14. The economy of Britannica produces three goods:...

14. The economy of Britannica produces three goods: computers, DVDs, and pizza. The accompanying table shows the prices and output of the three goods for the years $2012,2013,$ and 2014 . a. What is the percent change in production of each of the goods from 2012 to 2013 and from 2013 to $2014 ?$ b. What is the percent change in prices of each of the goods from 2012 to 2013 and from 2013 to $2014 ?$ c. Calculate nominal GDP in Britannica for each of the three years. What is the percent change in nominal GDP from 2012 to 2013 and from 2013 to $2014 ?$ d. Calculate real GDP in Britannica using 2012 prices for each of the three years. What is the percent change in real GDP from 2012 to 2013 and from 2013 to $2014 ?$

14. The economy of Britannica produces three goods:
computers, DVDs, and pizza. The accompanying table shows the prices and output of the three goods for the years $2012,2013,$ and 2014 .
a. What is the percent change in production of each of the goods from 2012 to 2013 and from 2013 to $2014 ?$
b. What is the percent change in prices of each of the goods from 2012 to 2013 and from 2013 to $2014 ?$
c. Calculate nominal GDP in Britannica for each of the three years. What is the percent change in nominal GDP from 2012 to 2013 and from 2013 to $2014 ?$
d. Calculate real GDP in Britannica using 2012 prices for each of the three years. What is the percent change in real GDP from 2012 to 2013 and from 2013 to $2014 ?$

Key Concepts

Base Year Concept

The base year is a reference year used for comparing the economic performance of different years. In the calculation of real GDP, the prices from the base year are held constant, which allows economists to evaluate changes in the quantity of goods and services produced over time without the distortion caused by fluctuating prices.

Percent Change Calculation

This concept refers to the method of determining the growth rate or decline between two values over time. It involves taking the difference between the new value and the original value, dividing that difference by the original value, and then multiplying by 100 to express it as a percentage. This calculation is essential for assessing changes in quantities or prices between different periods.

Nominal GDP Calculation

Nominal GDP is the total market value of all final goods and services produced in an economy within a given period, measured using current prices. It is computed by multiplying the quantity of each good or service produced by its current price and summing these values for all items. Nominal GDP is useful for understanding the economic activity in a period without adjusting for inflation.

Real GDP Calculation

Real GDP measures the value of an economy's production of goods and services adjusted for changes in the price level over time. It is computed by using the quantities of goods and services produced and the prices from a designated base year. This measure allows for comparisons of economic output across different years by isolating changes in production from the effects of inflation.

Price Level Changes

This concept involves analyzing how the price of goods and services changes over time. By calculating the percentage change in the prices, one can understand the rate of inflation or deflation in the economy. This is important for distinguishing between nominal and real changes in economic performance.

Transcript

00:01 In the economy of a country, britannica, they only produce three goods, computers, dvds, and pizzas.

00:09 And we have the quantities of those goods and their prices in three years, 2012, 13, and 14.

00:17 And first, we want to know our percent change in the production of each of the goods from 2012 to 13 and from 13 to 14.

00:26 So to get any percentage change, we take our ending value.

00:31 And subtract the beginning value from it and divide by the beginning value.

00:38 For instance, the percent change in the quantity of computers between 2013 and 2014, we ended in 2014 producing 12 computers.

00:50 In 2013, we produced 10 and a half.

00:54 So 12 less 10 and a half over 10 .5 gives us 14 .3 percent.

01:01 The other percentage changes in quantity are calculated in the same way.

01:08 Next, we want to know our percentage change in price.

01:12 So, for instance, our percentage change in the price of computers from 2012 to 2013, the price went from 900 to 1 ,000.

01:22 So in our formula, our ending values 1 ,000.

01:26 We started at 900, divide that difference, 100 by 900.

01:32 We get an 11 .1 % change in the price of the computers from 2012 to 2013.

01:44 The other percentage changes in price in the table are calculated in the same way.

01:53 So next, we want to know our nominal gdp in each year.

01:58 Nominal gdp is our current year output times current year prices.

02:04 So we simply go through our table.

02:06 And in 2012, if we want to know our nominal gdp, we multiply $900 by 10 computers and add 100 dvds at $10 each and two pizzas at $15 each, and our nominal gdp is $10 ,030.

02:28 We do the same thing for 2013 and 2014 to get the other values for nominal gdp.

02:35 Gdp.

02:36 And then our percent change is back to our old formula, percent change in nominal gdp between the years.

02:45 For instance, if we went from 2012 to 13, we ended at 11 ,792.

02:53 We started at 30 ,000, of 10 ,030...

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