Partial Specialization & Trade Pissing Me Off

I understand how to combine the 2 constraints to make one graph, but then trying to figure out the rest is frustrating and pissing me off. It's so much easier when they go the full specialization route for the trade :( Anyways if anybody has a clearer explanation let me know, and based on all the readings and the Unit Information Sheet I uploaded earlier, they're gonna want the Neo-Classical Economic models and trade and specialization based on the partial specialization parameters!!!!!! Oh well, perhaps I don't understand because I speak American not English LOL

Definitions

a) axiom or premise - a proposition that is assumed without proof for the sake of studying the consequences that follow from it.
b) empirical - Verifiable or provable by means of observation or experiment
c) positive statement - What is, a fact
normative statement - What should be
d) Fundamental economic problem - How to fulfill unlimited needs & wants with scarce resources
e) Economic good - tangible goods/products
f) PPF - or “transformation curve” is a graph that shows the different rates of production of two goods that an economy (or agent) could efficiently produce with limited productive resources. Points along the curve describe the trade-off between the two goods, that is, the opportunity cost. Opportunity cost here measures how much an additional unit of one good costs in units forgone of the other good. The curve illustrates that increasing production of one good reduces maximum production of the other good as resources are transferred away from the other good.
g) a binding constraint - When we want one or more of one commodities in our bundle, we have to give up some of the other commodities.
h) productive efficiency - when production is along the PPF curve
i) opportunity cost - The cost of an alternative that must be forgone in order to pursue a certain action. Put another way, the benefits you could have received by taking an alternative action.
j) Marginal Opportunity Cost - aka marginal rate of transformation (MRT). It describes numerically the rate at which one good can be transformed into the other. It is also called the (marginal) "opportunity cost” of a commodity, that is, it is the opportunity cost of X in terms of Y at the margin. It measures how much of good Y is given up for one more unit of good X or vice versa. The shape of PPF is commonly drawn as concave downward to represent increasing opportunity cost with increased output of a good. Thus, MRT increases in absolute size as one moves from the top left of the PPF to the bottom right of the PPF.
k) Autarky - the condition of self-sufficiency, esp. economic, as applied to a nation.

Mathematical Appendix: The calculus of marginals and totals

In the text we considered several functions. When some variable Y is a function of another variable X, we can write

Y = f(X).    (A1)

For every given value of Y, this function gives us a corresponding value of X. The marginal value of Y is the rate at which Y is tending to change as X changes. Mathematically, this is the derivative of Y with respect to X. We can write

Marginal value of Y = dY/dX,    (A2)

or, in two other common alternative notations,

Marginal value of Y = f'(X),

Marginal value of Y = f_x.

If we have only the marginal relationship in (A2), we can derive the relationship of total Y to total X in (A1) up to an arbitrary constant by integrating the marginal function:

Y = ∫f'(X)dX + C,    (A3)

where C is the constant of integration.

Consider an example. Let the function be a quadratic:

Y = a + bX + cX²,   c <>a, b.    (A4)

The graph of this relationship will show Y rising up to some maximum value and then falling as X increases further.

The marginal value of Y is

dY/dX = b + 2cX.   (A5)

Since c <>b when X is zero. This tells us that the increment to Y is positive as X increased from 0 but falls steadily and eventually becomes negative. Where the marginal value is positive the graph of the original relationship is positively sloped, and where it is negative the graph of the original line is negatively sloped.

Letting the values of the parameters be a = 10, b = 2 and c = -0.1, we have

Y = 10 + 2X - 0.1X².   (A6)

The marginal value of Y is then given by

dY/dX = 2 - 0.2X,

which is zero at X = 10, positive for smaller X, and negative for larger X. This shows that increments to X up to 10 cause Y to increase while they cause Y to decrease when X exceeds 10.

If all we knew was the marginal revenue relationship of equation (A5), we could determine the total value of Y as

Y = ∫(2 - 0.2X)dX = 2X - 0.1X² + C.    (A7)

Since the original constant of a = 10 in equation (A4) disappears on differentiation, integration can only put back an arbitrary constant, C. In other words, there is no way we can discover the value of the original constant, a. But we can find the equation of the relationship between X and Y and know its shape except for an arbitrary parameter that shifts points on it upwards or downwards by a constant amount.

