History slide 1

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  1. Explain the crucial relationship; the distance between the formal and informal institutions?
    • Formal (Codified law, overnight shifts)
    • Informal (Traditions & culture, Sluggish)

    • - Informal economies can prevail in an environment with wrong institutions/ insufficient enforcement.
    • -The informal economy offers a way to excape
  2. Explain institutions and transaction costs when being well-defined & functioning and when being wrong & unsuitable?
    • Well-defined & functioning
    • -Institutions reduce uncertainties = lower transaction costs (specifying what is being exchanged - enforcing the consequent agreements = the costs for carrying through exchanges and upholding an agreement)
    • Wrong/Unsuitable institutions
    • - Increase transaction costs. Bureaucracy, corruption, insecure property rights & incomplete information (asymmetric information)
  3. Why are property rights important?
    • - A formal institution- a bundle of rights stipulating who owns what, who uses what and how property can be exchanged.
    • -Functioning property rights need efficient enforcement mechanisms!- To make sure that rules , contracts and agreements are followed and obeyed.
    • -Institutions and the technology employed determine the transaction and information costs.
  4. What are some factors of production?
    • - Land: natural resources as agricultural land, forests and the general physical environment (mines, waters etc)
    • -Capital: not only money! Real capital eg: machinery and buildings (real estate), financial capital : credits.
    • -Labour: related to the size of population- the size and not the least the composition/added skills of the labour force.
    • -Technology, institutions and entrepreneurship: the relative impact of using more advanced production techniques, new forms of energies etc.
  5. Measuring and interpreting economic growth.
    GDP and GNP
    • -GDP= Consumption + Gross investments¬†
    • - Total value of all final goods and services produced for consumption in a country during a particular time period.¬†
    • -Economic growth = GDP increase/decrease based on the combination of factors of production +- GDP per year.
    • -GNP (gross national product) = GDP + factor incomes from abroad - factor incomes transferred abroad.
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History slide 1
2013-05-11 08:53:40

Slide 1
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