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What is economics?
- Social science
- Seeks to understand how societies allocate their limited resources to satisfy unlimited human wants.
What does the word "economics" derive from?
- Greek language
- "One who manages a household"
What is economics different from other social sciences?
- Based off humans acting rationally
- Wide range of topics in our lives
What is scarcity?
- Limited recourses in our society
- Cannot produce all the goods and services we want
- Limited recourses = limited products made from those
- We cannot consume everything, INCOME IS LIMITED
What do Math, Scarcity, and Economics have in common?
- Math = Economics
- Economics = Scarcity
- Math = Scarcity
- Things are scarce, therefore it becomes and economic and math problem
What do Scarcity, Efficiency, and Productivity, have in common?
- Scarcity means being efficient in recourses
- GO TOGETHER
- Efficiency- no waste, (minimal), which is the ultimate goal (No waste = high productivity)
- Scarcity = Efficiency = Productivity
Explain Economics in a more specific case?
Economics - science of scarcity-efficiency-productivity!
What is Laissez-Faire?
- "Let them be" in French
- Laissez- let them
- Faire- make, pass through
- Pure Capitalism (modern english)
Who is Adam Smith?
- Established economics in the 18th century
- Wrote "The Wealth of Nations" in 1776
What is so significant about the 18th century and economics?
- Era of changes
- French were really productive
- Therefore... Lassiez-Faire
What is the "Wealth of Nations"?
- Written by Adam Smith in 1776
- Major piece of work in economics
- Self pursuit = good for society
- (Bread man, baking for society, as well as doing good for himself.)
- Basic capitalism
- Pursuit of self interest = isn't against public interest
- (Going to college, one day working in the world to self serve and do good for society)
Explain Economics and Politics...
- Economics is different from politics
- UNTIL- fiscal policy
What are the 3 fundamental questions of economics?
- What to produce
- How to produce
- Who to produce to
All about choices
Explain pure capitalism...
- Deals with problem of scarcity then efficiency and productivity.
- Economic equality
Explain the economic pie in pure capitalism terms...
- Efficiency- size of the economic pie
- Example: China econ. pie surpluses US
- Pure cap/eff. = size / economic growth
- Sustainable (high but stable)
Explain economic pie cut up!
- Who gets what?
- Pure social equality & economic quality- not the same
- Social- divide equally among members
- Economic- (capitalism)- same opportunities but different perf.
- "Cannot give everyone "A's"- work for an output
What is Modern Capitalism?
- Only in certain places (modern)
- End result- more desirable that any other system
- More productive people (able to get more ahead)
Who is the face for Pure Capitalism & Pure Socialism?
- PC- Adam Smith
- PS- Karl Marx
Who was Karl Marx and what did he do?
- Focused on countries falling behind
- More centralized economic way of doing
- Pure socialism
- Classic Economics
- Founder of Modern Socialism
- No freedom in market place
- Some one has to reorganize the resources in market place
Give some examples for pure socialism?
- North Korea
Give some examples for pure capitalism?
- Hong Kong
Give examples of countries who are in the middle of the pure social and capitalist ways.
Where is US on the scale of Pure socialism and capitalism?
- Gov. exp.- 20-25%
- 1/5 $ to uncle sam
- solution to economic problem, 80% capitalism
- We are mixed, but closer to pure captialism
Limited inputs = ?
What are the 2 types of outputs?
- Intermediate- things bought to produce the final product. (Intermediate)
- Final- purchased by final consumers- final product (All the things used to make a Big Mac)
What are some other names for Input and Output?
- Input- resources, factors of production
- Output- goods & services, products
What are the 4 types of economic products?
Explain Land in the economic products...
- On or under earth- natural resources
- Forest, farm land, oil in middle east, gifts of nature
Explain Labor in the economic products...
- Lease skills to employers
- brain power, skills, accounting/landscaping skills
Explain Capital in the economic products...
- Only 100% man made resource!!!
- Some countries- rich in land resources (lucky by geography)
- Some countries- rich in capital! (US or Japan)
- Example: Japan invested in lots of projects, became industrialized = standard of living
What is the equation for finding slope?
What is another word for "its going down" in a graph?
- Its an inverse relationship b/w x and y
- Downward slope
What is the response of x or y when it goes up 1 unit? As in an example...
Horizontal / straight line is...
Line up and down, vertical...
- No slope!
- and INFINITI!!
- not undefined
Point Slope- What is happening at pt A and B? Relationship wise?
- Draw line from A (straight line)- along that line, find slope.
- Draw line from B (straight)- find point slope
- A compared to B- (A pt slope +1.2) then (B pt slope +2)
- tells you the magnitude of the relationship, signs are consistent
What are the 2 points to Point Slope?
- Positive or Negative (related or not)
- Numerical Value (constant or not) (curved line cannot be constant!) - only look at numbers, not signs.
- Is it going down or up? (ex.- Up, or Down)
What do you do when the graph is a upward U shape?
- Left side = positive, slope is getting flatter sooo numerical value is falling
- Right side = Negative, inverse, numerical value is steeper so rising
- Middle = Slope is zero (flat at the specific point)
Scarcity relates to...
