welcome to pmba0608: economics/statistics foundation
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Welcome to PMBA0608: Economics/Statistics Foundation. Fall 2006 Session11: November 8 Chillicothe. Discuss Assignment 5. To learn how to create binomial distribution using Excel, check slides 28-31 of last class. Collaboration on an assignment is not the same as cut and paste. - PowerPoint PPT PresentationTRANSCRIPT
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Welcome toPMBA0608: Economics/Statistics Foundation
Fall 2006Session11: November 8
Chillicothe
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Discuss Assignment 5 To learn how to create binomial distribution using
Excel, check slides 28-31 of last class. Collaboration on an assignment is not the same as
cut and paste. Academic dishonesty such as cheating on exams
or submitting some one else’s work as your own (plagiarism) will not be tolerated in this class. These types of activities will result in penalties ranging from receiving a failing grade on one assignment or exam to failing this course or even expulsion from the University.
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Discuss Assignment 5: 4.5, Page 141 of Stat. (Do it using Excel. Show your work and the graph)
For x = 0,1,2 … 5,6 where n = 6 and p = 0.1
X p(x)
0 0.531441
1 0.354294
2 0.098415
3 0.01458
4 0.001215
5 5.4E-05
6 0.000001 Note: 5.4E-05 = 5.4 x 10 -5 or 5.4/100000 or 0.000054
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4.5, Page 141 of Stat. (Do it using Excel. Show your work and the graph)
For x = 0,1,2 … 5,6 where n = 6 and p =0.5
X p(x)
0 0.015625
1 0.09375
2 0.234375
3 0.3125
4 0.234375
5 0.09375
6 0.015625
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4.5, Page 141 of Stat. (Do it using Excel. Show your work and the graph)
x p(x)
0 1E-06
1 5.4E-05
2 0.001215
3 0.01458
4 0.098415
5 0.354294
6 0.531441
For x = 0,1,2 … 5,6 where n = 6 and p = 0.9
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4.5, Page 141 of Stat. (Do it using Excel. Show your work and the graph)
p is the probability of success in each trial. The graph of probability distribution shows
the probability of having x number of success in n trials.
The lower the probability of success in each trial (p), the lower the probability of having a large number of successes (x) in n trials
This means that in your graph of probability distribution, you will find that small xs have a higher probability than large xs.
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4.11,Page 141 of Stat. Note: Tables on Pages 602-608
Gives you cumulative probabilities for less than or equal to
p(x<5) for n=10, p=.4 0.834
p(x<3) for n=5, p=.6 p (x ≤2) = 0.317
p(x<17) for n=20, p=.7 0.965
p(x>17) for n=20, p=.7 1 - .965 = .035
p(x<6) for n=15, p=.4 p(x ≤5)= .403
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4.17, Page 142 of Stat. (Do this one manually using the binomial formula. Show your work.)
n = 4, p= 0.6
a) p (4)=0.1296
b) p (x≥1)= p (1) + p(2) + p(3) + p(4) p (x≥1)= 0.9744
c) p(1) = 0.1536
)(
)!(!
!)( xnxqp
xnx
nxp
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Problem 2, Page 132 of Econa) Surplusb) TR (before floor)
P1 x Q1TR (after floor) Pf x Q2 If demand is elastic
TR fallsc) Now TR
Pf x Q3 Farmers win Tax payers lose Consumers lose
P
Q
D
S
P1
Q1
Floor
Pf
Q2
Surplus
Q3
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Problem 4, Page 133 of Econ (maximum of 4 bonus points)
Tax of $2 per case is collected from consumers
D drops by $2 Equilibrium price
drops to $9 (price received by suppliers)
Equilibrium Q drops to Q2
Consumers pay $11
P
Q
D1
S1
Q1
10P received = 9
P paid = 11
D2
Q2
$2
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Next Class
Wednesday, November 29, 19:30-21:00 I will try to be in Ironton Chapter 4 of Stat
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Assignment 6 Due on or before November 25
1. # 1, Page 526 of Econ.2. #4, Page 526 of Econ.3. #5, Page 526 of Econ.4. #10, Page 527 of Econ.
