Economic Theories: Classical, Neoclassical, Keynesian

• Economic change is a cyclical process responsive to shifts in demand, supply, and the business environment, with GDP being a key factor.

Economic Foundations

• Mainstream and alternative economic theories are used to explain economics.

Classical Economics

• It focuses on free markets with limited government intervention.
• Markets are self-regulating, leading to full employment and efficient resource allocation.
• Adam Smith advocated for the concept of the "invisible hand".

Neoclassical Economics

• It emphasizes rational behavior, marginal utility, and market equilibrium.
• Markets are efficient, with individuals acting in self-interest to maximize utility.
• Supply and demand are key determinants of prices and resource allocation.

Keynesian Economics

• Government intervention is crucial for smoothing economic cycles and managing demand.
• Aggregate demand is the primary driver of economic growth and employment.
• Fiscal and monetary policies are supported to combat recessions and inflation.

Monetarism

• Controlling money supply manages inflation
• Controlling inflation is more important than stimulating demand.
• Advocates for minimal government intervention limited to monetary control.

Behavioral Economics

• Psychological factors influence economic decisions, challenging rational behavior assumptions.
• Decision-making is influenced by biases, emotions, and heuristics.

Alternative Theories

Ecological Economics

• Economic analysis integrates with environmental sustainability.
• Focus on limits to growth, resource depletion, and need for a steady-state economy.
• Ecological and environmental costs should be included in economic decision-making.

Post-Keynesian Economics

• Building on Keynesian ideas, rejects neoclassical assumptions like market equilibrium.
• Emphasizes uncertainty, historical context, and financial markets' role in economic outcomes.
• Encourages active government intervention and a focus on income distribution.

Feminist Economics

• It challenges mainstream economics by considering gender, power dynamics, and inequality.
• Care work, unpaid labor, and social reproduction are emphasized in the economy.
• Advocates for inclusive policies that address marginalized groups' needs.

Marxist Economics

• Class struggles and capital's role shape economies.
• Analyzes wealth and power concentration in capitalist systems, leading to inequality and exploitation.
• Advocates for collective ownership and wealth redistribution.

Evolutionary Economics

• Core Concepts
• Focuses on dynamic processes of economic change and evolution of institutions and new technologies
• Economic systems are constantly evolving, with new technologies and practices replacing outdated ones.
• Economies are complex, adaptive systems where agents learn, adapt, and innovate.

Innovation and Technological Change

• Innovation is key to economic development and growth, with technological progress affecting production and societal structures.
• Entrepreneurship and organizational learning is focused on for the adoption of new technologies.

Institutional Evolution

• Institutions shape economic behavior and outcomes.
• Institutions evolve with changes in technology, culture, and economic environments.
• Economic systems are always in flux, rarely achieving equilibrium.

Basic Economic Principles

• Demand, Supply, and Scarcity
• DEMAND/SUPPLY: It is the relationship between product price and quantity demanded/offered
• QUANTITY DEMANDED (QD)/ QUANTITY SUPPLIED (QS): This is the amount of a good or service consumers/suppliers are willing and able to buy/supply at a particular price

Determinants of Demand

• These are the factors that shift the demand curve.
• Change in buyers' tastes: Popularity in fitness increases running shoe demand, while mobile phone popularity decreases land-line phone demand
• Change in the number of buyers: A birthrate decline reduces demand for children’s toys.
• Change in income: Increased income raises demand for normal goods and decreases demand for inferior goods.
• Change in the prices of related goods: Reduced airfares affect train travel, and movie prices affect demand for popcorn.
• Change in consumer expectations: Expectations of higher coffee bean prices due to bad weather increases today’s demand.

Demand and Supply

• MARKET: Parties engage in exchange
• EXCHANGE: Demand and supply together
• Equilibrium: The point where supply and demand meet
• Shift of the Curve shows a change in supply represents an increase in supply

Determinants of Supply

• Shift of the Supply Curve
• Change in resource prices: Microchip price decreases increase computer supply, while crude oil price increases reduce gasoline supply.
• Change in technology: Wireless technology advances increase mobile phone supply.
• Change in taxes and subsidies: Higher cigarette taxes reduce supply, and subsidy declines reduce supply of higher education.
• Change in prices of other goods: Higher cucumber prices decrease watermelon supply.
• Change in producer expectations: Anticipated log price increases decrease today's log supply.
• Change in the number of suppliers: More tattoo parlors increase tattoo supply, and women's professional basketball leagues increase supply in women's games.
• ELASTICITY determines how a demand or supply reacts to a change in price.
• Elasticity = (% change in quantity / % change in price)

