Q. List the four components of GDP. Give an example of each.

GDP, or gross domestic product, is a measure of the economic activity within a country.
It is typically calculated as the sum of four major components:

1. Consumption:
This includes spending by households on goods and services, such as food, housing,
clothing, and healthcare. For example, buying a new car.

2. Investment:
This includes spending on capital goods, such as factories, machinery, and equipment,
and residential and non-residential structures, such as houses and office buildings. For
example, building a new factory.

3. Government spending:
This includes spending by all levels of government on goods and services, such as
national defence, education, and infrastructure. For example, government spending on
building a new school.

4. Net exports:
This is the difference between the value of a country's exports and imports. A country's
GDP will increase if its exports are greater than its imports and decrease if its imports
are greater than its exports. For example, a country exports more goods than it imports.

Q. Why do economists use real GDP rather than nominal GDP to gauge economic
well-being?

Economists use real GDP rather than nominal GDP to gauge economic well-being
because real GDP takes into account the effects of inflation. Nominal GDP is measured
in current dollars and does not adjust for changes in the price level, while real GDP is
measured in constant dollars and is adjusted for inflation. This means that real GDP
gives a more accurate picture of the economy's actual growth rather than just the
growth in the monetary value of goods and services produced. Additionally, real GDP
per capita is often used as an indicator of the standard of living in a country, as it
reflects the GDP per person adjusted for inflation.
Q. Define natural monopoly. What does a market size have to do with whether an
industry is a natural monopoly?

A type of monopoly arises because a single firm can supply a good or service to an
entire market at a lower cost than could two or more firms is called a natural monopoly.

The size of a market is closely related to whether an industry is a natural monopoly. A

small market will not support more than one firm operating at a minimum efficient scale,
which means that the only way to achieve economies of scale is to have one firm
producing the entire market output. This makes the market a natural monopoly. Natural
monopoly industries are often regulated, as they can use their market power to charge
higher prices and reduce output.