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Econ Chapter 6Excise Tax: Cigarettes
Free market: P = $4.00 Q = 27.4
TE = $110
Gov’t imposes tax = $1/pack (collected from suppliers)
Supply shifts upward by $1 Price rises (by less than
$1) Quantity falls
Economic burden of tax is split between buyers and sellers
cigarettes
price
D1
S1
4.00
27.4
S2
4.40
3.40
t = $1
buyer pays
seller keeps
25.8
Tax Revenue
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Practice
1. What if demand was very elastic?2. What if supply was very elastic?
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Econ Chapter 23
So far everything we did was microeconomics
This chapter is on the big picture MACROECONOMICS
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How do we measure output?
A nation’s output is measured by its real GDP.
What is GDP? The value of all final goods and
services produced domestically in an economy (country) in terms of current market prices in a given period.
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What are final goods?
Final goods can be purchased by households (consumption goods) or firms (capital goods)
What are intermediate goods? An intermediate good is used up in
production of a final good Why is the value of intermediate
goods excluded from GDP?
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Is this included in GDP? A desk bought by Jackie for her home
Yes, consumption good A desk bought by OU for Jackie’s office.
Yes, capital good A gallon of milk purchased by Jackie
Yes, consumption good A gallon of milk purchased by a coffee shop
No, intermediate good.
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GDP measures the value of production
Not necessarily the same as the value of sales
Why? This year we may sell more
or less than this year’s production.
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GDP measures domestic production
Not everything that is produced by Americans is produced inside USA
How so? It is domestic production that creates
employment in our country.
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GDP measures the market value of production
It only includes goods and services offered in the official and legal markets.
Are there other goods and services?
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GDP measures value of goods and services in terms of current prices
This year’s GDP in terms of this year’s prices
This is actually called nominal GDP.
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Theoretical calculation of GDP
Suppose in year 2006 We produce n goods Pi = price of good i Qi = quantity of good i
Then nominal GDP2006= Σ Pi, 06 Qi, 06
(where i takes a value of 1 through n)
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What is real GDP in 2006?
Choose a base year such as 2004 Then real GDP2006= Σ Pi, 04 Qi, 06
(where i takes a value of 1 through n)
What would the real GDP be in 2005? RGDP is NGDP adjusted for changes in
the price level.
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GDP deflator
A measure of price level GDP deflator = (NGDP/ RGDP) x 100
NGDP = nominal GDP RGDP = real GDP
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Let’s PracticeFind NGDP, RGDP, and GDP deflator in both years assuming 2000 is the base year
P (year 2000)
Q (year 2000)
P (year 2006)
Q (year 2006)
Guns $10 20 $20 25
Roses $2 100 $2 75
Marijuana $10 200 $15 190
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Let’s PracticeFind NGDP, RGDP, and GDP deflator in both years assuming 2000 is the base year
NGDP2000= Σ Pi, 00 Qi, 00
NGDP2000= ($10x20)+($2x100)= $400
NGDP2006= ($20x25)+($2x75)= $650
RGDP2000= Σ Pi, 00 Qi, 00 = $400
RGDP2006 = Σ Pi, 00 Qi, 06 = ($250 ) + (150) = $400
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Let’s PracticeFind NGDP, RGDP, and GDP deflator in both years assuming 2000 is the base year
GDP deflator 2000= (NGDP/RGDP)x100 GDP deflator 2000= ($400/$400) X 100
= 100 Note: not $100, just 100
GDP deflator 2006= ($650/$400) X 100 = 162.5
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Let’s calculate growth rates Growth rate in NGDP=
(NGDP06-NGDP00)/NGDP00 Growth rate in NGDP = (650-400)/400 Growth rate in NGDP = 0.625 or 62.5% Growth rate in RGDP =
(RGDP06-RGDP00)/RGDP00 = 0 (This is called economic growth)
Growth rate in GDP deflator = 62.5% (This is called inflation)
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Why is real GDP a better measure of output than nominal GDP?
