Economics Basics

Microeconomics

Markets and Market Failure

• Market Structure:
  • Perfect Competition: many firms, free entry/exit, homogeneous product
  • Monopoly: single firm, barriers to entry, price maker
  • Monopolistic Competition: many firms, product differentiation, non-price competition
  • Oligopoly: few firms, interdependent decision-making
• Market Failure:
  • Externalities: positive (e.g., education) or negative (e.g., pollution) effects on third parties
  • Public Goods: non-rivalrous, non-excludable (e.g., national defense)
  • Information Failure: asymmetric information between buyers and sellers

Consumer Behaviour

• Demand:
  • Law of Demand: as price increases, quantity demanded decreases
  • Determinants of Demand: price, income, prices of related goods, tastes and preferences
• Consumer Equilibrium:
  • Budget Constraint: graphical representation of consumption possibilities
  • Indifference Curve Analysis: marginal rate of substitution, diminishing marginal utility

Production and Costs

• Production:
  • Law of Variable Proportions: diminishing marginal product
  • Returns to Scale: increasing, decreasing, or constant returns
• Costs:
  • Fixed and Variable Costs: total, average, and marginal costs
  • Opportunity Cost: next best alternative forgone

Macroeconomics

National Income and Expenditure

• National Income:
  • Gross Domestic Product (GDP): market value of goods and services
  • Net Domestic Product (NDP): GDP - depreciation
• Expenditure Approach:
  • Aggregate Demand: consumption, investment, government spending, net exports
  • Leakages (Savings, Taxes, Imports) and Injections (Investment, Government Spending, Exports)

Economic Growth and Development

• Economic Growth:
  • Increases in productive capacity, technological progress, and institutional factors
  • Measured by percentage change in GDP or GDP per capita
• Economic Development:
  • Improvement in living standards, health, education, and income distribution
  • Human Development Index (HDI): life expectancy, education, income

Fiscal Policy and the National Economy

• Fiscal Policy:
  • Government Spending and Taxation: expansionary (stimulus) or contractionary (austerity)
  • Automatic Stabilizers: unemployment benefits, progressive taxation
• Monetary Policy:
  • Central Banks: setting interest rates, open market operations
  • Money Supply and Demand: liquidity, velocity of money