RMI 2302 Exam 3 Module 10B Nyce Final This module deals with societal risk Our Needs We need food water shelter and clothing Our Insatiable Wants our wants desires spur economic activity We want entertainment communication variety and brownies Our wants are unlimited Our Limited Means Our means are limited Resources labor capital and technology are scarce It is difficult to determine the right mix of production i e how much of each product World Poverty and Economics Resources available to produce to fulfill our wants needs are limited and usually cannot be increased greatly at any given time Technology is also usually subject to limited degrees of improvement Technology refers to the known means and methods available for combining resources to produce goods and services Labor efforts of mind and muscle that can be used in production process Capital all nonhuman ingredients that go into production The Capacity of the Economy to Produce GDP is the primary measure of production It is the total value of production using market prices production x market value It doesn t take into account ownership Where it is manufactured is the place where its GDP is contributed It is not take into account where the product is sold GDP as the economic pie doesn t tell us what is produced all we know is the size of the pie GDP is the economic pie doesn t tell us anything about how that pie is split up Increases in GDP can be from production increases or price increases Example RMI 2302 Exam 3 Toyota Camry s produced in KY count as US GDP not Japan Production Possibilities Every economy has a stock of resources labor capital and technology to produce How they are combined to produce products services is virtually limitless Opportunity cost is not linear marginal cost is increasing so curve is convex It costs If only two products it can be represented by the production possibility curve more education to produce the 90th million ton of food than the first ton of food and vice versa What is optimal What is the right level of production It is impossible too tell When you are near capacity the cost moves a lot Marginal Social Cost of education Marginal Social Benefit of new schooling MSC MSB but not real easy to figure out If we only have 50 million tons but need 60 or people starve then the marginal social benefit of the 50 60 million tons is high but may not be for the 61st million Economic Growth Generic growth the pie gets bigger new resources new technology etc Specific growth education technology food technology As GDP grows the pie gets bigger Can Governments use GDP to measure well being Are we producing more Real GDP make adjustments for inflation price changes Are we using more labor resources Per capita real GDP how much we can produce per person in our economy What Causes Poverty Income is not evenly distributed Income chart is divided into quintiles First 20 Poorest Second 20 Second Poorest Third 20 Middle Class Fourth 20 Second Richest Fifth 20 Richest How do you fix income disparity and should it be fixed Quality of the labor force Quality of the labor force education be careful type of education skills Capital natural resources Stock of Capital Capital Accumulation Technology Efficiency Population highly effects growth of an economy What Can Governments Do RMI 2302 Exam 3 The development chart looks at population rate of population increase life expectancy per capital real GDP and GDP growth rate Less Developed Countries Chile China Columbia Egypt El Salvador Ethiopia India Indonesia Kenya Mexico Nigeria Peru Philippines South Africa Thailand Venezuela and Zambia These usually have higher population higher rate of population increase lower life expectancy lower per capita real GDP and higher GDP growth rate Communism vs Capitalism Attract FDI Foreign Direct Investment developed countries invest help train Planned vs unplanned economy Involvement in education Infrastructure our workers and update less developed countries infrastructure Issue nationalization when host country takes over once it has been developed and kicks foreigners out Most of the U S infrastructure was built under the Eisenhower reign and then was not updated for 50 years which led to bridges collapsing Developed Countries Canada France Germany Italy Japan Singapore Sweden Switzerland United Kingdom and United States These usually have lower population lower rate of population increase higher life expectancy higher per capita real GDP and lower GDP growth rate more efficient in production Humanitarian aid World Bank loans to developing countries Outsourcing Partnerships Cooperation Reading Alleviating Human Misery 2 3 of the world s population goes to sleep hungry at night 1 5 of the world survives on no more than 1 per day Human beings want things that are necessary to keep them alive food and protection Wants are unlimited and insatiable due to variety Labor resources all of the efforts of mind and muscle that can be used in production processes Capital resources all the nonhuman ingredients that go into the production processes RMI 2302 Exam 3 Resources are always scarce relative to the sum of total of human wants Technology the known means and methods available for combining resources GDP measures the total market value of all final goods and services produced within an economy during a specific time period Increases in GDP can be caused by increases in production or increase in average prices Production possibilities curve s a graphical representation of the maximum quantities of the two goods that an economy can produce when its resources are used in the most efficient way possible Opportunity Cost Principle is the true cost of producing an additional unit of a good or service is the value of the other goods and services that must be given up to obtain it Increasing opportunity cost as more of a particular good or service is produced the cost in terms of other goods or services given up grows This gives the productions possibilities curve its bow shape Marginal social cost the true cost born by society when the production of a good or service is increased by one unit Marginal social benefit the true benefit to society of a one unit increase in the production of a good or service Cost benefit analysis a technique for determining the optimal level of an economic activity In general an activity should be expanded so long as the expansion leads to greater benefits than costs Real GDP GDP in current dollars corrected
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