Economics

rational decisions

means choosing the option that gives you the most benefit for the lower cost

Scarcity

means that ressources are limited, so people must make choices because their wants and needs exceed what is available.

Economics

• production, distribution, consumption

• manage ressources to improve standard of living society

social science

• relations between people

• needs humans

• study in an organized and methodological way

Microeconomics

is looking at economy on a small scale. It focuses on the actions of individual decision-makers within the economy, such as households, workers, and businesses.

Macroeconomics

Is looking at economy on a big scale. It focuses on the overall economic activity of a whole society.

monetary policy

Managed by the central bank using interest rates and bank lending.

marginal utility

the extra satisfaction you get from consuming one more unit of a product.

sunk costs

money or time already spent in the past that cannot be refunded.

sunk costs should be ignored in future decisions. you should only focus on future costs and future benefits.

Law of diminishing marginal utility

Because the marginal utility of a single good decreases as you consume more of it, the extra-satisfaction eventually becomes lower than the satisfaction from trying something else. This forces people and societies to diversify their choices instead of consuming only one thing.

Economics (growth)

• to accumulate more wealth

• increase your human development

the modern world

• separating spheres of life (economic vs social)

• interdependence (economy needs healthy citizens, and society needs economic wealth to function)

• individual needs

• moving away from communal ties

Pre-capitalist

• autarky

• “poor” but happy survival

• reciprocity (give and take)

• redistribution (centralization)

Self-interest (modern)

• private property

• growth/ profit incentive (accumulation, expansion)

• the State out the rules

• individual freedom

ZEN attitude towards scarcity

• limited needs

• needs always satisfied

• true abondance (social, cultural, spiritual, economic)

ECONOMIC attitude towards scarcity

• limited means

• unlimited needs and wants

• anxiety/stress

Economic growth

how much more the economy produces than it did in the prior period.

GDP

Measures all goods and services produced within a country's borders and it does not matter the product is consumed inside the country.

measuring economic growth

• final production only

• includes exports

• excludes imports

economic growth = macro economic

because it increases living standards, improved tax revenues and creates new jobs.

benefits of economic growth

1. higher profits = higher incomes

2. + tax revenue for the government (education, public services, health…)

3. - budget deficit

4. + jobs

5. environment protection

6. investment (future demands)

7. research, development and innovation

costs of economic growth

1. inflation (too fast)

2. when imports exceed exports = the country loses money

3. environmental costs (consumption, pollution)

4. inequality (more than others)

causes of economic growth

1. increase in aggregate demand

2. increase in aggregate supply

increase in aggregate demand

1. higher disposable income (lower tax, higher incomes, rising house prices)

2. easier credit: lower interest rates, consumer confidence

3. government spending: employment

4. cheaper currency: more exports

increase in aggregate supply

1. more and better labor (more working population, higher productivity)

2. capital and infrastructures (investment, factories, equipments and networks)

3. technology and ressources (innovations, raw materials)

other factor affecting economic growth

political instability: no confidence and delay

human development

is about expanding the richness of human life, rather than simply the richness of the economy in which human beings live. it is focused on people and their opportunities and choices.

human development categories

• improving lives of people

• opportunities (access to education, healthcare…)

• choices (provides means but individual’s free will)

Human Development Index

• long and healthy life

• knowledge (access to education, how long)

• a decent standard of living (GNI)

de-growth

1. greening capitalism

2. real democratization (collectively)

3. auto production (need, not overproduction)

4. cooperation (sharing benefits)

fiscal policy

Managed by the government using taxes and public spending

theory

• simplification of complex real-world issue

• complex enough

• interactions between variables

model

• applied/ empirical representation

• test theories

• simplify economic systems

Mercantilism

1. Wealth: gold and silver, a country’s power depends on accumulating precious metals.

2. Trade Balance: Maximize exports (sell more) and minimize imports (taxes).

3. Government Control: The state controls the economy to become self-sufficient.

4. Colonies: provide cheap raw materials to the main country.

Liberalism

Is an economic system where the government does not interfere in the economy. The market is guided by an “invisible hand”, meaning that when individuals work for their own interest, supply and demand naturally balance out to benefit society as a whole.

Economic system

the role or model of distribution and production which takes place in the society.

