Economics

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i. Microeconomics

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branch of economics dealing with the particular aspects of an economy – focuses on actions of actors within the economy – Households/workers/business firms

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ii. Macroeconomics

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looks at economy as a whole – focuses on rate of growth of production of goods and services, unemployment rate, inflation rate etc.

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iii. 4 main goals of macroeconomics

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1. Growth in standard of living
2. Unemployment
3. Level of foreign trade
4. Inflation

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iv. Microeconomics focuses on

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1. Individuals
2. Business firms
3. Industry

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i. Rationing

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is an artificial restriction of demand. It is done to keep price below the equilibrium

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2. Positive statements

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statements describing the world as it is

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3. Normative statements

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statements describing the world as it should be

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iii. Ideology

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How you view economic situation s- how you view the world based on economic decisions

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iv. Conservative

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focus on operation of markets in a capitalist free-market economic system – private ownership of resources = economic/political freedom

1. Profit
2. Government intervention creates economic problems
3. Roots – 18th century classical liberalism

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v. Liberal

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capitalist economic system, private property and markets. Free-market system = efficient/promotes economic growth
1. Market system promotes problems – unequal distribution of income/wealth and economic power
2. Government can redistribute income through taxation
3. Active role of government in economy – “public” goods- parks, roads, schools, police etc

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vi. Radical

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very critical of the structures, institutions, operation and results of a capitalist economic system – it has been productive in increasing productive capacity – but market system based on private ownership creates different classes of people
1. Class structure of society = economic inequality
2. Capitalist production/growth - unable to provide for public goods, ignore social costs of productive activity, lead to economic instability
3. Roots – Marxian economics

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the 5 big economic ideas

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1. Economic systems operate under a complex social/cultural/environmental/historical and political limitations
2. Ideology influences economic choices
3. Opportunity costs (trade-offs) – presented in the choices we make
4. Competing views and self-interest are fundamental to economic systems – Firms, Individuals, Society
5. There are different ways to organize economic activity and allocate economic resources

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ii. Examples of the 5 economic ideas

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1. Social/Cultural – what society claims acceptable effects economic decisions ex. Market for kidnys
Environmental – chesapeak bay – resources affects economy
Historical/Political – health care is difficult to change due to historical standsards (large private sector)
2. Differentiate between socialism and capitalism
3. Liberal vs Conservative
4. Trade offs aren’t readily seen – if you spend $1 on a coke, you can’t spend that dollar on anything else
5. Creates efficiency - you attend college because it will benefit you

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iv. Conservative/Liberal and Radical views on Poverty

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2. Poverty – Conservatives – exists because of people’s inability to earn high income – wrong skills, few skills, don’t work hard - need to develop marketable skills
Liberals – poverty is due to circumstances out of their control – support public education to increase marketable skills, favor direct income redistribution, support food stamps and welfare
Radicals – support governmental redistribution programs – oppose efforts to take economic benefits away from poor people. Redistribution programs have a limited effect in eliminating poverty, only massive redistribution could reduce instance of poverty

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vi. Two Positive Statements

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1. A rise in consumer incomes will lead to a rise in the demand for new cars.
2. More competition in markets can lead to lower prices for consumers.

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vii. Two Normative Statements

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1. The government should increase the national minimum wage in order to reduce relative poverty.
2. The retirement age should be raised to 75 to combat the effects of our ageing population.

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i. Framing

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How you present your choices

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ii. Utility

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The level of satisfaction or pleasure that people receive from their choices

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iii. Interdependent

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a relationship in which its members rely mutually on each other

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iv. Independent

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self-reliance

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v. Peak-end-rule

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we judge our past experiences almost entirely on how they were at their peak (pleasant or unpleasant) and how they ended. Other information is not lost, but it is not used.

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vi. Satisficing

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The good choice – settle for something good

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iii. Opt-in vs Opt-out choices

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1. Opt in choices (Organ donor) – people less likely to donate
2. Opt out choices (Organ donor) – people more likely to donate

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1. Maximizers

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product comparison, takes long to decide on a purchase, compare purchase decisions to other peoples, experience regret, think about hypothetical alternatives, feel less positive about purchasing decisions

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2. Satisficer

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settles for something good enough, has criteria and standards, settle for merely excellent, no absolute best, less likely to experience regret, savor positive events more

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vi. Consumers and choices

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more choices = less satisfaction less choices more satisfied

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i. Ecological

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is a trans disciplinary field of academic research that aims to address the interdependence and coevolution of human economies and natural ecosystems over time and space. It is distinguished from environmental economics, which is the mainstream economic analysis of the environment, by its treatment of the economy as a subsystem of the ecosystem and its emphasis upon preserving natural capital.

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ii. Sustainability

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The capacity to endure

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iii. Natural Capital

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is thus the stock of natural ecosystems that yields a flow of valuable ecosystem goods or services into the future.

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iv. Carrying Capacity

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is the maximum population size of the species that the environment can sustain indefinitely, given the food, habitat, water and other necessities available in the environment.

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v. Ecosystem services

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Humankind benefits from a multitude of resources and processes that are supplied by natural ecosystems.

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vi. Environment sink function

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describes an environment's ability to absorb and render harmless waste and pollution: when waste output exceeds the limit of the sink function, long-term damage occurs.

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vii. Negative externalities

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is an action of a product on consumers that imposes a negative side effect on a third party; it is "social cost".

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1. Mainstream economics

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is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits by cost-constrained firms employing available information and factors of production, in accordance with rational choice theory.

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2. Ecological economics

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aims to address the interdependence and coevolution of human economies and natural ecosystems over time and space.

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ii. Describe what sustainability means in the context of economy-ecology nexus

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were abusing our resources, there’s a threat for our resources to be depleted; landfills

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i. Economic System

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an economic system consists of social institutions (law, politics, religion), organizations (corporations and unions), agents (individuals or actors), society

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Economy

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based on kinship and reciprocity – tend to be static and maintain status quo

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iii. Command Economy

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relies on eminent domain, needs authority to redistribute resources

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iv. Market Economy

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most economic decisions about what to produce, how to produce it, and for whom – made by buyers and sellers

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v. Mixed Economy

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most economies are usually a mixture of the three but they are usually classified by the dominant approach

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vi. Ration

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fixed provision of an item

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vii. Rationing

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is an artificial restriction of demand. It is done to keep price below the equilibrium

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viii. Conservative

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no radical change

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ix. Liberal

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You are concerned with individual rights & liberties. You are often in favor of government intervention and government programs (pro-regulation). You lean toward the monitoring of business. You get excited by new government initiatives like sending man to Mars.

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x. Radical

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government needs to step in

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xi. Libertarian

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liberty from governmental intervention – free markets, capitalism

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i. Primary differences between market command and traditional methods of allocating resources and distributing goods and services

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The primary differences between a market command and a traditional economy are that traditional economies have been established through trial and error; those activities that result in adequate production and an acceptable distribution are retained and used often without question. Agents in traditional societies may engage in exchange transaction but these are peripheral to the provisioning and allocation problems. With command economies, they rely on authority to redistribute resources – multi national authorities act as administrative; they concentrate on achievement goals

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ii. Primary features of traditional economy

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traditional economies are based on subsistence economies (agriculture such as Australia) they depend on institutions that have worked in the past – reciprocity is an important element – they are less capable of adapting to environmental change

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iii. Primary features of command economy

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they are based on eminent domain and they need an authority (multi national corporation) to redistribute resources. They have objectives and goals