Download Vocabulary and Concepts for first Economics 101 Exam

Prof. M. Dohan
8/31/2012
1
I. Vocabulary and Concepts for First 8 Lectures Economics 101 and 102
From Lecture:
Traditional Assumptions: Scarcity of resources and unlimited wants
Traditionally, Economics is often defined as the study of the allocation of scarce resources to best meet
society’s unlimited wants usually in terms of goods and services as measured in gross domestic product (GDP).
A more modern definition of Economics might be defined as the study of social system which the allocates
scarce resources to best maximize society’s well-being as measured not only in terms of goods and services
in gross domestic product (GDP), but also leisure time, environmental quality, health, fairness, security,
opportunity, justice, and quality of public life both for current and future generations..
Opportunity cost: think of (opportunity) costs in real terms, not money terms. What you have to give up
when you use scarce resources for more of one good or service in terms of what you lose by not using these
same resources in your next best use. Opportunity costs include total social cost (private and external) and total .
social (private benefit and external benefit).
Scarce Inputs are rival in use: Land (N = natural resources) , Labor (L), Human Capital (HK) and Capital (K).
Rival in use means that they can only be used in producing only one good or service at a time.
They are fixed in total supply at any given moment.
Excludable Most scarce resources are privately owned or controlled by the government so that potential
users can be prevented (excluded) from using these resources.
Technology is Public-good type of input is non-rival in use.Once a new technology is developed, in theory it
is non-rival in use and can be used by any producer, unless they are excluded by law (patents) or kept
secret (Coca-Cola) or by technology (Channels on Cable TV). See more examples below
A total productivity curve shows the quantitative relationship between inputs used in producing a product or
service and the output of product “a”, holding all other input constant and given the economic, governmental and
social environment as well as the natural environment. This can be graphed as a total productivity curve. See below
for a diagram.
Qa = fa (La, Ka, HKa, Na) Technology and environment is embodied in “fa”.
Social and governmental environment depends on absence of corruptions, court system, rule of law, appropriate
regulations (especially to cope with problems of market failure and working conditions), social customs.
Natural resources, renewable if properly managed (forests, grazing land fisheries, arable land, water
resources), exhaustible, (coal mines, oil deposits, mineral deposits, water aquifers.)
Renewable natural resources tend to reproduce themselves over time (if not hunted to extinction or
used to its destruction): forests, arable land, meadows, water resources, fisheries, and wildlife. The renewal
process is critically dependent on the habitat and environment. The destruction of forest for farmland and for
charcoal in Africa created the Sahara desert. Global warming from raising the CO2 levels in the atmosphere
from our burning of hydrocarbons (coal, oil, peat,) is raising sea water temperatures and killing krill and other
small sea life at the bottom of the food chain; which are essential for coral reefs, and fish and wildlife. Over
fishing or over harvesting in the fisheries can lead to its permanent extinction, just as over-hunting killed of the
carrier pigeon.
Exhaustible natural resources tend to be mineral deposits (coal, oil, and gas fields trapped far below
the earth, mineral oils of various richness which usually have to be converted or refined into metals, and
allivuilial deposits of gold, silver, diamonds, precious gems which are also can be mined. Improvements in
technology have enabled us to use ores that have less and less mineral content while recycling programs have
begun to provide a larger share of copper, iron, aluminum. However the rapid economic growth of India and
China increase the demand for minerals.
Prof. M. Dohan
8/31/2012
2
Technology and public goods is the one resource that may be very expensive to “produce” the first unit for the
first users, but it can used by many producers or users at the same time, because the use or enjoyment by one
user does not prevent others from using it.(see below) Once developed, it is not scarce in the sense of having
mutually exclusive users.
Examples of Private Goods: shoes, food, cars, public housing, public schools, public tennis courts and
swimming pools, driving on the LIE at 5 PM
Examples of Public goods: light house, popular music recorded onto a CD, television broadcasts on cable,
medical technology for producing drugs, highways and public transportation in off-peak hours.
Problem of financing public goods and the free rider, Highways, bridges, tunnels, public transportation as
congestible public goods and their allocation with fees.an national park, bridges and highways, public schools,
private schools.
Capital Kapital before production is “soft clay or putty” and can be used to produce various type of capital.
After production, it is like hard clay baked in a kiln. The machinery industry, for example, can chose to
produce sewing machines or tractors. Once they have built a tractor, they cannot use it as a sewing machine.
Capital is unique in that it is an input into the production process as well as an output of the economy.