Caapitalism (Adam Smith)

1. Private ownership: businesses, factories, and ressources are owned by individuals or companies, not by the State.

2. Choice and freedom: producers have the freedom to innovate, produce whatever they want and use any technique. consumers have the freedom to choose what they want to buy.

3. Profite incentive: the desire to get rich motivates innovation. supply and demand set prices naturally through the invisible hand.

4. Instability and risk: the economy works by waves, there are periods of strong growth followed by crises and unemployment.

Advantages of Capitalism

• efficiency: better production control leads to lower costs and loss waste.

• competition drives innovation, better goods, and more choices.

• consumer power: production directly responds to what consumers want.

Disadvantages of Capitalism

• inequality and class conflict: wealth becomes concentrated, increasing the gap between social classes.

• economic instability: natural cycles create market fluctuations and unemployment.

• advertising waste: huge expenses on marketing increase the final price of goods and services.

Socialism

opposite of capitalism, Industrial Revolution

1. state ownership: factories, land and ressources are owned and managed by the State, not by private individuals. Only basic property is allowed.

2. social gain: economic activities are driven by the welfare of society as a whole, rather than individual profit.

3. central planning authority: the state centrally plans and controls production, distribution, and prices instead of relying on the free market.

4. citizens: give up their economic freedom. In return, the state guarantees food, housing, clothing and a job for everyone.

Advantages of socialism

• the state provides basic necessities to improve everyone’s living standard.

• central planning prevents market crashes and major business fluctuations.

• wealth is distributed more equally, lowering the gab between rich and poor.

Disadvantages of socialism

• personal ambition and economic freedom are restricted for the benefit of the State.

• lack of competition leads to limited product choices and potentially lower quality.

• heavy bureaucracy slows down decisions and creates economic inefficiencies.

communism

• everything is controlled by the state

• restriction on the ownership of personal property

• only very small personal belongings

Mixed economy (Keynes)

1. Public sector: the state owns and operates essential services and key industries for social welfare.

2. private individuals are free and encouraged to run businesses, innovate and make a profit.

3. large state-run sectors operate alongside private small/medium businesses.

4. regulation: government regulates the market to prevent extreme inequalities while maintaining economic freedom.

Liberal Market Economy

• the state’s role is small and limited to maintaining laws that protect private property and business exchange.

• economic decisions, prices and wages are determined primarily by supply and demand.

• businesses enjoy high flexibility with little government regulation.

• examples: USA and UK

budget problem

• limited amount of incomes

• involves tradeoffs

opportunity set

identifies all the opportunities for spending within your budget.

opportunity cost

• what must be given up

• value of the next best alternative

• every choice as an opportunity cost

calculating opportunity cost

It is the amount of the other consumption, it can be in dollars but also time.

Demand

what people are willing and able to purchase at each price. If they cannot pay for it, there is no demand. (inverse relation)

Supply

The amount of some good or service a producer is willing to supply at each price. (positive relation)

what factors affect demand ?

• willingness (to want)

• ability (income)

• prices of related goods (preferences)

• size or composition (population)

CETERIS PLACIBUS

other things being equal

what factors affect supply ?

production costs: factors of production

Coordinated market economy

• Negotiations, unions and public administration

• Strong unions; collective bargaining and protection

• Specific technical skills

• Bank financing; long-term investment focus

• state: Active coordinator and consensus facilitator

Great Depression

1929 - 1930

New Deal

1933 - 1935 - 1937

financial and global crisis

2007 - 2008

Causes of the Great Depression

1. stock speculation (worthless stock)

2. buying on the margin (pay 10%)

3. overproduction (excess of supply)

4. uneven distribution of wealth

5. consumer debt

6. no government implication

7. STOCK MARKET CRASHED

stock market crashed

• October 29, 1929 during the Black Tuesday

• 16M shares of stock were traded

• stock prices losses exceeded that of the cost of WW1

Why a New Deal was needed ?

1. Great Depression had worsened

2. American banking system was near collapse

President at the beginning of GD

HOOVER

President during GD

Francklin Roosevelt

Actions of Roosevelt

• Bank Holiday (stable banks)

• fireside chats (reassure people)

Goals of the New Deal

• Relief

• Recovery

• Reform