ECO HW 6/7

1. What are the two types of market failures?  Producing too little or too much of the good or service.  Producing a good or service that gives raise to the public.

2. What gives rise to the first type of market failure? When the cost is too much of the good and service is produced by the market service

3. What does the second type of market failure gives rise to?  Is when the market does not produce anything of the good or service

4. What are the two types of spillovers?  Spillover cost and spillover benefits

5. What are spillover costs? An individual or a firm, that takes production or consumption, that causes a cost of the production or consumption.

6. What are spillover benefits? When an individual in cost a benefit as a result of the production of consumption of another individual or firm. An example would be a laundry firm polluting the area and when you are walking by, you smell toxic smell and the laundry firm doesn’t compensate you for the smell you’re inhaling. They’re undertaking a spillover action for both parties.

7. What are the economic consequences of both spillover costs and spillover benefits? Support your explanation graphically. As a result of spillover cost, we can see that the firm can use resources for free by increasing supply. The firm will not be only be able to offer its products at a lower price. Another way is to raise special taxes on the unit of output.  For the spillover benefit,  characterized by under additional resources. The government has to subsidize consumer’s education. Subsidize the production of supply of education. When the spillover benefit is large, the government can take the good, an example the US Postal Service.

8. How does the government correct for both negative externalities and positive externalities?  Government can play a role in reducing negative externalities by taxing goods when their production generates spillover costs. The taxation effectively increases the cost of producing such goods. Government can play a role in encouraged positive externalities by providing subsidies for goods or services that generate spillover benefits. A government subsidy is a payment that effectively lowers the cost of producing a given good or service.

1. What is the purpose of the circular-flow model and products? Is to demonstrate total expendicture and model flows. Firms wanting to produce goods and services, and by making product. Firms go to households looking to buy or rent, good or services. For example,  firms wanting to purchase land, labor or capital.

2. What do firms need in order to produce goods and services? Stable working conditions and profit.

3. Who are the owners of the factors of production?  Small businesses or other firms

4. What are the of factor resources owned by households?  Land, labor, and capital.

5. In the form of what do households receive money income or payment from firms? Wages, interest, or capital.

6. What do households spend their income on? Goods and services produced by firms.

7. What does the financial system consist of? Borrowed money

8. What does the government’s ability to borrow money depend on? Transfer benefits, unemployment, and welfare payments.

9. What is the importance of a viable financial system? It is a system to meet demands of surviving in the changing environment, they’re adaptable.

10. Why do firms want to produce goods and services? Make profit

11. What are the types of reward or payment received by the different factor resources?

12. What do governments pay to households for using their resources?

13. What does all expenditures by the households, government, firms, and the rest of the world equal to? Households buy goods and services by the rest of the world. They buy exports. Total income received by households, rent. The measure of gdp.

14. What does GDP stand for? Gross domestic product

15. What do households do with the portion of their income that they do not spend? They save the money by putting it into banks or a financial system.

16. What are imports?  Bringing goods or services into a country from aboard for sale.

17. What are exports?  Sending goods or services to another country for sale.

18. What similarities and differences did you find between the assigned pages and the instructor’s prepared video? The similarities are that the instructor and assigned pages both explain the material very well. The instructor gives better examples.

1.Why do we need to consider the definition of GDP carefully? Economists relay heavily on GDP.

2. What is the difference between how we measure total production in microeconomics and macroeconomics?  In microeconomics, you measure population over total measure. In macroeconomics, you measure the total population over the total labor force.

3.Why does GDP include only the market value of final goods? Because it is calculated with everything in total.

4.What is the value of GDP if the quantity and price of eye examinations produced is 100 and $50 respectively? The price would by $500 because that would be the absolute final price.

5. Why does the value of total production equal to the value of total income? The total net worth of households and non-profit organizations. As one would expect, households with greater incme feature in the highest net.

6.What are the four components of GDP and their defining characteristics? Consumption, investment, purchases, and inventors. Consumption is purchasing a good or service. Investment is buying something in hopes of it being worth more in the future. Purchases are goods or services bought. Inventors are the people producing the good or service.

7.How can GDP be measured using the value-added method? Some products have a low-value added. Other goods and services are such that lots of values can be added as we move from sourcing the raw materials through the final product.

1.            How do you calculate the following: Real GDP, nominal GDP, and price index? To calculate Real GDP, designate a particular year as the base year and then using the prices of goods and services in the base year to calculate the value of goods and services in all other years. Nominal GDP is calculated by summing the current values of final goods and services. The price index is the average of the prices of the goods and services purchased by the typical urban family of four.