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Key Concepts (1) - Coggle Diagram
Key Concepts (1)
Chapter 1
Industrial Revolution
A wave of technological advancements and organizational changes starting in Britain in the 18th century, which transformed an agrarian and craft-based economy into a commercial and industrial economy
Technology
A process taking a set of materials and other inputs, including the work of people and machines to produce an output
Living standards
The measure of the total goods and services produced in a country (GDP), divided by the countries population
Technological progress
A change in technology that reduces the amount of resources (labour, machines, land, energy, time) required to produce a given amount of the output
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Capitalism
An economic system in which private property, markets and firms play an important role
Constant Prices
Prices corrected for increases in prices (inflation) or decrease in prices (deflation) so that a unit of currency represents the same buying power in different periods of time
Economic system
The institutions that organise the production and distribution of goods and services in an entire economy
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Labour market
In this market, employers offer wages to individuals who may agree to work under their direction. Economists say that employers are on the demand side of this market, while employees are on the supply side
Demand side
The side of the market on which those participating are offering money in return for some other good or service.
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Private property
This means that you can enjoy your possessions in a way that you chose, exclude others from their use if you wish, dispose of them by gift or sale to someone else who then becomes the owner
Markets
A way of connecting people who may mutually benefit by exchanging goods and services through a process of buying and selling
Firm
A firm is a way of organizing production with the following characteristics:
-One or more individuals own a set of capital goods that are used
in production.
-They pay wages and salaries to employees
-They direct the employees through the managers they also
employ in the production of goods and services.
-The goods and services are the property of the owners
-The owners sell the goods and services on markets with the intention of making a profit
Capital goods
The equipment, buildings and other durable inputs used in producing goods and services including where applicable any patents or other intellectual property that is used. Raw materials used in production are referred to as intermediate inputs.
Absolute advantage
A person or country has this in the production of a good if the inputs it uses to produce this good are less than in some other person or country
Economics of scale
These occur when doubling all of the inputs to a production process more than doubles the output. The shape of a firm's long-run average cost curve depends both on returns to scale in production and the effect of scale on the prices it pays for its inputs. Also known as - increasing returns to scale
Ownership
The right to use and exclude others from the use of something, and the right to sell the thing that is owned.
Comparative advantage
A person or country has this in the production of a particular good, if the cost of producing an additional unit of that good relative to the cost of producing another good is lower than another person or country's cost to produce the same two goods.
Natural experiment
An empirical study exploiting naturally occurring statistical controls in which researchers do not have the ability to assign participants to treatment experiments. Instead, differences in law, policy, weather, or other events can offer the opportunity to analyse populations as if they had been part of an experiment. The validity of such studies depends on the premise that the assignment of subjects to the naturally occurring treatment and control groups can be plausibly argued to be random
Causality
A direction from cause to effect, establishing that a change in one variable produces a change in another. While a correction is simply an assessment that two things have moved together, causation implies a mechanism accounting for the association, and is therefore a more restrictive concept
Economics
The study of how people interact with each other and with their natural surroundings in providing their livelihoods, and how this changes over time
Democracy
A political system, that ideally gives equal political power to all citizens, defined by individual rights such as freedom of speech, assembly, and the press; fair elections in which virtually all adults are eligible to vote, and in which the government leaves office if it loses
Political system
A political system determines how governments will be selected, and how those governments will make and implement decisions that affect all or most members of a population
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Too big to fail
Said to be a characteristic of large banks, whose central importance in the economy ensures the will be saved by the government if they are in financial difficulty. The bank thus does not bear all the costs of its activities and is therefore likely to take bigger risks.
Monopoly
A firm that is the only seller of a product without close substitutes. Also refers to a market with only one seller
Developmental state
A government that takes a leading role in promoting the process of economic development through its public investments, subsides of particular industries, education and other public policies
Chapter 2
Creative distruction
Joseph Schumpeters name for the process by which old technologies and the firms that do not adopt are swept away by the new, because they cannot compete in the market. The failure of unprofitable firms is creative because it releases labour and capital goods for the use in new combinations
Evolutionary economics
An approach that studies the process of economic change, including technological innovation, the diffusion of new social norms, and the development of novel institutions
Entrepreneur
A person who creates or is an early adopter of new technology, organizational forms, and other opportunities
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Dominated
An outcome if more of something that is positively valued can be attained without less of anything else that is positively valued. An outcome is dominated if there is a win-win alternative
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Factors of production
The labour, machinery and equipment, land and other inputs to a production process
Economic rent
A payment or other benefit received above and beyond what the individual would have received in his/her next best alternative
Average product
Total output divided by a particular input, for e.g. per worker or per worker per hour
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Incentive
Economic reward or punishment, which influences the benefits and costs of the alternative courses of action
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Subsistence level
The level of living standards (measured as consumption or income) such that the population will not grow or decline
Equilibrium
Situation that is self perpetuating, meaning that something of interest does not change unless an outside or external force for change is introduced that alters the model's description of the situation
Innovation rent
Individuals or companies who introduce socially beneficial innovations are rewarded with profits above the opportunity cost of capital