Practice Problem 4

Prac Prob Ch 4

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Practice Problem 3

Prac Prob Ch 3

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Practice Problem 2

Prac Prob Ch 2

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Practice Problem 1

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Practice Prob 1

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Demand & Supply Elasticity

Consumer Choice

Demand & Supply

Helpful Textbook Online Resource for Economics

Estrin & Laidler: Economics:

http://wps.pearsoned.co.uk/ema_uk_he_estrin_microecon_5/98/25124/6431792.cw/index.html

Begg, Fischer & Dornbusch:

http://highered.mcgraw-hill.com/sites/0077107756/student_view0/index.html

Lipsey:
I find this to be the most extensive and useful online resource, check this out

http://www.oup.com/uk/orc/bin/9780199286416/

Econ Problems

Hey guys let's do these problems and compare answers:

Problems

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Economic Analysis

Hey everybody, here's a little helpful end of chapter story tidbit

Econ Analysis

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Trade & Specialization Part 2

Hey, here's another example of trade & specialization

Trade

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Trade & Specialization

Hey ladies & gentlemen, please refer to page 46 & 47 of the Subject Guide of 02 Intro to Econ, if you click on the image, it will open a new window and show in its full size, anyways, I have also embedded a video I uploaded to YouTube, if you have any questions, please feel free to leave a comment or send me an email.

Some Key Terms For Ch 2 of the SG

Hey ladies & gentlemen, these are some terms where I just couldn't understand thus hampering my meaning (and that includes watching videos, link HERE)

So I will list the words that I didn't grasp fully or was confused about in certain contexts (e.g. I knew what these words meant in some context but not in others)

Source: HERE

1. Utility: measure of relative satisfaction from or desirability of consumption of various good & services. In plain English = A scale of (probably on a graph) of how much satisfaction we get from a goods & services (product)

2. Neoclassical economics: Old school economic concepts.

3. Rationality: An old school econ, oops, neoclassical economics concept. It is precisely defined in terms of imputed utility-maximizing behavior under economic constraints.

Plain English: people getting the maximum satisfaction out of their limited resources (remember the PPF!!! Always go back to the PPF), in other words they are on a point at the PPF, not under. If they are under the graphed line, then it is irrational behaviour.

4. Indifference Curve: plots the combination of commodities that an individual or a society requires to maintain a given level of satisfaction.

Plain English: Please leave a comment, on how to put this in plain English, LOL, cuz I don't know!

5. Ordinal utility: states that while the utility of a particular good and service cannot be measured using an objective scale, a consumer is capable of ranking different alternatives available.

Plain English: Basically it's how a customer rates how much one product over the other (remember the ~ indifferent to, and > prefers) using the scale system (like 1 to 5 or 1 to 10 or 4 stars, etc)

6. Cardinal utility: The magnitude of utility differences is treated as an ethically or behaviorally significant quantity. (Remember the SG, pg 69, Example 2)

Plain English: How much more does someone like A over B over C, etc.

7. Transitive: Noting a relation in which one element in relation to a second element and the second in relation to a third element implies the first element is in relation to the third element, as the relation “less than or equal to.”

Plain English: (Personally this word drove me the craziest as to what it meant). If there's product A & B, and if you prefer one over the other, then it's transitive, so you need 2 or more items for basis of comparison.

8. Complete: Of or pertaining to a set in which every fundamental sequence converges to an element of the set.

Plain English: (This also drove me crazy), it basically means when the comparisons are done, e.g. A > B > C, it is transitive because you're comparing and it's complete because you finished/concluded the comparison :)

I hope this was helpful, if you have any questions or see any mistakes please feel free to leave a comment and I'll correct them or if you have a simpler explanation, please leave a comment.

My video for ya, Comparative, Absolute Advantage, how to figure Opportunity Cost

To download the Excel I use in this video, click HERE
If you still have any questions, please don't hesitate to leave a comment or feel free to email me or hit me up on Skype

Comparative Advantage Document and Video

http://www.scribd.com/doc/7608764/Comparative-Advantage-Worksheet

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Study Notes from Last Weekend

Page 62 to 67 of the SG, Chapter 2:
2. Rationality - This is a neo-classical economic concept (modern day vernacular would be Optimization or Utility), in a nutshell means Theory of Individual Behaviour and Motivation (Supply & Demand), so we can say this is a Micro Economic Concept, so for those of you not reading the main text, just read the chapter in other texts that talk about individual/household choices.

