Econ 209

Cards (111)

  • Economics is the study of using scarce resources to satisfy unlimited human wants
  • Resources: Land, Labour and Capital
  • Land is natural endowments
  • Labour is mental and physical human effort
  • Capital is tools, machinery , equipment etc.
  • Specialization requires exchange
  • Four key Econ problems:
    1. What is produced and how?
    2. What is consumed and by whom?
    3. Why are resources sometimes idle?
    4. Is productive capacity growing?
  • Government can:
    1. Correct market failures resulting from misallocation of resources
    2. Address fairness of distribution of consumption across individuals
    3. Provide solutions to reduce idleness of nation's resources
    4. Is productive capacity growing?
  • Decision markers in any economy: Consumers, Producers and Government
  • Government role:
    1. The right to forge a contract
    2. Enforcement of property rights
  • Specialization of labour: The division of labour into different tasks, with each person specializing in a particular task.
  • Division of labour: The process by which a business splits up its work into different tasks so that each task can be carried out by a specialist
  • Division of labour causes learning by doing
  • Specialization must be accompanied by trade
  • Money eliminates bartering
  • Globalization is an increased importance of international trade
  • Causes of globalization:
    1. Rapid reduction in transportation cost
    2. Revolution in information technology
  • Types of pure economic systems:
    1. Traditional
    2. Command
    3. Free-Market
  • Government can intervene to correct market failures, provide public goods and offset the effects of externalities
  • National Output = National Income
  • Nominal national income = total national income measured in current dollar
  • Real national income is total national income measure in constant dollars
  • GDP - Gross Domestic Product, the total value of all the goods and services produced in a country in a year
  • GNP - Gross National Product, the total value of all good and services produced by a countries nationals in a year
  • Business cycle - continuous ebb and flow of economic activity
  • Recessions associated with unemployment and lost output
  • Booms can bring inflation
  • Output gap is the difference between potential and actual output
  • When actual output is less than potential output there is a recessionary gap
  • Inflation rate = (P1- P0) / P0 * 100%
  • When actual output is greater than potential output there is an inflationary gap
  • Unemployment rate = (number of people unemployed/number of people in the labour force)*100
  • Number of people in the labour force is the number of individuals either working or actively looking for a job
  • At the potential output, the employment rate is in-between 4 and 6%
  • Increase in output in the short run implies an increase in employment
  • NAIRU: A rate of unemployment at which the labour market creates no inflationary pressure.
  • At NAIRU there is frictional unemployment and structural unemployment but no cyclical unemployment
  • Structural unemployment occurs when workers do not possess skills that match what employers want
  • Frictional unemployment occurs when workers are between jobs because they have quit their old job to find something better
  • Labour effort once lost is lost forever