ECO101 - ECONOMICS why should we study it? Economic...

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ECONOMICS why should we study it?
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Economic development = quality of life Life expectancy is strongly correlated with economic activity (GDP per capita, based on PPP) Using WDI data for 2004, the correlation coefficient between the life expectancy at birth and the GDP per capita, PPP method: 0.63 The statistical relationship can be approximated by the following expression ( click here for the source file ): capita per GDP * 0.000758 58.829 Expectancy Life + = This suggests that $1319 in GDP per capita translates into 1 year difference in expected lifespan
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Economics Defining Economics Social Science Unlimited Wants Scarce Resources Efficiency What to Produce (allocative efficiency) How to Produce (productive efficiency) For Whom to Produce (allocative efficiency)
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Economic Resources Agricultural Economy (Feudalism) Labor Immigration, population growth Land Inclusive of natural resources Industrialization (Capitalism) Capital Encouragement of saving and capital formation (IRA) Advanced Industrialization and Post Industrial Human Capital Subsidized education Entrepreneurship Establishing favorable business environment
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Economic systems Capitalism Socialism Communism These systems differ in the allocation of the ownership of productive resources The differences in these systems can also be formulated in terms of how they address the fundamental questions (e.g. command economy versus market economy) Feudalism Mercantilism
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Natural emergence Adam Smith’s “invisible hand” concept Simplified role of the government Institutional support for economic activity Property rights laws Stable political system Well defined legal system Transparent business regulations System of checks and balances for gov’t officials Capitalism
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Socialism Philosophical Foundation Socialist Movement of the mid XIX century Role of the government Includes economic decisions in terms of allocation of resources and output, and possibly production
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Modern Economies Mixed system (capitalism + socialism) EU versus US versus RU versus China General government final consumption expenditure (% of GDP) in 2001 Switzerland 13.31 China 13.69 United States 14.23 Russian Federation 14.32 Italy 18.47 Germany 19.06 France 23.27 Sweden 26.66 Source: World Bank, WDI 2003
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Unemployment rate comparison Unemployment, total (% of total labor force), 2000 Switzerland 2.7 China 3.1 United States 4.1 Sweden 5.1 Germany 8.1 France 10.0 Italy 10.8 Russian Federation 11.4 Source: World Bank, WDI 2003
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The Concept of Cost in Economics Every undertaken activity has a foregone sacrifice associated with it Opportunity Cost The value of the next BEST (highest valued) alternative (the value of the sacrifice that would have become the next choice) E.g. opportunity cost of this class E.g. Opportunity cost of the Colander’s book (relative price) E.g. Opportunity cost of physical capital
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The world of trade-offs Budget Constraint and Relative Price Production Possibilities Frontier
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ECO101 - ECONOMICS why should we study it? Economic...

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