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Principles of Economics
Principles of Economics, including introduction, How do markets work? Markets and welfare, public sector economics, firm behavior and industrial organization. The labor market, topics of in-depth study in economics, and finally thoughts on short-term economic fluctuations, macroeconomics of an open economy, etc.
Edited at 2022-11-03 17:27:20
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Principles of Economics
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Avatar 3 centers on the Sully family, showcasing the internal rift caused by the sacrifice of their eldest son, and their alliance with other tribes on Pandora against the external conflict of the Ashbringers, who adhere to the philosophy of fire and are allied with humans. It explores the grand themes of family, faith, and survival.
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This article discusses the Easter eggs and homages in Zootopia 2 that you may have discovered. The main content includes: character and archetype Easter eggs, cinematic universe crossover Easter eggs, animal ecology and behavior references, symbol and metaphor Easter eggs, social satire and brand allusions, and emotional storylines and sequel foreshadowing.
- Zootopia 2 Character Relationship Chart
[Zootopia Character Relationship Chart] The idealistic rabbit police officer Judy and the cynical fox conman Nick form a charmingly contrasting duo, rising from street hustlers to become Zootopia police officers!
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- Outline
Introduction to the World Economy Chapter 1 The Formation and Development of the World Economy
- 19
"Principles of Economics"
13. Final Thoughts
Government and Market: If we let it go, chaos will come; if we regulate it, we will die.
Finance must serve the real economy
consumption and investment
Foreign trade and foreign investment
Industrial upgrading and demand upgrading
New economic theory suitable for China
Economics and Economic Thought
12. Short-term economic fluctuations
aggregate demand and aggregate supply
Total demand
Long term: no impact on prices
Short term: relationship between high prices and aggregate demand → consumption/investment/exports all decrease
Changes: Consumption preferences/investment opportunities/government intervention/export competition
aggregate supply
The long run has nothing to do with price, it depends on labor/capital/resources/technology
Short term: Price rise → aggregate supply increases
Sticky wages → companies hire more people
Sticky prices → companies invest more
Illusion: rising prices vs. popular products
Change: labor/capital/resources/technology/expectations
Problems with fluctuations in aggregate demand and aggregate supply: laid-off workers/idle resources/injustice caused by sudden wealth/fast-paced life
In the long run we are all dead - Keynes
monetary policy and fiscal policy
Monetary Policy: Wealth/Interest Rates/Exchange Rates
Fiscal policy: driving employment/crowding out effect (Government Investment Platform)
Proactive fiscal policy and prudent monetary policy: curb overheating/stimulate the economy
The short-term trade-off between inflation and unemployment
Inflation → more job opportunities
Insufficient demand → issuance of additional currency → short-term effective/long-term price increase
Supply shock → additional money issuance → stagflation
11. Macroeconomics of an open economy
basic concept
trading
Exports – Imports = Net Exports
: Trade surplus
–: Trade deficit
Foreign investment: direct investment/securities investment
Net exports = net investment
Savings = Domestic investment Net capital outflow
China
Export upgrade (goods/services)
Investment in China/foreign investment/securities investment
exchange rate
Nominal Exchange Rate: Appreciation/Depreciation
Real exchange rate: taking prices into account
purchasing power parity
Meaning: The level of inflation determines changes in the nominal exchange rate
Issues: Non-fungible/non-tradable/financial impact/commercial impact
Basic theory
Net capital outflows are affected by real interest rate differentials
Net capital outflows and net exports determine the exchange rate
Interest rate spreads and exchange rates
High interest rates in the country: currency appreciation
Increase exports: currency appreciation
Capital flight: currency depreciation
criticism
Purchasing power parity vs exchange rate determination
Capital flows vs trade flows: cause and effect and disjunction
Nominal vs real: The difference is obvious when inflation is particularly high
10. Money and prices in the long run
monetary system
Currency: medium of exchange (liquidity)/unit of account/store of value
Currency type: commodity currency (wheat/gold)/legal currency (paper currency)
Monetary system: commodity currency (gold)/banknotes/deposits/monetary-based products
Monetary institution: People's Bank of China/Commercial Bank/Monetary Fund
money creation
central bank printing banknotes
Banks buy foreign exchange and mortgage loans to create deposits
Monetary fund investment and issuance create shares
Constraints on Money Creation
Central Bank: Gold Reserves →?
