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allocation of scarce resources to fulfill the unlimited wants of people.
maximize utility
maximize social welfare |
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big picture
the economy as a whole
topics:
-unemployment
-inflation
-business cycle |
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cost of the next best alternative
-may or may not include a dollar figure |
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| costs that have already been incurred and cannot be recovered |
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| Increases in Capital Stock |
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more machines
buildings
factories |
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| more efficient production of G/S |
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| Improved Rules of the Game |
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| more stable economic environment encourages people to pursue economic activity |
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| countries focus solely on the G/S they have a comparative advantage producing |
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| producing a G/S at a lower opportunity cost |
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| producing a G/S with fewer resources |
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| Calculating Opportunity Cost |
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No Gov't
private ownership of resources
Monopolies
no public goods |
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| Pure Command System (communism) |
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central authority makes the decision
-resources are used inefficiently
-work has no incentives
-planning is slow
-limited decision making |
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incorporates some portion of...
-pure capitalism
-pure communism |
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households
firms
government
rest of the world |
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supplies resources/Labor
receives payments for them
purchase G/S from firm |
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single owner
Adv: ease of start up
Dis: unlimited Liability |
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2 or more People
Adv: ease of raising capital and ideas
Dis: Unlimited Liability; partner disagree |
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Legal Entity
Adv: Limited Liability, perpetual life, ease of raising capital
Dis: double tax |
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| members pay and annual fee |
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| join forces to buy supplies and equipment |
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Collect Taxes, supply G/S, Promote economic stability, enforce rules
Seven Responsibilities:
1. establish rules of the game
2. promote competition
3. regulate monopolies
4. providing public goods
5. externalities
6. distribute income
7. tax |
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| Non-rival in Consumption (public goods) |
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| one persons benefit does not reduce the others |
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| Nonexclusive (public good) |
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| once produced, cannot be excluded from other from enjoying it |
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side effects borne by a third party who did not consume a good
-pollution and education |
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| Benefits Received (tax principles) |
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| those receiving should be paying |
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| Ability to pay (tax principles) |
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| those who can pay, should pay more |
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| all tax payer pay the same percentage |
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| taxes, as a percentage increases as income increases. |
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| trade occurs because of the cost of producing goods varies between countries |
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| record of all transactions between foreign country and domestic one |
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Able and Willing to purchase G/S
-as Price increases...Quantity Demand decreases... |
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Able and Willing to supply to the market a certain quantity at a specified price
-as Price Increases..Quantity Supplied Increases |
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C+I+G+Xn
-consumers
-investments
-Government
-Xn=Export-Import |
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| more of a good will be purchased the lower the price |
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| Price is above equilibrium |
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| Price is below equilibrium |
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| a government set price...in order for it to be effective, has to be below equilibrium...shortage. |
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| A government set price, has to be set above equilibrium to be effective...surplus exists. |
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| structure of economic activity in an organization |
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amount per unit of time
-gas in your tank
-paycheck into checking account |
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Amount at a particular point in time
-checking account balance |
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| Business Cycle: Expansions |
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| Business Cycle: Contractions |
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Term
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GDP drops 10%
Sharp reduction in output
Lasts > 1 year
High unemployment |
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Term
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two consecutive Quarters of negative GDP
Lasts > 6 months |
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| Economy's average price level increase |
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1929-33
-stock market crash
-spending decreased
-banks failed |
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Oil Embargo, 1973-75
-price jumped!! |
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| Inflation and stagnation occurring at the same time |
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| Slow, or no economic growth |
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-Bowed out... some resources are specialized..
-efficient use of resources
-inside=inefficient
-outside=unattainable
-on= efficient |
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| Education, training, skills |
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