Economics

Paradox of value

Some necessities, such as water, have little monetary value, whereas some non-necessities, such as diamonds, have a much higher value.

production possibilities frontier (PPF)

a graph that shows the combinations of output that the economy can possibly produce given the available factors of production and the available production technology specialization bends fronteir shows tradeoffs and opportunity costs when choosing between two goods

Market

a group of buyers and sellers of a particular good or service-invisible hand

Circular flow of economic activity

a model that shows the relationship between households and businesses in a free market economy factor market(ppl sell labor for payment)- business- product market( businesses sells goods and services for profit) - individuals (microeconomics)- factor markett

opportunity cost

best alternative given up when you make a choice

Entrepreneurship

someone with an idea who takes a risk in search of profits, coordinates factors of production

how can we increase productivity

technological advances, increase in human/natural resources, capital investment

devision of labor

the assignment of different parts of a manufacturing process or task to different people in order to improve efficiency. needs constant growth

factors of production

the resources that are used to make goods and services- land labor capital, and entrepreneurship

Economics

the study of how we use our scarce resources to satisfy unlimited needs and wants -always a political act becauses those who decide how to allocate resources are exercising power

Political economy

those who decide how to allocate resources are exercising power

capital good

tool, equipment, or other manufactured good used to produce other goods and services; a factor of production

factor markets

where land labor and capital manufacture goods

mixed economy

An economy in which private enterprise exists in combination with a considerable amount of government regulation and promotion.

value

a worth than can be expressed in dollars and cents

comparative advantage

ability of a nation to specialize in the production of the goods for which it has the lowest opportunity cost

how does scarcity force tradeoffs

carcity is the fact that we have LIMITED RESOURCES to satisfy UNLIMITED wants & needs Scarcity forces us to CHOOSE how to use our limited resources In making these decisions, we must sacrifice (cost) in order to gain (benefit), known as a tradeoff Opportunity Cost is the best alternative we sacrifice when making a decision

Product market

consumers can buy goods and services

Productivity

creates wealth-> requires more raw materials and expanding markets output/input=productivity

absolute advantage

exists when one nation can produce goods more cheaply than other nations

Macro economics

focuses on the working of an economy as a whole (ALL) ex: business cycle, unemployment, inflation

Scarcity

fundamental economic problem the fact that valuable resources are limited ex: time, clean drinking water forces us to make decisions that involve trade-offs

durable goods

goods that last for a relatively long time, such as refrigerators, cars, and DVD players

capital investment

includes investment in the purchase of new tools and equipment that can aid production, and development of human capital—educating and training the labor force to aid production.

wealth

income + what you own (assets) minus what you owe

consumer goods

intended for final use by individuals

Microeconomics

looks at economic decision making by individuals, businesses and households ex: supply and demand

Capital

money for investment

Economic growth

nation's total output of goods and services increases over time- adam smith believes that to maximize output you must have division of labor and specialization

Economic Principles

people benefit from voluntary exchange markets coordinate trade

Labor

people's efforts and abilities

Adam Smith, Wealth of Nations, 1776

"wealth of nations" advocated the idea of laissez faire; or government not involving themselves in the economy. division of labor specialization invisible hand Self-interest is an incentive, or motivation for economic activity that is beneficial for the greater community Markets coordinate trade, bringing buyers & sellers together Ex. Amazon.com, eBay, Farmers' Market, Stock Market Smith used the metaphor of an "INVISIBLE HAND" to illustrate the way that self-interest motivates buyers and sellers to voluntarily exchange goods or services in the FREE MARKET Markets are assumed to be "self-correcting" to promote efficiency and reduce waste, thus eliminating the need for government intervention However, this assumption rests on the belief that (1) People have access to all the price & product information that they need (2) People will use this information to make RATIONAL decisions

U.S.: Transition from Manufacturing to SERVICE Economy (1990-present)

990: Manufacturing = dominant source of employment in 36 states. Today: Manufacturing = dominant source of employment in 7 states. *6 million manufacturing jobs lost WHY???? Automation → Machines replacing human workers (structural/technological unemployment) Offshoring --> Capital moves to where there are cheaper workers to cut costs & enlarge profits