Banks/Money Funds: Reserves
reserve system
Reserves: Deposits with a central bank
Statutory reserve ratio: based on customer deposits
statutory reserves
excess reserves
Leverage and capital requirements: avoid high debt/junk assets
central bank regulation
Quantity: Loan Purchase
Price: Interest Rate
Monetary Growth and Inflation
classical inflation theory
Prices are related to the purchasing power of money
Money supply, demand and equilibrium
Nominal, real, monetary neutral
MV=PY, M currency/V circulation/P price/Y output
inflation tax
Fisher effect vs nominal interest rate (reflecting inflation)
cost of inflation
Purchasing power remains unchanged
Cost of Leather Shoes: Holding Less Currency
menu cost
Fixed prices cause relative price changes
Tax: charged based on nominal price
confusion
Inflation → Wealth distribution: [tax] transfer to government/bank transfer to lenders
deflation → unemployment
9. The real economy in the long run
production and growth
The Real Economy: Remove the Currency Effect
Real growth: removing the impact of prices
Country Comparison: Exchange Rates
productivity
Goods and services output per unit of labor input
Influencing factors: per capita physical capital, per capita natural resources, per capita human capital, technical knowledge
Improve productivity
Diminishing margins, catch-up effect
Savings/investment; foreign investment; education/research and development; health/nutrition; property rights/stability; free trade; population growth: limits and promotes resources, capital stock, technological progress
Savings, investment and financial system
Financial System: Excessive losses but insufficient compensation
real economy
Financial intermediaries (banks), financial markets
Savings Flow = Investment Flow
supply and demand for loanable funds
Completely different from real life economy
Basic financial instruments
Present value
Risk: risk aversion
Insurance: Adverse Selection/Moral Hazard
Diversification: spreading risk
Low return vs wealth insurance
Valuation: Efficient Markets vs. Beating (Irrational) Markets
unemployment
unemployment confirmation
Adult population = labor force non-labor force
Labor force = Employed people Unemployed people
Unemployment rate = unemployed/labor force
Reasons for unemployment
Frictional unemployment, unemployment insurance
Minimum wage, strikes, efficiency wages
8. Macroeconomic data
Measurement of a country’s income
GDP (gross domestic product)
Within a certain period of time, within a country
Produced: The transfer of second-hand items does not count
All: excluding black market and de-trading activities (volunteer/DIY)
Final goods and services: calculating inventory
Market value
GDP = household income/expenditure = business income/expenditure (wages/rent/profit)
Expenditure method (end use perspective) to calculate GDP
final consumption
gross capital formation
Net exports of goods and services
Real GDP/Real Growth: at constant prices
GDP limitations
Voluntary service/domestic service/free economy
Can't measure quality
pollution, wealth gap
GDP for GDP’s sake
Measurement of cost of living
CPI (Consumer Price Index)
Category 8: Food, tobacco and alcohol, clothing, household equipment, supplies and maintenance services, medical care and personal supplies, transportation and communications, entertainment, education, cultural supplies and services, residence
CPI problem
Basket range and quality changes
The real interest rate is equal to the nominal interest rate (money) minus CPI
Free economy, individual vs overall, asset prices, overseas consumption, cheap imports, speculation
1.Introduction
Economics and Economics
Why study economics
Understanding the world
Participate smarter in the economy
Understand the potential and limitations of policy
Economic activity subject (company/individual)→Relationship→Economics
Economics: How societies manage scarce resources
Economic boundaries: law/technology/custom
Ten principles of economics
Decision-4
Trade-offs
Opportunity cost: something given up to gain
Marginal thinking: rational people consider marginal quantities
Incentives and Behavior: Responding to Incentives
Transaction-3
Trade makes everyone better off
Markets are often a good way to organize economic activity
Governments can sometimes improve market outcomes
property
Efficiency: market failure (externalities/market power)
equality
Overall economic operation-3
Production capacity: A country’s standard of living depends on its ability to produce goods and services (the number of goods and services produced per unit of labor)
Money and Inflation: Prices rise when the government prints too much money
Unemployment and inflation: Society faces the short-term trade-off between inflation and unemployment
think like an economist
Scientist: trying to explain the world
Observation→Hypothesis→Model
Model 1: Circular Flow Diagram
Input-output: household labor/land/assets → production factor market → enterprise → goods and labor market → household
Currency: household expenditure → goods and labor market → corporate income → production factor market wages/rents/profits → household income
Model 2: Production possibilities frontier
Technological progress expands boundaries outwards
Policy Advisor: Trying to Improve the World
Description and suggestions
Disagreements in Economics: Judgments, Values
Chinese economist
Official: Academy of Social Sciences
Private: consulting companies, research institutes, etc.