Economic Systems

• Key Takeaways from Reading 1 by Infotopia
• An economy allocates resources within a group through production and consumption.
• Production and service consumption aids in meeting the needs of a group in an economy
• Market-based economies are also called free market economies and they are self-regulated because they allow consumers goods to be produced and distributed in response to their demands
• Command-based economies are regulated by a government body.
• Few economies are purely market-based or command-based in modern economies.
• Economy: Large set of interrelated activities determining resource allocation in a country over time.
• Microeconomics: Focuses on individual behavior and business decisions.
• Macroeconomics: Includes overall economic factors like gross domestic product (GDP), unemployment, and spending.
• Capitalism: It is a market-based economy.
• Communism: It is a command-based economy.

Ethical and Sustainable Decision Making

• Aligning Market Efficiency with Sustainability
• Engel Curve showcases relationship between income and the consumer demand for a particular good and it illustrates the classification of goods depending on the income
• Market efficiency and sustainability.
• Market efficiency is how much market prices reflect available information. Resources are allocated to maximize economic output and minimize waste.

Role of Market Efficiency

• Optimal Resource Allocation: Goods and services are produced at the lowest cost and highest value.
• Incentives for Innovation: Market efficiency rewards innovation, leading to greener technologies.
• Consumer Choice: Consumers drive demand for sustainable products, encouraging businesses to adopt eco-friendly practices to stay competitive.

Aligning Market Efficiency with Sustainability

• Environmental Impact: Efficient markets promote sustainability by encouraging cost-reducing sustainable practices.
• Incorporating Externalities: Market prices should reflect environmental costs.
• Ensure long-term sustainability practices lead to long term cost savings and profitability.
• Market Failures Regulatory intervention can help correct externalities like pollution
• Market forces drive sustainable innovation and success.

How to Incorporate Sustainability in Demand and Supply

• Traditional models focus on profit and growth, which has negative environmental and societal impacts.
• Sustainability should influence demand and supply to improve quality of life and shouldn't harm communities
• Balance demand and supply for current and future generations. Promote local markets, fair trade, and renewable resources

How We Make Decisions

• Trade-Off, Opportunity Cost, Incentive when it comes to opportunity cost

Opportunity Cost

• Trade-Off analysis should be consider when leaving behind a deeply rooted connection

Marginal Decision Making

• Process
• Is rational, which means objective is to maximize the outcome of the decision
• Making marginal choices depends on rational/ emotional, pattern and routine depending on asymmetric

Asymmetric Information

• George Akerlof introduced the concept
• In used car markets, sellers know more than buyers leading to buyers who are "afraid of lemons" which discourages sellers of having good trade
• Perfect information prevents market failure. Solutions include warranties and certification.

Bounded Rationality

• Nobel Laureate Herbert a. Simon explains that people cannot obtain information to make the best decision

Behavioral Economics

• Rationality and The Role of Emotions
• Alternative Concepts and Theories on Rationality and Decision Making:
• Richard Thaler shows how people behave irrationally and that all money has value.
• What about routines, traditions, religions.
• The following behaviors must be studied
• those that lead to stock market swings
• the ways that people think about and react to good and bad fortune
• why people often seem to act against their own self-interest
• Behavioral economics relies on scientific experiments since assumptions should not be made about human behavior

The Role of Time

• very high time discount rate, meaning that in his/her mind, future events are very much discounted/diminished of value when weighed against the pleasures of today.

The Role of Emotions

• The role of emotions in decision making has always been studied
• Conventional view: emotions get in the way of good decision making, as they tend to interfere with logical reasoning
• Research from behavioral economics: decisions based on logical reasoning are not always “better” than those based on emotion or intuition.
• Reasoning is most effective when used for relatively simple economic decisions, but for more complex decisions we can become overwhelmed by too much information.

Damasio's Research on Emotions and Decision Making

• Individuals who had had brain injuries that damaged the area where emotions were generated, lost the ability to feel emotions.
• Those individuals were seriously impaired when it came to making decisions
• Without emotions, one has no rational way to decide.

