economics

Chapter 1 Economics

Text A

. Why Study Economics？

a. Economics: the study of how society manages its scarce resources. 经济学是在一定经济制度和经济体制条件下，研究如何有效利用可供选择的有限资源，以求人类无限欲望的最大满足.e.g.

1) how people decide what to buy and how much to work, save and spend

2) how firms decide how much to produce and how many workers to hire

3) how society decides to divide its resources among competing needs such as national defense, consumer goods and environmental protection

b. Resource: anything that can be used to produce something else

c. Scarcity: the resources available to a society for the production of goods and services are limited

d. Scarcity principle: although we have boundless needs and wants, resources available to us are limited so having more of one thing usually means less of another

. The chapter introduces ten principles of economics as part of three issues.

How people make decisions(1---4)

How people interact(5---7)

How the economy as a whole works(8—10)

1. Principle 1: People face trade-offs. 人们面临权衡取舍

All decisions involve trade-offs. Examples:

a. Going to a party the night before your midterm leaves less time for studying.

b. Having more money to make purchases requires working longer hours and leaving less time for leisure.

c. Protecting the environment requires resources that could otherwise be used to produce consumer goods.

Society faces an important trade-off: efficiency versus equality

a. Efficiency: when society gets the maximum benefits from its scarce resources

b. Equality: when prosperity is distributed uniformly among members of society

c. Trade-off: to achieve greater equality, income can be redistributed from wealthy to poor but this may reduce incentive to work and produce leading to a reduction in the size of the economic “pie.”

2. Principle 2: The cost of something is what you give up to get It 某种东西的成本是为了得到它而放弃的东西

a. Making decisions requires comparing the costs and benefits of alternative choices.

b. The opportunity cost of any item is whatever must be given up to obtain it.

c. Opportunity cost is the relevant cost for decision Making

For example, the opportunity cost of…

…going to college for a year is not just the tuition, books and fees but also the foregone wages.

…seeing a movie is not just the price of the ticket, but the value of the time you spend in the theater.

Are the best things in life free?

3. Principle 3: Rational people think at the margin理性人考虑边际量

Rational people systematically and purposefully do the best they can to achieve their objectives , make decisions by evaluating costs and benefits of marginal changes – incremental adjustments to an existing plan. make trade-offs at the margin by comparing the costs and benefits of doing a little bit more of an activity versus doing a little bit less.

Examples:

When considering whether to go to college for an additional year, a student compares the tuition fees and foregone wages to the extra income earned with one more year of education.

When a manager considers whether to increase output, she compares the additional cost of the labor and materials with the extra revenue.

4. Principle 4: People respond to incentives. 人们会对激励做出反应

a. Incentive: something that induces a person to act in a certain way such as the prospect of a reward or punishment.

b. Rational people respond to incentives.

Examples:

When gas prices rise, consumers buy more hybrid cars and fewer gas guzzling SUVs.

When the cost of heating oil goes up, people turn down their thermostats.

5. Principle 5: Trade can make everyone better off 贸易能使每个人的状况更好

a. Rather than being self-sufficient, people can specialize in producing one good or service and exchange it for other goods and services.

b. Countries also benefit from trade and specialization: Get a better price abroad for goods they produce; Buy other goods more cheaply from abroad than could be produced at home

c. An individual can increase output with specialization: each person specializes in the task that he or she is good at performing.

d. The economy, as a whole, can produce more when each person specializes in a task and trades with others.

6. Principle 6: Markets are usually a good way to organize economic activity. 市场通常是组织经济活动的一种好方法

a. Market: a group of buyers and sellers that may or may not be in a single location

b. “Organize economic activity” means determining

What goods and services to produce

How to produce them

How much of each to produce

For whom the goods and services are produced or who gets what.

c. A market economy allocates resources through the decentralized decisions of many households and firms as they interact in markets.

d. A famous insight by Adam Smith in The Wealth of Nations (1776) is that each of these households and firms acts as if “led by an invisible hand” to promote general economic well-being

e. The invisible hand works through the price system:

1) The interaction of buyers and sellers determines the prices of goods and services.

2) Each price reflects the value of the product to buyers and the cost of producing the product to sellers.

3) Prices guide self-interested households and firms to make decisions that, in many cases, also maximize society’s economic well-being.

