HW read chapters 6 7 8 HW 2 will be sent out soon and is due 2 26 14 Midterm 1 is in class Monday 3 3 14 Professor Kelly will not have office hours this Wednesday Supply and Demand Review continued o Domestic Consumers prefer an open economy most then an open economy with a o Domestic Producers prefer a closed economy most then an open economy with a tariff tariff then a closed economy then an open economy Quota see example from previous lecture replace the tariff with a quota the government gives the license holder the right to import 2 units o World price 2 o Demand P 10 Q or Q 10 P o Supply P 2 3 Q or Q 3 2 P o Method 1 of finding the new equilibrium Qs domestic Quota Qd domestic 3 2 P 2 10 P P quota 3 20 Q quota 6 80 o Method 2 Find new equation of supply curve P 2 3 Q b Plug in either 5 2 or 8 4 2 3 2 5 b 10 D dom S dom 4 3 2 2 Pw 3 4 8 5 6 8 8 10 b 4 3 P 2 3 Q 4 3 o CS quota 23 12 yellow o PS quota 7 68 red o Lincense holder revenue 1 2 2 2 4 green o DWL 1 80 blue Macro aggregation o How to measure the economy GDP Gross Domestic Product the size of the economy in one number Employment or unemployment how well we are utilizing our labor resources in one Price level how stable prices are in our economy in one o GDP focus on production How do we quantify the level of production in our economy E g new homes built sweaters cars food produced etc Use GDP the market value of all final goods services produced within a given period of time by factors of production located within a country o Market value add up the money value of all things Nominal value current dollars Vs Real value constant dollars o The market EXCLUDES Items produced in previous years E g selling a house built in 1941 has no effect on GDP BUT hiring a realtor to sell the house produces a service and raises the GDP E g selling shares of a stock has no effect of GDP raises GDP BUT hiring a broker produces a service and E g selling land has no effect on GDP E g selling an old car has no effect on GDP Illegal activities and non market activities E g opening a brothel in Madison has no effect on GDP BUT opening a brothel in Reno raises GDP because prostitution is legal there E g taking care of your own children has no effect on GDP BUT hiring someone to take care of your children raises GDP Final good services E g producing tires they could go on an old truck or on a new truck or be sold to an auto parts store You can t count the new truck AND count the tires that went on the new truck because you are counting the tires twice Beware of double counting Located within a country GDP looks at where your feet are It doesn t matter if you are a U S citizen or not your production still adds to GDP GNP Gross National Product the same as GDP except that it only counts production from the citizens of a certain country like the U S
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