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Chapter 3.The market forces of demand and supply

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Chapter 3.The market forces of demand and supply

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- Components of economic growth:
+ Physical capital
+ Human capital
+ Technology
- A healthy climate for economic growth
Market economy + a legal system

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-CPI= Price of Market Basket in current Year : Price of Market Basket in Given Year ×100
- Inflation rate in year 2= (CPI in year 2 -CPI in year 1): CPI in year 1 x 100
-Problem in measuring the cost of living:
1. Substitution bias
2. The introduction of new good
3. Unmeasured quality change

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- Measuring unemployment
Adults in the working age are grouped into three categories.
+ Employed
+ Unemployed
+ Not in the labor force
Labor force= Number of employed + number of unemployed
- Types of unemployment
+ Structural unemployment
+ Frictional unemployment
+ Cyclic Unemployment

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-GNP= GDP + NFIA ( Net factor income from abroad)

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-Gross domestic product (GDP) is the total value of output produced in a given time period
-GDP = C + I + G + (X-M) where
C: Household spending on goods and services
I: Capital Investment spending
G: Government spending
X: Exports of Goods and Services
M: Imports of Goods and Services

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-The downward and upward fluctuations of gross domestic product (GDP) along its natural growth rate over a long period of time.

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4 types of economic system
1. Traditional economic system: The existence is primary on traditions and customs
Self-sufficient
bartering: trading without money
2. Market economic system: There is no government in economic decisions
private ownership
-But only goods and services with the highest profit will be produced
3. Command economic system: Government tries to eliminate all private property and distribute its goods and services equally
4. Mixed economic system: The state can through the passing of law => protect citizens from unfair trading practices
Both government and the private sector can cooperate in offering certain services

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What to produce ?
How to produce ?
For whom to produce ?

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- Factors of production:
Land
Labor
Capital
Entrepreneurship
=> They are in limited supply
- The reality of scarcity forces us to make choice that involve giving up one opportunity in order to do or use st else.

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1. People face trade-offs

2. The cost of something is what you give up to get it

3. Rational people think at the margin

4. People respond to incentives

5. Trade can make everyone better off

6. Markets are usually a good way to organize economic activity

7. Governments can sometimes improve market outcomes

8. A country's standard of living depends on its ability to produce goods and services

9. Prices rise when the government prints too much money

10. Society faces a short-run tradeoff between Inflation and unemployment.

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- Meaning of an economy: A system by which people get living
A framework where all economic activities are carried out
Levels of economics keep on changing
- Needs: Human basic requirements of food, clothing, and safety.
- Wants: Specific objects might satisfy the need.
- Demands: Needs + Wants + Money => Desire to acquire
- Definition of economics: focus on the existence of unlimited human wants and the scarcity of available resources.

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Chapter 1. Economics scarcity and choices

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Chapter 1. Economics scarcity and choices