econ chp. 1 and 3
outsourcing conclusions
1. loss of domestic jobs due to outsourcing is normal because tech and consumer preferences change over time 2. jobs lost to outsourcing are partly offset by jobs gained through insourcing 3. cost savings from outsourcing leads to lower prices for consumers and more output for firms; jobs gained from increased output offset jobs lost to
3 reasons for productivity to increase w/ specialization
1. repetition (more times worker performs task, better worker becomes at task) 2. continuity (worker doesn't spend time switching from one task to another; important if switching requires change in time/location) 3. innovation (specialized worker gains insights into task that lead to better production methods)
three key economic questions
1. what products do we produce? 2. how do we produce the products? 3. who consumes the products?
ceteris paribus
Latin meaning other variables are held fixed
ex. of specialized trade
Latvia: Ec has absolute advantage in grain and timber, but a comparative advantage in grain. Latvia has comparative advantage in timber, so both are better off if EC trades grain for timber from Latvia
comparative advantage
ability of one person or nation to produce a good at a lower OC than another
absolute advantage
ability of one person or nation to produce product at a lower resource cost than another person or nation
economic model
abstraction from reality that enables us to focus our attention on what really matters
opportunity cost
best alternative that is sacrificed for any given choice; production decisions (what are you going to produce with your time)
social inventions that support markets
contracts, insurance, patents, accounting
institutional changes to help markets work better
contracts, insurance, patents, accounting rules
outsourcing
domestic firm shifts part of production to different country
market economy
economy in which people specialize and exchange goods and services in markets; decisions are made based on consumers' desires, production tech, etc.
net export
export-import
centrally planned economy
government bureaucracy decides how much of each good to produce, how to produce it, etc.
scarcity
idea that resources are limited, while human wants are unlimited
patents
increase profitability of inventions, encouraging firms to develop new products and production processes
variable
measure of something that can take on different values
5 factors of production
natural resources, labor, physical capital, human capital, entrepreneurship
role of government in market failure
pollution, public goods, imperfect information, imperfect competition
positive analysis
predicts the consequences of alternative actions by answering the question "what is?" or "what will be?"
import
product produced in foreign country and purchased by residents of home country
export
product produced in home country and sold in foreign country
accounting rules
provide potential investors with reliable info about performance of a firm
insurance
reduces the risk entrepreneurs face
three reasons for specialization to increase productivity
repetition, continuity, innovation
adam smith
said self-interest is more powerful than kindness or altruism
marginal change
small, one-unit change in value
contracts
specify the terms of exchange, facilitating exchange between strangers
economics
studies the choices we make when there is scarcity
macroeconomics
study of the nation's economy as a whole
normative analysis
what ought to be?