The word CONSTRAINT, once again shows up here, remember it's a fancy way of saying "LIMIT" in Economics. That means we could only (given there are 2 products) produce so many combinations of salads or pastas. IF it's our allowance/paycheck, then we can only buy so many combinations of pizza or sushi or pizza and beer :)

Rational in Economics term does not mean "NORMAL" and irrational in Economics does not mean "NOT NORMAL." In Economics, it just means we're not producing/spending at a point on the graph (Irrational) or we are producing/spending at a point on the graph (rational).

Page 63: Here the ability to produce increased, this can be because the wife hit him in the head or we just learned how to make salads & pasta faster (technological efficiency/improvement). When it comes to the pizza/sushi, pizza/beer combo, then it would mean we won the lottery, got a raise or changed jobs and got a bigger paycheck. So our individual rationality (the graph/curve) would change (see page 64 of the SG). When you become confused about this graph, just go back to the PPF, when production is not occurring at a point on the line of the graph, then you're not at maximum utilitzation, and if you're not at the point of the line of the individual rationality graph then you're being irrational.

Please refer to page 63: Inconsistency - This in economics term is not when an athlete has a great game one day and tanks it the next. This refers to our changes in taste or preferences :)

Page 65 - Preferences - This is to measure ranking of one product over another, not quantifying her satisfaction/pleasure. To express:

A > B = A is preferred to B
A ~ B = indifferent between A & B

Let's clear the misunderstanding of the word indifference here. It does not necessarily mean that you're indifferent (in the dictionary sense), it would mean that you don't have a preference of one item over another, or you like both equally the same.

e.g.
iPhone > all other cell phones = this means I prefer the iPhone over all other cell phones (unfortunately it's unavailable in South Korea)

Brand A Cell Phone ~ Brand B Cell Phone = I have no preference over any other brands of cell phones.

Let's rank this:
iPhone > Brand A Cell ~ Brand B Cell

I prefer the iPhone over Brand A Cell Phones & Brand B Cell Phones, but am indifferent to Brand A Cell between Brand B Cell.

Hope this was helpful.

One final note, only real numbers can be expressed here (good news for us at least mathematically)

Telephone interview with Paul Krugman (2008 Nobel Prize Winner for Economics)

Telephone interview with Paul Krugman recorded immediately after the announcement of the 2008 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, 13 October 2008. The interviewer is Adam Smith, Editor-in-Chief of Nobelprize.org.

Optimization and Equilibrium, Supply and Demand Video Lecture

For those of you on Chapter 2 of the Study Guide, it discusses Optimization and Equilibrium, Supply and Demand, so click HERE for the streaming video (need Real Player), but I recommend Real Alternative aka Media Player Classic, click HERE for the download page

Once again the link for the video lecture is HERE

Comparative Advantage

Related to page 44 of the Study Guide, Chapter 1, Specialization and Trade, I'll also post a video on Youtube later.

Production Possibility Frontier (PPF) aka Transformation Curve

Hey guys, I was going crazy the past coupla days trying to figure out how to get the constraint, finally figured it out (told you math is not my strong suit), here's the vid I uploaded to YouTube

A good explanation video of PPF & OC (opportunity cost)

Terms we should remember

See Chapter 1 of the SG
Page 38.
1. Modelling
2. logical truth
3. Production Possibility Frontier (PPF) aka Transformation Curve.
4. means of production
5. constrained
6. technology (in economic terms)

Page 40:
Remember the formula 1/2Y + X is equal to or less than 100

Page 42:
1. Productive efficiency
2. productive efficient
3. Opportunity cost

Page 43
1. Opportunity cost formula
2. binding
3. Inefficient allocations
3. best alternative production

Pa 50:
1. average
2. marginal opportunity cost
3. margin
4. marginal.