Industry: People's Bank of China Research Bureau, Securities Dealers Research Institute
Interdependence and the benefits of trade
Exports/Imports
Absolute advantage: cost of production
Comparative advantage: lower opportunity cost
The benefits of trade come from comparative advantage
specialization
price
2. How the market works
Market forces of supply and demand
Market: group of buyers and sellers
Competition: Many buyers and sellers, little impact on price
need
Demand: the amount that is willing and able to purchase
Market demand is the sum of individual needs
Theorem of Demand: As price increases, demand decreases
demand curve shift
Click: price
Line movement: income/related prices/hobbies/expectations/number of buyers
supply
Supply: the amount that is willing and able to be sold
Market supply is the sum of individual supplies
Theorem of Supply: As price rises, supply increases
supply curve shifts
Click: price
Line movement: input price/technology/hobby/expectation/number of sellers
supply and demand
Equilibrium: supply = demand
Surplus: supply > demand
Shortage: supply < demand
Theorem of supply and demand: Prices adjust spontaneously; surpluses and shortages are temporary
Analyze equilibrium changes
Whether the curve moves
Curve movement direction
How movement changes equilibrium price and quantity
Resilience and its applications
Elasticity: A measure of how much demand or supply reflects some of its determinants
type
Common: completely inelastic/inelastic/elastic
Ideal: elasticity is 1/elasticity is infinity
need
Price elasticity of demand: rate of change in quantity demanded/rate of price change; the rate of change is the change divided by the median
Determinants: Substitutes/Necessities vs. Luxury Products/Market Definition/Time Frame
Total revenue: quantity × price
Inelasticity: Increased revenue from price increases
Flexible: Increased revenue from price reductions
income elasticity of demand
cross price elasticity of demand
supply
Supply price elasticity: supply quantity change rate/price change rate; the change rate is the change amount divided by the median value
Determining factor: Flexibility/length of capacity expansion
Typical situation: rapid expansion when output is low; output is already high and costs are high
Supply, Demand and Government Policy
price control
tax
Inelastic demand/elastic supply: tax buyers
Elastic demand/inelastic supply: tax sellers
3. Market and welfare
Consumers, Producers and Market Efficiency
Willingness to pay (auction) → consumer surplus
Production cost (tendering) → producer surplus
Efficiency: Maximizing total social surplus
Equality: equal distribution of economic results
Market Failure: Market Power/Externalities
cost of tax
Taxes create a gap between buying and selling prices, reduce the number of buying and selling, and tax buyers and sellers equally.
Taxes reduce both supply and demand, causing deadweight losses
Total social surplus = producer surplus, consumer surplus, taxes, deadweight loss
If the tax amount remains unchanged, the greater the elasticity of the supply and demand curve, the greater the deadweight loss.
The elasticity of the supply and demand curve remains unchanged. The larger the tax amount, the greater the deadweight loss. There is a maximum value for tax revenue to increase first and then decrease.
international trade
Importing country: the equilibrium price is higher than the world price; consumers increase, producers decrease, and the increase in consumer surplus is greater than the decrease in producer surplus.
Exporting country: equilibrium price is lower than world price; producers increase and consumers decrease, and the increase in producer surplus is greater than the decrease in consumer surplus.
Tariffs: reduce import volume and increase prices; consumer surplus in the importing country decreases, fewer consumers, underconsumption, producer surplus increases, more producers, overproduction
Other benefits: diversity/economies of scale/increased competition/communication
Reasons for trade restrictions: jobs/national security/industrial protection/unfair competition/bargaining chips/income distribution
4. Public Sector Economics
externality
Uncompensated effects on bystander welfare; conflicting private and social costs
Elimination (internalization): internalization of positive externalities/internalization of negative externalities
Government Corrections: Regulations/Taxes and Subsidies/Tradable Licenses (better operations)
Private Resolution: Ethics/Charity/Mergers/Contracts
Coase theorem: cost-free negotiation to solve externalities
Private settlement ineffective: transaction costs/breakdown of negotiations/too many people
Public goods and public resources
Exclusivity: Prevent others from using it (for a fee)
Competitiveness: one person’s use reduces the use of others
Public goods: non-excludable and non-competitive
Public resources: not exclusive, competitive
tax system design
Tax → Externality/Public Goods/Public Resources
China Finance (Taxation)
Notified during the two sessions of the central and local governments
General public finance/government funds/state-owned capital management/social security funds
Taxation and efficiency: deadweight loss/administrative burden (tax filing/tax avoidance/tax evasion)
taxes and equality
Benefit principle: Beneficiaries pay taxes
Affordability principle: vertical equality/horizontal equality
Tax fate (rich people pay taxes → consumption decreases → poor people are unlucky)
5. Corporate behavior and industrial organization
Cost of production
Profit = total revenue – total cost
opportunity cost = explicit cost implicit cost
Cost of funds: consider interest
Economic profit = accounting profit – hidden cost
Production and Cost: Diminishing Marginal Product/Increasing Marginal Cost
