Economics and Statistics

Nominal GDP:   A nominal GDP measures the value of a nation's output produced in a year, given the prices charged for that year. However, if prices increase while the output level stays constant in a given year, the nominal GDP will drastically increase, even though the level of production is equal to that of the previous year. Estimating real GDP: To determine the actual change in output from one year to the next, we must adjust the nominal value of a country's output in a year based on changes in the average price level during that year.  Inflation is when the price level increases, whereas deflation is when the price level is decreasing. To determine whether the nominal GDP overestimates or underestimates the output of a country, one must know whether the average price level has increased or decreased. In order to achieve this task can use a price index known as the GDP deflator. The GDP deflator: Real GDP is calculated by replacing the prices for that current year with thos

As we previously saw, the circular flow model shows that all the spending in an economy will roughly equal all of the income received. Every dollar spent on goods or services is money earned by either firms or household. Thus, a nation's total expenditure is equal to the nation's total income. Everything bought was at some point was produced, a nation's (domestic) output is equal to national (domestic) income. There are three methods for measuring a nation's total output: Expenditure approach Income approach Output approach Expenditure approach for estimating GDP: Summing the spending on final new goods and services in a given year. Final goods are ready for consumption. Goods used as input in order to produce another goods are not included (only the final product/good is). There are four types of spending in a nation's output: Consumption(C): spending made by domestic households on durable and non-durable goods and services in a given time. Investment(I): spending

Importance of the circular flow: In a modern market economy, multiple agents interact with each other in the marketplace to determine the supply and demand of goods and services. These interactions can be represented by a model showing the flow of money that renders these exchanges of products and resources possible. There are five main contributors to the economic activity of a nation: Households: demand goods and services in the product market, and supply factors of production in the factor market. They pay taxes, and receive transfer payments and public goods from the government. Firms: domestic firms produce a large share of the goods and services in the product market. Firms form the demand in the factor market, employing resources from households. Firms also pay taxes and are able to use public goods provided by the government. Some firms also sell their output to foreign households and demand resources from foreign households. Government: collect taxes from both households and f

An industry for good X faces the following demand and marginal cost functions: What output will the industry choose to produce? And what will be the consumer and producer surplus at that quantity? Since the MC or supply curve is constant is must be the case that the producer surplus must be zero, as the suppliers can only sell their goods for one price only. The consumer surplus is equal to:   Pollution costs are represented by the marginal externality cost (MEC) function. From society's stand point, how many units of good X should be produced? To find society's optimal output let the MSC equal MPB: The industry is required to adopt a less polluting technology which raises the marginal cost, MC=$12. Find the output the industry choose to produce and calculate the new consumer and producer surplus. Just as before, the producer surplus is still equal to zero. The consumer surplus on the other hand is now equal to: The total benefit of reducing pollution with this new technology i