I'm not a big proponent of memorization method of studying BUT if we don't know what these words mean and understand the concept of them we'll never get going in our studies in economics. So when we talk to each other let us speak in this language to one another because if you use a word in everyday language then you'll have it memorized forever. Just like when I learned Japanese & Korean & Spanish. Talk this language to your friends, b/f, g/f family, etc. :)

Great Helpful Site

Discovered a site that explained the PPF in plain English, click HERE

Chapter 1 of the study guide talks about the PPF, so for a great explanation, click HERE

A little note on the opportunity cost formula. Remember Rise over run in math? Change in Y over Change in X??? Think of it as the same but without the "Change in", so it would be

Y/X
Y= What we had to give up
X = What we got in return

So the opportunity cost of a Unit of X = Y/X

Any questions please post a comment here or send me an email or post your questions here:
http://bscmanagement.yuku.com

A new community on Yansa for BSc Management majors

Hey guys, with the limit of my blog and email, I created this community HERE so we can post our homework, discussions, answers, etc here, let's meet here for discussions

Stanford's Entrepreneurship Corner Webpage

Great audio and video resources especially for those of you that want to get into the Venture game, I definitely do!!! Anyways click HERE to take you to the webpage

David Rothkopf Biography

David Rothkopf
Author

David Rothkopf is the President and CEO of Garten Rothkopf, an international advisory firm specializing in emerging market investment and risk management services. A major focus of Garten Rothkopf's work is on new trends in Asia and Latin America, and the growth of alternative energy.

Previously, Rothkopf was Founder, Chairman and CEO of Intellibridge, a firm offering open-source intelligence and advisory services on international issues, after serving for two years as Managing Director of Kissinger Associates.

Rothkopf also served as a Senior Trade Official in the Clinton Administration. In this capacity, he played a central role in developing and directing the Administration's groundbreaking Big Emerging Markets Initiative.

A prolific writer, David Rothkopf is the author of more than 150 articles on international themes for publications including the New York Times, Washington Post, Financial Times, Foreign Affairs, and others. Among his more popular publications are Running the World: The Inside Story of the NSC and the Architects of American Power, and his most recent book, Superclass: The Global Power Elite and the World They Are Making, which examines the power of global elites and how they are shaping globalization.

Related Links: HERE

Last Updated: Wed, Apr 16, 2008

Stanford's Entrepreneurship Corner: David Rothkopf Part 5

European Advances in Green Energy: More info HERE to download click HERE
If the people who set the prices are the same people who set the production levels, then it's not really a market, and true supply and demand are a farce. David Rothkopf, author of Superclass: The Global Power Elite and the World They are Making, says that Europe is leading the planet in green energy technology thanks to government subsidies, including biofuels and wind energy. Rothkopf is optimistic that the US will eventually adopt these policies toward energy, though our current system is corrupted by nearsighted, pure financial interest.

Stanford's Entrepreneurship Corner: David Rothkopf Part 4

Redefining Community - And Holding it Accountable: More info HERE
to download click HERE
If we don't recognize that the unequal distribution of wealth is unsustainable, then, perhaps, says author David Rothkopf, more sinister political tensions and divisions will ensue. He advocates that the planet needs to reflect upon why we have one set of rules for our geographic community, and a different set of rules for institutions, among them the for-profit sector. Only when we hold the powerful players in economics responsible for contributing to the welfare of our community as we would a neighbor, says Rothkopf, will the interests of the globe at large become balanced.

Stanford's Entrepreneurship Corner: David Rothkopf Part 3

The Powerful Alignment of Interests: More info HERE to download click HERE
Sheer brainpower, strength in numbers, and good old fashioned networking is how the nature of world influence is established. Skewed and disproportionate, modern power structures that regulate global problems happen only when the elite meet, says author David Rothkopf. And decisions made based on these meetings often do not adequately represent the people or the interests that they are meant to serve.

Stanford's Entrepreneurship Corner: David Rothkopf Part 2

The Rise of the Superclass: More info HERE to download click HERE
We can't legislate against historical trends in the global age, but we can look more closely at the well-networked superclass - those who have broad influence across international borders on a regular basis. The Superclass has money, power, and influence - but it's woefully short on ethics in the global interest. Author David Rothkopf describes this influential core of the global power structure and stresses that economic prosperity can't be the only metric of a civilization's success.

Stanford's Entrepreneurship Corner: David Rothkopf Part 1

80/20 Rule: More info HERE To Download Click HERE
Just twenty percent of the members in any group or social system own eighty percent of the assets, indicative that scale indicates a growing concentration of power. The top 2,000 companies employ and influences a million people in the modern world, says author David Rothkopf. With cross-ownership and networking in all circles - business, military, religion, and the Internet among them - a few succeed, but the majority of participants within any given system are marginal.

