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Econ 209
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Olivia Reiter
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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:
What is
produced
and how?
What is
consumed
and by whom?
Why are
resources
sometimes idle?
Is
productive capacity growing
?
Government can:
Correct
market failures
resulting from
misallocation
of resources
Address
fairness
of distribution of
consumption
across
individuals
Provide
solutions
to reduce
idleness
of nation's
resources
Is
productive
capacity
growing?
Decision markers
in any economy:
Consumers
,
Producers
and
Government
Government role
:
The
right
to
forge
a
contract
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:
Rapid reduction
in
transportation cost
Revolution
in
information technology
Types of pure economic systems:
Traditional
Command
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
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