Give two reasons why GDP does not reflect total production in an economy
What will be an ideal response?
The measure of GDP leaves out production in two cases. First it does not count household production as part of production. A person engages in household production if he or she produces for himself or herself. Do-it-yourself work is household production. Homemaking and child care done by a parent for their own child is household production. This is clearly productive work, but is excluded from the calculation of GDP. Second, GDP does not include the production of the underground economy. This includes illegal activity, work that is unreported to avoid taxes, and work that is unreported to avoid regulation. Again these are all productive activities, yet are not included in GDP.
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Refer to Figure 7.1. Dudley values silence at
A) $100. B) $200. C) $350. D) $550.
As long as market price remains above the average total cost, and the firm chooses the profit-maximizing level of output, it will:
A. make profits. B. earn zero profits. C. make a loss. D. Any of these is possible.
Gains from trade are the:
A. increase in welfare in both countries that results from specialization and trade. B. increased skills and human capital that results from specialization and trade. C. transfer of surplus by the receiving country that results from trade. D. deadweight loss by the losing country that results from trade.
An equal distribution of income would yield a Lorenz curve that is a
A. line lying directly on the horizontal axis. B. line lying directly on the vertical axis at 100%. C. 45-degree line between 0 and 100%. D. line lying directly on the vertical axis at 0%.