MicroEcon Power Point Chapter 1

microeconomic theory, ch 01, by walter nicholson(lecture slide) - Upload a Document to Scribd

Unit information sheets

We provide unit information sheets to help you choose which units to study. The sheets include key information such as the syllabus, on which you’ll be examined; the unit aims and objectives; learning outcomes; an essential reading list; prerequisite and exclusion information; and method of assessment.

My theory & speculation on what will be on the test based on the Info Sheet:

General Equilibrium - the IS-LM model.
Prices, Inflation, & Unemployment - Aggregate Demand (AD) in the price output plane, the problems with deriving Aggregate Supply (AS); the Keynsian & the classical AS.
The Phillips Curve
Macro - Aggregation

Read the rest of the Info sheet, a very big clue on at least which graphs, math formulas to remember :)

02 Intro to Econ Information Guide - Upload a Document to Scribd

Supplement for 02 Intro to Econ for 2008/2009

To download, click HERE I guess this means the theme of the test may change next year

Please use the following info:

ID: uolexternalstudent
p/w: lseexternal

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Micro & Macro Econ Resource

2 texts from Mankiw

To download the Macro ebook click HERE
Micro click HERE

To download, you need a ID & P/W
ID: uolexternalstudent
p/w: lseexternal

To view:

Here's the Macro

Macroeconomics 5th Edition Mankiw - Upload a Document to Scribd

Here's the Micro

Principles of Microeconomics - Mankiw - Upload a Document to Scribd

Syllabus for October

OK guys, I admit it, I'm guilty of procrastinating on this particular subject :( I should have started last month but I've been good in the sense that I've been listening to the mp3 lectures of Macro & Micro Econ from UC Berkeley

To listen to or watch the streaming video of the lectures click on the class below: You have the option of either downloading the mp3 or watch the video streaming.

Micro Econ
Macro Econ

Now to the fun part, the syllabus :) I will refer to the Main Text as MT and the Study Guide as SG and if there are more than 1 MT readings, I will list by author or if you have alternative books, I will say either Macro, Micro or just Econ to represent the plain Economics text :)

*NOTE: According to the new SG supplement, Blake's A Short Course of Economics is no longer necessary :) WOO HOO!!!

Oct 6 to Oct 8
SG Intro & Technical preface (if you know this already, go ahead & skip, but I have to reacquaint myself, I don't think I'm the only one).

Oct 9 to 12
MT: LC Ch 1 to 2, & BFD: Ch 1 to 2 (Economics Books)
or McTaggarts Econ (ISBN 9780733973253) click HERE for details, Ch 1 to 2

SG: ppg 31 to 44 (until end of section 2)

Oct 13 to 15:
SG ppg 44 to 56
Homework: Do all the activities & questions

Oct 16 to 20:
Discuss MT questions & problems and SG questions & problems.
Go ahead and start reading Chap 2 of the SG (just skim & get somewhat familar with it)

Oct 21 to 22:
SG ppg 57 to 61
MT (SG pg 57): LC: Ch 5, Ch 3, pp 38-44 & Ch 4, pp 65-74 & 76-85.
BFD: Ch 5, Ch 3, pp 40-42 & Ch 4, pp 55-68
EL (Micro): Ch 2, pp 13-24 & 23- 40 and Chp 3

For those of you re-sitting Econ, here's the breakdown of the Chapters:
LC: Chapter 5 = Consumer Choice: Indifference Theory
Chapter 3, pg 38 to 44: Demand (stocks & flow and weather matters)
Chapter 4: pg 65 - 74: Elaticity of D & S
pg 76 - 85: Elaticity matters

BFD: Ch 5 = Consumer choice & demand decisions
Ch 3, pp 40-42 = What, how & for whom?
Ch 4, pp 55-68 = Elaticities of S & D

EL (Micro): Ch 2, pp 13-24 = The basic theory of consumer choice (& an algebraic solution)
pp 32 - 40 = The demand curve (summary & problems)
Ch 3 = Money income & real income
or McTaggart Chapt 8 (Household choices)
Mankiw, pg 94 - 104 Demand Elasticity
141 - 147 Consumers & Demand Curve

I will post the UC Berekely streaming video lectures & download mp3 lectures that work in conjunction with these reading materials.

