ECON 121 Discussion: Week 6
Slides available here:
All discussion slides here:
Things To Consider
First Midterm
Your first midterm is in class on Friday (Feb. 21st)
Bring a pencil (not a pen!), an eraser, and your UID number
No notes or calculators allowed
Know the formulas, but undertanding concepts is more important: any math with be mental math
The midterm will cover:
- Chapter 3: Supply and Demand
- Chapter 7: GDP and CPI
- Chapter 8: Unemployment and Inflation
Advice For Exams
Draw charts. Write out your math. Don’t try to solve things in your head.
Skip around
- Make a pass through the exam to answer all the questions you can get right immediately, then circle back. This makes sure you save the most time possible for harder questions.
Ask questions
- The worst your TAs and professors can do is say is “I can’t help with that.” If you’re confused about the wording of a question or the meaning of something, it doesn’t hurt to ask.
Today’s Plan
- Midterm study session
- Open floor: any questions you have!
Note: the practice problems in this week’s (and in previous weeks’) slides are Achieve-style questions but may not look exactly like the questions that will be on exams. I’ve chosen questions and topics randomly: the topics covered here and their proportions are not reflective of how the exam will look.
I also cannot cover all topics each week. You are responsible for making sure you know all material from lecture that could be tested.
Practice Problem #1
The development of low-cost batteries for electric cars received large amounts of federal funding in terms of subsidies. Meanwhile, Canadian households gave a higher priority towards minimizing their environmental impact. Consider the market for zero-emissions electric vehicles where there is an upward-sloping supply curve and a downward-sloping demand curve.
Which direction will demand and supply shift?
- Both curves will shift right
- Demand will shift left and supply will shift right.
- Demand will shift right and supply will shift left.
- Both curves will shift left.
Practice Problem #1
The development of low-cost batteries for electric cars received large amounts of federal funding in terms of subsidies. Meanwhile, Canadian households gave a higher priority towards minimizing their environmental impact. Consider the market for zero-emissions electric vehicles where there is an upward-sloping supply curve and a downward-sloping demand curve.
Which direction will demand and supply shift?
Answer
- Both curves will shift right
Government subsidies make it cheaper for zero-emission vehicle manufacturers to make electric cars, so the supply curve for these cars will shift right.
Canadians’ change in preferences toward environmentally-friendly goods means the demand curve for zero-emissions cars will shift right.
Practice Problem #2
Which factor would decrease the rate of frictional unemployment?
- an increase in the number of jobs available due to an increase in productivity
- new technological improvements to manufacturing that make certain skills obsolete
- the creation of LinkedIn, which makes it easier to find jobs available near you
- the government changing eiligibility requirements for unemployment benefits so that more people qualify
Practice Problem #2
Which factor would decrease the rate of frictional unemployment?
Answer
- the creation of LinkedIn, which makes it easier to find jobs available near you
Frictional unemployment is temporary unemployment while people are between jobs. Services and apps that make it easier to find and apply to jobs help reduce frictional unemployment.
Practice Problem #3
What does real GDP per capita not measure?
- The average real GDP per person in an economy
- The average spending per person in a economy
- The overall welfare of an average person in the economy
- An average person’s aggregate output in the economy
Practice Problem #3
What does real GDP per capita not measure?
Answer
- The overall welfare of an average person in the economy
GDP does not tell us how healthy, happy, etc. people are. GDP does tell us about how much an economy spends and outputs.
Practice Problem #4
The table below gives the supply schedule for two laptop manufacturers. These are the only two laptop manufacturers in this economy.
Firm-level supply curves:
| Price ($) | Firm 1 Qty. | Firm 2 Qty. |
|---|---|---|
| 600 | 800 | 400 |
| 650 | 900 | 700 |
| 700 | 1000 | 1000 |
| 750 | 1100 | 1300 |
| 800 | 1200 | 1600 |
If the market price of a laptop is $800, how many laptops are supplied in the market?
- 2800
- 2000
- 1600
- 400
Practice Problem #4
The table below gives the supply schedule for two laptop manufacturers. These are the only two laptop manufacturers in this economy.
Firm-level supply curves:
| Price ($) | Firm 1 Qty. | Firm 2 Qty. |
|---|---|---|
| 600 | 800 | 400 |
| 650 | 900 | 700 |
| 700 | 1000 | 1000 |
| 750 | 1100 | 1300 |
| 800 | 1200 | 1600 |
If the market price of a laptop is $800, how many laptops are supplied in the market?
Answer
- 2800
At $800, firm 1 makes 1200 laptops and firm 2 makes 1600 laptops. So the total market supply is 2800 laptops.
Practice Problem #5
The table below gives the supply schedule for two laptop manufacturers. These are the only two laptop manufacturers in this economy.
Firm-level supply curves:
| Price ($) | Firm 1 Qty. | Firm 2 Qty. |
|---|---|---|
| 600 | 800 | 400 |
| 650 | 900 | 700 |
| 700 | 1000 | 1000 |
| 750 | 1100 | 1300 |
| 800 | 1200 | 1600 |
What would happen if firm 1 goes out of business?
- Firm 2 would increase production to meet demand
- The market supply of laptops would increase
- Laptop prices would decrease
- The market supply of laptops would decrease
Practice Problem #5
The table below gives the supply schedule for two laptop manufacturers. These are the only two laptop manufacturers in this economy.
Firm-level supply curves:
| Price ($) | Firm 1 Qty. | Firm 2 Qty. |
|---|---|---|
| 600 | 800 | 400 |
| 650 | 900 | 700 |
| 700 | 1000 | 1000 |
| 750 | 1100 | 1300 |
| 800 | 1200 | 1600 |
Answer
- The market supply of laptops would decrease
Fewer suppliers \(\rightarrow\) less supply. Less supply \(\rightarrow\) the supply curve shifts left/down.
