economics chapters 1-7

karl marx

main idea: capitalism creates class conflict between those who own the means of production, and those who work for them.
capitalists/bourgeoise- own the capital- property, factories, businesses

proletariat/working class- workers who sell their labor for wages

workers create more value than what they’re paid, they are exploited

calls for a change in economic system to marxism (socialism or collective ownership of property)

david ricardo

main idea: international trade can benefit countries through comparative advantage.

comparative advantage- a country should specialize in producing goods it can make at a lower opportunity cost.

free trade

studied how income is distributed among workers

ellen johnson sirleaf

main idea: economic development, institutional reform, recovery after conflict.

Liberian economist and politician

worked to rebuild Liberia’s economy after years of civil war

emphasized debt relief, international cooperation, investment,and public-sector reform

emphasized private sector investment to strengthen the economy

milton friedman

main idea: competitive markets and individual choices are important, and government intervention should be limited in many areas.

monetarism- emphasized the role of the money supply in determining inflation and economic activity

free markets, limited government

adam smith

main idea: specialization, voluntary exchange, and competition can help societies become wealthier.

The Wealth of Nations (1776)

division of labor (specialty)

self interest benefits others in economic situations

invisible hand- individual choices keep the market in check

barbara bergmann

main idea: economic outcomes are shaped by gender inequality. discrimination, and social institutions.

feminist economics- examines how economic systems impact men and women differently

labor-market discrimination- women can face barriers in hiring, wages, and career advancement

stay at home mothers provide unpaid labor that contributes to society

friedrich engels

main idea: industrial capitalism produces class inequality and difficult living and working conditions for the working class.

co-developed marxism

the condition of the working class was very poor and mistreated

criticized the capitalist system’s role in producing inequality

supported replacing capitalism with a system organized around public ownership

amartya sen

main idea: development should be measured by people’s real freedoms and opportunities, not simply economic growth.

capability approach- focuses on what people are genuinely able to do and be

human development-education, health, and opportunities matter alongside income

political freedoms and public accountability can help prevent disasters and improve well-being

p.j. o’rourke

main idea: a satirical defense of economic freedom, markets, and individual initiative, combined with skepticism about centralized economic planning

argued that market economies generally do a better job than centrally organized systems

emphasized that people respond to their own interests and incentives

was more practically minded- judged systems by how people actually lived, rather than the premise of their ideology

joan robinson

main idea: real world economies are more complicated than perfectly competitive markets, and economic power can produce inequality

post-keynesian economics

monopsony- a market situation where there is one dominant buyer, such as an employer with substantial power over workers

criticism of neoclassical economics

examined wages, employment, and how economic power affects the distribution of income

scarcity

human wants exceed available resources, so individuals and society must choose how to use limited resources

four factors of labor production

land, labor, capital, entrepreneurship

positive statements

objective and tangible

normative statements

express what should happen and involve value judgements

correlation

means two things occur together

causation

means one thing causes another

ceteris paribus

all things being equal or held constant

microeconomics

studies individual households, firms and markets

macroeconomics

studies the economy as a whole

fallacy of composition

assuming that what is true for an individual must be true for the group as a whole

rational behavior

making choices based on available info, preferences, and expected costs/benefits.

opportunity cost

the value of the best alternative given up when making a choice

marginal thinking

evaluating the cost/benefit of one more unit or action

rule of rational choice

choose an action when its marginal benefit exceeds its marginal cost; the ideal decision occurs when net benefits are maximized

absolute advantage

producing more withe the same resources

comparative advantage

producing at a lower opportunity cost

what does the PPC curve show

the combo of two goods an economy can produce with its available resources and tech

increasing opportunity cost

producing more of one good requires giving up increasingly larger amounts of another good

market economy

relies heavily of decentralized decisions and prices

ex. singapore

command economy

relies heavily on government direction

ex. North Korea

mixed economy

combination of command and market economies (with different levels of each)

ex. the USA and China (on opposite ends of the spectrum)

law of demand

as a good’s price rises. quantity demanded generally falls

law of supply

as a good’s price rises, quantity supplied generally rises

what shifts demand?

income, preferences, prices of related goods, expectations, number of buyers

what shifts supply?

input costs, tech, taxes or subsidies, expectations, number of sellers

market equilibrium

the point where the quantity demanded equals the quantity supplied

price ceiling

a legal maximum price

price floor

a legal minimum price

elasticity

a measure of how responsive quantity demanded or supplied is to change in price or another factor

elastic demand

quantity demanded responds strongly to price changes

inelastic demands

quantity demands weakly to price changes

tax incidence

how the economic burden of tax is divided between buyers and sellers

excise tax

tax imposed on a particular good or service.

market failure

situation in which an unregulated market does not allocate resources efficiently

negative externality

imposes costs on third parties- someone smoking causes secondhand smoke

positive externalities

creates benefits for third parties- an education

public good

a good that is nonexcludable and nonrival in consumption such as libraries and nation defense

free rider

someone who benefits from a good without paying for it

private goods

goods that are excludable and rival

asymmetric info

one party in a transaction has more or better info that the other

adverse selection

results from hidden info before a transaction

moral hazard

results from actions taken after an agreement that are difficult for the other party to observe

public choice theory

applying economic reasoning to politics- recognizing that voters, politicians, and bureaucrats may respond to incentives and self-interest

median voter model

in a two candidate competition, candidates have an incentive to appeal to the preferences of the middle or median voter

implicit costs

opportunity costs of using resources you already own

normal profit

the min return needed to keep resources in their current use, including opportunity costs

marginal product

the additional output produced by adding one more unit of an input

sunk cost

a cost that has already been incurred and can’t be recovered

price taker

a firm that must accept the market price rather than creating his own price

productive efficiency

producing at the minimum average total cost

allocative efficiency

producing the quantity where marginal benefit equals marginal cost