Week 3 Notes
Week 3 Notes ECN 222 - 005
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This 5 page Class Notes was uploaded by Abigail Johnson on Friday January 22, 2016. The Class Notes belongs to ECN 222 - 005 at University of North Carolina - Wilmington taught by Adam Talbot Jones in Spring 2016. Since its upload, it has received 14 views. For similar materials see Macroeconomics in Economcs at University of North Carolina - Wilmington.
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Date Created: 01/22/16
1/27/16 4:49 PM MONDAY JAN. 25 Assignment due THIS Wednesday (01/27): Advancing, not retreating Read two articles and answer Q’s When we change the policy, we change the incentives (rewards/consequences) The Principles of How People Interact (Principles 1-4 available in Week 2 Notes) 5. Principle: Trading makes everyone better off! i. Specialization occurs: labor specialties lead to more efficient production and trading potentials ii. Countries benefit from specialization: 1. Better prices abroad for domestically produced goods a. Ex: US produces high skill, capital intensive goods (nuclear reactor parts, technological designs) 2. Benefit goods from other countries that are cheaper than making them domestically a. Ex: US buys low skill, commoditized items (some agricultural items, assembly of technology) 6. Markets are usually a good way to organize economic activity i. Market: group of buyers and sellers (can be across locations) ii. “Organize Economic Activity” 1. What goods 2. How to produce 3. How MUCH of each 4. Who gets them ($) iii. Market Economy: allocates resources through the decentralized decisions of households and firms. Little regulation, equilibrium driven. 1. Each of these households and firms acts as if “led by an invisible hand” to promote general economic well-being. 2. No “invisible hand”, but rather a concept that self-interest leads to general economic well- being. Everyone with self-interest must benefit other people in order to make personal gains. Act as if you care about others. iv. Invisible hand works through the price system à equilibrium 1. Interaction of buyers and sellers to determine $ 2. $ reflects value to both buyer and seller. 3. Equilibrium à efficiency 7. Governments can sometimes improve market outcomes i. Enforce Property Rights 1. Property Rights: the ability to own and exercise control over resources a. Without these rights, there will be no economic growth. b. Ex: if the gov. took 100% of what you earn, you would not work c. Ex: if you would be mugged the moment you walk out a store, you would not buy anything in that store. ii. Can intervene to improve efficiency or promote equality 1. Improve Efficiency: a. When there is Market Failure i. When the market fails to allocate resources efficiently b. What causes market failure? Price system failure c. What causes price system failure? Externalities i. Externalities: when the production or consumption of a good affects bystanders (ex: pollution) 1. Govn’t “should” tax producers of neg. externality the cost of the externality. a. Ex: how much is it worth to residents downstream to have clean water? 2. Govn’t “should” subsidize producers of positive externalities a. Ex: tax credits for solar panels ii. Market Power: a single buyer or seller (monopoly) 2. Promote Equality: a. If the market’s distribution of well-being is not “desirable,” tax or welfare policies can change how the economic “pie” is divided. Take from wealthy and give to the poor. b. Shows up after Natural Disasters. (Katrina) th WEDNESDAY JAN. 27 Class Discussion Why should government be involved in education? • Funding, tax dollars • Equality: race segregation, intelligence segregation, equal access • Avoiding extremes of no science, banning books, segregation, etc. • Push educational ranks past other countries Does government need to provide education? • True education à independent, well-managed thinkers • Gov funded education à indoctrination and propaganda • No gov funding à extremes in education types available • Common Core problem: assume it’s all common, no competition, no variation, what if it’s wrong? (monopoly in education?) • Could subsidize the choice of where they put their kids for school Consider this: grocery stores and food processes are private sector controlled. Those that cannot afford food are subsidized so they may eat. 8. A country’s standard of living depends on its ability to produce goods and services i. Huge variation in living standards across countries and over time 1. Large standard of living variations a. Occupy Wall Street 2. Wealthier today than 100 years ago, across nations 3. The most important determinant of living standards: Productivity- the amount of goods and services produced per unit of labor. a. Need output to increase faster than the population in order to increase the standards of livings. b. Productivity depends on the equipment (capital), skills (labor), and technology available to workers. i. You cannot earn more as a janitor by mopping a floor harder. ii. You can earn more as a janitor by better mopping techniques, or a floor cleaning machine so you may mop two floors in the time of one. ii. Get continents and countries to grow by establishing incentives to grow. 1. Aid à requesting more aid 2. Incentivize their own growth through access to a market system 9. Prices rise when the government prints too much money a. i. Inflation: increases the general level of prices 1. In the long run, inflation is almost always caused by excessive growth in the quantity of money, which causes the value of money to fall 2. The faster the gov. creates/prints money, the higher the inflation rate. 3. Inflation—an increase by 2% of cost each year is stable. Deflation would cause people to stop buying 10. Society faces a short-run tradeoff between inflation and unemployment a. i. Business Cycle: fluctuation in economic activity, such as employment and production. 1. (short run) 1-2 years and many economic polices push inflation and unemployment in opposite direction ii. more money is available, more willing to buy something, more people out buying, less product available and so cost rises as demand rises.. this is inflation.
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