Economics is not just a monetary function, like most view it. Economy by definition is the management of affairs and expenses, thrifty use of resources, and efficiency.

Bartering led to trade by other means (value based, or flat because of its inefficentcy

The definition of economics includes the mode of operation of something and systems of interaction and exchange.

Using extrapolation we can see that the economy deals with how things interact, including money and material.

Because humans use up resources it’s important to keep in mind the global resource capacity, and rate of human consumption of recourses along with the monetary economy and well being of humans.

The founder of modern economics was a Scottish philosopher named Adam Smith. In 1776 he published his book, “The wealth of nations”

He introduced the idea that following your own self-interest could serve the common good. He also supported free trade

A generation after Adam Smith, British economist David Ricardo expanded on Smiths ideas by introducing the theory of comparative advantage: the idea that two people or countries can both benefit from trade, even if one of them can produce more of everything.

When both focus on what they’re best at and then trade, everyone benefits.

This theory led to the growth of economics, advancing ideas like private property and free markets. Then came the Communist Manifesto in 1848.

Both Karl Marx and Friedrich Engels argued that history was explained by the conflict between workers and property owners. This led to workers overthrowing their bosses demanding for a stateless and classless system called communism.

Market based economic theory continued to dominate through the end of the 19th century with contributions from the French, British, and American economists. This is called classical economics.

In 1890, English economist Alfred marshall wrote the Principles of Economics emboding the theory of Classical economics

we still use his concepts today, like supply and demand and marginal utility

As Capitalism was expanding so were Marxist movements

The social unrest in early 20th century Europe led to the establishment of the Soviet union (1922)

As communism was maturing in the Soviet union the Great depression deeply effected market economies of the richest countries and classical economics

Unlike Smith and Marshall, John maynard Keynes had new answers to the recession in his 1936 book: “A general Theory of MOney, interest, and employment” This caused the launch of macroeconomics.

He argued that market economies take time to self correctly because prices and wages take time to adjust

What is a business

An organization or enterprising entity engaged in commercial, industrial, or professional activities. It’s purpose is to organize the economic production of goods or services.

They can be non-profit, or for-profit.

They range from limited liabitility companies to sole proprietorships, corps, and partnerships

Some are small operations, while others are large.

Types of businesses

• sole proprietorship (owned and operated by one person, no legal separation between business and owner)

• Partnership (business relationship between two or more people)

• Corporation (group of people act as a single entity, releases owners of financial liability of business obligations)

• Limited Liability Company LLC (new business structure, combines the pass-through taxation benefits of a partnership with the limited liability benefits of a corporation

.Writing a business plan

Business plans are essential to running businesses, they help secure funding you need to start. There are two options:

• a traditional (lots of details, a summary, its plans on how to succeed, market info, management, products and services, marketing, and sales projections.

• or lean plan (concise, partnership details, outlines of business activiites and customer relationships, cost structure, and revenue streams

To get a business loan you need to show lenders your business details especially for new businesses. Have a business plan ready that includes outlines of costs and revenue streams, and have a good credit score. Collateral may be needed to secure the loan

Macroeconomics

• finance is based on economics

• economics is concerned with the production, distribution, trade and consumption of goods

• Macroeconomics is a broad and distant view of economics, it views the economy as a whole. It looks at things like overall employment of a general population or overall income instead of a focused view on a small segment of population

Macroeconomic terms

• Gross National product is a measure of economic productivity for a whole of the population. GNP is defined as the total value of all good and services in their final form during a specific period of time

• Inflation is defined as generally increasing prices. The measurement of these prices depends on the government or individual

• Fiscal policy is the manner in which a Government achieves economic objectives through it’s spending and taxation. It’s an alternative to monetary policy

• Monetary Policy is a way the government manages the supply of money to achieve economic objectives. It uses the Federal Reserve system to decrease or increase supply of money. That in turn effects the economic environment as a whole

Macroeconomics is important in analyzing and understanding longer-term trends and aggregate market behavior

Finance is based on economics, which focuses on the production, distribution, trade, and consumption of goods and services. Macroeconomics, a broad and distant view, examines the economy as a whole, examining overall employment and income. Key terms include Gross National Product, Inflation, Consumer Price Index, and Fiscal Policy. Understanding macroeconomic principles helps analyze long-term trends and aggregate market behavior, affecting individual investors and governments in making policies and decisions that affect the economy.

Economics

• Social science that analyzes the most efficient way to use our scare recources

Scarcity

• Unlimited wants but limited recources

Opportunity cost

• Most desirable alternative given up when you make a choice

Factors of production

• land, labor, capital

Absolute and Comparative advantage

• absolute advantage is the producer that can provide the most amount of output OR require the least amount of inputs like resources

• Comparative advantage is the producer with the lowest opportunity cost

Countries should trade if they have a relatively lower opportunity cost and specialize in goods that are cheaper for them to produce

Terms of trade

• Both countries can benefit from trade if they both have lower opportunity costs

• The countries that agree upon conditions that would benefit BOTH countries

In capitalism there is a resource market and a product market

Circular flow model vocab

• Private sector: Park of the economy that is run by individuals and businesses

• Public sector: park of the economy that is controlled by the government

• factor payments: payment for the factors of productions, rent, wages, interest, and profit

• Transfer Payments: When the Government redistributes income like welfare

• Subsidies: Governments payments to businesses

Supply and demand

• Demand has an INVERSE relationship with price and quantity demanded and is a downward slope curve

• Supply has a DIRECT relationship between price and quantity supplied and has an upward curve

Supply and demand together form equilibrium

1930s is when macroeconomics were being put into place to measure the entire economy to fix problems

Macroeconomics uses data of the entire economy but is unpredictable and not everyone will have the same answer

Importance to countries:

• Keep economy growing overtime

• limit unemployment

• keep prices stable

GDP, unemployment rate, and inflation rate is how economists know if countries are achieving these goals.

