials, and other supplies)

Statisticians deduct the costs of the many inputs and supplies purchased in any particular industry, from the total value produced by that industry.

Value added
The total value added in the total economy equals Gross Domestic Product (GDP)

Human Development Index

With what information is the HDI calculated? GDP per capita, life expectancy, and educational attainment

Complete the sentence!

If you have a lot of money (or wealth) it is easier to Make more money!

(Relative to people who do not have as much money)

In 2001, the richest 10% owned how much of the wealth in the U.S.?

80%
In 2001, the poorest 80% of people owned how much of the wealth in the U.S.? 9%

Question: What is the purpose of subtracting a countries Human Development Index (HDI) ranking from its Gross Domestic Product (GDP) ranking?

Answer: It is a way method of measuring how efficient they are at translating GDP into genuine human welfare

Question: Which country has the highest rate of translating GDP into genuine human welfare? (According to Table 1.1 in the textbook)

Answer: Cuba

Question: Can you match the following description to the term? How we divide up the fruits of our work

Answer: Distribution

Question: What kind of science is economics?

Answer: A social science WRONG Answer: A physical science

Many economists foolishly try to describe human economic activity with as much mechanical precision as physicists describe the behaviour of atoms

Complete the sentence!

It is impossible to separate the study of economics from Politics!
Some economists will claim they do not take a political stance and are only operating on economic logic. But by definition, you must take a political stance (left or right), at some point.

Possible Criteria for Evaluation

(pp.29-31)
1. 2. 3. 4. 5. 6. 7. Prosperity: Do people have a good standard of living? Security: Do people face risks of economic loss or dislocation? Innovation: Do people continually improve their work to become more effective and productive? Are they creative? Choice: Do people have the ability to make major economic choices (careers, consumption)? Equality: Are there large differences between the living standards and opportunities of different groups? Sustainability: Does the economy continually degrade the natural environment? Democracy & Accountability: Are economic outcomes subject to collective choices and oversight?

More on Democracy
Democracy and accountability- How do we ensure that economic decisions, and the overall evolution of the economy, reflect our collective desires and preferences?
Democratic elections allow citizens to exert some influence (through their govts) over economic trends, but the ability of govt is limited by the unelected power of businesses and investors.

Positional consumption?
Peoples well-being is negatively influenced by unfavorable self-comparisons to the lifestyles of the rich and famous.

What does GDP not measure?

The value of work that is not performed for money

GDP: Use With Caution

GDP should never be used as the measure of economic well-being or progress:
Does not include work that is not performed for money (eg. caring work in the home, volunteer work in the community). Does not consider the distribution of output (average per capita GDP says little about how most people live). Does not consider whether output is useful or destructive (eg. child care vs. warfare). Never assume higher GDP is automatically good.

GDP is relevant, but be careful how we use it.

Economics is the science of

a) Allocation a) Money

a) Investing
a) Capitalism

Economic choice and competitive behaviour are the result of

a) Private ownership of resources a) Poverty a) Greed a) Scarcity

Utility
Utility is a word we use in economics which simply means the satisfaction that we get from a good or service.

Law of Diminishing Marginal Utility

as a person increases consumption of a product ceteris paribus there is a decline in the marginal utility that person derives from consuming each additional unit of that product.

Ceterus Peribus
A Latin phrase used in economics meaning All other things being equal or held constant

Comparative advantage