Principles of Economics
Compilation Document
Contents
Principles of economics lecture 1 10-9..................................................................................................2
What is economics?...........................................................................................................................2
Chapter 1...........................................................................................................................................2
Chapter 2: models..............................................................................................................................3
Principles of economics lecture 2 18-9..................................................................................................5
Principles of economics lecture 3 24-9..................................................................................................8
Chapter 4: Market ‘Meddling’............................................................................................................8
Chapter 5: intro to international trade............................................................................................13
Principles of economics lecture 4 1-10................................................................................................22
Principles of economics lecture 5 8-10................................................................................................35
Principles of economics lecture 6 15-10..............................................................................................51
Principles of economics lecture 10 19-11............................................................................................69
1
,Principles of economics lecture 1 10-9
What is economics?
Goal of economics: conservative interpretation (make profit)/progressive interpretation (a certain
level of wealth for everyone)/idealist’s interpretation (everyone is rich)
Economics is a hard as well as a soft science.
Yes, wealth is literally power
GDP = measure of things in an economy that go through a market (demand)
Efficient institutions create a lot of wealth; moderately efficient institutions create moderate wealth;
etc.
Robinson Thesis:
- Old economic thought: materialism
- Industry created society: politics, ideas, society (created by economics)
- New theories emphasize institutions
Why is X poor and Y rich? What institutions are shaping the markets in that economy?
Macroeconomics looks at the indicators of the health of the economy as a whole. Principles of
economics focuses mostly on macro economics
What is a market? An abstract place where supply meets demand
Everything that involves transactions of money is “on the grid”. Work that is done that doesn’t
involve any financial transaction is “off the grid”.
At a high price supply increases because when the price is high enough people will make a profit no
matter how high the production costs are.
Supply is a positive slope; demand is a negative slope
Truly free markets do not exist
Interest rate = the price of money
monetary policy = policy adopted by the monetary authority of a country
that controls either the interest rate payable on very short-term borrowing
or the money supply, often targeting inflation or the interest rate to ensure
price stability and general trust in the currency.
inflation rate = the value of money (how much can I buy with my money?)
equilibrium price = evenwichtsprijs/intersection of supply and demand
Chapter 1
Principles:
1. Choices are necessary because resources are scarce (with the implication that this is done by
individuals)
2. Opportunity cost: either/or
3. Marginality: how much?
4. Rational choice: everyone wants what’s best for themselves but rationality is ‘bounded’
2
, 5. Free trade: the sum is greater than the parts (if countries open their economies, that the
benefits to both economies will be greater than if they both maximized growth autarkically)
6. Markets move to equilibrium
7. Avoid ‘deadweight loss’
8. Markets usually lead to efficiency
9. Sometimes markets can slump/malfunction
10. Spending is income (circular flow diagram)
11. If spending is too low, the economy can fall into a recession. If spending is too high, this can
cause inflation.
12. Governments can change spending
Effects of a supply subsidy
Dead-weight-loss triangle: subsidising supply depresses the price and leads to inefficient allocation
of resources economists say that interference by the government in the market distorts the
market.
Keynes: anti-cyclical economic policy (markets should be as free as possible but when in a slump, the
government should jump in and invest a lot of money into the economy to prevent a viscious circle)
Chapter 2: models
3
, Both axes are Q!
Factors households contribute to factor markets: labour, investments/capital
Factors factor markets contribute to firms: the same labour/capital
4
Compilation Document
Contents
Principles of economics lecture 1 10-9..................................................................................................2
What is economics?...........................................................................................................................2
Chapter 1...........................................................................................................................................2
Chapter 2: models..............................................................................................................................3
Principles of economics lecture 2 18-9..................................................................................................5
Principles of economics lecture 3 24-9..................................................................................................8
Chapter 4: Market ‘Meddling’............................................................................................................8
Chapter 5: intro to international trade............................................................................................13
Principles of economics lecture 4 1-10................................................................................................22
Principles of economics lecture 5 8-10................................................................................................35
Principles of economics lecture 6 15-10..............................................................................................51
Principles of economics lecture 10 19-11............................................................................................69
1
,Principles of economics lecture 1 10-9
What is economics?
Goal of economics: conservative interpretation (make profit)/progressive interpretation (a certain
level of wealth for everyone)/idealist’s interpretation (everyone is rich)
Economics is a hard as well as a soft science.
Yes, wealth is literally power
GDP = measure of things in an economy that go through a market (demand)
Efficient institutions create a lot of wealth; moderately efficient institutions create moderate wealth;
etc.
Robinson Thesis:
- Old economic thought: materialism
- Industry created society: politics, ideas, society (created by economics)
- New theories emphasize institutions
Why is X poor and Y rich? What institutions are shaping the markets in that economy?
Macroeconomics looks at the indicators of the health of the economy as a whole. Principles of
economics focuses mostly on macro economics
What is a market? An abstract place where supply meets demand
Everything that involves transactions of money is “on the grid”. Work that is done that doesn’t
involve any financial transaction is “off the grid”.
At a high price supply increases because when the price is high enough people will make a profit no
matter how high the production costs are.
Supply is a positive slope; demand is a negative slope
Truly free markets do not exist
Interest rate = the price of money
monetary policy = policy adopted by the monetary authority of a country
that controls either the interest rate payable on very short-term borrowing
or the money supply, often targeting inflation or the interest rate to ensure
price stability and general trust in the currency.
inflation rate = the value of money (how much can I buy with my money?)
equilibrium price = evenwichtsprijs/intersection of supply and demand
Chapter 1
Principles:
1. Choices are necessary because resources are scarce (with the implication that this is done by
individuals)
2. Opportunity cost: either/or
3. Marginality: how much?
4. Rational choice: everyone wants what’s best for themselves but rationality is ‘bounded’
2
, 5. Free trade: the sum is greater than the parts (if countries open their economies, that the
benefits to both economies will be greater than if they both maximized growth autarkically)
6. Markets move to equilibrium
7. Avoid ‘deadweight loss’
8. Markets usually lead to efficiency
9. Sometimes markets can slump/malfunction
10. Spending is income (circular flow diagram)
11. If spending is too low, the economy can fall into a recession. If spending is too high, this can
cause inflation.
12. Governments can change spending
Effects of a supply subsidy
Dead-weight-loss triangle: subsidising supply depresses the price and leads to inefficient allocation
of resources economists say that interference by the government in the market distorts the
market.
Keynes: anti-cyclical economic policy (markets should be as free as possible but when in a slump, the
government should jump in and invest a lot of money into the economy to prevent a viscious circle)
Chapter 2: models
3
, Both axes are Q!
Factors households contribute to factor markets: labour, investments/capital
Factors factor markets contribute to firms: the same labour/capital
4
