Eco

• Analyzing the results of increasing the number of workers on the same amount of land

  1. MP, AP

  2. MC

  3. TP
• Total product (TP)


  The output of a good obtained from a given mix of resources per period of time
• TP rises at a lower rate beyond point 'a'

  Signifies a decrease in MP because the slope of TP curve between two successive points becomes flatter
• Point 'a' is marked as the onset of diminishing returns
• Beyond point 'a' on the TP curve

  MP declines until it falls to zero where TP is maximum
• MP intersects AP at point 'b'

  Marked as the highest value of AP
• The typical pattern of MP curve is that it initially shows a rise and then beyond a certain point when diminishing returns sets in, it starts to fall
• Diminishing returns


  Causes MC curve to rise
• MC curve


  Determines the shape of the ATC curve
• When MC is below AC

  It pulls AC curve down
• When MC is above AC

  It pulls the AC curve up
• When MC equals AC

  The AC curve is at its lowest point
• MC curve derives its shape from the MP curve that reflects the law of diminishing returns
• Price discrimination


  A practice where a firm can increase profits by selling the same product at different prices to different consumers
• Price discrimination requires that a firm must have some degree of market power, or some ability to control price
• Price discrimination occurs when a price difference is not due to the difference in a firm's costs of production
• Gross Domestic Product (GDP)


  The total market value of all final goods and services newly produced within the geographical boundaries of a country during a specified period, usually one year, before provision for capital consumption
• Gross National Product (GNP)


  The total market value of all final goods and services newly produced during a specified period, usually one year, by productive factors owned by residents of the country, irrespective of where the factors are located, before provision for capital consumption
• GNP


  GDP + Net Property Income from abroad (NPIA) = GDP + Property income from abroad - Property income paid abroad
• Market Price


  Value of output at shop level; price purchasers have to pay for the goods and services sold on the market
• Factor Cost


  What the factors of production received for the produced goods and services
• GDP/GNP (Market Price)


  Indirect Taxes + Subsidies = GDP/GNP (Factor Cost)
• Capital consumption


  Loss in value of physical assets (plant and equipment) due to wear and tear; obsolescence
• GROSS National Product


  Depreciation = NET National Product
• Nominal GDP/GNP


  Value of output measured at prevailing/current prices
• Real GDP/GNP


  Level of output in terms of physical quantities, effects of price changes removed
• Real GNP


  Money GNP x 100 / GNP Deflator
• Difficulties in Measuring National Income include arbitrary definitions, imputed values, omissions, unreliable information, calculating depreciation, and danger of double counting
• Uses of National Income statistics

  • Indicate overall standard of living
  • Measure the rate of economic growth
  • Calculate rate and direction of national income growth
  • Indicate distribution of factor incomes
  • Assist in formulating policies
  • Assist firms in marketing and research
  • Assist international economic planning
• Comparisons of National Income over Space (Countries)

  • Changes in price level
  • Changes in population
  • Composition of GNP
  • Distribution of GNP
  • Non-monetary versus monetary transactions
  • Nature and reliability of data
  • Intangibles
  • Different accounting practices
  • Different size of non-monetised sector
  • Different currencies involved
  • Differences in composition of NI
  • Different distribution of income
  • Different amount of intangibles
  • Differences in availability of data
• Comparisons of National Income over Time

  • Changes in price level
  • Changes in population
  • Composition of GNP
  • Distribution of GNP
  • Non-monetary versus monetary transactions
  • Nature and reliability of data
  • Intangibles
• Net Economic Welfare


  Adds to GNP certain items such as leisure and housewives' services, deducts costs of pollution and other disamenities
• Physical Quality of Life Index

  Considers life expectancy at age one, infant mortality rate and literacy rate
• Factors influencing size and growth of National Income


  • Internal factors: Improvement in quality and quantity of factors of production, Enterprise, Government policies
  • External factors: Foreign loans and investment, Terms of trade
• Autonomous Expenditure (AE)


  C + I + G + (X - M)
• Withdrawal/Leakage


  Any siphoning off of expenditures from the income flow between firms and households, e.g. savings
• Injection


  Any fresh of additional expenditure going into or added onto the domestic income flow, e.g. investment spending
• Consumption function


  A function C = a + bY showing the relationship between consumption and income, ceteris paribus
• Savings function


  If consumption function is C = a + bY in a 2 sector economy, then S = (-a) + (1 - b)Y
• Average propensity to consume

  Proportion of total income consumed, C/Y