Economics

The Invisible Hand

ADAM SMITH! Self-Interest is good for a society. No state decisions: Individuals rather than government should be able to decide what to produce and consume Many individuals acting in their own interest to promote a greater and collective good. BUT if only one person is acting in his own self-interest and everyone else is disinterested then the benefits of society will not be served.

International Monetary Fund (IMF)

Acts as the world's central bank. They use the resources fro their members and lend cash to those with currency- or capital deficits. Lending from the IMF is frequently a last resort for countries.

Liberalization:

After the cold war, countries decided to open up their borders to create more foreign contacts. Money could now flow more freely around the globe as companies entered new markets.

Law of supply

All other factors remaining equal, the law of supply states that the higher the price, the higher the quantity that is supplied. Unlike the law of demand, the supply relationship shows an upward slope. Producers supply more at a higher price because selling a higher quantity at a higher price increases revenue.

Free Market

An economic system based on supply and demand with little or no government control

Elastic prices

An elastic demand for a product is a situation in which a slight change in the price of the product will lead to an appreciable change in the demand for the product and such a scenario is observed when there is a substitute. Tea and Coffee → When the price of coffee increases more people start drinking tea.

Inelastic Prices

Any significant change in the price of the product doesn't result in any appreciable change in the demand for the product and such a scenario is observed when there is no or very few good substitutes for the product. Gasoline→ people can't use a substitute and are still forced to buy it even when the price goes up.

Boom and Bust

Boom and Bust are inevitable The boom and bust cycle of an economy is the period on which it expands and contracts Vary in time and severity During the boom: The economy grows , there are enough jobs and investors make a lot of money During booms, the central bank lends money at low interest rates to make it easier to obtain credit, more money is invested, returns are high and the economy grows. Though eventually, people overinvest. The demand for all of the products made during the boom starts to go down, which makes the bust cycle start. During the bust: The economy shrinks, people lose jobs and investors lose money

Environmental Economics Dilemma

Cutting back on the current consumptions and fossil fuel use has benefits for the environment, but this is a great harm to the economy since we are consuming less. Instead we could also wait and continue doing everything like we are used to, in the meantime hoping that our future generations will be able to find advanced solutions to this issue.

Environmental Economics

Economics and the environment are indisputably intertwined. For example, economic development is one of the prime reasons for climate change, though it could also offer us a solution. Economic tools such as taxes and regulations might encourage people to pollute less in the future. The use of natural resources has brought our economy to where it is right now, though this does come with a few consequences. One example for this is that the burning of fossil fuels has a link to global warming, contributing to natural disaster all over the globe.

World Trade Organization

Ensures people can trade freely all around the world. Assuring that there is free market.

How is GDP measured

Entire income = Consumption + Investment + Government spending + (Exports - Imports) Consumption means all the money that households spend on goods and services. Investment is the cash poured into business on a relatively long-term basis, for instance to build new factories or buildings. Investment is mainly done by firms, only a very small part is done by households due to spending money on housing. Government spending comprises the amounts national and local government bodies spend on goods and services. Exports are the goods that we sell to other countries, this money that they pay adds to our GDP. Imports are the goods that we buy from other countries, which is money that does not get counted in our GDP.

Gross Domestic Product

GDP: the market value of all final goods and services produced within a country in a given time period Biggest economic statistic The measure of a country's entire income ( gross= entire, domestic= in a particular economy, product = economic output , or activity) Illustration of a country's living standard GDP measures both goods (e.g. food) and services (e.g. haircuts), including invisible items (e.g. housing services) Measures two things 1. A country's total income 2. A country's total spending

Criticism of Capitalism

Generates inequality Promotes Unemployment and instability Tendency towards boom and bust Bad effect on environment: Tendency towards monopolies, where one company takes exclusive control of an industry.

Benefits of Globalization

Globalization has made the world a lot richer and has boosted a number of large economies. Globalization is thought to be one of the main causes of stability worldwide

Happynomics

Happiness is hard to measure empirically, which is a cause of the economy getting worse. If a person has an average income of $20.000 or above, they do not feel happiness if this number goes up higher and they gradually become less satisfied. Hedonistic cycle: if you are rich you get used to it and start to perceive it as a standard.