category
Fixed costs: rent/full-time employee salary
Variable costs: utilities/raw materials/workers
Average cost = (fixed cost variable cost) / output
Increase production
Average fixed costs: The more you spread the less, the less
Average variable cost: incremental
Average total cost: decrease first and then increase
Start: Fixed costs are significantly diluted
Later: Marginal costs were significantly diluted
Typical cost curve
As output rises, marginal cost eventually rises
The average total cost first decreases and then increases: the lowest is the effective scale
Before efficient scale: marginal cost is below average
After efficient scale: marginal cost is above average
At efficient scale: marginal cost equals average
short term costs and long term costs
Can build factories/hire people in the long term
Economies of scale/Constant scale/Diseconomies of scale
Specialization vs coordination issues
Competitive market
Competitive market
many buyers and sellers
The items offered by the seller are the same
Individual traders cannot influence market prices
Enterprises can enter and exit freely
Marginal benefit and average revenue are the same
Production
business decisions
Marginal revenue is greater than marginal cost: Product
Marginal revenue is less than marginal cost: unproductive
Marginal revenue = price in a competitive market
Profit maximization: marginal cost rises to price
Change in market price → change in output
stop
Same money/zero economic profit
Price = Marginal Cost = Average Total Cost
Output of a single enterprise: effective scale
Long and short term conversion
Short term: consider variable costs; move toward market equilibrium
Long term: consider total costs
monopoly
Monopoly: sole seller, no substitutes
Monopoly resources (land)
Government Regulation (Patents)
Production Process
Monopoly sets price
Fewer buyers at high prices/more buyers at low prices
profit maximization
Marginal revenue = new price – loss from price reduction of original product
Average revenue = new price
Marginal revenue <average revenue; marginal cost>average cost
When marginal revenue = marginal cost, average revenue > average cost
Monopolies have excess profits
Welfare costs of monopoly
Maximum welfare: marginal cost = marginal bid
Monopolies raise prices and reduce output
Monopolies produce and collect taxes at the same time
Welfare Problems of Monopoly: Deadweight Loss Lobbying Costs
Price discrimination: different prices for different customers
Increase monopoly profits, enhance welfare, arbitrage
Antitrust: Blocking Mergers/Spinnings
Regulation vs natural monopoly
Monopolistic Competition
Monopolistic competition: many sellers; product differentiation (similar but different); free entry and exit
Short term: Possible profit or loss
Long run: zero economic profit
Compared to perfect competition, monopolistic competition has a price markup
Welfare analysis of monopolistic competition
Deadweight loss vs. loss; diversification vs. grabbing business
Advertising: Manipulate preferences/More information/Promote competition/Signaling effect
brand
oligarch
Oligopoly: same product; few sellers
Maximum total profit vs maximum shared profit
Collusion to monopolize vs breaking collusion
Nash equilibrium/long-term game vs prisoner’s dilemma/dominant strategy
6. Labor market economics
factor of production market
Income = output value
labor
labor demand
In a competitive market, marginal product is diminishing and the value of marginal product is diminishing.
Profit maximization: marginal product value = wage
Influencing factors: product price/technical change/other factors
Labor supply: jobs/leave/preferences/other opportunities/immigration
labor market equilibrium
Increase in demand → increase wages
Increase in supply→lower wages
Buyer's monopoly (civil servant)
other factors of production
land and capital
Rental price = marginal product value
Purchase Price: Consider Rental Income Stream
The connection between factors of production: the lips are dead and the teeth are cold
income and discrimination
Income factors
Compensatory salary difference: non-monetary (within the system/teacher/intern)
human capital
Talent/Effort/Opportunity
education as signal
Industry (star)
Institutional: minimum wage/union/incentive pay
discriminate
race/gender
Discrimination or economic reasons
Economic power corrects (employer) discrimination
possible discrimination
Customer Preferences/Government Laws
Household registration/ethnicity/home address
Height/weight/full body life photos
reverse discrimination
income inequality and poverty
Differences in Income and Living Standards
In-kind transfers/benefits
economic life cycle
Temporary income and permanent income
Economic Mobility: No more than three generations of wealth/self-made
The idea of equality: rob the rich and give to the poor/the weak have someone to rely on/it would rather be rich
Reducing poverty: minimum wage; benefits; student loans
7. Topics for in-depth research
consumer choice theory
Budget constraint/preference/optimal choice: the most preferred combination under constraints
income effect and substitution effect
The higher the salary the job...?
The higher the interest rate, the higher the savings...?
Giffen goods: the lower the price, the less you consume
Frontiers of Microeconomics
asymmetric information
Principal – agent – moral hazard; adverse selection → defective product
Solutions: Signaling, Screening, Public Policy
Leaders and attachés/Insurance companies/Second-hand market/Certification/Prestigious universities/Gifts/Evaluation/Government intervention/Dianping
Political Economy: The key to elections is the median voter → please the voters
behavioral economics
Irrational: Overconfidence/One word of “support”/Inertia
Rather Stick to your guns
inconsistent