ECON 1113 1st Edition Lecture 7 Outline of Last Lecture I. Supply, Demand, and Elasticity: Who Really Pays a Tax?A. Tax IncidenceII. Per-Unit Excise TaxA. The General CaseB. Two Extreme PossibilitiesOutline of Current Lecture I. Macroeconomic MeasurementsA. Measuring the Value of Economic Activity: Gross Domestic Product (GDP)1. Nominal GDP (Current Dollar GDP)2. Real GDP (Constant Dollar GDP)B. Measuring the Cost of Living: Consumer Price Index (CPI)C. Measuring Joblessness: Unemployment Rate (U/L)Current LectureI. Macroeconomic MeasurementsA. Measuring the Value of Economic Activity: Gross Domestic Product (GDP)1. The dollar value of all goods and services produced domestically over some time perioda. Domestically refers to the geographic boundaries of the country2. Flow variable involved3. How does one add together apples and oranges?a. Place value on goods and services at market pricesb. Both are relatively and absolutely valuablec. Base ExampleQuantity Price2 apples $1/apple3 oranges $2/orange5 pieces of fruit $8 worth of fruitd. Higher Price ExampleThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Quantity Price2 apples $2/apple3 oranges $4/orange5 pieces of fruit $16 worth of fruiti. Though the price gained for the same amount of fruit increased, the country did not have to better any of its resources; it simply raised the priceii. Nominal GDP = Qcurrent x Pcurrent = current dollar GDPe. Example of GrowthQuantity Price4 apples $1/apple6 oranges $2/orange10 pieces of fruit $16 worth of fruiti. The prices of the fruit remained the same, but the amount of fruit sold increasedii. Real GDP = Qcurrent x Pconstant = constant dollar GDPB. Measuring the Cost of Living: Consumer Price Index (CPI)1.CPI=prices of a basket of consumer goods of current pricesprices of thesame bas ket of consumer goodsmeasured at base period pricesa. Basket contains consumer goods and services used by the average or representative consumeri. Fixed basketii. Quality changes: difficult to measureiii. Example: personal computer between February 2014 and February 2015-CPI=PC of 2/2015PC of 2/2014=105100=5 %b. Bureau of Labor Statistics (BLS)i. Agents collect consumer goods prices each monthii. Referred to as inflation rates (or changes in the CPI)C. Measuring Joblessness: Unemployment Rate (U/L)1. Unemployment Rate: percentage of the labor force without jobs2. BLSa. Sends out 60,000 questionnaires each month asking about labor market activityb. Places people in one of three categories based on survey responsesi. Employed (E) people with jobs during the last monthii. Unemployed (U) people without jobs who actively sought employment during the last monthiii. Not in the labor Force (L) people without a job who did notseek a job during the last month- Retirees, full time students, stay-at-home spousesand parents3.Unemployment Rate=unemployment(U )labor force (L)a. Vary significantly among demographicsb. Older (54+) and younger workers (16-24) have U/L rates higher than the national average as well as ethnically black individualsc. Married people have U/L rates lower than the national averaged. Current national average = ~5.6%D. BLS Conductions1. Monthly household survey2. Monthly establishment surveya. +150,000 business establishments sampledb. “How many workers on payroll at the end of the current month?”c. “How many workers on payroll at the beginning of the current month?”d. New jobs created in January of 2015 = ~200,0003. Explains why GDP, CPI, and U/L