Intro to Econ Reasoning Unit 1

EX of developmental states

South Korea, Japan, China

why GDP isn't accurate

*better than disposable income* but: 1. goods difficult to value because measure by how much it cost to produce 2. goods by gov. not typically sold 3. income distribution affects wellbeing (ex. high avg bc wide inequality)

Changes accompanied emergence of capitalism

*both improve productivity of workers* 1. technology 2. specialization: raise productivity and living standards

Which of the following variables have followed the so-called 'hockey-stick' trajectory—that is, little to no growth for most of history followed by a sudden and sharp change to a positive growth rate?

1. GDP per capita 2. labour productivity 3. atmospheric CO2 *also connectivity to world

Advantages of specialization

1. acquire skills as we produce things 2. difference in ability: some better at one thing etc 3. economies of scale: producing large number units cost-effective than producing smaller number

Characteristics of Firm:

1. one or more individual own a set of capital goods that are used in production 2. pay wages and salaries to employees 3. direct employees (through managers they employ) in production of goods/services 4. goods and services are the property of the owners 5. owners sell goods and services on markets w intention make profit

Dynamic economic system includes: Capitalist Revolution

1. private incentives for cost-reducing innovation: derived from market competition and secure private property 2. firms led by those with proven ability to produce goods at low cost 3. public policy supporting these conditions: Public policy supplies goods not provided by firms 4. stable society, biophysical environment, resource base

What disposable income leaves out

1. quality of social and physical environment (ie friendships and clean air) 2. free time 3. goods/services we don't buy (healthcare/education provided by the gov) 4. goods/services produced within household (meal, childcare)

Markets are:

1. way of connecting people who may mutually benefit 2. by exchanging goods and services (reciprocation by good, money, credit 3. through process buying and selling *VOLUNTARY*, are private property -not like theft or -transfers in centrally planned economy *COMPETITION*

Which are examples of private property? a. computers belong to college b. farmer's land in soviet russia c. shares in company d. worker's skills

A & C

developmental state

A government that takes a leading role in promoting the process of economic development through its public investments, subsidies of particular industries, education and other public policies.

comparative advantage

A person or country has comparative advantage in the production of a particular good, if the cost of producing an additional unit of that good relative to the cost of producing another good is lower than another person or country's cost to produce the same two goods.

absolute advantage

A person or country has this in the production of a good if the inputs it uses to produce this good are less than in some other person or country

political system

A political system determines how governments will be selected, and how those governments will make and implement decisions that affect all or most members of a population.

technology

A process taking a set of materials and other inputs, including the work of people and machines, to produce an output

Capitalism

An economic system in which private property, markets, and firms play an important role.

What are examples of markets? a. wartime food rationing b. action websites like ebay c. touts selling tix outside concert halls d. sale illegal arms

B, C, D

economy and the environment

CO2 emissions increased, climate change, avg temperatures risen in response to high levels greenhouse gases

democracy vs dictatorship can affect

Dem: A political system, that ideally gives equal political power to all citizens, defined by individual rights such as freedom of speech, assembly, and the press; fair elections in which virtually all adults are eligible to vote; and in which the government leaves office if it loses.

Why capitalism less dynamic:

Economic conditions 1. private property not secure: weak enforcement of law 2. markets not competitive: no carrots or hockey sticks 3. firms owned by people who survive bc connections (privilege): not good at delivering quality goods at competitive price Political conditions: 1. monopolies: like East India Company, governments may take teeth out of competition 2.banks "too big to fail", bailed out by governments when should've failed

GDP per captia

GDP divided by population - average income of people in a country

Production example: If 100% spent on one good: Greta: 1.250 apples or 50 tonnes of wheat Carlos 1,000 apples or 20 tonnes of wheat absolute advantage comparative advantage

Greta has absolute advantage in both crops (produce more than Carlos) Greta has comparative advantage in wheat Carlos has comparative advantage in apples (least disadvantaged even though Greta is better)

labor market

In this market, employers offer wages to individuals who may agree to work under their direction. Economists say that employers are on the demand side of this market, while employees are on the supply side.

Q1.3: Imagine that the GDP per capita of a country had doubled every 100 years. You are asked to draw both linear and ratio scale graphs that plot GDP on the vertical axis, and the year on the horizontal axis. What will be the shapes of the curves?

Linear scale graph: An upward-sloping curve with increasing slope (called convex shape) Ratio scale graph: An upward-sloping straight line

private property

Means: 1. enjoy your possessions in a way that you choose 2. exclude others from their use if you wish 3. dispose of them by gift or sale to someone else ... 4. ... who becomes their owner *NOT PRIVATE PROPERTY* - air breathe, knowledge

GDP at constant prices

Price corrected for increases in prices (inflation) or decreases in prices (deflation) so represents same buying power at diff. times

family farm vs firm vs government bodies

firms easily born expand and die expansion on farm limited to family workers, cannot get rid of unproductive workers gov limited capacity to expand, protected from failure if perform poorly

capital goods

The equipment, buildings, raw materials, and other inputs used in producing goods and services, including where applicable any patents or other intellectual property that is used.

economic system

The institutions that organize the production and distribution of goods and services in an entire economy.

institutions

The laws and social customs governing the way people interact in society.

ownership

The right to use and exclude others from the use of something, and the right to sell the thing that is owned.

demand side

The side of a market on which those participating are offering money in return for some other good or service (for example, those purchasing bread).

supply side

The side of a market on which those participating are offering something in return for money (for example, those selling bread).

gross domestic product (GDP)

a measure of the market value of the output of the economy in a given period

If Greta sells 15 tons of wheat to buy 600 apples... If Carlos buys 15 tons of wheat to give 600 apples...

can consume 600 apples vs 0 apples when specialize in wheat Carlos can consume more of both goods after specialization and trade (1,000 apples vs 800 self sufficiency) (50 tons of wheat vs 44 self sufficiency)

technological progress

change in technology that reduces the amount of resources (labour, machines, land, energy, time) required to produce a given amount of the output

ratio scale

chart y axis GDP per captia doubles (ex. 250 - 500 - 1000) *Steeper line on ratio scale graph indicates growth rate of economy's GDP per capita

EQ: growth rate?

growth rate = (change in income)/(original level of income) or (Y2-Y1)/Y1)

disposable income

income available after paying taxes and receiving transfers from the government - amount of wages or salaries, profit, rent, interest and transfer payments from the government (such as unemployment or disability benefits) or from others (for example, gifts) received over a given period such as a year, minus any transfers the individual made to others (including taxes paid to the government)

Example: Greta choose use 40% time produce apples, 60% in wheat Carlos spend 30% time produce apples, 70% in wheat 40 apples bought for 1 ton of wheat Greta specializes in growing wheat only, produce 50 tons wheat no apples Carlos specializes in apples

multiply percentage by number of production to get actual number. after specialization, production greater than self-sufficiency

Examples of NOT firms

people working are family members, non profit, employee owned cooperatives, government owned entities

Economics in past - key institutions were:

private property, markets, and families (goods produced) rather than firms

Central planning

produce steady but unspectacular growth in Soviet Union and West Germany (?)

Examples of Firms

restaurants, banks, large farms that pay employees, supermarkets, industrial establishments, internet service providers

purchasing power parity (PPP)

statistical correction allow comparisons of amount of goods people can buy in different countries that have different currencies

Industrial Revolution

wave of technological advances and organizational changes starting in Britain in the eighteenth century, which transformed an agrarian and craft-based economy into a commercial and industrial economy

casual statements

we want these over correlations: A direction from cause to effect, establishing that a change in one variable produces a change in another.