Criticism of globalization

Human rights → sweatshops, low wages, poor working conditions. Cultural → increased influence from multinational corporations and dominance of western brands may be suppressing the identities of indigenous cultures.

Law of demand

If all other factors remain equal, according to the law of demand, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded.

Globalization

In economics, globalization refers to the commercial and economic links that go all over the world.

Supply

Indicates the amount of goods or services a seller will part with for a certain price. The lower the price → the least the seller wants to sell since making the products costs money and time.

Communism

KARL MARX Classless, government-controlled society in which everything is shared equally no private property, no economic classes and no profits. NOT owned by private individuals No class barriers, no differences, a fair society

Monetarism

Monetarism is a school of thought that emphasizes the role of government in controlling the amount of money in circulation. Monetarism said that inflation was caused by too much money in the economy. Growth of the economy is determined by the amount of money from Central Banks It should monitor and control the amount of money in the economy It should always fight inflation It should control the prices; all other economic aspects should take care of themselves

Multilateralism

Multilateralism means collaborating with all other major countries when taking major decisions, rather than a country acting on its own (unilaterally) or in partnership with just one other country or set of countries (bilaterally).

What does GDP not include

Products produced in the informal economy, meaning any illegal goods If an engine is part of the car then it isn't counted separately until it is sold as an individual product.

Demand

Represents the amount of goods or services people are willing to buy from a vendor at a particular price. The higher the price, the less people will want to buy it.

Elastic vs. Inelastic

Sometimes supply and demand take a while to respond to changes in prices. Whenever consumers react very fast to a change in price, by using/buying it less, means that their demand is price elastic. Though when consumers are slow to react to a change in costs, their demand is price inelastic.

Supply and Demand

The way these forces interact determines the prices of goods in shops , the profits company makes and why one person gets rich and the other stays poor. Something is perfectly priced when supply equals demand. !!!!!!!!!!!!! The price of a product or item can tell us something about the supply and demand of this specific product. Prices change over time!! Low demand & high supply = low price, High demand & low supply = high price

John Maynard Keynes vs. Milton Friedman

These two men stood for radically opposing doctrines. Keynes paid more attention to unemployment than inflation and said that the economy could improve by a certain amount of state interference. Keynesians would pump more money into the economy to give it a boost, which beat unemployment but also caused inflation (which risks damage to the economy).

Equilibrium

This the point at which market supply and demand balance each other and prices become stable as a result. Equilibrium occurs at the intersection of the demand and supply curves, establishing an

Micro and Macro

Two completely different fields of study Economist often spend their life specializing in one. Microeconomics: looks at how and why individuals and businesses ,Take certain decisions , Interact with the market, Make money. More heavily based on statistics Can be one person, one family, one firm or even one industry Macroeconomics: looks at how countries/governments : Improve growth, Tackle inflation, Maintain finances, Ensure employment The study of how economies function as a whole Interested in the economy as a whole They are interrelated but micro looks at one market in isolation whereas macro looks at all markets together.

Free trade

a policy to eliminate discrimination against imports and exports. Buyers and sellers from different economies may voluntarily trade without a government applying tariffs, quotas, subsidies or prohibitions on goods and services.

World bank,

also known as the International Bank for Reconstruction and Development. The world bank assists the poorest countries by lending and donating money to them. Their main goal is to make the world economy richer and more stable. YOU FIRST GO HERE AND THEN TO IMF

Happy planet index

contentedness of a country with their lives + life expectancy + ecological surrounding per capita.

BRICs

four strong upcoming economies of Brazil, Russia, India and China. They have massive populations that are looking for work and wealth and they have remarkable growth rates.

Capitalism

is an economic system in which capital goods are owned by private individuals or businesses. Meaning that people rather than governments dominate the economy. The production of goods and services is based on supply and demand in the general market, rather than through central planning. EXAMPLE = USA So: people rather than governments dominate the economy Most modern countries practice a mixed capitalist system of some sort that includes government regulation of business and industry. THE LEAST WORST WAY TO RUN A MODERN ECONOMY

Individualism

policies that limit the control of the government and instead allow more freedom for the individual person This means that they support the idea that individual people should be responsible for their own well-being and not count on the government (or any other outside agency) to assist them in their lives. Economically, this would mean that people should not rely on the government for programs such a welfare and instead support themselves financially. Within individualism, individual choices are of primary importance.