MASECO1 - C1 - manpower decision that makes you
Economics • capital happy given the available
- the study of how individuals - plant and equipment information of the time being.
and societies use limited - this differs from “financial + selfishness -
resources to satisfy unlimited capital”
wants. - financial Economic Methodology
- choosing the best available • entrepreneurial ability • scientific method
alternatives that are LIMITED - ability to create new - observe a phenomenon
(scarce goods – condition that innovations. - make simplifying
is among the alternatives). + entrepreneur – sell for assumptions and formulate a
- social sciences (social – customers, produces products hypothesis.
individual that are useful. - generate predictions, and
behavior/perspective), + business owner – sell to - test the hypothesis.
(sciences – scientific method, customers, for profit.
hypothetical/experimental) Simplifying assumptions
- good decision-making Resource payments • ceteris paribus – holding
• Economic Resource everything else constant
Fundamental economic land • abstraction in economics
problem labor - used to simplify reality
• scarcity - refers to capital - all clear
limitations–limited goods or entrepreneurial ability - choosing (word, graph,
services, limited time, or • Resource Payments equation)
limited abilities to achieve the rent
desired ends. wages giving – something you don’t need
• individuals and societies interest sharing – you have more than
enough
must choose among available profit
caring – you need it but someone
alternatives. needs it more.
Positive and Normative
Economic goods, free goods, Analysis Logical Fallacies
and economic bads • positive economics • fallacy of composition
• economic good (scarce - attempt to describe how the - occurs when it is incorrectly
good) - the quantity economy functions assumed that what is true for
demanded exceeds the - relies on testable hypotheses each and every individual in
quantity supplied at a zero + economic function, data, isolation is true for an entire
price. evidence, hypothetical testing, group.
• free good - the quantity basis, statistical data. • post hoc, ergo propter hoc
supplied exceeds the quantity • normative economics fallacy (association as
demanded at a zero price. - relies on value judgements to causation)
• economic bad - people are evaluate or recommend - occurs when one incorrectly
willing to pay to avoid the item alternative policies. assumes that one event is the
+ personal judgment cause of another because it
Economic Resources precedes the other.
• land Rational Self-Interest
- natural resources, the “free - individuals select the choices microeconomics – the study of
gifts of nature” that make them happiest, individual economic agents
- not depreciable given the information available and individual markets.
• labor at the time of decision. macroeconomics – the study
- the contribution of human - self-interest vs. selfishness of economy aggregates.
beings + self-interest – choosing
Absolute poverty Traditional neoclassical and producers have limited
- a situation of being unable to economics deals with an information, major structural
meet the minimum levels of advanced capitalist world of changes are taking place in
income, food, clothing, health perfect markets; both the society and the
care, shelter, and other economy.
Political Economy
essentials. The ultimate purpose of
- The attempt to merge
development economics,
Subsistence economy economic analysis with
however, remains unchanged:
- an economy in which practical politics—to view
to help us understand
production is mainly for economic activity in its
developing economies in order
personal consumption and the political context.
to help improve the material
standard of living yields little - the social and institutional
lives of the majority of the
more than basic necessities of processes through which
global population.
life—food, shelter, and certain groups of economic
clothing. and political elites influence Social system
the allocation of scarce - The organizational and
Development
productive resources now and institutional structure of a
- The process of improving the
in the future, either for their society, including its values,
quality of all human lives and
own benefit exclusively or for attitudes, power structure,
capabilities by raising people’s
that of the larger population and traditions.
levels of living, self-esteem,
as well
and freedom values, attitudes, and
Development economics institutions, both domestic
Developing countries
- The study of how economies and international, play in the
- Countries of Asia, Africa, the
are transformed from overall development process.
Middle East, Latin America,
stagnation to growth and from
eastern Europe, and the Income per capita
low income to high-income
former Soviet Union that are -total gross national income of
status, and overcome
presently characterized by low a country divided by its total
problems of absolute poverty.
levels of living and other population.
