econ 1100 global economics

7/29/2019 ECON 1100 Global Economics

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ECON 1100 Global Economics

Study Guide for Exam 1

Chapter 1:

We did not explicitly go through chapter 1 in order, but the concepts were interspersed in

lectures since the beginning of the semester. When you review the chapter be sure you

understand the following concepts:

1. What is the difference between a normative statement and a positive statement?

Norminative- aims to assess the desirability of how the world is orfunctions, perhaps with suggestions about how to improve matters.

Positive- aims to describe how the world actually is or functions. Makes

observations or predictions without judgments.

2. Why is this particularly difficult for economists?Greater agreement on positive than norminative statements and micro than

macroeconomics.

3. What does rationality mean, and how does it apply to economic behavior?

Acting with a well-defined goal in mind, to take actions to achievethe goal as best as possible

4. How does the cost-benefit principle apply to what we are studying in Ch. 4 onconsumer demand?

Undertake an activity only if the additional benefit is greater than

or equal to the cost of doing so.

5. How does self-interest tie into rational consumer behavior?

6. Does self-interest prevent the people of a country from cooperating with others and

reaching a balance of interests between them, or does a powerful government have to

direct and plan activities for a society to function?7. What mechanism incorporates self-interest and uses it? (See Ch. 4)

Chapter 2:

Since we didnt have time to go over this material in class, and it is technical in nature,we will not test on Ch. 2.


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Chapter 3:

What are the differences between pure Socialism and pure Capitalism?

First, make a list of the all the synonyms of these two systems and be able to

explain what the different names are emphasizing about the systems they name.

For Capitalism:

Explain what property rights are and what they consist of. (Hint:Ownership and Control, Acquisition and Transfer, and Restitution for

Damages) What do they permit people to do and not do?

Are property rights treated as morally on the same level of other rights likefree speech and freedom of religion in a capitalist system? Why?

What is the moral basis of capitalism? What is the distinction between

positive rights and negative rights? Which type do capitalists believe is

the correct way to think about morality? What do capitalists think of the

opposite view of rights? Be able to identify what type of right is beingasserted in a scenario in a test question.

Who are the two major thinkers that we covered that laid out the pro-

capitalist argument in the English speaking world? (One of them is

introduced in Ch. 1, and the other in Ch. 3. See discussion of John Locke

and Adam Smith)

For Socialism:

Who is the major thinker that we identified as the foremost proponent ofSocialism? (Ch. 3)

Who are the Bourgeoisie, or Entrepreneurs? What does Marx think of

them? What do the Capitalists think of them?

What did Marx propose that government do in dealing with the

Bourgeoisie and their property? What do the Socialists want to do withprivate property? If there are no private owners, who will now make all of

the decisions of what to produce, how to produce it, and who gets the

goods? What are the names of the system that must be set up?

What do Socialists think about private property rights? Do they believe

that rights are negative in nature or positive? Give examples of things that

a government is entitled to do under positive rights that it is not entitled todo under negative rights. (Hint: Medical care issues, income

redistribution, etc.)

What is a Mixed System, and how does it differ from pure Capitalism?


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What are the three main parts of the system? (Hint: Govt. ownership, government

regulation of private industry, and the Welfare State.) Be able to explain what allthree possible government interventions mean.

Do all mixed economies use the same amount of each of these parts? Be able to

place several countries (listed in lecture) on a continuum based on percentage ofGDP spent by government. Where does the U.S. stand compared to European

countries? Compared to Hong Kong? Compared to the U.S. in 1902? Is the U.S.

a capitalist country? (No definitive answer, just be able to explain why it isdifficult to say) Is the U.S. the most capitalist nation according to the three major

ranking systems listed in our book? Is it close to being Capitalist or closer to

Socialist? Where does Russia rank? Venezuela?

Gov. Ownership, regulation, welfare state

What kinds of firms are owned by govt. in U.S.? Other countries?

What does government tend to regulate in the U.S. version of

Mixed economy?What is the Welfare State, and how is it related to the mixed

economy?Examples of welfare state activity such as Social Security, Public

University, etc.

Chapter 4:

What are inputs in the production process?

List 4 major factors of production and be able to explain them

What are product or output markets?

Who produces the output? Who consumes it? Where do the households get the

income to pay for the output?

How are output and income for a country related? Can one be larger than the other?

Why not?

Explain how Supply and Demand worksLaw of Demand: explain

Law of Supply: explain


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Equilibrium Price: what is it and what causes it?

Explain shortages and surpluses when price is not at equilibrium

Determine the size of the shortage or surplus

What causes the entire supply curve to shift from one position to another?

Same for the Demand Curve

What is a Normal Good vs. an Inferior Good?What is a substitute good vs. a complementary good?

How do changes in tastes and preferences affect the demand curve?

Be able to show how the equilibrium price changes as supply and demand curves shift

Explain the difference between a change in demand and a change in quantity demanded.

What is the difference between moving along an existing demand curve and shifting the

entire demand curve?

Same for change in supply and change in Quantity supplied

What are the positive aspects of using the price mechanism to determine the output of

goods and services vs. centrally planning the decisions in Gov.?

Discuss freedom of choice for both consumers and producers. Also go back toch3 and review the concept of Consumer Sovereignty.

What are the negative aspects of using the price mechanism? Discuss the negative aspectof letting people choose what to consume. (We discussed New York City banning more

than 16oz soft drinks as an example)

What is Profit, and how is it defined? Be able to calculateWhat factors cause profit to rise or fall? Is profit guaranteed in Capitalist system?

What is a subsidy or bail-out? Does pure capitalism approve of this? What is

the solution in a Capitalist society if a firm is losing so much money that is failing?(Hint: discuss bankruptcy) What are the advantages and positive of bankruptcy for the

economic system as a whole? Why does Socialist often oppose bankruptcy of firms and

insist that the government subsidize the firm? Are Socialist firms required to make aprofit?

Chapter 6

What is a nations GDP? What does GDP consist of? How do we measure it?

What is the difference between nominal GDP and real GDP? Which one has had the

inflation taken out of the numbers. Why do we want to take out the inflationwhen we make comparisons of GDP (or any economic number) over time? Be


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able to calculate a real number from a nominal one. Use the GDP Deflator or CPI

(explain what they are) to accomplish this.

What is economic growth? Has there been much in the U.S. over the past 80 years or so?

Past 200 years? Explain how the industrial revolution kicked growth into high

gear.

What is the business cycle?

Explain its parts such as recessions, expansions, peaks, troughs, etc. Explain thelong-term trend. Do recessions happen frequently? Do they fall on a predictable

schedule? What is the difference between a recession and a depression?

econ 1100 global economics

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