Decision Making

• In the moment of decision, emotions are very important for choosing.
• Decisions that feel or seem right are always based on emotion.
• The subconscious is in charge with the illusion of consciousness

Digitalization and Economic Structures

• Market Failure is the situation where there's an insufficient distribution
• Each individual makes decisions that may prove to be wrong

Examples of Negative Externalities

• PRODUCTION:
• Air pollution: Burning gasoline fuels to make gasoline that effects the nearby communities
• Water pollution: Oil spills that effect the area
• Noise pollution: People living near a large airport suffer
• CONSUMPTION
• Passive smoking: Can effect not just the smoker, but the health of those around them
• Traffic congestion: The more people that use cars on roads, the heavier the traffic congestion becomes.

Example of Positive Externalities

• PRODUCTION
• Infrastructure development: Real estate might benefit when there is more infrastructure
• R&D activities: Society as a whole benefits when there is innovation
• CONSUMPTION
• Individual education and vaccination: Higher economic productivity is achieved

Public Goods

• They have two distinct aspects: Nonexcludability and Non Rivalrous Consumption.
• "Non-excludability” means that the cost from keeping nonpayers from enjoying, example for street lighting.
• "Non rivalry” when you use something, there is still enough for others.

Commons

• Shared resources accessible to the community are the core of the commons, helping to provide a system where managing resource are sustainable and equitable
• Challenges the traditions economic models

Doughnut Economy

• The doughnut economics seeks sustainability.

• Externalities only address the negative consequences of economic activities, without providing

• Doughnut economics helps us to beyond the normal economy.

• A stricter definition of property rights can limit the influence of economic activities on unrelated parties.

• Should be dealt with by instrumental regulation or by bargaining between the creator and victim.

• TAXES may impose taxes (pigovian tax) on goods or services that create externalities.

• SUBSIDIES - a government can also provide subsidies to stimulate certain activities.

• CORPORATE SOCIAL RESPONSIBILITY Seeing in economics as corporations voluntarily internalizing, the externalities their operations create.

Critics

• Milton Freidman explains that "The Social Responsibility of Business is to Increase Its Profits,”
• MISMATCH BETWEEN SOCIETY AND ECONOMY: EXTRACTIVE ECONOMY

The Role of Stakeholders

• The role of stakeholder capitalism in creating a more equitable and sustainable economic system.

• Government Role

• Market Failures as Business Opportunity: Towards a Non-Extractive Economy

• sustainable/social/regenerative entrepreneurship

• Social Enterprise

• Digitalization and Economic Transformation

• How digital technologies shape markets, industries, and labor Key trends: automation, platform economies, Al-driven decision-making

• platform-based business models

• New value creation and distribution mechanisms (e.g., data monetization, blockchain, token economies)

• Impact on traditional sectors (finance, retail, manufacturing, creative industries)

• Labor Market Dynamics in the Digital Economy

• Automation & Al-driven job displacement vs. job creation

• Gig economy & platform labor: benefits and challenges

• winner-takes-all dynamics

• Data as an economic asset (ownership, privacy, and monetization debates)

• Implications for SMEs and local economies

• Sustainability & Ethics in Digital Transformation

• Digitalization & environmental impact (energy consumption of data centers, e-waste)

• Inclusion & digital divides (access to technology, affordability, skills gap)

• Al bias & algorithmic fairness (ethical considerations in Al-driven decisions)

• Sustainable digital business models

Market Dynamics, Concentration, Resilience and Business Cycles

• Labor Markets and Employment Dynamics
• Labor Markets:
• interactions between workers and employers to determine wages and levels of employment

Key Components of Labor Markets

• Key: Job seekers and employees, employers and institutions.

Labor Market Segmentation

• Labor: High, stable jobs vs. low paying, unstable jobs.
• Supply and Demand for Labor: Determinants of Wages and Employment Levels
• Factors influencing labor supply:

Types of Labor Markets

• Formal vs. informal, local vs. global.
• Unemployment and Underemployment: Causes, Types, and Economic Impacts
• Labor Market Flexibility and Its Implications for HRM - The ability of labor marketsadapt
• The Intersection of HRM and Economics: Why HRM Matters for Economic Performance

Definition of Governance

• systems and structures for accountability.
• Governance: rules, and practices that guide power.
• Elements of Governance
• Authority
• Accountability
• Participation
• Transparency -Rule of Law
• Efficiency and Effectiveness
• Equity Inclusivity.
• Types of Governance
• Corporate
• Public
• Global
• Nonprofit: achieve goals.
• Governance Structures in Economic Systems
• Governance in Economic Systems.
• Government Regulation and Its Impact
• Corporate Governance and Business Operations Institutions Shaping economic policies