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Principles of economics summary, lecture 1-18, including all graphs
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Principles of economics summary, lecture 1-18, including all graphs
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Lecture 1 - Introduction to Economics (Ch. 1 & 2)The goal of economics?
● Conservative interpretation - give people the tools to improve their financial status
● Progressive interpretation - for everybody to have their needs met ( essentials for life)
● Idealist’s interpretation - not only to have people’s needs met but increase/create wealth
(Dream bigger!)
Economics - Hard science, moving material things (money) around
Depends on human behaviour - inflation, recession = panic!
Supply is based on the physical presence of goods
Demand is determined by human behaviour (Biology, greed, desire for statues and variety)
Economics is where human behaviour meets materiality
Value is based on demand
People work for wealth
Market sends price signals, this tells people how to coordinate labour and capital.
How to measure wealth? - GDP is a measure of things in the economy that goes through a
market
GDP per capita tells how wealthy a country is an can be used to compare wealth with other
countries
Economy creates society
Old economic thought: Materialism (Marxism)
New theory: Institutions ( politics, society, history) shape the economy
The debate between Keynesianism ( government intervenes to help out poor and middle class,
protect from free trade) and Neoliberalism (Government stays out, let the markets work their
magic, free trade)
Microeconomics - Individual industry or market (tends to be more specialized)
Supply and demand
Macroeconomics - the general indicators of the health of the economy as a whole (Growth,
employment, currency, stability, credit markets, productive capacity, R&D, health of the banking
sector, Social and political effects.)
Market is a where supply meets demand
Off the grid - non-market action, painting a picture or cooking a fancy meal, not measured in
GDP
On-grid- involving money transactions, measured in GDP
- You study to get a better job ( human capital)
- You work ( Facilitates markets)
- You invest ( Ditto)
- You receive transfer payments (Providing income to spend on markets)
, - All of this is measured in GDP= Creating wealth
Supply and Demand Curves
- The X-axis is Q ( quantity)
- The Y-axis is P (price)
Representing the frontier of what is possible for a given market.
Meeting point of X and Y is the equilibrium price
Anything left to the curve can happen anything to the right isn’t possible. ( check the figure on
the slides)
S/D curve can show how meddling with the market can cause ‘market failure’ i.e., deadweight
loss, and inefficiency.
Economists try and find ‘perfect equilibrium’ and minimize wastage
Economists
- Neoliberals (mostly) - don’t admit there is no free market
- “leave markets alone” approach
- Laws always circumscribe markets.
- Child labour laws, anti-slavery laws, anti-venality laws, anti-monopoly laws,
minimum wage laws, fiscal policy, all show that what was once sold, is judged by
society to be off-limits to the market
Aspects of Microeconomics:
- Supply and Demand – Production Theory – Demand theory
- Elasticity
- Opportunity Cost
- Marginality/Marginal Revenue
- Market Structure: Types of Market
- Corporate Structure/Incentives
- Theory of the Firm
- Game Theory
- Information economics
- Labor Economics & Labor markets
- Labor Laws/Policy
, - Corporate Legislation (can be macro)
- Welfare Economics & Externalities
Aspects of Macroeconomics
- Output/Income
- Employment/Unemployment
- Wage rates
- Fiscal Policy (How much money you tax and where the government spends the money)
- Trade Policy ( Goods allowed to trade by the government …)
- Monetary POlicy
- Central banks
- Interest rates
- Inflation and deflation
- Banking sector
Principles
1. Choices are necessary because sources are scarce (Noone can’t get everything,
creates supply and demand)
2. Opportunity cost (Either/Or) - either university or work
3. Marginality ( How much?) - bit more of dessert or one more pair of jeans
4. Principle of rational choice - maximal exploitation of resources
5. Free trade: The sum is greater than the parts. (Adapted after WW2 - benefits are greater
if opening the borders to trade, not autarchically)
6. Markets move to equilibrium ( Supply and demand tend to meet at a sustainable point)
7. Avoid deadweight loss ( Distortion in the market = inefficient)
8. Markets usually lead to efficiency (Economists believe in leaving the market alone,
laissez-faire
9. Markets can slump and malfunction( Krugman the author with Keynesian beliefs, The
government intervention needed)
10. Spending = income
11. If spending is to low, the economy can fall into a recession
12. The government can change spending
Economic models tell us what to expect ( Simplified)
PPF ( Production Possibility Frontier) and opportunity cost
- If opportunity cost increases then the curve will bow
- You can produce more when economy grows
, Lecture 2 - Models, graphs, Supply and Demand (Ch 3)
Modelling
Coupling some variables to understand if and how these variables are related and affect each
other when price or quantity changes.
- Y is dependent upon X (They are related and if one changes, the other will also change)
- Example X1 and Y3, if X increases to 2 (X2) Y will also increase to 5 (Y5). The
relationship is 1 to 2 ( suhe) = A straight line
Changing slope
Curved line = slope changes ; Any point of the curve slope is different, increasing or
decreasing rates of change between 2 valuables ( ; ; relationship for example,
different at any point of the curve)
Straight line = Slope stays the same (; , relationship)
PPF as Model
How many X to get so many Y (opportunity cost)
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