Intro to Economics

1. Intro to Economics AleX, Justin, MattheW, Ryan, Stella, TimothY, Tracey

2. Chapter 1: The Nature of Economics • Economics is the study of production, consumption, transfer of wealth, and how people choose to use their (scarce) resources in order to satisfy wants and maximize utility. • Economic perspective: scarcity, rational behavior, and marginalism • Theoretical vs. policy economics • 8 economic goals of U.S. • Economic Growth • Full employment • Economic efficiency • Price-level stability • Economic Freedom • Equitable distribution of income • Economic security • Balance of trade http://www.econosseur.com/assets_c/2008/12/BankLoanSwitchCartoon-thumb-510x337.jpg

3. Chapter 2: The Economizing Problem • The Problem: Society’s economic wants are unlimited and endless whereas the economic resources available are limited and scarce • Economic Resources • Definition: all natural, human, and manufactured resources that go into the production of goods and services available to buy in the economy • Classified in 2 groups: Property and Human • Resource Categories and Factors of Production • Land, Capital, Labor, and Entrepreneurial Ability • Relative Scarcity • All of the factors of production have one thing in common in that the are all SCARCE • Economics: Employment and Efficiency • Full Employment: all workers whom are able and willing to work have employment • Full Production : all goods and services are being used to meet the maximum desires • Growth • Economic Growth: the ability to make a larger amount of goods • results from: • increase in resources • improvements in quality of resources • technological advancements • Economic Systems • Economic System: particular collection of institutions in a coordinating mechanism • Market system • Command System

4. Circular Flow Model

5. Chapter 3: Individual Markets: Demand and Supply • Law of Demand: There is an inverse relationship between the price and quantity demanded. • Law of Supply: There is a direct relationship between the price and quantity supplied • The quantity of a good that buyers purchase at a higher price is less because as the price of a good increases, so does the opportunity cost of buying that good.

6. Chapter 3: Individual Markets: Demand and Supply • Change in demand/supply is a shift of the demand/supply curve right/left. Change in quantity demanded/supplied is a movement from one point to another on the same demand/supply curve. • Equilibrium price and quantity are established at the intersection of the supply and demand curves. The market interaction adjusts the price till the quantity demand = quantity supplied.

7. Chapter 3: Individual Markets: Demand and Supply • Normal Good: products whose demand varies directly with money income • Inferior Good: products whose demand varies inversely with money income • Complementary Good: one that is used together with another good • Substitute Good: one that can be used in place of another good

8. Chapter 4: The Market System • 9 characteristics of the Market System? • Privateproperty • Freedom of Enterprise and Choice • Self-interest • Competition • Markets and Prices • Reliance on Technology and Capital Goods • Specialization • Use of Money • Active, but Limited, Government

9. Chapter 4: The Market System • What are the Four Fundamental Questions for every economy? • What goods and services will be produced? • How will the goods and services be produced? • Who will get the goods and services? • How will the system accommodate change?

10. Chapter 5: The Market System • Functional distribution of income • Wages and salaries, rent, interest, corporate profits, proprietor's income • Personal distribution of income • Business types • Sole proprietorship (1 owner) • Partnership (2+ owners) • Corporations (many owners) • Principle-agent problem

11. Chapter 5: Role of Government • Providing stable foundation and promoting competition • Lessen income inequality • Transfer payments, market intervention, taxation • Correct spillovers • Overallocation: Legislation & taxes • Underallocation: Granting subsidies • Provide public goods • Purchases 18% of US output • Pensions/income security, national defense, healthcare, interest on public debt • State governments have different trends • Rely on sales and excise tax for revenue and spend on education and public welfare

12. Chapter 6: International Linkages • Goods and services flows or Trade Flows Exports and imports of goods and services • Capital and Labor Flows or Resource Flows Immigration and emigration between countries as well as production facilities that are placed in other countries • Information and technology flows Information shared between multiple countries about products, prices, interest rates etc. Technology created in America is sent to outside countries and vice versa • Financial Flows Money flow between countries

13. Chapter 6: Role of Tariffs • Decreases competition With more barriers, importers want less trade with the tariffing country and decreases competition • Increases production at home With less competition, there is a better market at home for the certain item and thus production of that item increases • Appeases to people politically Tariffs benefit people at home and make them more content with the government

14. Chapter 6: Important Tariffs and Trade Agreements • Smoot-Hawley Tariff Act A large tariff on all imports into America which led to retaliation tariffs which greatly damaged the world economy. Arguably led to the Great Depression • Reciprocal Trade Agreements Decreased tariffs to relieve the Depression with two main features Decreased tariffs up to 50% All decreases in Tariffs would apply to other nations as well • General Agreement on Tariffs and Trade (GATT) Treaty between 23 countries based on three principles: Equal, nondiscriminatory trade between member countries Reduction of tariffs between member countries Elimination of import quotas

15. Chapter 6: Important Tariffs and Trade Agreements Pt.2 • World Trade Organization (WTO) GATT’s successor that included 145 nations and oversees trade agreements between members • European Union (EU) A combination of 25 European countries (as of 2004) that made a trade bloc. A trade bloc is a group of countries having common identity, economic interests and trade rules. Led to unity among the European nations after WW II and the Cold War. Helped make the Euro • North American Free Trade Agreement (NAFTA) Established a completely free trade zone between America, Canada and Mexico

16. Fiscal Policy vs. Monetary Policy • Fiscal Policy: Government policies that use spending and taxes to grow the economy (Controlled by Congress) • Monetary Policy: A central bank’s changing of the money supply to help the economy (Controlled by the Federal Reserve)

17. Types of Fiscal Policy • Expansionary Fiscal Policy • Increase government spending • Reduce taxes • Creates budget deficit • Fights unemployment and recession • Contractionary Fiscal Policy • Decreased government Spending • Increased taxes • Creates budget surplus • Fights inflation