Chapter #4: Political Economy

Economies

Made up of many institutions that influence how the economic system is constructed.

(Not easy to replace or change once they’ve been constructed).

Political Economy

The study of the interaction between states and markets.

Markets

The interactions between the forces of supply and demand that assign resources composed of sellers and buyers.

Property

Goods or services that are owned by an individual or a group that others are seeking.

Public Goods

Goods provided or secured by the state that are available for society and are indivisible.

Private Goods

It’s possible to exclude others from consuming, consumption reduces availability, and markets are efficient at providing private goods.

Public Goods

It’s impossible to exclude others from consuming, consumption doesn’t reduce availability, and markets are bad at providing public goods.

Intellectual Property

The ownership of a specific type of knowledge or content.

Ex. Song or piece of software

Social Expenditures

State arrangement of public benefits, such as education, health care, and transportation.

Gross Domestic Product (GDP)

The total market value of all goods and services produced by a country over a period of one year.

Central Bank

A state institution that controls how much money is flowing through the economy and how much it costs to borrow money in that economy.

Inflation

An increase in the general price level of goods and services in the economy.

Hyperinflation

An inflation of more than 50% a month for more than two months in a row.

Deflation

A decline in the prices of goods and services.

Regulations

A rule or order that sets the boundaries of a given procedure.

Monopoly

A single producer that is able to dominate the market for a good or service without effective competition.

Ex. Microsoft

Tariffs

A tax on imported goods.

Quotas

A nontariff barrier that limits the quantity of a good that may be imported into a country.

Nontariff Regulatory Barriers

The policies and regulations used to limit imports through methods other than taxation.

(May create health, packaging, or other restrictions).

Comparative Advantage

The ability of one country to produce a particular good or service more efficiently relative to other countries’ efficiency in producing the same goods or services.

Political-Economic System

The relationship between political and economic institutions in a particular country and the policies and outcomes they create.

Laissez-Faire

The principle that the economy should be allowed to do what it wishes.

(A liberal system of minimal state interference in the economy).

Capitalism

A system of production based on private property and free markets.

Syntax

Extra taxes which is more expensive when it’s more measured on usage.

Ex. Alcohol

Mercantilism

A political-economic system where national economic power is more important and the domestic economy is viewed as an instrument that exists primarily to serve the needs of the state.

Parastatals

An industry partially owned by the state.

Purchasing Power Parity (PPP)

A statistical tool that attempts to estimate the buying power of income across different countries by using prices in the U.S. as a benchmark.

Gini Index

A statistical formula that measures the amount of inequality in a society.

(0 = Most equal).

Human Development Index (HDI)

A statistical tool that attempts to evaluate the overall wealth, health, and knowledge of a country’s people.

Patent Trolls

Companies that use intellectual property that violate the terms of a law cases to steal profit or prevent competition.