EEE Final 2023

Benefits of human beings being social animals.

• Make other people better off with you than without you

• Specialization makes it so that you don’t have to do everything on your own

• Show up with something to offer others

• Invent ways to be of service to each other

• Cooperate with others

• To see how other people do things

• A simple idea that a better idea may be around the corner inspires others

• Cooperate for mutual benefit

Ethical decisions

• Every business decision is an ethical decision

• Need integrity or being true to yourself

• Most major decisions businesses make

Ethics

• The subject of how people live in order for the world to be a better place with them than without them (cause and effect)

• Taking responsibility for knowing the facts

• Knowing the law

• Wanting people to be glad they trusted you

• Ignorance is not an excuse

• Find a way to succeed and deserve the success and make the world a better place

Trade

• value for both participants and mutual benefit

• homo sapiens were wisest and learned to make deals with strangers

• Inventing ways to be of service to each other and cooperate

• Make customers better off and bring things to the market

• Cooperation for mutual benefit and there are gains from it

• Positive sum

• Everyone can win-win win

Zero-sum game

• no one gains unless someone else loses like games growing up the only way to win is to make someone else lose

• Trade is not zero sum game

Specialization

• need this to have trade in large groups

• division of labor and specialization

• Each person does a different job

• don’t have to do everything on your own

• Important in the wealth of nations

Property Right

• flow from our basic human equality

• Help coordinate our activities

• Adam smith-person, property, and promises

• To have a functioning society

• John Locke

• Allow people to choose what to do with potential resources

• We see entrepreneurial creativity

• Work became a contest to see who would earn the most

Communicate for trade

• communication from all parties

• Communicate through what kind of prices-equilibrium precondition for voluntary exchange

• Reputation led to trading networks

• People cooperate for mutual benefit

• Happy to be of service to each other

4 Factors of production

Land, labor, capital, entrepreneurship

Opportunity Cost

• what you are giving up in a transaction-tradeoff in increasing production of something

• When you make a choice between one item or another

Institutions

• framework for interaction

• Laws, norms, beliefs

• What we expect out of societies behavior

• Marriage is an institution

• Durable frameworks for interaction and mutual expectation

• help us know what to expect from each other

• Law is an institution

• store of value (has value within itself), medium of exchange, unit of account (worth a specific amount)

  Helps us go towards a common destination

Money

• store of value (has value within itself), medium of exchange, unit of account (worth a specific amount)

Marginal cost

• cost added by producing one more unit of something

• Marginal is adding one more of something

• Added one more of this what is my cost going to be

• Add one more mile onto commute what is cost going to be

Broken window fallacy

• even though breaking windows may look like it is benefiting the economy, that person who has to pay to fix it is missing out on paying for some other good or service

Adam Smith and progress

• society makes progress when its members put in time and effort into win-win games

• Live in society that gives people a reason to be peaceful and productive

Negative Railroad

• human prosperity stems from innovations that lower transaction costs

Scarcity Problem

• everything is scarce-we economize time because it is scarce-it is unavoidable

Production Possibilities Curve

• shows the relationship between maximum possible production outcomes given resources over a period of time

• Negative slope

• Tells you the opportunity cost of one good over the other

• Inside curve- inefficent or unemployed, not emplying all of their resources

Inefficiency

• greater than equilibrium quantity or less than

• When demand outweighs supply or when supply outweighs demand

Theory of Comparative Advantage

• countries benefit because of comparative advantage

• Whoever has the lower opportunity cost

Mercantilism

• country prospers more from exports over imports

Voluntary Trade

• willing to trade for mutual win-win benefit

• Everyone is better off

Demand

• how much people are willing to buy over a given period of time

• As price goes up demand goes down

• Inverse-can see it in a demand schedule

Supply

• willingness to sell goods at various prices

• Direct relationship

• As price goes up supply goes up

Equillibrium

• uses society’s resources in the most efficient way possible given what people want

• Product clears the market and they come together

Complements

• goods and services that are consumed together

• Changing the price of one of the goods directly affects the other

Substitutes

• if price of one good increases, the substitute will become more popular

• They take the place of each other

Economic Surplus

• produce more than you demand

• More supply than demand

High prices and incentivizing

• buy a cheaper good

• Substitute because the other good is too expensive

• They incentivize by making price cheaper

Prices

• producers and consumers coordinate their actions through this

• Determine law of demand or law of supply

Price Floors

• minimum price set by the government and is above equilibrium

Price ceilings

• maximum price

• underneath equillibrium

Agents and Principals

• agent is working on behalf of the principle

• Have same interest at heart

• Commissions they make off it

• Agent is willing to work for principle if they are getting money

Negative Externality

• negatively impacts a 3rd party that is not involved in the transaction

• Negative external cost

• People who are negatively affected

Tragedy of the commons

• deals with private property

• Who owns what

• Regulates our own land

Market System

• depends on property rights

• Have to pay property taxes

• Depends on if people own things or the factors of production

Positive Externality

• when something positively impacts a 3rd party bystander that is not involved in the transaction

• External benefits

Patent

• provide company a temporary monopoly or intellectual property

Patent

• Market where there is only one seller

Market Power

• barriers to entry impacts this

• Entities have power over markets

Tariffs

• tax on imported and exported goods

• Imported goods- decreases consumption and production

Free Trade

• Ability to trade without limitations or tariffs

Minimum Wage

• example of a price floor

Marginal Benefit

• have to equal to produce or consume it benefit must be equal or more than cost

Evaluation of loans by banks

• banks use credit score to see your capacity to pay back a loan or your risk factor

Federal Open Market Committee

• strong responsibility to increase the money supply

• Maximize employment, control interest rates, stabalize prices

• How can they increase money supply in our economy

Government Bonds

• what are government bonds competing with-stock market

• Private borrowers for money

Expansionary Fiscal Program

• increasing spending to prevent a recession

• Like the new deal

• Give people jobs and then it will ultimately allow them to pay back the money when they can pay taxes

Unemployment Rate

• % of people who are unemployed

GDP

• all final goods and services in the US

• Not produced in another place

• This year and here

What GDP consists of

• C+I+G+(x-m)

  • Consumption

  • Investments

  • Gov spending

  • Exports minus imports

Inflation Rate and How Economists measure the Inflation Rate

• look at our price changes in our fixed basket of goods

• Typical things that people buy

• Look at change in prices over time

Budget Deficits and the National Debt

• sum of interest payments of national deficit

• Borrowing beyond

High Inflation

• money loses its value when we have high inflation

• Purchasing power goes down

Public Choice Theory

• people who run governments run business and households should have similar motives

• They shouldn’t be in it only for power

• People in governments and businesses are trying to do the same things

Creative Destruction

• when one industry destroys another industry through innovation

Positive Economic Profits

• more people will enter the industry

Calculating interest

• P x R x T

Insurance

• Risk management

How much should you have in savings at all times

• 6-12 months of savings of your monthly income

Effectuation process

• end result

• Helps develop new companies and markets

• Use effects to figure it out

Entrepreneur

• someone who takes opportunities to look at the needs of others

Competitive Advantage

• makes goods cheaper to make for one institution over another

• Buy stuff cheaper get more profit

Ethics economy and entrepreneurship

Ethics help with the decisions that we make. These ethics influence the way we treat others and make decisions in the economic world as well. The economy is influenced by these ethical or unethical decisions that we make. Because we live in a free market society, we influence the economy daily through investing and demanding goods. Entrepreneurship includes making ethical decisions and adding something good to the economy. When we help make people better off, we impact the economy positively as entrepreneurs.