Econ 1020 Week 2 Notes Winter Quarter
Econ 1020 Week 2 Notes Winter Quarter ECON 1020
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This 5 page Class Notes was uploaded by Matthew Stein Oakley on Sunday January 31, 2016. The Class Notes belongs to ECON 1020 at University of Denver taught by Dr. Chiara Piovani in Winter 2016. Since its upload, it has received 11 views. For similar materials see Intro to Macroeconomics in Economcs at University of Denver.
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Date Created: 01/31/16
Economic history Capitalism vs. Pre-Capitalism Capitalism emerged in the 15 -16 century Commerciathcapthalism (mercantilism) o 18 -19 century Industrial capitalism 18 thCentury – emergence of economics as a discipline “classical economics” o Adam Smith o Karl Marx Pre-Capitalism Communal Societies Transition to class-based civilizations o Slave societies o Feudal societies Technology o Tools o Skills/Knowledge o Quality of natural resources available Economic Institutions Social Institutions Ideology Communal Societies Technology: Stone tools o Hunting/fishing + gathering fruits, vegetables, nuts Economic institutions: Extended family o Division of labor – men/women and young/old people Collective action Social institutions: “Direct Democracy” Ideology: cooperation and tradition Class-based civilizations Better tools (much more food) Hunting/fishing Agriculture o Farming o Herding Increase in productivity SURPLUS o Better division of labor Intellectual work vs. manual labor o Increase in population Stability in villages towns cities o Creation of surplus introduces the idea of wealth Economic inequalities also created POWER DIFFERENCES Wars begin Prisoners Slaves Slave Societies Technology: Bronze 8 iron tools (Agriculture) Economic institutions: Masters vs. Slaves Social institutions: Masters make all the decisions Ideology: Discrimination o Naturalization of slavery o Gender discrimination o Racism Constraints encountered by slave societies: 1. Economic problem a. Stagnating productivity 2. Safety problem SERFS o Feudalism stems from slave societies but redefines slaves into serfs Feudalism Manors o Aim to be self-sufficient Over-time: As trade increases # of merchants increases o Luxury + military products Economic institutions: Manors o Agriculture o Manufacturing: Guild system “Just price” – no profit Fill out your duty in society o Social institutions: Feudal Hierarchy Lords Serfs o Technology: very little innovation o Ideology: Christian paternalistic ethic “Chosen” wealthy lords were given a gift to do good unto serfs “The Ascent of Money” –Ferguson - Initiated USURY by Jewish people; the idea of lending/borrowing money and collecting interest on it Karl Polanyi 1944 -The Great Transformation Disembedded Economic System vs. Embedded Economic System o Embedded = Pre-Capitalism Economy and Society COINCIDE Economic institutions were shaped by social values and social expectations o Disembedded = Capitalism Economy and Society become separate spheres Production Possibilities Frontier – a basic economic model due to the assumption of specialization - Assumptions: o 1 Resource = Labor o Only 2 goods produced guns vs. butter (consumer goods v. capital) o Specialization of labor - |slope| = opp. Cost of producing guns (good on the horizontal axis) o Each point on the PPC has a different slope o Curve gets steeper, |slope| increases along the curve Increasing marginal opportunity cost to produce more along the x-axis - Points inside the frontier bow-curve means inefficiency is present o Resources are still left over - Points outside the frontier bow-curve is not feasible unless: o We have more resources, better technology (economic growth) Efficiency Scarcity trade-offs opportunity cost o Limited resources Labor Capital Land Technology When there is NOT specialization of labor, PPF straight line Basic claim of traditional economics w.r.t. international trade: FREE TRADE - The increase of well-being for all countries involved o Consumption possibilities - Closed economy vs. open economy o Open = domestic consumption domestic product Imports and exports - Free trade allows countries to consume beyond the PPF - Assumptions: o 2 countries Japan/US o Resources = L o L is not specialized PPF straight line Ricardian Model - Production 2 goods o Cars (#) o Grain (tons) o US & Japan: 1 worker can make 4 cars per month Japan: 1 worker can make 5 tons of grain per month US: 1 worker can make 10 tons of grain per month Absolute Advantage – country with higher productivity of a good/service Comparative Advantage – Compare countries across sectors - Lowest opp. Cost per sector Opportunity cost 1 ton of grain Opportunity cost 1 car - US: 1 ton of grain = 4/10 cars = 2/5 cars o 1 car = 5/2 tons of grain - Japan: 1 ton of grain = 4/5 cars o 1 car = 5/4 tons of grain In free trade, each country should fully specialize based off of comparative advantage with other countries - Ex. Us should produce more grain and purchase cars from Japan Equilibrium price in international markets: 1 car = 1.5 tons of grain - WE OBSERVE THIS EXCHANGE - 30 million cars made = 45 million tons of grain made
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