Discuss the merits and demerits of GDP as a measure of the economy’s output performance and as a measure of its standard of living
What will be an ideal response?
GDP is a reasonably accurate measure of output performance especially for purposes of comparison with past performance and with other nations. As long as measurement is done in a consistent manner from year to year and from country to country then such comparisons are valid and useful.
As a measure of standard of living, GDP has more shortcomings, but there still is a strong positive correlation between real GDP per capital and standard of living. As a tool to compare living standards across countries, GDP per capital is useful.
The shortcomings of GDP as a measure of standard of living include some cases where GDP may overstate real output and some cases where GDP may understate it. In the category of overstating the standard of living, GDP measures do not deduct for environmental pollution, for product quality deterioration, and for production of what one might call necessary evils like devices and services to protect against crime. In the category of understating the standard of living, GDP measures do not reflect improvements in product quality, increased leisure time, non market production services, and all of the production both legal and illegal which falls into the category of the underground economy.
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A perfectly competitive market has demand Q = 100 - P and supply Q = P - 10. An individual firm has MC = 10 + 2Q.
(a) What is the market equilibrium price and quantity? (b) How much output should the individual firm produce? (c) Although it is has been claimed that this market is perfectly competitive, do your answers to parts (a) and (b) suggest differently?
An assumption underlying indifference curve analysis is that MUx/MUy ________ as more of X and less of Y is consumed.
A. always equals one B. remains constant C. decreases D. increases
In a payoff matrix for a three-player game, one player picks the row, another picks the column, and the third picks the page
Indicate whether the statement is true or false
Economists have found that firms are
A) less likely to change prices as a result of shocks to the aggregate economy than shocks limited to the firm's particular sector. B) more likely to change prices as a result of shocks to the aggregate economy than shocks limited to the firm's particular sector. C) equally likely to change prices as a result of shocks to the aggregate economy as they are shocks limited to the firm's particular sector. D) unlikely to change prices as a result of both shocks to the aggregate economy and shocks limited to the firm's particular sector.