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| | {{Economics_Lectures}} | | {{Economics_Lectures}} |
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| − | == Graphs ==
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| | On the CLEP exam, slightly less than 10% of the questions are about graphs. To answer them correctly, it helps not to be overwhelmed or give up too quickly. The questions simply test and retest a few basic principles in economics. A favorite topic of graphical questions concerns where a monopolist sets his price. | | On the CLEP exam, slightly less than 10% of the questions are about graphs. To answer them correctly, it helps not to be overwhelmed or give up too quickly. The questions simply test and retest a few basic principles in economics. A favorite topic of graphical questions concerns where a monopolist sets his price. |
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| | == Government Policy == | | == Government Policy == |
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| − | As mentioned in a prior Lecture, 10% of the CLEP exam is on government policy. With an ear tuned for politics, a student can rack up many correct answers here. But if a student's political ear is off-key, he can lose far more points here than he should. In addition what we have already learned, we need to know: | + | As mentioned in a prior Lecture, 10% of the CLEP exam is on government policy. In addition what we have already learned, we need to know: |
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| | * market distribution of income (Lorenz curve) | | * market distribution of income (Lorenz curve) |
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| | The Lorenz curve (also known as the Lorenz diagram) is a graph displaying a comparison of the actual distribution of income in a society against a hypothetical '''''equal''''' distribution of income. This could be done by plotting the percent of overall income on the y-axis and the percent of families on the x-axis. A hypothetical (imaginary) '''''equal''''' distribution of income would be a straight line at 45 degrees (the line y=x). But the actual distribution of income would not rise as quickly as that straight line. Going from the poorest 0% to perhaps 20% (on the x-axis) of families would have almost no increase in cumulative income (on the y-axis), and beyond that the slope of the curve for actual income would gradually increase until the richest earners near the top 100% of families were included. | | The Lorenz curve (also known as the Lorenz diagram) is a graph displaying a comparison of the actual distribution of income in a society against a hypothetical '''''equal''''' distribution of income. This could be done by plotting the percent of overall income on the y-axis and the percent of families on the x-axis. A hypothetical (imaginary) '''''equal''''' distribution of income would be a straight line at 45 degrees (the line y=x). But the actual distribution of income would not rise as quickly as that straight line. Going from the poorest 0% to perhaps 20% (on the x-axis) of families would have almost no increase in cumulative income (on the y-axis), and beyond that the slope of the curve for actual income would gradually increase until the richest earners near the top 100% of families were included. |
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| − | On the CLEP exam, a question about the Lorenz curve is probably going to to be asked in a favorable way, suggesting that it is a proper role of government to try to equalize the income for everyone. | + | On the CLEP exam, a question about the Lorenz curve will likely seek an answer that government should try to equalize the income distribution in society. |
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| | Not everyone agrees. Churches once played a bigger role in "sharing the wealth," and they did it better than government does. Do we want government to replace churches? Of course not. | | Not everyone agrees. Churches once played a bigger role in "sharing the wealth," and they did it better than government does. Do we want government to replace churches? Of course not. |
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| | == Production Possibilities == | | == Production Possibilities == |
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| − | Nearly 5% of CLEP exam is devoted to questions about "production possibilities." These are easy points for increasing your total score. | + | Nearly 5% of CLEP exam is devoted to questions about "production possibilities." These are easy questions to answer. |
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| | "Production possibilities, or "Possibilities of production," means all the different combinations of goods a nation can produce. The United States can produce X cars and Y trucks, for example. Or it could produce more than X cars and fewer than Y trucks. We could graph the number of cars on the Y-axis and the number of trucks on the X-axis, and draw a “production possibility” curve through all the possible combinations. It would be downward sloping: more trucks means fewer cars, and vice-versa. The opportunity cost of producing more cars is the loss in production of trucks. In the production possibility curve for cars and boats shown in Figure A (below), the opportunity cost of moving from point A to point B is 100 cars. | | "Production possibilities, or "Possibilities of production," means all the different combinations of goods a nation can produce. The United States can produce X cars and Y trucks, for example. Or it could produce more than X cars and fewer than Y trucks. We could graph the number of cars on the Y-axis and the number of trucks on the X-axis, and draw a “production possibility” curve through all the possible combinations. It would be downward sloping: more trucks means fewer cars, and vice-versa. The opportunity cost of producing more cars is the loss in production of trucks. In the production possibility curve for cars and boats shown in Figure A (below), the opportunity cost of moving from point A to point B is 100 cars. |