You increase capital by investment e.g., the production of machinery, the building of dams, the construction of
irrigation systems. In the U.S. economy we think of private investment which is new factories and
equipment including steel mills, lathes, trucks, tractors, cars, cell phones and any piece of equipment that
provides service in the production process for more than a year, as well as hotels, retail stores, restaurants, spas,
airplanes. New residential buildings including new houses, new condominiums, and new apartment buildings.
Changes in inventories, which are very important in facilitating the production and distribution process.
A very important component of capital in any economy is the infrastructure. In the United States built
and maintained either by the government or by the private sector. It includes roads, bridges, airports,
lighthouses, parks, tunnels, fire stations, police departments, government buildings, schools, airports, as well as
the utilities, which are usually privately owed in the U.S. but may be publicly owned in other countries. They
include electricity generation and distribution, telephone service, water systems, sewage treatment, gas, internet
networks, satellites for TVs, communications.
Economic productivity of labor depends on capital investment and technological progress and their long run
importance in growing personal income. The short run trade off between inflation and unemployment.
Keynesian economics gave us growing but imperfect government control over market fluctuations.
Labor quality depends on health, experience, education, environmental quality, and attitude toward work and
incentive systems. Labor as a fungible resources that can be moved to various sectors.
The markets strikes back when prices are too high or too low relative to the market clearing price for one or
several related.products, whether by overproduction relative to demand or undersupply because of weather etc,
or because of government (or private) interference in market with price ceilings, price supports and imperfect
market structure (monopoly, oligopoly, and monopolistic completion).
Comparative advantage,
Real costs versus money costs.
Trade is always a win-win situation,
Abstraction and simplification and their function in understanding economics by helping ups with models
(paradigms, theories) ,
Prof. M. Dohan
8/31/2012
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Fallacy of composition:
Ex post hoc, ergo propter hoc fallacy.
Independent variable and dependant variable and the importance of causation in economic theory. Correlation
does not always equal causation
Why economists disagree. Different values, different models, and imperfect information.
Math Skills Hint: if these terms are unfamiliar or you do not know how to do the following, please go to Kiely
131. Academic Support.
1. Graphing a straight-line equation of the type Y = MX – B. Or as you have seen Qd = 5000 – 40P where Qd
is the quantity demanded and P is the price.
.
Origin point
Slope of a tangent to a point on a curved line
Calculation of a slope
Negative slope, positive slope, zero slope, and infinite slope with respect to the x axis.
The slope of a curved line changes everywhere along that line.
A ray through the origin and the 45 degree line.
Solving a simple set of linear algebraic equations
Contour maps as a way of showing three dimensions.
A tangent to a curve = slope at that point = rise over the run.
Chapter II The US has a mixed market economy.
Private enterprise economy where most goods and services are produced and sold by private entrepreneurs.
GDP equals gross domestic product = C + I +G + X - M
A relatively closed economy which means that about 12% of our goods and services are imported or exported.
A economy growing at 2% per year doubles in 36 years, at 3% every 23 years .
Recessions and booms
Unemployment rates
Labor force participation rates
US as a service economy 61%, Agriculture employs 1.6% of the labor force.
Workers’ wages equal more than 70% of GDP
Average return to capital is 9%
Lowest tax burden in the world:
Lowest government spending as a percentage of GDP in the world
Progressive tax system
Chapter 3
Total productivity curve, Total output of one product produced by labor
holding all other things constant (ceteris paribus)
Ceteris paribus, if you add more and more of the variable input, output will rise,
but eventually at a slower a slower rate. Important principle underlying the
Malthus Theory Population and Poverty
Total
Productivity
Curve
Marginal
Product
Curve
Marginal productivity curve and the law of eventually diminishing returns
(benefits For example, if you add more and more labor in producing tomatoes
on a given plot of land, output will go up, but at a smaller and smaller amount.
Diminishing
Mar. Prod.
Prof. M. Dohan
8/31/2012
4
Words used in lecture or will be used in lecture:
Electric power generation
Coal, oil, gas, heats water to steam to drive the turbines generating electricity which it put on to the
electric power grid (heavy duty wires to distribute it around the country.) SmartGrid
Burning coal in particular creates lots of SOx, NOx, Particulates and CO2 (which contributes to global
warming.
Multiple uses of farm land to grow corn, wheat, oats, barley, hops, soybeans, sugar beets, meadow land makes
land fungible among various uses, depending on the profitability.
Natural gas in the US is increasingly being produced by “fracking”, drilling a hole 10,000 ft into Marcellus
Shale and then drill horizontally, then pumping water and chemical into this hole under high pressure, which
cracks the shale and releases the natural gas.
Infrastructure
Broadband Internet Connection
Hi-Speed Rail
Lathe to cut metals and wood.
Stimulus