- also deal with the economic,
development deficits. Used in
social, political, and Gross national income (GNI)
the development literature as
institutional mechanisms, both -The total domestic and
a synonym for less developed
public and private, necessary foreign output claimed by
countries.
to bring about rapid (at least residents of a country. It
Traditional Economics by historical standards) and comprises gross domestic
- An approach to economics large-scale improvements. product (GDP) plus factor
that emphasizes utility, profit incomes accruing to residents
More developed countries
maximization, market from abroad, less the income
(MDCs)
efficiency, and determination earned in the domestic
- The now economically
of equilibrium. economy accruing to persons
advanced capitalist countries
- concerned primarily with the abroad.
of western Europe, North
efficient, least-cost allocation
America, Australia, New Gross domestic product (GDP)
of scarce productive resources
Zealand, and Japan. - The total final output of
and with the optimal growth
goods and services produced
of these resources over time In comparison with the more
by the country’s economy,
so as to produce an ever- developed countries (MDCs),
within the country’s territory
expanding range of goods and in most less developed
by residents and nonresidents,
services. countries, commodity and
regardless of its allocation
resource markets are typically
highly imperfect, consumers
between domestic and foreign 4. Higher population growth trade, finance, and investment
claims. rates – rapid growth of human system
population Least developed countries - A
3 core values of development
UN designation of countries
sustenance 5. Greater social
with low income, low human
- the basic goods and services, fractionalization – having a
capital, and high economic
such as food, clothing, and significant ethnic, linguistic,
vulnerability.
shelter, that are necessary to and other social divisions
Human capital - Productive
sustain an average human (sdivision most likely the
investments in people, such as
being at the bare minimum citizen will have more conflict)
skills, values, and health
level of living.
6. Larger rural populations but resulting from expenditure son
self-esteem
rapid rural-to-urban migration education, on-the-job training
- The feeling of worthiness
– people from province tend programs, and medical care
that a society enjoys when its
to work to country’s capital
social, political, and economic
citty. Capital stock - The total
systems and institutions
amount of physical goods
promote human values such 7. Lower levels of existing at a particular time
as respect, dignity, integrity, industrialization – weak that have been produced for
and self-determination. industrial = slow production use in the production of other
freedom and slow progress of nation goods and services
- A situation in which a society
8. Adverse geography – plays a Purchasing power parity (PPP)
has at its disposal a variety of
big role in problems of - Calculation of GNI using a
alternatives from which to
agriculture, public health common set of international
satisfy its wants and
prices for all goods and
individuals enjoy real choices 9. Underdeveloped financial services, to provide more
according to their preferences. and other markets accurate comparisons of living
3 objectives of development 10. Lingering colonial impacts standards
1. To increase the availability such as poor institutions and Human Development Index
and widen the distribution of often external dependence (HDI)
basic life-sustaining goods Colonial Legacy – colonization - An index measuring national
such as food, shelter, health, leaves the colonized country socioeconomic development,
and protection. scraping poverty and lack of based on combining measures
2. To raise levels of living resources of education, health, and
3. To expand the range of External Dependence – too adjusted real income per
economic and social choices much dependence with other capita.
Chapter 2 country deprived one’s nation
to become independent
10 important features that intenally . Diminishing marginal utility -
developing countries tend to The concept that the
have in common: World Bank – international subjective value of additional
1. Lower levels of living and financial institution consumption lessens as total
productivity – all is low consumption becomes higher
2. Lower levels of human Newly industrializing countries Resource endowment - A
capital - (NICs) - Countries at a nation’s supply of usable
relatively advanced level of factors of production,
3. Higher levels of inequality economic development with a including mineral deposits,
and absolute poverty – substantial and dynamic raw materials, and labor.
inequality from poorest to the industrial sector and with
richest close links to the international
Imperfect market - A market Economic Institutions - origins in both domestic and
in which the theoretical “Humanly devised” constraints international dualism.
assumptions of perfect that shape interactions (or Development therefore requires
competition are violated by “rules of the game”) in an more than just accelerated capital
the existence of, for example, economy, including formal formation.
