the study of how people interact with each other and with their natural surroundings in providing their livelihoods and how this changes over time
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view of environment/nature
first as undepletable, now as a two-way interactions
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causality
a direction from cause to effect when a change in cause produces a change in effect
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capitalist revolution
Rapid improvements in technology combined with the emergence of a new economic system.
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economic system
a way of organising the economy that is distinctive in its basic institutions
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institution
laws and informal rules that regulate social interactions
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capital goods
durable and costly non-labour inputs used in production
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capitalism
An economic system based on private property, firms and market
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how the aspects of capitalism interact
firms use markets to sell their private property
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private property
1. things you can enjoy on your own terms 2. exclude others from 3. can dispose of
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markets
connecting people who mutually benefit by exchanging goods
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firms
a way of organizing production, where individuals use their capital good s and hire people for labour to produce and make profit
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consequences of capitalism
higher living standards because of technology and specialisation
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Specialization
the development of skills in a specific kind of work, through competition and cooperation
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Technology
the description of a process using a set of materials to produce and output
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absolute advantage
when the the inputs needed for someone are less than the inputs needed for someone else
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relative advantage
what you need less input for one good compared to the other good compared to the inputs of the other person
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economies of scale
doubling the inputs leads to more that doubling of output
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developmental state
where the government takes a leading role in ==promoting economic development through== investments, subsidies, education, policies
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dynamic economy
Economy bringing sustained growth in living standards
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why is there no dynamic economy
no secure private property, markets not competitive, firms owned by privileged people, non-functioning legal system
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political system
how governments are selected and how they will make and implement decisions
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democracy
political system that ideally gives equal political power to all citizens
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inequality
the difference of income and wealth between people
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gross domestic product
measure of the market value of all the final goods, total income of everyone in the country
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market income
all income received from kano
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disposable income
Income available after paying taxes and receiving transfers from the government.
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wellbeing
depends on relative and absolute income
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measuring inequality
lorenz curve and gini coefficient
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gini coefficient of 0
total equality
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growth rate
change in income/original income
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history's hockey stick
rapid, sustained growth in average living standards since 1700
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industrial revolution
wave of technological advances and ==organisational changes== in 18th century
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technological progress
change in technology that reduces the needed resources for an output
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the missing middle
the gradual disappearance of the middle class as the nation becomes increasingly polarized into rich and poor
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reasons for inequality now
missing middle, machines do routine work, high-wage jobs work with information technology
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categorical inequality
Inequality between particular social groups (identified, for instance, by a category such as race, nation, caste, gender or religion)
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intergenerational transmission of economic differences
inheriting wealth, preference and genes
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intergenerational mobility
upward or downward changes in status between parents and children
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intergenerational elasticity
When comparing parents and grown offspring, the percentage difference in the second generation's status that is associated with a 1% difference in the adult generation's status.
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intergenerational inequality
The extent to which differences in parental generations are passed on to the next generation, as measured by the intergenerational elasticity
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endowments
assets of a person that impact their income
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solving inequality
education
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is inequality fair?
if you think based on work : yes, if you think based on birth environment : no
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veil of ignorance
everyone is be ignorant of all his or her particular characteristics when evaluating fairness
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inequality aversion
A dislike of outcomes in which some individuals receive more than others.
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returns to capital
way bigger than to labour
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human capital
the knowledge and skills a worker gains through education and experience that increases productivity or earnings
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inequality between people factors
endowments, productivity, reservation options
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principal-agent problem
when one party (the principal) hires another (the agent), who in turn can pursue goals that conflict with the principal's because of asymmetric information
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Inequality between countries
greater than inequality within countries (that is, the Gini index for the world as a whole is larger than the Gini indexes for individual countries).
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Equilibrium
self-perpetuating outcome of an economic model
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subsistence level
level of living standards that maintains population amount
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ceteris paribus
other things being equal
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incentives
Economic reward or punishment, which influences the benefits and costs of alternative courses of action.
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relative price
the price of one good in comparison with the price of other goods
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reservation options
the next best alternative to a choice
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economic rent
benefit from your choice - benefit from next best option
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opportunity cost
benefit of the next best option (that you had to forgo for your choice)
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economic cost
monetary cost + opportunity costs
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feasible frontier/budget constraint
the combinations of goods you can buy with your budget
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slope of feasible frontier
marginal rate of transformation / relative price of x-axis (px/py)
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indifference curve
different combinations of goods that hold the same value for the consumer
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slope of indifference curve
marginal rate of substitution
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feasible set
All of the combinations of the things under consideration that a decision-maker could choose given the economic, physical or other constraints that he faces.
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constraint choice problem
how we can do the best of ourselves given our preference and constraints and scarcity
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preference
the benefit we associate with each outcome
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utility
numerical indicator of value
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income effect
the change in consumption resulting from a change in real income (more income -\> more consumption -\> more free time consumption)
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substitution effect
leisure is more expensive cause of higher income, so consume less leisure. what happens when you keep the slope of ff fixed but up
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production function
expression describing the amount of output that can be produced by an amount of input
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marginal product
the increase in output that arises from an additional unit of input
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average product
total output / amount of particular input
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diminishing return
when marginal product is less than the prior increase
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consumption goods
goods that satisfy the customer for a short period
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conspicuous consumption
Buying and using products because of the social status
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game theory
mathematical tool to analyse strategic situations
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strategic interaction
A social interaction in which the participants are aware of the ways that their actions affect others (and the ways that the actions of others affect them).
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strategy
actions made taking the effect of others into account
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elements of a game
players, strategies, payoffs, information, rules
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strategic game
simultaneous, matrix
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extensive game
sequential, tree
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Nash Equilibrium
set of strategies such that each player maximises their payoff given the other (mutual best reponses)
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dominant strategy
best response to all strategies of the other
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stability
when no player has an incentive to deviate
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Prisoner's Dilemma
A game with a dominant strategy equilibrium, in which playing the dominant strategy yields lower individual and total payoffs compared to other strategies
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social dilemma
social optimal outcome is not the one that ontstaat
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coordination problem
when there are multiple nash equilibria
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free rider
a person who receives the benefit of a good but avoids paying for it
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altruism
The willingness to bear a cost in order to benefit somebody else.
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social preference
preference that place value on benefiting others
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zero sum game
a situation in which one person's gain is another's loss, every strategy combinations payoff is zero
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public good
a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers
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matching market
matches members of 2 distinct groups who each benefit from being matched with the right member of the other group
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3 ways of gaining coordination in markets
price coordination, explicit matching, designed markets
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short way for designed markets
made by intelligent engineer to create : 1. thick markets 2. fast markets 3. safe markets
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long way for designed markets
coalitional game theory for stable matchng
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stable matching
a perfect matching with no unstable pairs (NE)
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tipping point/ unstable point
a small difference from the point will lead to further distance because of the market mechanism
Studied by 142 people
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Flashcard (33)