Oct 23 to 24:
SG 62 - 78 (use the weekend to catch up if you have to)
Reading for page 62, according to the supplement changed to the following:
BFD - Ch 5, pp 77-82 Market Deamnd Curve, Complement & Substitution, Transfer in Kind, Summary & Review
LC - Ch 5, pp 92 - 96 - Consumer optimization w/o measurable utility

I will post more later, this supplement is killing me!! It will be the same page, but I will edit and add more

Margin Concept

Margin also mean edge, think of yourself as sitting on the fence, on deciding what to do. Should I do this or should I do that, then we ask ourselves what is the cost to benefit ratio if I do one or the other (marginal cost vs. marginal benefit), this is what thinking at the margin means.

Before we talk about margin, we have to discuss trade-off and opportunity costs.

Trade-Off - Very simple concept, it's giving up one thing to get something else.
For example: Instead of drinking with friends tonight, I hit the gym or I study.
Instead of buying a new book, I buy a previous edition of a used book.

Opportunity Cost - What you lose (value-wise) in the trade off.
Example: I cut my hours at work to pursue my education.
I lose potential income, so the opportunity cost is the lost potential income to pursue my studies.

Marginal benefit, then would be the positives we get from giving up something and choosing the other.
Example: Although I lose earnings potential for three years, the degree will give me a higher earnings potential.
Example 2: If I study 3 days a week and get a 60% on my test and by choosing to study a fourth day, I get a 70%, then my marginal benefit is 10%

Marginal Cost - The cost of what you give up (think of as cost vs. benefit ratio).
That means if the marginal benefit outweighs the marginal cost, you do it.
If the marginal cost outweighs the benefit, you don't do it.

Example: To upgrade my RAM on my computer only gives me a 5% performance boost, it is not worth me paying the money for a RAM upgrade for such a small performance boost.

Chapter 4

This should cover the 1st chapter of the Study Guide

Ch04 - Upload a Document to Scribd

Chapter 3

Ch03 - Upload a Document to Scribd

Chapter 2

Ch02 - Upload a Document to Scribd

Chapter 1A - Appendix

Ch01A - Upload a Document to Scribd

Chapter 1 Power Point Notes

Parkins, Macroeconomics, 8th Edition Notes

Ch01 - Upload a Document to Scribd

Lecture 2 Notes, Part 1

To listen (streaming) click HERE

To download the mp3 click HERE

This lecture covers

1. Key Data Variables: There's a need to measure economic output

This is what the National Income Accounting and GDP are all about.

2. Savings & wealth – how they're related.

3. Real GDP

4. Price Index, what is it and how does it move to inflation?

5. Interest Rate.

NATIONAL INCOME ACCOUNT (I will refer to it as NIA hereafter) – It is a counting mechanism for what's going on in the economy.

There are three approaches to calculate:

1. Product Approach: Measures how much production/output takes place.
   
2. Income Approach: Tells us how much income is being earned.
   
3. Expenditure Approach: Tells us how much is actually being spent.
   

If a business produces they of course want to sell the products they sell, therefore the value of what gets produced also has to represent value of income earned in that production.

Everything that gets produced has to be owned by somebody, so that's what gets spent. We find that all spending in the aggregate or production in the current year will equal the income that's earned in that current year which measures our measure of output or production in that year. So all three of these will be the same.

Total Production (aggregate production) = Total Income = Total Expenditures

So it's possible to use the words output, production, income, expenditures, GDP interchangeably.

The event that we try to measure from the product approach is the GDP (Gross Domestic Product)

GDP = The market value of all final goods & services newly produced within a nation in a fixed period of time. (Generally a year), the US measures on a quarterly basis. (Called Gross because it measures before depreciation rather than after).

MARKET VALUE = Think of it as the MSRP (Manufacturer's Suggested retail price), Multiply production by the price (retail) this will tell us the total revenue being generated. For government, calculate everything at its cost.

FINAL GOODS & SERVICES: It's not an intermediate goods & services (leather, rubber, steel, wires that goes into a car), it's the final product.

VALUE ADDED = What's the revenue you get from selling your goods & services minus the value of all the inputs other than labor that goes into it (another word for profit, perhaps? Let me know guys).

Two exceptions of Final Goods & Services:

1. Capital goods/capital equipment: Refers to the buildings, structures, machinery (think accounting class people).
   
2. Inventory Investment/Change in Inventories: e.g. unsold house by builder, very small part of overall GDP yet leads to biggest swings in GDP, many recessions aggravated by or caused by excessive inventory investment.
   