GDP only includes new work, not already invented work. For example: Google bought youtube but because youtube wasn’t something new, it wasn’t GDP

GDP is measured in money

Recession is NOT just when the economy is bad. It is defined when two successive quarters, or six months show a decrease in real GDP.

Every country counts their GDP a different way

Unemployment is found by taking the amount of unemployed people and dividing it by the amount of people in the labor force, times 100

Only includes people of working age, doesn’t include people who can’t work or kids or even people who choose to work, or underemployed

Discouraged workers are also not a part of the unemployed population because they have given up

Types of unemployment

• frictional: the time period when a worker is searching for a job after leaving one

• structural: caused by lack of demand for a specific type of labor

• cyclical: due to recession

Natural rate of unemployment:

• The lowest rate of unemployment that an economy can sustain over a long period

GDP and unemployment are inverse to eachother

Stable prices

• Is not always a good thing because we want to avoid deflation while also avoiding inflation

  Deflation

• decrease in general price level

Inflation is measured by tracking the prices of a set amount of commonly bought items, (also called a market basket), the inflation rate is the percent change of the price of the market basket over time.

Too much inflation decreases the purchase power of money

Too much deflation can cause people to wait for prices to drop more leading to less spending causing decreasing GDP

Significant spending increases GDP, unemployment falls and factories work at full capacity to reach demands. And because products are limited, people outbid eachother, resulting in inflation. After this, production costs increase and workers demand higher wages, and the economy starts to slow down and businesses lay off workers. This is called a Contraction. The economy is too slow, but eventually things stabilize. Since resources are sitting idle production costs fall and the economy expands again. This cycle of booms and busts are called the business cycle

GDP has four main components:

• consumer spending

• business spending

• government spending

• net exports

If one of these slows down, so does the economy. But every country is different, for example, the US consumer spending takes up 70% of GDP

Mind Map: Microeconomics

Central Idea: Study of individual economic behavior and decision-making

• Main Branches:

  1. Supply and Demand

     • Factors affecting supply

     • Factors affecting demand

  2. Market Structures

     • Perfect competition

     • Monopoly

     • Oligopoly

     • Monopolistic competition

  3. Consumer Behavior

     • Utility theory

     • Budget constraints

     • Indifference curves

  4. Production and Costs

     • Production functions

     • Short-run vs. long-run costs

     • Economies of scale

  5. Market Failures

     • Externalities

     • Public goods

     • Imperfect information

Sub-branches:

Factors affecting supply

• Cost of production

• Technology

• Number of suppliers

Factors affecting demand

• Price of the good

• Consumer income

• Consumer preferences

Perfect competition

• Many buyers and sellers

• Homogeneous products

• Price takers

Monopoly

• Single seller

• Price maker

• Barriers to entry

Oligopoly

• Few large firms

• Interdependence

• Strategic behavior

Monopolistic competition

• Many firms

• Differentiated products

• Some pricing power

Utility theory

• Marginal utility

• Total utility

• Consumer equilibrium

Budget constraints

• Income effect

• Substitution effect

• Consumer choices

Indifference curves

• Preferences

• Consumer satisfaction

• Optimal consumption

Production functions

• Inputs and outputs

• Total, average, and marginal product

• Returns to scale

Short-run vs. long-run costs

• Fixed costs

• Variable costs

• Total costs

Economies of scale

• Cost advantages

• Increased production

• Long-run average cost

Externalities

• Negative externalities

• Positive externalities

• Market inefficiencies

Public goods

• Non-excludable

• Non-rivalrous

• Free-rider problem

Imperfect information

• Asymmetric information

• Moral hazard

• Adverse selection

MORE ABOUT MICROECONOMICS

One of the goals of microeconomics is to analyze market mechanisms that establish relative prices of goods and services and allocation of limited resources

International economics include:

• Exchange rates and flows of money between countries

• free trade and trade disputes

• immigration and migration

• Role regulations and shipping costs play on trade flows

• How differences in tax regimes influence a company’s decisions on what country to operate in

International economics describes and predicts production, trade, and investment across countries. Wages and income rise and fall with international commerce, even in large rich economies. Economics as a field began in England with a debate over issues of free international commerce. Domestic industries pay politions for protection against poreign competition.

International trade:

• studies goods and services flows across countries

International finance:

• studies the flow of capital across international markets, and the effects it has on the exchange rates

International monetary economics and international macroeconomics:

• Studies flow of money across countries and resulting effects on their economy as a whole

International political economy:

• A sub-catagory of international relations, Studies issues from international conflicts, negotiations, sanctions, etc.

Why do countries trade?

• Gains from trade

• absolute and comparative advantage

• world trade organization

Free trade and protectionism

• arguments for and against

• protective tariffs, subsidies, and quotas. (Tariffs are taxes on trade, subsidies are handouts by government to make industry more productive, physical limit on goods coming into country.)

Exchange rates

• fixed, floating, and mixed change rates systems (smaller developing countries use fixed currencies to fix their undesirable currency to another currency (two barbados dollar to one US dollar). (floating currencies are allowed to float on the exchange market) (mixed or managed exchanged rates have a high and a low for its exchange rates)

Balance of payments:

• the current, capital, and financial accounts (How much flow is moving out of country and how much of cash is coming in, its all basically a big checkbook for a country

Economic integration (Where countries go from trading partner to being fully integrated in their economy)

• six stages of economic integration