core econ

Economics

the study of how people interact with each other and with their natural surroundings in providing their livelihoods and how this changes over time

view of environment/nature

first as undepletable, now as a two-way interactions

causality

a direction from cause to effect when a change in cause produces a change in effect

capitalist revolution

Rapid improvements in technology combined with the emergence of a new economic system.

economic system

a way of organising the economy that is distinctive in its basic institutions

institution

laws and informal rules that regulate social interactions

capital goods

durable and costly non-labour inputs used in production

capitalism

An economic system based on private property, firms and market

how the aspects of capitalism interact

firms use markets to sell their private property

private property

1. things you can enjoy on your own terms 2. exclude others from 3. can dispose of

markets

connecting people who mutually benefit by exchanging goods

firms

a way of organizing production, where individuals use their capital good s and hire people for labour to produce and make profit

consequences of capitalism

higher living standards because of technology and specialisation

Specialization

the development of skills in a specific kind of work, through competition and cooperation

Technology

the description of a process using a set of materials to produce and output

absolute advantage

when the the inputs needed for someone are less than the inputs needed for someone else

relative advantage

what you need less input for one good compared to the other good compared to the inputs of the other person

economies of scale

doubling the inputs leads to more that doubling of output

developmental state

where the government takes a leading role in promoting economic development through investments, subsidies, education, policies

dynamic economy

Economy bringing sustained growth in living standards

why is there no dynamic economy

no secure private property, markets not competitive, firms owned by privileged people, non-functioning legal system

political system

how governments are selected and how they will make and implement decisions

democracy

political system that ideally gives equal political power to all citizens

inequality

the difference of income and wealth between people

gross domestic product

measure of the market value of all the final goods, total income of everyone in the country

market income

all income received from kano

disposable income

Income available after paying taxes and receiving transfers from the government.

wellbeing

depends on relative and absolute income

measuring inequality

lorenz curve and gini coefficient

gini coefficient of 0

total equality

growth rate

change in income/original income

history's hockey stick

rapid, sustained growth in average living standards since 1700

industrial revolution

wave of technological advances and organisational changes in 18th century

technological progress

change in technology that reduces the needed resources for an output

the missing middle

the gradual disappearance of the middle class as the nation becomes increasingly polarized into rich and poor

reasons for inequality now

missing middle, machines do routine work, high-wage jobs work with information technology

categorical inequality

Inequality between particular social groups (identified, for instance, by a category such as race, nation, caste, gender or religion)

intergenerational transmission of economic differences

inheriting wealth, preference and genes

intergenerational mobility

upward or downward changes in status between parents and children

intergenerational elasticity

When comparing parents and grown offspring, the percentage difference in the second generation's status that is associated with a 1% difference in the adult generation's status.

intergenerational inequality

The extent to which differences in parental generations are passed on to the next generation, as measured by the intergenerational elasticity

endowments

assets of a person that impact their income

solving inequality

education

is inequality fair?

if you think based on work : yes, if you think based on birth environment : no

veil of ignorance

everyone is be ignorant of all his or her particular characteristics when evaluating fairness

inequality aversion

A dislike of outcomes in which some individuals receive more than others.

returns to capital

way bigger than to labour

human capital

the knowledge and skills a worker gains through education and experience that increases productivity or earnings

inequality between people factors

endowments, productivity, reservation options

principal-agent problem

when one party (the principal) hires another (the agent), who in turn can pursue goals that conflict with the principal's because of asymmetric information

Inequality between countries

greater than inequality within countries (that is, the Gini index for the world as a whole is larger than the Gini indexes for individual countries).

Equilibrium

self-perpetuating outcome of an economic model

subsistence level

level of living standards that maintains population amount

ceteris paribus

other things being equal

incentives

Economic reward or punishment, which influences the benefits and costs of alternative courses of action.

relative price

the price of one good in comparison with the price of other goods

reservation options

the next best alternative to a choice

economic rent

benefit from your choice - benefit from next best option

opportunity cost

benefit of the next best option (that you had to forgo for your choice)

economic cost

monetary cost + opportunity costs

feasible frontier/budget constraint

the combinations of goods you can buy with your budget

slope of feasible frontier

marginal rate of transformation / relative price of x-axis (px/py)

indifference curve

different combinations of goods that hold the same value for the consumer

slope of indifference curve

marginal rate of substitution

feasible set

All of the combinations of the things under consideration that a decision-maker could choose given the economic, physical or other constraints that he faces.

constraint choice problem

how we can do the best of ourselves given our preference and constraints and scarcity

preference

the benefit we associate with each outcome

utility

numerical indicator of value

income effect

the change in consumption resulting from a change in real income (more income -> more consumption -> more free time consumption)

substitution effect

leisure is more expensive cause of higher income, so consume less leisure. what happens when you keep the slope of ff fixed but up

production function

expression describing the amount of output that can be produced by an amount of input

marginal product

the increase in output that arises from an additional unit of input

average product

total output / amount of particular input

diminishing return

when marginal product is less than the prior increase

consumption goods

goods that satisfy the customer for a short period

conspicuous consumption

Buying and using products because of the social status

game theory

mathematical tool to analyse strategic situations

strategic interaction

A social interaction in which the participants are aware of the ways that their actions affect others (and the ways that the actions of others affect them).

strategy

actions made taking the effect of others into account

elements of a game

players, strategies, payoffs, information, rules

strategic game

simultaneous, matrix

extensive game

sequential, tree

Nash Equilibrium

set of strategies such that each player maximises their payoff given the other (mutual best reponses)

dominant strategy

best response to all strategies of the other

stability

when no player has an incentive to deviate

Prisoner's Dilemma

A game with a dominant strategy equilibrium, in which playing the dominant strategy yields lower individual and total payoffs compared to other strategies

social dilemma

social optimal outcome is not the one that ontstaat

coordination problem

when there are multiple nash equilibria

free rider

a person who receives the benefit of a good but avoids paying for it

altruism

The willingness to bear a cost in order to benefit somebody else.

social preference

preference that place value on benefiting others

zero sum game

a situation in which one person's gain is another's loss, every strategy combinations payoff is zero

public good

a shared good or service for which it would be impractical to make consumers pay individually and to exclude nonpayers

matching market

matches members of 2 distinct groups who each benefit from being matched with the right member of the other group

3 ways of gaining coordination in markets

price coordination, explicit matching, designed markets

short way for designed markets

made by intelligent engineer to create : 1. thick markets 2. fast markets 3. safe markets

long way for designed markets

coalitional game theory for stable matchng

stable matching

a perfect matching with no unstable pairs (NE)

tipping point/ unstable point

a small difference from the point will lead to further distance because of the market mechanism

way o form new markets

public policy and low prices for one group