Sustainable Economics Lecture Notes PDF

Sustainable Economics Introduction to the Sustainable Economics Microeconomics 30% Sustainable Economics 100% Assessment strategy Macro...

Sustainable Economics Introduction to the Sustainable Economics Microeconomics 30% Sustainable Economics 100% Assessment strategy Macroeconomics data Mid term exam of Microeconomics extraction and visualization (November 21) exercise 5% Mid term exam of Macroeconomics, International Economics and Trade (December 5) Macroeconomics, International Business challenge (January 9) Economics and Trade 35% Business challenge 30% Principles of Economics 3e https://openstax.org/details/ Greenlaw, S. A., books/principles- 2022 Principles of Economics 3rd Edition Shapiro, D. & MacDonald, D. economics-3e 1. Welcome to Economics! 1.1: What Is Economics, and Why Is It Important? 1.2: Microeconomics and Macroeconomics 1.3: How Economists Use Theories and Models to Understand Economic Issues 1.4: How Economies Can Be Organized: An Overview of Economic Systems 1.1 What Is Economics, and Why Is It Important? Economics is the study of how humans make decisions in the face of scarcity. These can be individual decisions, family decisions, business decisions or societal decisions. Scarcity means that human wants for goods, services and resources exceed what is available. The FRED website (https://openstax.org/l/FRED/) – statistics for US Official Statistics Portal (Home - Oficialiosios statistikos portalas) – statistics for Lithuania Eurostat (Home - Eurostat (europa.eu)) – statistics for EU The problem of scarcity Discussion Question: What are examples of critical goods and services? Does everyone have them? How do you get those items? We make choices how to use the resources How do we use limited resources to get all the most goods? We can produce all we consume or we can produce part and trade for the rest Division and specialization of labor Comprehensive Study of Economics Adam Smith introduced the idea of dividing labor into discrete tasks, in his famous 1776 book, titled The Wealth of Nations. The Division of and Specialization of Labor Division of labor - the way in which different workers divide required tasks to produce a good or service. Workers on an assembly line are an example of the divisions of labor. Why the Division of Labor Increases Production Dividing and subdividing the tasks involved with producing a good or service, produces a greater quantity of output. 1. Specialization - when workers or firms focus on particular tasks for which they are well-suited within the overall production process. If people specialize in production of what they do best, they will be more effective rather than doing the combination of things. 2. Workers who specialize in certain tasks often learn to produce more quickly and with higher quality. 3. Specialization allows businesses to take advantage of economies of scale, which means that for many goods, as the level of production increases, the average cost of producing each individual unit declines. Specialization only makes sense, if workers can use the pay they get for doing their jobs to buy the other things they need. 1.2 Microeconomics and Macroeconomics Economics is concerned with the well-being of all people, including those with jobs and those without jobs, as well as those with high incomes and those with low incomes. Microeconomics focuses on the actions of individual agents within the economy, like households, workers, and businesses. Macroeconomics is the branch of economics that focuses on broad issues such as growth, unemployment, inflation, and trade balance. Other Economic Terms Monetary policy - policy that involves altering the level of interest rates, the availability of credit in the economy, and the extent of borrowing. Determined by a nation’s central bank Fiscal policy - economic policies that involve government spending and taxes. Determined by a nation’s legislative body 1.3 How Economists Use Theories and Models to Understand Economic Issues One of the most influential economists in modern times was John Maynard Keynes. Keynes thought that economics teaches you how to think, not what to think. Economists analyze issues and problems using economic theories that are based on particular assumptions about human behaviour. Economic Theories and Models A theory is a simplified representation of how two or more variables interact with each other. The purpose of a theory is to take a complex, real-world issue and simplify it down to its essentials. A good theory is simple enough to understand, while complex enough to capture the key features of the object or situation you are studying. Economists use models to test theories, but for this course we will use the terms model and theory interchangeably. Circular Flow Diagram The circular flow diagram shows how households and firms interact in the goods and services market, and in the labor market. The direction of the arrows shows that in the goods and services market, households receive goods and services and pay firms for them. In the labor market, households provide labor and receive payment from firms through wages, salaries, and benefits. 1.4 How Economies Can Be Organized: An Overview of Economic Systems There are at least three ways that societies organize an economy: 1) Traditional economy - typically an agricultural economy where things are done the same as they have always been done. Oldest economic system Used in parts of Asia, Africa, and South America Occupations tend to stay in the family What you produce is what you consume Little economic progress or development An Overview of Economic Systems 2) Command economy - an economy where economic decisions are passed down from government authority and where the government owns the resources. Government decides what goods and services will be produced and what prices it will charge for them. The government decides what methods of production to use and sets wages for workers. The government provides many necessities like healthcare and education for free. Very centralized structure for economic decisions An Overview of Economic Systems 3) Market economy - an economy where economic decisions are decentralized, private individuals own resources, and businesses supply goods and services based on demand. Market - interaction between potential buyers and sellers; a combination of demand and supply. Private enterprise - system where private individuals or groups of private individuals own and operate the means of production (resources and businesses). Nothing says “market” more than The New York Stock Exchange. Supply of goods and services depends on what demands are. Market forces, not governments, determine economic decisions. Real World Economies Most economies in the real world are mixed. They combine elements of command, traditional, and market systems. The U.S. economy is positioned toward the market-oriented end of the spectrum. Many countries in Europe and Latin America, while primarily market-oriented, have a greater degree of government involvement in economic decisions than the U.S. economy. China and Russia, while they have moved more in the direction of having a market-oriented system, remain closer to the command economy end of the spectrum. Regulations: The Rules of the Game There is no such thing as an absolutely free market. Regulations always define the “rules of the game” in the economy. Economies that are primarily market-oriented have fewer regulations— ideally just enough to maintain an even playing field for participants. Heavily regulated economies often have underground economies (or black markets), which are markets where the buyers and sellers make transactions without the government’s approval. Organizing economic institutions often involves a balancing act over the appropriate combination of market freedom and government rules. The Rise of Globalization Globalization - the trend in which buying and selling in markets have increasingly crossed national borders. Exports - the goods and services that a nation produces domestically and sells abroad. Imports - the goods and services that are produced abroad and then sold domestically. Gross domestic product (GDP) - measures the size of total production in an economy. Self-check 1. What is scarcity? Can you think of two causes of scarcity? 2. A consultant works for $200 per hour. She likes to eat vegetables, but is not very good at growing them. Why does it make more economic sense for her to spend her time at the consulting job and shop for her vegetables? 3. Residents of the town of Smithfield like to consume hams, but each ham requires 10 people to produce it and takes a month. If the town has a total of 100 people, what is the maximum amount of ham the residents can consume in a month? 4. Why might Belgium, France, Italy, and Sweden have a higher export to GDP ratio than the United States? 5. Why would division of labor without trade not work? 6. Can you think of ways that globalization has helped you economically? Can you think of ways that it has not? CONTACTS Assist. dr. Santautė Venslavienė [email protected]