Key features of the economic way of thinking
Scarcity, choice, rational behavior, marginal analysis
Utility
Economic methodology
Theoretical economics
Policy economics
Analytical economics
3 elements of Economic policy
State the goal
Policy options
Implementation and evaluation
The economizing problem
Scarcity, choice, cost
Utility
Scarce resources (4) and their payments
Production possibility model
Full employment
Full production
Productive efficiency
Allocative efficiency
Assumptions of the model
Related issues
Opportunity cost
Law of increasing opportunity cost
Economic growth and how to graphically depict
Requirements for
Market systems
How to distinguish
Who owns factors of production?
The method of coordinating economic activity
Demand and supply
Demand defined
Law of demand
3 factors that support law of demand
Diminishing marginal utility
Income effect
Substitution effect
Distinguish between a change in demand and a change in quantity demanded
What are the determinants of demand?
Tastes
# Of buyers and sellers
Income
Normal goods and inferior goods
Prices of related goods – compliments and substitutes
Expectations
Supply defined
Law of supply
Change In supply versus a change in quantity supplied
Determinants of supply
Resource prices
Technology
Taxes and subsidies
Prices of other goods (substitution in production)
Price expectations
Number of sellers
Combining demand and supply (market equilibrium)
Shortage and surplus
Price ceilings – below equilibrium level
Price floor – above equilibrium level
The market system
Characteristics
Private property
Freedom to negotiate legal contracts
Property rights encourage investment, innovation, and exchange
Freedom of enterprise
Freedom of choice
Self interest
For the entrepreneur
For the property owner
For the worker
For the consumer
Competition
Independent buyers and sellers
Freedom of entry and exit
Markets and prices
Active but limited government
Characteristics of capitalism
Reliance on technology and capital goods
Specialization and efficiency
Division of labor
Differences in ability
Learning by doing
Save time
Geographic specialization
Use of money
The 4 fundamental questions that any society must answer
What will be produced?
How will the goods and services be produced?
Who will get the goods and services?
How will the system accommodate change?
US economy – private and public sectors
Private sector
Households – income distribution
Business – forms of business org
Public sector
Roles of government
Legal structure
Redistribute income
Reallocate resources
Problem – market failure - results from what?
Spillover costs and benefits
Economic effects
Approaches to correct
Public goods versus private goods – how to distinguish
Circular flow – government
International trade
Linkages (4)
Net exports
Competitive advantage
Foreign exchange market
Depreciation of the dollar relative to other currencies
Appreciation of the dollar relative to other currencies
Impediments to trade and why have them
Smoot Hawley act and the follow on events relative to trade policy
Impact of free trade
Measuring domestic output and national income
The basic GDP equation
GDP definition
Components of GDP
Nominal versus real GDP and the role of the CPI
Shortcomings of GDP measure