a small number of buyers and rules embodied in Structural transformation
- The process of transforming
sellers, barriers to entry, and constitutions, laws, contracts,
an economy in such a way that
incomplete information and market regulations, plus
the contribution to national
informal rules reflected in income by the manufacturing
Incomplete information - The
norms of behavior and sector eventually surpasses the
absence of information that
conduct, values, customs, and contribution by the agricultural
producers and consumers
generally accepted ways of sector. More generally, a major
need to make efficient
doing things. alteration in the industrial
decisions resulting in
composition of any economy.
underperforming markets Chapter 3 Lewis two-sector model
Property rights - The - A theory of development in
Stages-of-growth model of
acknowledged right to use and which surplus labor from the
development
benefit from a tangible (e.g., traditional agricultural sector
- A theory of economic
land) or intangible (e.g., is transferred to the modern
development, associated with
intellectual) entity that may industrial sector, the growth
the American economic of which absorbs the surplus
include owning, using, deriving
historian Walt W. Rostow, labor, promotes industrialization,
income from, selling, and
according to which a country and stimulates sustained
disposing.
passes through sequential development.
stages in achieving Surplus labor
Brain drain - The emigration of
development. - The excess supply of labor over
highly educated and skilled
Harrod-Domar growth model and above the quantity demanded
professionals and technicians
- A functional economic at the going free-market wage
from the developing countries rate. In the Lewis two-sector
relationship in which the
to the developed world. model of economic development,
growth rate of gross domestic
Free trade - Trade in which product(g) depends directly on surplus labor refers to the portion
of the rural labor force whose
goods can be imported and the national net savings rate
marginal productivity is zero or
exported without any barriers (s)and inversely on the
negative.
in the forms of tariffs, quotas, national capital-output ratio Average product
or other restrictions. (c). - Total output or product divided
Capital-output ratio - A ratio by total factor input (e.g., the
Divergence - A tendency for
that shows the units of capital average product of labor is
per capita income (or output)
required to produce a unit of equal to total output divided
to grow faster in higher-
output over a given period of by the total amount of labor
income countries than in used to produce that output).
time.
lower-income countries Marginal product
Net savings ratio - Savings
Convergence - The tendency expressed as a proportion of - The increase in total output
disposable income over some resulting from the use of one
for per capita income (or
period of time additional unit of a variable
output) to grow faster in
factor of production (such as
lower-income countries than
Structural-change theory labor or capital). In the Lewis
in higher-income countries so - The hypothesis that two-sector model, surplus labor
that lower-income countries underdevelopment is due to is defined as workers whose
are “catching up” over time. underutilization of resources marginal product is zero.
arising from structural or
institutional factors that have their
Self-sustaining growth - Economic Market failure - A market’s
growth that continues over the inability to deliver its theoretical
long run based on saving, benefits due to the existence of
investment, and complementary market imperfection
private and public activities.
Solow neoclassical growth
False-paradigm model - The model Growth model in
proposition that developing which there are diminishing
countries have failed to returns to each factor of
develop because their production but constant returns
development strategies (usually to scale. Exogenous technological
given to them by Western change generates long-term
economists) have been based economic growth.
on an incorrect model of
development, one that, for Closed economy - An
example, overstresses capital economy in which there are
accumulation or market no foreign trade transactions
liberalization without giving due or other economic contacts
consideration to needed social with the rest of the world.
and institutional change Open economy - An economy
that practices foreign trade
Dualism - The coexitence of two and has extensive financial
situations orphenomena (one and nonfinancial contacts
desirable and the other not) that with the rest of the world.
are mutually exclusive to different
groups of society—for example,
extreme poverty and affluence,
modern and traditional economic
sectors, growth and stagnation,
and higher education among a few
amid large-scale illiteracy
Public-choice theory (new
political economy approach)
- The theory that self-interest
guides all individual behavior
and that governments are
inefficient and corrupt
because people use government
to pursue their own
agendas.
Market-friendly approach
- The notion historically
promulgated by the World Bank
that successful development
policy requires governments
to create an environment in
which markets can operate
efficiently and to intervene
only selectively in the
economy in areas where the
market is inefficient.
