EquilibriumGross Domestic ProductEquilibriumGross Domestic ProductEquilibrium and GDPElias YannopoulosSeptember 5, 2012Elias Yannopoulos Equilibrium and GDPEquilibriumGross Domestic ProductEquilibriumEquilibrium - The condition in a market when plans of buyersmatch plans of sellersPhysics def - A condition in which all acting influences arecanceled by others, resulting in a stable, balanced, orunchanging systemQuantity Demanded = Quantity SuppliedNotational - equilibrium quantity q∗, equilibrium price p∗Excess Supply/Surplus - quantity supplied is greater thanthe quantity demandedExcess Demand/Shortage - quantity demanded is greaterthan the quantity suppliedElias Yannopoulos Equilibrium and GDPEquilibriumGross Domestic ProductEquilibrium Cont.Prices AdjustWhen quantity demanded is greater than quantity supplied,prices tend to riseWhen quantity supplied is greater than quantity demanded,prices tend to fallThings equilibrium is notEquilibrium is not a state of the world it is a characteristic ofthe modelEquilibrium is neither good or bad it is just the point whereforces offsetElias Yannopoulos Equilibrium and GDPEquilibriumGross Domestic ProductShifts in Supply and DemandShift in only DemandShift in only SupplyShift in both Supply and DemandElias Yannopoulos Equilibrium and GDPEquilibriumGross Domestic ProductGross Domestic ProductGross Domestic Product (GDP) - The market value of finalgoods and services produced in an economy in a yearOutput = GDP = IncomeMarket Value - Quantity of a good or service producedmultiplied by the market price of that good or serviceGoods and Services - both are included in GDPGoods - Tangible OutputServices - Output that provides benefits without a tangibleproductEx: Medical, Financial, Entertainment, TransportationElias Yannopoulos Equilibrium and GDPEquilibriumGross Domestic ProductGDP Cont.Final vs Intermediate Goods and ServicesIntermediate Goods - Goods that firms repackage or bundlewith other goods for sale at a later stageFinal Goods - Goods that are sold to final usersEx: Processor and laptopGDP includes only goods and services produced in that yearDoes not include used goodsDoes not include financial assetsper capita GDP - GDP divided by the total population of theeconomyElias Yannopoulos Equilibrium and GDPEquilibriumGross Domestic ProductWhy do we care about GDPGDP measures 3 key economic conditionsLiving StandardsCan be measured with per capita GDPEconomic GrowthChanges in living standardsCan measure growth as changes in per capita GDPBusiness CyclesExpansions and recessionsCan measure business cycles as short run fluctuations in GDPElias Yannopoulos Equilibrium and GDPEquilibriumGross Domestic ProductShortcomings of GDPWhat is not includedNon-Market ProductionHousehold WorkVolunteer WorkUnderground ActivityEnvironmental ImpactsLeisure TimeMarket Activity does not equal HappinessLeisure provides happiness and is not includedSome market activities do not imply higher living standardsActivities to reduce pollutionElias Yannopoulos Equilibrium and
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