2 CHRIS!!!!!!!!!!!!!!!!!!!!!

Chris, how could You leave us?? 

In the begining I couldn't  understand the way You were teaching and I think most of the new students were the same. 

But now, after three and a half months we got used to You and Your funny jokes and I am sure everybody will miss You. 

Two good teachers have left us - You and sociology teacher- Mary. And it is not fair.

I think there is no point of going to school anymore, coz it is empty without You.

We will remember only good things about You, for example how You showed FUCK to Fanny or " miss Dong thing" or Mr and Mrs Ken jokes and finally- Team Lisa and Numior.... 

and last but not least- I think everybody will be happy to recieve sometimes economics homework )))). 

With love from economics group and team Lisa.

Chapter 5.

Economic Growth - in short run, an increase in real GDP, in the long run, an increase in productive capacity.

Deflation -  a sustained fall in the general price level.

Balance of Payments - a record of money flows coming in and going out of the country.

Government Policy:

-Economic Growth

-Employment and Unemployment

-Inflation(an increase in price level)

-Balance of Payments(trade)

-Income Redistribution(transfer money from rich to poor)

Hyperinflation - more than 50%

Current Account Deficit - when more money is leaving than receiving.

Stable inflation- 1% or 2%

Unemployment Rate measured by formula:

the unemployment *100% / labour force

Labour Force - people who are employed and unemployed.

UNEMPLOYMENT:

-Cyclical (lack of demand)

-Structural(because of decline of certain industries and occupations due to change on demand and supply)

-Frictional(in between jobs)

Types of Inflation:

-Demand-pull

-Cost-push

AD & AS (chapter 4)

Aggregate Demand- the total demand for a country's goods and services at a given price level and in a given time period.
AD(aggregate demand)
=
Consumer expenditure
+
Investment
+
Government spendings
+
(eXports
-
iMports)

Price Level -  the average of each of the prices of all the products produced in an economy.
Consumer expenditure - spending by households on consumer products.
Government spendings - spendings by the central government and local government on goods and services.
Exports - products go out of the country.
Imports - products go in the country.

Consumer expenditure includes:
-Real Disposable Income (after tax, benefits and inflation)
-Wealth (more people-more spendings)
-Consumer Confidence (how optimistic consumers are about future economic prospects)
-The Rate of Intrest
-The Age Structure Of The Population
-Distribution Of Income (from rich to poor)

-Inflation - rise in price level.

Aggregate Supply - the total amount that producers are willing and able to supply at a given price level in a given time period.

Real GDP- AFTER INFLATION!!!!!


Inflation:


If Demand ShiFts to the left - DEFLATION
If Demand ShiFts to the right - Demand Pull Inflation


If Supply ShiFts to the left- Cost Push Inflation
If Supply Shifts to the right - Economic Growth

Externalities

Externality: an effect whereby those not directly involved in taking a decision are affected by the actions of others.

Positive externality: exists when an individual or firm making a decision does not receive the full benefit of the decision.
http://economics.fundamentalfinance.com/positive-externality.php

Negative externality: occurs when an individual or firm making a decision does not have to pay the full cost of the decision.
http://economics.fundamentalfinance.com/negative-externality.php






Social cost= Private + External cost
MSC(Marginal Social Cost)= MPC(Marginal Private Cost)+ MEC(Marginal External Cost)
MSC=MPB(Marginal Private Benefit)= Social Optimum

External Benefit= good for you
External Cost= bad for you

Market failure

In economics, a market failure exists when the production or use of goods and services by the market is not efficient.

Productive Efficiency- where production takes place using the least amount of scarce resources.

Economic Efficiency- where both allocative and productive efficiency are achieved.

Inefficiency- any situation where economic efficiency is not achieved.

Free market mechanism -the system by which the market forces of demand and supply determine prices and the dicisions made by consumers and firms.

Information Failure- a lack of information resulting in consumers and producers making decisions that do not maximise welfare.

Elasticity

Elasticity:
-it is a numerical estimate
-it measures the response to a change in price or to a change in any others factors that determine the demand or supply of a product

Elasticity is the extent to which buyers and sellers respond to a change in market conditions.

PED.
Price Elasticity of Demand is the responsiveness of quantity demanded to a change in the price of the product. 

PED = (% change in quantity demanded / % change in price)

Price Elastic: where the % change in the quantity demanded is sensitive to a change in price.
Price Inelastic: where the % change in the quantity demanded is insensitive to a change in price.

PED > 1 elastic
PED < 1 inelastic
PED = 1perfectly elastic

PES.
Price Elasticity of Supply is the responsiveness of quantity supplied to a change in the price of the product.
PES = (% change in quantity supplied / % change in price)

PES > 1 elastic
PES < 1 inelastic
PES = 0 perfectly inelastic

YED.
Income Elasticity of Demand is the responsiveness of demand to a change in income.
YED = (% change in quantity demanded / % change in income)

YED > 1 normal goods ( goods with a positive income elasticity of demand)


YED < 1 inferior goods( goods for which an increase in income leads to a fall in demand)


XED.
Cross Elasticity of Demand is the responsiveness of demand for one product to a change in price of another product.
XED = (% change in quantity demanded of a product A / % change in price of a product B)

XED >0 substituted goods
XED < 0 complementary goods

Economic systems and the role of the market

Economic System : the way in which production is organised in a country or group of countries.
This is the term, which describes that country's people, organisations and government always have to make dicisions with respecct to:
- What to produce?
- How to produce?
- Who gets it?

There are 3 main types of economic system:
-market economy
-command economy or centrally planned economy 
-mixed economy


Market economy ia an economic system whereby resources are allocated through the market forces of demand and supply. Here, price and the free operations of the price system are central to the way in which resources are allocated.
Price system is a method of allocating resources by the free movement of prices.


Command economy is an economic system in which most resourses are state owned and also allocated centrally.

Mixed economy is an economic system in which resources are allocated through a mixture of the market and direct public sector involvement.