Scarcity = trade offs = opportunity cost
What is opportunity cost?
- Opportunity lost
- Total dollar amount you give up because of economic decision
- 2 types- Explict, Implicit
What are Explicit Costs?
- Example: Big Mac $4.99
- Visible money you are giving to enjoy your Big Mac
- College= Books, tuition, fees..
What are Implicit Costs?
- Total economic costs
- Less noticible, less visible
- The money you spend going to get your Big Mac, time, gas, etc.
- College= time you give up to attend college, giving up chance to have job now
Economic Costs ____ Accounting Costs?
- Greater than!
- Accountants ignore implicit costs!
- Economic costs > Accounting Costs
Explain trade offs in terms of effciency (economic pie).
- Growing = effciency
- How fast the pie is growing
- Might have the same sized pie, but based on how efficient you are, your pie grows at a faster rate than others.
- (China was prof. example)
Explain trade offs in terms of equity (economic pie).
- Social equality = "equity"
- Division is equal
- Not dynamic changes, but specific pie equally divided
- Nothing is happening to the size, just distributing the wealth
What are inputs?
- Factors of production
- Resources used by firms in their production processes to make outputs.
- Land, Labor, Capital and Entrepreneurship
What are outputs?
- Goods and services consumed or used for further production
- If the output is consumed- final output
- If they are used to make another output- intermediate
What are the 10 principles of Economics?
- Trade offs
- Opportunity cost
- Marginal analysis
- Voluntary Exchange
- Phillips Curve
Economic Profits ____ Accounting Profits?
- Economic Profits < Accounting Profits
- ALWAYS Less than!
- SO- Profits of economy are always less!
- Costs of economy are always more!
Explain Marginal Analysis.
- Related to scarcity
- AKA: Additional, Extra, Incremental
- Example: College- could take similar classes at other places, but you choose KSU
- Risks taken when there is Marginal Benefit and Marginal Cost.
Marginal Benefit ____ Marginal Cost?
- Marginal Benefit > Marginal Costs
- Greater than!
- Marginal Benefit- something of economic dec.
- Marginal Costs- things you give up
- If you're not benefitting from those things, you wouldn't put so much cost into them. The benefit is always greater or you wouldn't do it!
- Goes with Marginal Analysis
- Important function of modern capital economy
- There are dis-incentives and incentives (specific market place)
- Price of product; Government gets on taxes; profit margins
- Weighing out the costs and benefits to something by the incentive you get from it!
- Example: Over taxing = less incentives to work, save, and invest.
Explain Trade / Voluntary Exchange.
- Example: Because Wal-mart is there, you go!
- Core concept is capitalism
- Laissez-faire concept
- Based on simple (free trade; vol. exchange)
- Domestic- markets free
- International- government economy policies are geared towards vol. exchange
- Free trade = beneficial for everyone
- Economy in which allocates resources through the decentrailized decisions of market participants.
- Free organizations
- In every language- means same thing
- Bring successfully people together for vol. exchange with no gov. intervention
- Buyers and sellers brought together
- (Capitalism) Free Market System- price system- Laissez-faire system
- What do they do?
- ecentralized system and higher levels of productivity When free markets arn't free, that is when you get Externalisities
- When there is a market failure, government gets involved.
- Market is left on its own, fails to allocate socieities resources efficiently.
- Externalities- actions of one person impact well-being of third parties, they get a benefit.
- Spillovers- 2 types of externalities
- External costs or external benefits
What are other words for External Costs and External Benefits?
- External Costs- negative externalities
- Example: enviornment pol. teaching in 3 places, driving, noise, third party is YOU. Taxing can correct negitive ext.
- External Benefits- positive externalities
- Example: Education, government subsidizes for the buyer and seller, we get to benefit!
Explain Market Power.
- Someones ability to minipulate outcome of price and output
- Example: Monopoly (ext. possibility- extreme)
- 1 firm- serves market, has buyers
- end result isn't desirable
- Private monopolies = illegal in US
- jack up the price & reduce output
- High productivity = high standard of living
- Output/Input (ration) measure performance
- Very simple model
- Long run- nastions / individuals standards of living depends on production of recourses (goods)
- Gives an idea of what to do (policies to make prosperty)
- Growth rate production = change production %
- US Prod = $55/ 1 hr. labor BUT Growth rate is 1-3%
- Mx Prod = $18/ 1 hr. labor BUT Growth rate is 4-6%
- They will eventually catch up!
Explain Rate of Inflation.
- Could eliminate middle class within a decade
- Opposite = deflation (rise and fall)
- hyperinflation- 2400%, makes the dollar worth nothing
What is the "Purchasing power of money"?
- Voluntary goods and services that money can buy
- Over all prices go up = Purchasing power goes down
Explain the Phillips Curve.
- Shows the inverse relationship between the unemployment rate and the inflation rate
- Downward slopping
- Overall prices go up = Unemployment goes down
- Overall prices go down = Unemployment goes up
What is the rate of inflation?
% of change in overall prices