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Intro to Economics. AleX , Justin, MattheW , Ryan, Stella, TimothY , Tracey. Chapter 1: The Nature of Economics. Economics is the study of production, consumption, transfer of wealth, and how people choose to use their (scarce) resources in order to satisfy wants and maximize utility.

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intro to economics

Intro to Economics

AleX, Justin, MattheW, Ryan, Stella, TimothY, Tracey

chapter 1 the nature of economics
Chapter 1: The Nature of Economics
  • Economics is the study of production, consumption, transfer of wealth, and how people choose to use their (scarce) resources in order to satisfy wants and maximize utility.
  • Economic perspective: scarcity, rational behavior, and marginalism
  • Theoretical vs. policy economics
  • 8 economic goals of U.S.
    • Economic Growth
    • Full employment
    • Economic efficiency
    • Price-level stability
    • Economic Freedom
    • Equitable distribution of income
    • Economic security
    • Balance of trade

chapter 2 the economizing problem
Chapter 2: The Economizing Problem
  • The Problem: Society’s economic wants are unlimited and endless whereas the economic resources available are limited and scarce
  • Economic Resources
    • Definition: all natural, human, and manufactured resources that go into the production of goods and services available to buy in the economy
    • Classified in 2 groups: Property and Human
  • Resource Categories and Factors of Production
    • Land, Capital, Labor, and Entrepreneurial Ability
  • Relative Scarcity
    • All of the factors of production have one thing in common in that the are all SCARCE
  • Economics: Employment and Efficiency
    • Full Employment: all workers whom are able and willing to work have employment
    • Full Production : all goods and services are being used to meet the maximum desires
  • Growth
    • Economic Growth: the ability to make a larger amount of goods
    • results from:
      • increase in resources
      • improvements in quality of resources
      • technological advancements
  • Economic Systems
    • Economic System: particular collection of institutions in a coordinating mechanism
      • Market system
      • Command System
chapter 3 individual markets demand and supply
Chapter 3: Individual Markets: Demand and Supply
  • Law of Demand: There is an inverse relationship between the price and quantity demanded.
  • Law of Supply: There is a direct relationship between the price and quantity supplied
  • The quantity of a good that buyers purchase at a higher price is less because as the price of a good increases, so does the opportunity cost of buying that good.
chapter 3 individual markets demand and supply1
Chapter 3: Individual Markets: Demand and Supply
  • Change in demand/supply is a shift of the demand/supply curve right/left. Change in quantity demanded/supplied is a movement from one point to another on the same demand/supply curve.
  • Equilibrium price and quantity are established at the intersection of the supply and demand curves. The market interaction adjusts the price till the quantity demand = quantity supplied.
chapter 3 individual markets demand and supply2
Chapter 3: Individual Markets: Demand and Supply
  • Normal Good: products whose demand varies directly with money income
  • Inferior Good: products whose demand varies inversely with money income
  • Complementary Good: one that is used together with another good
  • Substitute Good: one that can be used in place of another good
chapter 4 the market system
Chapter 4: The Market System
  • 9 characteristics of the Market System?
    • Privateproperty
    • Freedom of Enterprise and Choice
    • Self-interest
    • Competition
    • Markets and Prices
    • Reliance on Technology and Capital Goods
    • Specialization
    • Use of Money
    • Active, but Limited, Government
chapter 4 the market system1
Chapter 4: The Market System
  • What are the Four Fundamental Questions for every economy?
    • What goods and services will be produced?
    • How will the goods and services be produced?
    • Who will get the goods and services?
    • How will the system accommodate change?
chapter 5 the market system
Chapter 5: The Market System
  • Functional distribution of income
    • Wages and salaries, rent, interest, corporate profits, proprietor's income
  • Personal distribution of income
  • Business types
    • Sole proprietorship (1 owner)
    • Partnership (2+ owners)
    • Corporations (many owners)
      • Principle-agent problem
chapter 5 role of government
Chapter 5: Role of Government
  • Providing stable foundation and promoting competition
  • Lessen income inequality
    • Transfer payments, market intervention, taxation
  • Correct spillovers
    • Overallocation: Legislation & taxes
    • Underallocation: Granting subsidies
  • Provide public goods
  • Purchases 18% of US output
    • Pensions/income security, national defense, healthcare, interest on public debt
  • State governments have different trends
    • Rely on sales and excise tax for revenue and spend on education and public welfare
chapter 6 international linkages
Chapter 6: International Linkages
  • Goods and services flows or Trade Flows

Exports and imports of goods and services

  • Capital and Labor Flows or Resource Flows

Immigration and emigration between countries as well as production facilities that are placed in other countries

  • Information and technology flows

Information shared between multiple countries about products, prices, interest rates etc.

Technology created in America is sent to outside countries and vice versa

  • Financial Flows

Money flow between countries

chapter 6 role of tariffs
Chapter 6: Role of Tariffs
  • Decreases competition

With more barriers, importers want less trade with the tariffing country and decreases competition

  • Increases production at home

With less competition, there is a better market at home for the certain item and thus production of that item increases

  • Appeases to people politically

Tariffs benefit people at home and make them more content with the government

chapter 6 important tariffs and trade agreements
Chapter 6: Important Tariffs and Trade Agreements
  • Smoot-Hawley Tariff Act

A large tariff on all imports into America which led to retaliation tariffs which greatly damaged the world economy. Arguably led to the Great Depression

  • Reciprocal Trade Agreements

Decreased tariffs to relieve the Depression with two main features

Decreased tariffs up to 50%

All decreases in Tariffs would apply to other nations as well

  • General Agreement on Tariffs and Trade (GATT)

Treaty between 23 countries based on three principles:

Equal, nondiscriminatory trade between member countries

Reduction of tariffs between member countries

Elimination of import quotas

chapter 6 important tariffs and trade agreements pt 2
Chapter 6: Important Tariffs and Trade Agreements Pt.2
  • World Trade Organization (WTO)

GATT’s successor that included 145 nations and oversees trade agreements between members

  • European Union (EU)

A combination of 25 European countries (as of 2004) that made a trade bloc. A trade bloc is a group of countries having common identity, economic interests and trade rules. Led to unity among the European nations after WW II and the Cold War. Helped make the Euro

  • North American Free Trade Agreement (NAFTA)

Established a completely free trade zone between America, Canada and Mexico

fiscal policy vs monetary policy
Fiscal Policy vs. Monetary Policy
  • Fiscal Policy: Government policies that use spending and taxes to grow the economy (Controlled by Congress)
  • Monetary Policy: A central bank’s changing of the money supply to help the economy (Controlled by the Federal Reserve)
types of fiscal policy
Types of Fiscal Policy
  • Expansionary Fiscal Policy
    • Increase government spending
    • Reduce taxes
    • Creates budget deficit
    • Fights unemployment and recession
  • Contractionary Fiscal Policy
    • Decreased government Spending
    • Increased taxes
    • Creates budget surplus
    • Fights inflation