Specialization

A focus on a particular activity or area of study takes place wen factors of production like labor, preform tasks that they can do relatively more efficiently than others

welfare state

A government that undertakes responsibility for the welfare of its citizens through programs in public health and public housing and pensions and unemployment compensation etc.

marx on overproduction

A new problem of the modern industrial era in which we PRODUCE TOO MUCH, "overproduction." Supply exceeds demand. Up until the modern era, it was always an epidemic of shortage: crop failures, famine. Overproduction leads to more problems like unemployment and waste, or desperately trying to open up new markets.

Socialism

A system in which society, usually in the form of the government, owns and controls the means of production.

Free Market Capitalism

A system of economics that minimizes government intervention and maximizes the role of the market.

utility

Ability or capacity of a good or service to be useful and give satisfaction to someone. scarcity alone is not enough to have value, must be utility too

Economic thinkers

Adam Smith and Karl Marx

marx concerns with competition/labor market

Because the work is unskilled, workers can easily be replaced and it justifies "subsistence," or minimum wages. Either way—workers struggle to support themselves.

Karl Marx

Communist Manifesto, class struggle, bourgeoisie vs Proletariat, capitalist Hegemony

Marx on economic growth and expanding markets

Economic growth requires MORE. More goods produced. More customers to buy them. Once a business wins all its domestic (within country) customers, it must find new—foreign (outside country) customers, "MARKETS." "The need of a constantly expanding market for its products chases the bourgeoisie over the whole globe" "raw material brought from the farthest zone, and whose products are consumed not only in their own countries, but in every quarter of the globe."

the business cycle

Fluctuations in economic activity, such as employment and production

Smith's view on government

Government, or the "sovereign" has 3 duties: Common defense, "protecting society from the violence & invasion" Public safety & justice, "protecting...every member...from injustice" Public goods & services, "which can never be for the interest of any individual, ...because profit could never repay the expense." Cautions against high taxes, "encouraging smuggling...a smaller revenue to government"

Karl Marx "Communist Manifesto" 1848

Marx claims that the incentive of self-interest results in a calculating culture with each person preoccupied with money. Concern with money trumps spirituality, honor, integrity, and love. "The bourgeoisie...has left no other tie twixt man and man but naked self-interest and callous cash payment." (Money defines our relationships) "It has transformed personal worth into mere exchange value." (Money is the yardstick for success and appeal) "...torn away the veil of sentiment from the family relation, and reduced it to a mere money relation." (Buying one's affections)

Marx on government

Modern representative democracies simply represent the interests of the bourgeoisie, or business-owning class of capitalists. This is similar to an oligarchy or plutocracy, an elite or ruling class of people whose power derives from their wealth. Government is controlled by the bourgeoisie whose interest is ever-expanding markets so the government uses political and military power to acquire cheap raw materials and open markets abroad.

Smiths view on markets

Pro-consumer, "the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer." Free market characterized by competition promotes the interests of the consumer, "In general, if any branch of trade, or any division of labor, be advantageous to the public, the freer and more general the competition, it will always be the more so." "By preferring the support of domestic to foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain"

land

Raw materials supplied from the earth, sea or air. Examples include forests, minerals, water, oil, gas, grain and fish.

Global supply chain

Supply chain activities cover everything from product development, sourcing, production, and logistics, as well as the information systems needed to coordinate these activities. Consider how the FACTORS OF PRODUCTION, or inputs, are coordinated throughout the supply chain 1. Physical flows: transportation 2. Information flows: communication

capital

Wealth in the form of money or assets owned by a person or organization.

Factors responsible for economic growth

productivity

Economic decision making

scarcity forces us all to make basic economic decisions: what goods and services will be produced with our resources how will society's resources be used to produce them who recieves the goods and services

financial capital

seed money to pay for a project

invisible hand

self interest and competition work together to regulate the marketplace brings buyers and sellers together for voluntary exchange