7.Principle 7: Governments can sometimes improve market outcomes 政府有的时候可以改善市场结果

a. There is an important role for government to enforce property rights, so that individuals can own and control scarce resources

b. People are less inclined to work, produce, invest or purchase without a right to ownership.

c. Market failure: a situation in which the market left on its own fails to allocate resources efficiently. Causes of market failure are:

1) Externalities, when the production or consumption of a good affects bystanders (e.g. pollution)

2) Market power, a single buyer or seller has substantial influence on market price (e.g. monopoly)

In such cases, public policy may promote efficiency.

d. The government may alter market outcomes to promote equality.

Taxes and transfers can be used to change the division of the economic “pie”.

Examples of government intervention are public schools, workplace safety regulations, public highways and patent laws.

8. Principle 8: A country’s standard of living depends on its ability to produce goods and services. 一国的生活水平取决于它生产的物品与劳务的能力

a. There is tremendous variation in living standards across countries and over time:

b. The average income in rich countries is more than ten times the average income in poor countries.

c. The U.S. standard of living today is about eight times higher than 100 years ago.

d. The most important determinant of living standards

is productivity or the amount of goods and services produced per unit of labor input.

e. Productivity depends on the equipment, skills and technology available to workers.

f. Other factors such labor unions and foreign competition have far less impact on living standards.

9. Principle 9: Prices rise when the government prints too much money. 当政府发行了过多的货币时，物价上升

Inflation is an increase in the general level of prices. In the long run, inflation is almost always caused by excessive growth in the quantity of money which causes the value of money to fall.

The faster the government creates money, the greater the inflation rate.

10. Principle 10: Society faces a short-run tradeoff between inflation and unemployment 社会面临通货膨胀与失业之间的短期权衡取舍

a. Many economists believe that in the short-run, or a period of a year or two, economic policies can push inflation and unemployment in opposite directions.

b. Other factors can make this trade-off more or less favorable but the trade-off is present.

Contents of Economics I

1 Microeconomics

a. Microeconomics is the study of how individual households and firms make decisions and how they interact with one another in markets.

微观经济学研究家庭和企业如何作出决策，以及他们如何在市场上相互交易

（1）研究的对象； （2）解决的问题；（3）中心理论；

b. 微观经济学的基本假设：市场有效

（1）经济人 （2）市场出清 （3）完全信息。

c. 微观经济学的基本内容

（1）均衡价格 （2）消费者行 （3）生产者行为

（4）分配 （5）一般均衡与福利经济学 （6）市场失灵与微观经济政策。

2 macroeconomics

Macroeconomics is the study of the economy as a whole. Its goal is to explain the economic changes that affect many households, firms, and markets at once.

宏观经济学研究整体经济。宏观经济学的目标是解释同时影响许多家庭、企业和市场的经济变化。

（1）研究的对象 （2）解决的问题 （3）中心理论

Note:微观经济学从个体入手，以个量分析研究一国经济运行；宏观经济学从总体入手，以总量分析研究一国经济运行。总量并非个量简单合成

b、宏观经济学的基本假设：市场失灵

c、宏观经济学的基本内容

（1）国民收入决定理论 （2）失业与通货膨胀问题

（3）宏观经济政策 （4）开放经济理论

（5）经济周期与经济增长理论。

d. Macroeconomic Goals: Output, Employment, Price-level stability with free market, International trade.

宏观经济的目标：产量、就业、自由市场条件下的物价稳定、国际贸易

e. Macroeconomic Instruments: Fiscal policy, Monetary policy, Foreign economics, Incomes policies.

宏观经济的工具：财政政策、货币政策、对外经济、收入政策

1). Fiscal policy consists of government expenditure and taxation. Government expenditure influences the relative size of collective as opposed to private consumption. Taxation subtracts from incomes and reduces private spending; in addition, it affects investment and potential output. Fiscal policy affects total spending and thereby influences real GDP and inflation.

2.) Monetary policy, conducted by the central bank, determines the money supply. Changes in the money supply move interest rates up or down and affect spending in sectors such as investment, housing, and net exports. Monetary policy has an important effect on both actual GDP and potential GDP.

3). Foreign economic policies---trade policies, exchange rate setting, and monetary and fiscal policies----attempt to keep imports in line with exports and to stabilize foreign exchange rates. Governments work together to coordinate their macroeconomic goals and policies.

4). Incomes policies are government attempts to moderate inflation by direct steps, whether by verbal persuasion or by legislated wage and price control.

3. Examples

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