Econ 113

Econ 113 Midterm Information

• Midterm Date: February 28, in-class (week after reading week)

• Final Exam: TBD

Introduction to Microeconomics

Historical Context

• Muhammad Ibn Battuta's Observation (14th Century):

  • Described Bengal as a region of great extent and abundance of rice.

  • Recognized as one of the richest places he had seen.

• Current Inexpensive Conditions:

  • Bangladesh today is considered relatively poor compared to the 14th century.

Economic Growth Over Time

• GDP Per Capita Usage:

  • Used to measure the economy across countries and over time.

  • Notable exponential growth since the 18th century due to the Industrial Revolution.

• Research by Angus Maddison:

  • Collected historical data on per capita income.

• Data Revolution:

  • The 1980s and 1990s marked a change with computers providing more accessible data leading to a shift from theory to data-driven economics.

Measuring Living Standards

Gross Domestic Product (GDP)

• Definition: Market value of all goods produced in a country.

• GDP per capita: Total income earned divided by population.

  • Example: As of 2022, Canada’s GDP per capita is over $54,000 USD.

• Disposable Income:

  • Calculation: Wages + Profit + Rent + Interest + Transfers - Taxes.

  • Reflects the money available for spending and saving.

• Critiques:

  • Robert F. Kennedy critiqued GDP as an inaccurate measure of well-being.

Income Distribution

• Inequality in Countries:

  • Poorer Countries: Lesser disparity between top and bottom earners.

  • Wealthier Countries: Greater inequality, especially as China’s income grows, primarily favoring the top 10%.

Measuring Economic Growth

• Growth Rate Formula:

  • Growth Rate = (Change in GDP / Original Level of GDP).

  • Example Calculation:

    • British GDP per capita: $21,046 in 2000 and $21,567 in 2001.

    • Growth Rate Calculation: (\frac{21,567 - 21,046}{21,046} = 0.024755 = 2.5%)

The Industrial Revolution

• Innovations:

  • Major advances in textiles, energy, transportation (steam engine).

  • Key driver behind the largest technological progress leap in modern history—marked by a significant GDP increase post-Industrial Revolution.

Technological Progress

• Definition of Technology:

  • A process using inputs (materials, machinery, labor) to produce outputs.

• Effects on Labor:

  • Technological progress reduces labor demand for the same output over time.

  • Permanent advancements seen since the Industrial Revolution (e.g., washing machines).

Information Transmission Technology

• Fibre Optic Cables:

  • Transmit data nearly at light speed.

• Hockey Stick Curves:

  • Representing both technical progress and GDP per capita growth; economic and climate contexts differ but follow a similar pattern.

Inequality Trends

• Inequality Changes:

  • Increased from 1800 to 1920, sharply fell from 1920 to 1980, then has risen since 1980.

Defining Capitalism

Key Characteristics

• Definition: An economic system characterized by private property, markets, and firms.

• Non-Capitalist Institutions:

  • Even capitalist economies depend on families and government influence.

  • Example Differences:

    • USA has less emphasis on families and greater private market influence; Canada has more government involvement.

Economic System Interpretations

• Variability in Meaning:

  • "Capitalism" can differ in everyday language but is defined precisely in economics to facilitate understanding.

  • In capitalist systems, most production occurs in firms with private property rights over inputs and outputs.

Power Dynamics in Capitalism

• Capital Goods:

  • Privately owned with power concentrated among owners/managers, though limited by market competition.

Other Economic Systems

• Examples:

  • Slavery, Feudalism, Family-based production, and Socialism (as seen in the Soviet Union).

Tutorial Information

• TA: Mawut Reech (mreech@sfu.ca)

• Office Hours: 11:00 am - 1:00 pm

• Location: WMC 1618

Relationships and Functions in Economics

Lines and Slopes

• Interest in Relations:

  • How different variables relate to each other (e.g., sugar consumption/health).

• Economist Questions:

  • Exploring relationships like money/inflation and pollution/markets.

Functions Represented by Lines

• General Form: y = mx + b (constant relationship between x and y).

Application of Budget Lines

• Assumption of Worker:

  • Total consumption equals total earned income (no savings/borrowing).

  • Let:

    • C = Consumption

    • W = Wages

    • T = Free Time

  • Equation: c = w(24 - t) where t is hours worked (24 - t = hours worked).

Summary of Slope

• Slope is -15 (further context may be needed).