Gross National Product (GNP), GDP is within a country regardless of the nationality of the companies/persons.

1. Net Factor Payment – If a foreign company wants to repatriate their funds. This is a representation of the "Where's the income earned outside the country vs. inside the country"
   
   1. Net Factor Payment Inflow – When funds (profits) are repatriated to the original country (IBM -> USA). (Country earnings)
      
   2. Net Factor Outflow – When foreign companies repatriate their funds.
      
   3. Net Factor Payment = Inflow minus Outflow
      
2. GNP – Production that takes place by the country's factors of production regardless of where they're located, e.g. if IBM produces something in Europe, the increment that IBM has provided to the VALUE ADDED (profits) counted in the GNP, not the GDP. Where's the income earned vs. where's the production take place.
   

EXPENDITURES – Measuring the spending that takes place on FINAL GOODS & SERVICES. There are 4 agents:

1. Consumption by households (consumer spending) 70% of US GDP
   
   1. Durable Goods – Something that last 3 years or longer.
      
   2. Non Durable goods – Things w/ shelf life, less than 3 years.
      
   3. Services – Consumed immediately (rent, electricity, transportation, education, medical services)
      
2. Investment by businesses About 1/6 of US GDP
   
   1. Spending for capital goods(fixed investments)/software
      
      1. Non-Residential (Business Side) Fixed Investments – buildings, structures, machinery, furniture, software.
         
      2. Residential – construction of new homes & apartment buildings. Houses fall under the investment category not consumption.
         
   2. Inventory Investment
      
3. Government purchases of goods & services by all units of gov't. About 1/5 of US GDP, also excludes some gov't expenditures, e.g. transfer payment, gov't debt.
   
   1. Transfer payment – e.g. pension, social security, disability, where one entity to another where no goods & services are exchanged.
      
   2. Government debt – e.g. bonds
      
4. Net exports (exports about 10% – imports 16.2%) – Need to subtract them out to get measure of GDP about
   

This leads to INCOME EXPENDITURE IDENTITY. This is the single most important identity in Macroeconomics.

Y = Income (or GDP), therefore Y = 1+2+3+4 (the above)

NOT AN EQUATION BUT AN IDENTITY, REMEMBER THIS IDENTITY, EQUATION, FORMULA, WHATEVER YOU WANT TO CALL IT.

#6: Macroeconomic Policy

1. Fiscal policy - the decisions the government makes in regards to its level of spending and level of tax rates.

The US is running a huge budget deficit for years.
The question becomes do deficits matter?
The US recently implemented a fiscal stimulus to jump start the economy, does this make good fiscal sense?

2. Monetary Policy - Either the rate of the growth of the money supply, or changes in short term interest rates that are engineered by the central bank.
Philosophy - rate cut leads to cheaper money, in which people will borrow, and when most people borrow money, they spend in most cases, and if people spend money, it will stimulate the economy.

As the current economic situation is unfolding, what effect will it have on the stock market, what is the central bank likely to do and what is fiscal policy likely to do as well.

3. Aggregation - Taking an aggregated view of the economy unlike Micro where it was a disaggregated view. Basically there are four agents:
1. Households (or consumers)
2. Businesses (all aggregated together). - Action of one business is unlikely to affect any other agents.
3. Government
4. Foreigners (or rest of the world) which reflects the international economic transactions.

So whatever one of the agents does will affect all the other agents. Micro is a partial general equilibrium analysis. Whereas Macro is a general equilibrium analysis.

#5: The International Economy

When in relation to the US economy, there are two types of economies:
1. Open economies: It means that one country has many economic and financial transactions with another country. Open to international trade and capital flows.

2. Closed economies: North Korea, Cuba are 2 examples. They have very limited economic and financial transactions with other countries.

Most countries in North America, East Asia, Western Europe are open are increasingly becoming open (especially many parts of Asia).

Most countries worried about US economy, because what happens there will affect what happens over there.

Trade Balance - The difference between imports and exports.
If imports < exports = trade surplus
exports < imports = trade deficit.

Before 1980 the US were in a trade surplus to trade deficit now.

What significance does trade surplus/deficit have? Why? And how does a country go from a trade deficit to trade surplus, or vice versa? Let's discuss.

