Positive analysis: how things really are. (Fact)
Normative analysis: how thing ought to be. (Opinion)
Obtaining maximum output from limited resources
What differs from one country to another
Size of population
Their natural resources
Each country can achieve economic efficiency if it utilizes its resources well.
Goods-tangible output produced for sale
Services-useful labor that does not create commodity
Product-output of human labor, both goods & services. Economic Systems
Decisions based on religion, family or community.
Standards of living are static, with little social mobility.
A person’s job is determined by family tradition.
Government determines how to use and distribute resources.
What should be produced
At what price
For what wages
Communism and socialism: examples of command systems.
Each person’s job could be determined by the state.
Economic decisions are made by individuals, who determine how resources are allocated and goods are distributed.
A person’s job is determined by his/her choice.
A combination of Market and Command systems, where government plays a role in regulation and in allocation & distribution of resources, for which it extracts taxes.
The market plays the major role in economic decisions, with individuals determining their livelihood and how they’ll spend their earnings.
When a society distributes economic resources fairly among its people.
Each society has debates about what is a “fair” distribution.
How to be equitable
People should earn what they receive
Society should be responsible for everyone, and the government should take a greater role is distribution.
US government is a mix of both
Limitations of economics
Despite what surveys have shown in which people show a desire for more stuff, studies show that what makes people more fulfilled are things that money cannot buy (family, friends, etc.)
Why study economics?
To become aware of alternative ways of thinking
September 9, 2013
Economic perspectives – Trade off
Tradeoff: exchange of one thing in return for another.
“there’s no such thing as a free lunch” – tax reform act, 1986
Economic perspective- cost
Opportunity cost- the cost of what is sacrificed or foregone when you make a choice.
Ex.) Cost of school= $20,000. Salary of job you didn’t take = $30,000. Opportunity cost = $50,000
Economic perspective- incentives
Incentive: something that induces particular behavior or action.
Incentives can influence consumer behavior
Government influencing social policy:
Tax: reduces the demand for a product/service
Subsidy: increases that demand
Economic perspective- trade
Trade: exchange of goods or services for other compensation.
All involved in trade should benefit.
Specialization enables each party to optimize his work effort & maximize his output.
Specialization and trade allow an economy to produce and consume more than in the absence of trade.
Trade adjustment assistance
What’s the economist’s answer for trade that interferes with the domestic industries (autos)?
What happens to the long tome workers who get displaced by firms, or entire industries, that take their business overseas?
TAA is a federal program that provides financial assistance to those hurt by foreign competition.
September 11, 2013
Module 3 Macroeconomic Concepts
1. Overview: People readily accept information that confirms their beliefs, and they are critical of information that contradicts their beliefs. First we form our beliefs, then we look for evidence that supports them and criticize arguments that dispute them.
a. Correlation does not imply causation. If the economy is strong, then the President deserves credit; if the economy is weak, it’s the President’s fault. Both of these assertions are faulty; it is unlikely that…