PH3 - 2nd partial (1)

ECONOMY

  • Definition: Study of how families, corporations, and governments organize resources to meet societal needs.

    • Ensures wellness and stability.

    • In a world with limited resources, populations make rational decisions.

ECONOMIC CYCLE

  • Role of Households and Companies: Households and companies interact to create consumption and income.

    • Consumption leads to job creation, salary payments, and benefits.

    • Spending directly influences income; less consumption results in lower income.

    • A balanced economy requires consumption and income to be equivalent.

LEAKS AND INJECTIONS IN THE ECONOMIC CYCLE

  • Leaks: Consumption not reinvested in the economy can lead to economic leaks.

    • Examples of leaks: Savings, taxes, foreign expenditures.

  • Injections: External funds injected back into the economy.

    • Examples of injections: Public expenditure (government investment), financial sector investments, foreign investments.

  • Balance: If injections or consumption are lower than income, the economy contracts.

TYPES OF ECONOMIES

Closed Economies

  • Definition: Economies that avoid interaction with external countries.

    • No imports or exports, leading to local consumption only.

    • Protects national industries, decreases unemployment.

    • Risks: Increased prices due to scarcity, vulnerability to foreign market effects.

Open Economies

  • Definition: Economies that engage in international trade.

    • Promotes imports and exports, benefiting consumers with better goods/services.

    • Example: European Union.

TYPES OF ECONOMIES DEPENDING ON STATE PARTICIPATION

Free Market Economies

  • Definition: Individuals and private companies make key decisions regarding production and consumption.

    • Market operates with limited state participation.

Commanded Economies

  • Definition: Government has significant control over production and distribution decisions.

MICROECONOMY vs MACROECONOMY

  • Microeconomy: Studies individual decisions and market participants.

    • Focus on supply, demand, prices, and savings.

  • Macroeconomy: Studies overall economic dynamics and aggregate indicators such as GDP and unemployment.

SUPPLY & DEMAND

  • Core principle: Link between demand (consumer desire) and supply (available products), determines prices.

    • Price & Demand Relationship: Higher prices typically reduce demand.

    • Price & Supply Relationship: Higher prices generally incentivize increased supply.

Points of Balance

  • Achieved when consumers buy goods/services at a price point equal to what producers are willing to sell.

Surplus and Shortage Mechanisms

  • Surplus: Excess supply leads to lower prices to stimulate demand.

  • Shortage: Excess demand leads producers to increase prices.

ECONOMIC INDICATORS

  • Definition: Metrics used to assess economic health and guide decision-making.

Key Economic Indicators

  1. Gross Domestic Product (GDP): Total monetary value of goods/services produced.

  2. Inflation: General rise in price levels over time.

  3. Employment/Unemployment: Measure of job availability and workforce participation.

INFLATION

  • Definition: Sustained increase in prices across goods/services.

  • Causes: Excess money circulation, leading to higher demand than supply.

Tools to Measure Inflation

  • Commodity Bundle: Essential goods for average family welfare.

  • INPC (Consumer Price Index): Monitors price changes in basic goods and services.

EMPLOYMENT

  • Definition: Value produced through available formal jobs (with rights) and informal jobs (without rights).

ECONOMIC POLICY

  • Definition: Actions by authorities aimed at controlling and guiding a country’s economy.

    • Monetary Policy: Managed by central banks; influences money supply.

    • Fiscal Policy: Managed by the government; influences taxation and public expenditure.

MONETARY POLICY

  • Expansive Monetary Policy: Increases money supply to spur growth but may lead to inflation.

  • Restrictive Monetary Policy: Reduces money supply to combat inflation; risks slowing growth.

FISCAL POLICY

  • Expansive Fiscal Policy: Stimulates the economy through increased public spending and lower taxes.

  • Contractive Fiscal Policy: Reduces expenditure and increases taxes to manage inflation.

GROWTH vs DEVELOPMENT

  • Economic Growth: Quantitative increase in economic indicators.

  • Economic Development: Qualitative improvements in economic and social conditions.

MEASURING ECONOMIC DEVELOPMENT

  1. Gini Coefficient: Measures income inequality.

  2. Human Development Index (HDI): Measure of health, education, and living standards.

INTERNATIONAL TRADE

  • Definition: The exchange of goods and services across borders.

Key Concepts in International Trade

  • Tariffs: Taxes on imports/exports.

  • Balance of Payments: Comparison between expenditure on foreign goods vs income from foreign countries.

  • Trade Agreements: Contracts that govern trade relations and may reduce barriers.

PROTECTIONISM

  • Definition: Policies to protect domestic industries by imposing tariffs or quotas.

    • Benefits domestic producers at the potential cost of higher prices for consumers.

INTERNATIONAL TRADE REGULATION

  • Regulations cover rules and laws concerning international trade practices.

  • Lex Mercatoria: Refers to a body of commercial law that is recognized internationally, consisting of customary rules and practices that govern international trade transactions.

    • Private international law governs disputes between private parties across different countries

    • public international law regulates the relationships and obligations between sovereign states and international organizations.

UNCITRAL

  • UN body focused on unifying international trade laws.

Sources of international law

  • National laws

  • International Conventions:

    • Vienna Convention on International Sale of Goods 1980. Aims to provide
      modern, uniform and fair, safe contracts

    • Rome 1 Regulation 2008. Establishes uniform rules to determine the law
      applicable to European Union obligations

    • Ottawa Convention on International Factoring 1988

  • Lex Mercatoria