#4 Inflation

Inflation - rate of change of prices (basically how fast or slow a price of items go up)

Refers to the persistent increases in the general price level. In Micro, we are interested in prices of individual items such as goods & services like soap, burgers, etc. In Macro, we are interested in the Price Index on lots of goods and services. Calculations to come later.

Once again inflation = persistent increase in the general price level.

Types of inflation:
A) Hyper inflation - where prices rise extremely rapidly. The US inflation rate in 2007 was 3.5%, inflation in Zimbabwe in 2007, was 7,000% (yes, seven thousand!) PER MONTH!
B) Deflation = persistent decline in prices.
i) persistent decline in prices also lead to persistent decline in wages.

In the US, from 1800 to 1940, there was no real change in prices. (No inflation)
Since 1940, a sharp increase (persistent rise) in the general price level.

Why do we care? Well, the Federal Reserve cares. Inflation fears may lead to a rate cut. A rate cut may support the economy but it may push inflation even higher then again, higher interest rates may cause the economy to slow down even further. So how to deal with these issues? These are the things that the Fed worries about.

C) Core Inflation Rates - Also gives Fed the worries, because they don't want inflation to rise.

#3 Unemployment

The definition of unemployment = the number of people who do not have jobs, who are available for work, and looking for work. Simply put, a person that wants a job but can't find a job is classified as unemployed.

During the US Great Depression the unemployment rate hit a peak of 25%.

*To note: Unemployment rate always (historically) rises during a recession.

Slow economic growth or negative economic activity probably pushes upward pressure on the unemployment rate.

In the last year, the US unemployment rate went from 4.4% to 5%, a 0.6% jump, every single time it has happened since WW 2 there was a recession.

2. Business cycles/fluctuations

These are short run movements in the economy along the rising broad longer term trend.
Recession - a) when the economy goes down
b) Consumer spending shows a sharp drop off, consumers account for over 70% of economic activity in the United States. If consumers spend less, then overall economic growth rate will be affected.

#1 Long Term Economic Growth

Economic Growth determined by two factors:

1. How fast the population grows - Number of workers growing more quickly so economic output should grow more quickly.

2. Productivity per worker/unit of labor - As the productivity of each worker increases, even if the work force is not growing very quickly, then it can be expected that economic output to grow rapidly also.

The question to ask then is:

What causes an upward trend in an average labor productivity? And how important is that in increasing long term economic growth?

One fact to note: (US economy)
From 1950 to 1973 labor productivity 2.5% average annual rate.
From 1973 to approximately 1995, the growth rate of labor productivity dropped sharply to 1.1%
From 1973 to present day, it has been growing at close to a 2% rate.

What caused this sharp slowdown and this sharp acceleration? And what are the implications of this in terms of living standard and economic growth?

Hope you guys leave your comments so we can discuss this.

Macroeconomics, the most basic of what it's aobut

Macroeconomics = Structure, dynamic adjustment and performance of national economies, in other words, the big picture. Also looking at government policies that affect the national economic performances

6 major issues of macroeconomics:

1. Long term economic growth - what determines, how fast a country can grow over a long, sustained periods of time.
2. Business cycles/fluctuations - ups & downs of the economy.
3. Unemployment - Why are people unemployed, what determines whether the unemployment rate goes up or down.
4. Inflation - high/low, what causes it to move up or move down?
5. International economies - Does it make a difference whether we have economic linkages/connections to economies in other parts of the world?
6. Macroeconomic policy (government policies) - What can the government do to influence all of the above vaiables.

MacroEconomic Cheat Sheet

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Macroeconomics Cheatsheet - Upload a Document to Scribd

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Economics Lectures from UC Berkeley w/ video

Hey guys, just discovered a microeconomics lecture from UC Berkeley, it has video too woo hoo, that means we can see the examples being worked out

The Audio & Video Lectures

For people taking Economics, very helpful link

UC Berkeley posts selected podcasts/webcasts on the net, with RSS capabilities and downloadable mp3's on their website. Anybody is welcome to access this page:

Intro to Microeconomics:

Intro to Macroeconomics:

Hello Everybody

Due to my frustration of lack of real resources for University of London external students especially LSE, I created this blog so maybe, just maybe I can meet other people and hopefully they'll discover me and we can correspond.