We don’t know that firm 2 could increase production. All else equal, laptop prices would increase, not decrease (draw a supply and demand chart to convince yourself of this).
Practice Problem #6
Which of the below are examples of the investment portion of GDP?
- The city of Chicago buys a new fleet of snow plow trucks
- An IT company takes on new clients and buys more servers to accomodate their new business
- Jenny, an economics student at UIC, buys a textbook for a course they’re taking next semester
- A farmer buys a new tractor for the harvest season
- A U.S. company sells robotic welding machines to a factory in Germany
- A person buys several shares of Apple stock
Practice Problem #6
Which of the below are examples of the investment portion of GDP?
- The city of Chicago buys a new fleet of snow plow trucks
- This counts as a government expenditure
- An IT company takes on new clients and buys more servers to accomodate their new business
- The new servers help the company produce a serice: this is an investment
- Jenny, an economics student at UIC, buys a textbook for a course they’re taking next semester
- This would count toward consumption
- A farmer buys a new tractor for the harvest season
- A farm is a business, even if it’s a family farm! This is an investment.
- A U.S. company sells robotic welding machines to a factory in Germany
- This would count toward exports in GDP
- A person buys several shares of Apple stock
- This doesn’t count toward GDP at all
Practice Problem #7
The chart below shows prices and output quantities for goods in an economy. Calculate nominal and real GDPs for both years. Use Year 1 as the base year.
| Good | Year 1 Price | Year 1 Qty. | Year 2 Price | Year 2 Qty. |
|---|---|---|---|---|
| Bananas | $1 | 10 | $0.50 | 12 |
| Shoes | $50 | 2 | $60 | 1 |
| Hats | $20 | 1 | $25 | 2 |
Practice Problem #7
The chart below shows prices and output quantities for goods in an economy. Calculate nominal and real GDPs for both years. Use Year 1 as the base year.
| Good | Year 1 Price | Year 1 Qty. | Year 2 Price | Year 2 Qty. |
|---|---|---|---|---|
| Bananas | $1 | 10 | $0.50 | 12 |
| Shoes | $50 | 2 | $60 | 1 |
| Hats | $20 | 1 | $25 | 2 |
Answer
For nominal GDP, multiply the price and quantities of each good and sum them up for each year. Nominal GDP in Year 1 is $130 and in Year 2 is $116.
For real GDP, use Year 1 as the base year and pretend that Year 1’s prices are the prices for every year. Then real GDP is the same as nominal GDP for Year 1. For Year 2, multiply Year 2’s quantities by Year 1’s prices and add them up. Real GDP in Year 2 is $102.
Practice Problem #8
The next few slides tell the story of a particular person experiencing unemployment. What type of unemployment are they experiencing? Would they be considered in the labor force?
Kelly just quit her job after accepting a new position elsewhere a few days ago. She’s taking two weeks for an unpaid personal vacation between jobs.
Practice Problem #8
The next few slides tell the story of a particular person experiencing unemployment. What type of unemployment are they experiencing? Would they be considered in the labor force?
Kelly just quit her job after accepting a new position elsewhere a few days ago. She’s taking two weeks for an unpaid personal vacation between jobs.
Answer
Kelly is frictionally unemployed: she’s briefly between jobs. She’s also in the labor force since she was employed and recently looking for a job.
Practice Problem #8
The next few slides tell the story of a particular person experiencing unemployment. What type of unemployment are they experiencing? Would they be considered in the labor force?
James looked for a job for several months but couldn’t get one. He stopped looking and spends his day playing basketball instead.
Practice Problem #8
The next few slides tell the story of a particular person experiencing unemployment. What type of unemployment are they experiencing? Would they be considered in the labor force?
James looked for a job for several months but couldn’t get one. He stopped looking and spends his day playing basketball instead.
Answer
James is not considered unemployed for the purposes of unemployment statistics since he is no longer looking for a job. This means he’s also not in the labor force.
Practice Problem #8
The next few slides tell the story of a particular person experiencing unemployment. What type of unemployment are they experiencing? Would they be considered in the labor force?
Tyrell was just laid off from his job after his company went out of business during a recession because demand for the product his company produced decreased. He’s taking a break for a week and then will start applying to new jobs.
Practice Problem #8
The next few slides tell the story of a particular person experiencing unemployment. What type of unemployment are they experiencing? Would they be considered in the labor force?
Tyrell was just laid off from his job after his company went out of business during a recession because demand for the product his company produced decreased. He’s taking a break for a week and then will start applying to new jobs.
Answer
Tyrell is cyclically unemployed since his unemployment is due to a recession (a downturn in the business cycle). He’s in the labor force since he was recently employed and hasn’t given up on looking for a new job.
Practice Problem #8
The next few slides tell the story of a particular person experiencing unemployment. What type of unemployment are they experiencing? Would they be considered in the labor force?
Anna is a trained computer programmer who recently moved to rural Alaska for family reasons. There are no programming jobs where she moved and she’s having trouble finding a remote job in programming.
Practice Problem #8
The next few slides tell the story of a particular person experiencing unemployment. What type of unemployment are they experiencing? Would they be considered in the labor force?
Anna is a trained computer programmer who recently moved to rural Alaska for family reasons. There are no programming jobs where she moved and she’s having trouble finding a remote job in programming.
Answer
Anna is structurally unemployed: her skills aren’t in demand where she lives. She’s in the labor force since she’s actively looking for jobs.