NGDP may go up if prices go up or if quantities go up.
RGDP can go up if and only if quantities (output) goes up.
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Let’s try to find a more practical way to find GDP
Let’s take a look at the big picture
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4 Sectors in the economy
1. Household Where individuals belong
2. Firms Where goods and services are produced
3. Government Local, state and federal
4. Foreign The rest of the world
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3 Markets in the economy
1. Resource market Where resources are transacted
Help wanted ads
2. Financial market Where firms go to borrow and invest Where households go to lend and save
3. Product market Where final goods and services are
transacted
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Circular Flow of Income and Expenditures
Firms Households
Foreign
Product
Markets
Resource
Markets
Government
Financial Markets
C= $75
Income = Y= $100
T=$20
S=$5
G =$20I =$5
Revenue = Expenditures = value of final goods and services= C+G+I+X-M= $100
Cost= $100
X =$10
M =$10
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What does the circular flow chart for households and firms show?
It shows how money circulates in the economy.
It shows how GDP can be calculated The value of final goods = how much
people spend on them= expenditures GDP = C + I+ G + X-M
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Household Consumption Expenditures on domestic and foreign goods and services (C)
Durable goods Nondurable goods Services Purchase of new homes is excluded
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Gross Private Domestic Investment (I)
Two major Components1) Fixed Investment (If)
Purchase of domestic and foreign capital goods by firms & new homes by households
2) Inventory Investment (Ii) Changes in Inventories Why is it included?
I = If + Ii
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Gross private domestic investment can not be negative.
1. True2. False
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Government Expenditures on domestic and foreign goods and services (G)
Expenditures on everything (including investment) but transfer payments
What are transfer payments? Why are transfer payments excluded?
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Net Exports (X-M or NX)
Exports minus Imports Why are imports subtracted?
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Calculate US GDP in (figures are in billions of dollars)
Consumption of durable goods 950.7
Consumption of nondurable goods 2200.1
Consumption of services 4610.1
Gross Domestic Private Investment 1665.8
Net exports of goods and services - 498.1
Imports of goods and services 1544.3
Federal government purchases 752.2
Sate and local government purchases 1323.3
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Calculate US GDP in (figures are in billions of dollars)
GDP = C + I + G + NX GDP = (950.7 +2200.1 +4610.1) +
(1665.8) + (752.2 +1323.3) + ( - 498.1) GDP =11,004.1
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Let’s look at US GDP
http://www.econstats.com/gdp/gdp__q2.htm
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1. Per capita output or income2. Distribution of output 3. Household production of goods and
services 4. Underground production of goods and
services• Legal goods and services• Illegal goods and services
SHORTCOMINGS OF GDP
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SHORTCOMINGS OF GDP
5. Leisure has value6. Improved Product Quality7. The more you produce, the more
you pollute
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0 5 10 15 20 25 30Greece
Italy
Spain
Portugal
Belgium
Sweden
Germany
France
Holland
United Kingdom
Japan
United States
Switzerland
GLOBAL PERSPECTIVEThe Underground Economy as a Percent of GDP
Source: The Journal of Economic Literature, 2000
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Which year was a better year?
In 1950 Neverland’s RGDP grew by 10% compare to 1949.
In 1970 Neverland’s RGDP grew by 10% compare to 1969
The level of air pollution grew by 5% in 1950 and 20% in 1970.
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Which country is better off?
In 2003 Neverland’s RGDP grew by 10% compare to 2002.
In 2003 Noneland’s RGDP grew by 10% compare to 2002
In general, the cost of living in Noneland is much higher than the cost of living in Neverland