Theories
This guy wrote The Communist Manifesto
Karl Marx
What are the two famous trade-offs we learned
guns vs. butter
efficiency vs. equality
The carrot and the stick
rewards and punishments
Every country in the world has this type of economic system:
Mixed
Bob wants to grow apples but he already has a job as a lawyer. He is really good at growing apples but he can make more money as a lawyer.
Principle 5
He has absolute advantage but could still benefit from trade
This guy wrote The Wealth of Nations
Adam Smith
What are two important things the first two principles have in common?
scarcity
decision making
Two companies are selling the same good but trade between them can still be good for consumers because?
Lower prices and interesting products through competition and specialization
What two things is economics really about?
managing scarce resources
decision making
Airlines try to get as many people into their plane as possible because of
sunk costs
marginal cost is low, the marginal benefit is high
The primary argument communism has against the current state of capitalism in the world
inequality is unfair
What are some of the difference between principle 1 and principle 2
OC = the many things you gave up for a choice
Trade-off = the balancing between two things
If someone has a lower opportunity cost
They have comparative advantage
How can we use principle 4 to understand the trade-off between efficiency and equality?
People respond to incentives, without the incentive to be rich, people will not work hard
I can get a higher grade by studying for an extra hour. Use principle 3 to help explain this.
The marginal cost of the higher grade is one hour of studying.
You can maximize your benefits by using your next hour rationally.Two of the many meanings of socialism
A stage on the way to communism
A policy to increase equality
Communism
Used as a "bad word" by some political peopleWhat is principle #5 and the tools to understand principle #5?
Principle: trade makes everyone better off
Tools: competition, specialization, absolute and comparative advantage
Clearly explain how the carbon market incentivizes people
It rewards companies that pollute less by giving them credits they can sell for money.
It punishes companies that pollute too much by making them buy credits.
How does principle 5 relate to The Pencil?
The Pencil talks about the magic of the market. This takes place because we can trade resources and labour all around the world to create amazing products and services that make everyone better off.
Bob can grow apples better than anyone but he doesn't have time because he is buys making a lot of money as a lawyer so he hires someone to take care of his apple trees. Which principle and what "tools" to understand this principle are shown here?
Principle 5
Absolute and comparative advantage
The primary argument capitalism has to defend the state of inequality in the world
Equality of opportunity
How can we use opportunity cost to talk about principle #3?
What two things should a rational person do?
Think at the margins
Maximize benefits
What does the elephant curve show?
It shows income growth
It shows that poor people are experiencing strong income growth
Middle-class people are not
Rich people and getting richer very quickly.
The government wants to support domestic agriculture so it does two things: it __________ local farmers and puts ______________ on farmed good from abroad.
subsidizes
tariffs