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Introduction to economics, descarga (3), descarga (15), descarga (17),…
Introduction to economics
Economics as a social science
It studies the material prosperity based on the scarcity and choices involving money
Economics studies human relations and interactions to see the behavior within the goods, and that way address the economic problem.
Mixed economies
Free market
This means that there is not much government intervention
Can easily enter market. It is driven by the market forces of supply and demand.
market structure that involves different manufacturers providing customers with similar products.
Examples: United States and Sweden
Prices are the key rationing tool. Private enterprise economy, in which capital is privately owned.
Pure planned economy
Government intervention. Government decides on the basic economic problems.
one group or person controls everything that is controlled. They choose on the best interest of the people
Similar to communism. Resources are collective property of government.
Examples of this are North Korea, China and Venezuela
Microeconomics and macroeconomics
Macroeconomics: Interaction between markets within a geographical region.
Microeconomics: study of decisions and economy in single markets.
Production possibilities curve model (PPC)
This model features the capital goods on the x axis, and the consumer goods on the y axis. It portraits how efficient the opportunity costs are.
If the opportunity cost is below the curve, then it is not efficient. On the other hand, if it is above the curve, then it is unattainable. Opportunity cost most be in the curve to be considered efficient.
Assumptions:
The resources are given and remain constant.
The technology used in the production process remains constant.
The resources and technology are fully and efficiently utilized.
The technique of production remains constant.
Increasing vs. constant opportunity cost
Increasing opportunity costs occurs when you produce more and more of one good and you give up more and more of another good.
Constant opportunity cost occurs when the opportunity cost stays the same as you increase your production of one good. This indicates that the resources are easily adaptable from the production of one good to the production of another good.
Basic concepts of economics
Scarcity
No resource is unlimited, so we must take care of it or we'll run out of it.
Choice
You can't have it all. You must allocate your resources and chose the best for you.
Interdependence
Working along with others. Dependence on something else.
sustainability
the correct allocation of resources in order for them to last longer.
economic well-being
Having a present and future financial security
equity
refers to the fairness in the economy, meaning that all economies should have the same opportunities.
efficiency
How well are resources being used in an economy to take care of all factors.
Change
economy is always changing and facing cycles, which makes the economy to face changes and therefore, understanding changes, you can understand the economy.
Intervention
Government involvement in the economic sector
Economic Thought
19th Century: The concept of margin and Marxism
Jean-Baptiste Say
: describes how supply creates its own demand, "if something is offered, someone will buy it". That phenomenon is known as
Say's Law of Markets
The Marginal Revolutions
describe the raise of Marginalism in Economics, which studies the impact of producing additional products on the price of goods. The mathematical revolution of Economics through
Alfred Marshall.
Karl Marx
believed in a utopical society with no social classes nor states. He wanted to free the lower classes from poverty through complete government intervention. He criticized capitalism, as he felt it was a self-destruction cycle.
20th Century: Keynesian Revolution
John Maynard Keynes
analyzed the effects of output on inflation, and determined that wages and prices respond to supply and demand. He also proposed that macroeconomic policy and spending increased production and output
Milton Friedman
promoted stable economic growth through no intervention (classical counter revolution) and expenditure to determine prices. He explained the idea of Nominal Expenditures that measure the rate at which money is spended
19th Century: Classical Economics
Utility
: The satisfaction that consumers get from consuming products described by Smith in The Wealth of Nations.
Laissez-faire
: production, consumption and trade in a free market with little government intervention
18th Century: Adam Smith and Laissez Faire : :
Adam Smith
is considered the Father of Economics, and was part of the Classical Economic school of thought. He considered free market economies to be the most successful, connecting wealth with production.
The Invisible Hand
: the idea that self-interest pushes the economy forward. Individuality as the basis of wealth.
21st Century: Behavioral Economics and the Circular Economy
Kate Raworth
constructed the Doughnut Economics model, which balances out the public and human needs with planetary boundaries. Due to scarcity, we should always consider
planetary sustainability
, not only social or public needs. The idea of obtaining resources without affecting the planet.
Richard Thaler
was a pioneer who described the connection between human psychology and economics. He explained that humans are not good with choices, as they lack self-control and tend to not behave completely rationally.
Scarcity
The Problem of Scarcity arises because the factors of production are finite and the population is increasing
Opportunity Cost
Whenever an economic decision is made, some sacrifices are made, which is known as opportunity cost.
Factors of Production
The finite resources used to produce goods or services: Labor, land, capital Entrepreneurship
Labor: workforce, human resources
Entrepreneurship: the organization of factors of production
Land: the natural resources and where they come from
Capital: Physical Capital, infrastructure and technology
The problem of choice
The Basic Economic Questions
What should be produced and in what quantities?
How should things be produced?
For whom should things be produced?
Means of answering the economic questions
There are two theoretical allocations that aim at answering these questions: free market and planned economy.
Economic methodology
Positive economy
It is based on facts and can be proved.
focuses on the description, quantification, and explanation of economic developments, expectations, and associated phenomena
normative economy
cannot be proved
Makes recommendations
It is not based on facts. It is more subjective and focuses on personal opinions
"The government should do this"
Modelling economy
Circular flow of income model
The circular flow of income model shows the relation between different parties in the economy and how money moves around.
It shows how money is in constant movement, and every party in the economy is dependent to the other, as money flows from one to another, going through all parties.
Leakages and injections
Injection: Money spent that help the government revenue. Money earned in exportations and money coming to domestic economy are called injections.
Leakages
Leakages: money not going to the domestic economy. Examples include spending on imports, taxes and savings
economic decision-makers interacting and making choices in an economy
Decision makers: government, central bank, foreign sector, Financial sector. Everyone taking decisions in the economy. They are dependent on each other.
Making choices in an economy: whatever decision is taken by one of the parties in the economy, is going to have repercussion on the other one. This means that they are all interdependent. Example of this is when the taxes or interest rates are high, then the savings are going to be affected, hence the financial sector is being affected.
Carlos Colchero and Antonio Valdés
