Comprehensive summary for Unit 1 in the Core Econ 'The Economy' textbook, used by universities such as UCL, Durham, Oxford, KCL, Warwick and many more. Notes include diagrams accompanied by explanations, definitions and an overall understanding of the unit broken down into each sub-section of the c...
What is economics?
The study of how people interact with each other and with their natural
surroundings in providing their livelihoods, and how this changes over time.
1.1 Income Inequality
90/10 ratio: avg income of richest 10% divided by avg income of the poorest
10%; lower the figure, the better income is distributed within a country
Countries that took off economically before 1900 e.g. UK, Japan and Italy
have a greater disparity than those that took off more recently, i.e. China
1.2 Measuring income and living standards
GDP per capita not necessarily an accurate measure of SoL- social and
environmental factors not reflected
Higher disposable income- less likely to borrow, go into debt or sell
possessions
Absolute income matters for wellbeing but so does relative distribution-
people care abut position within society
GDP per capita may be a better indicator of wellbeing when considering disp.
Income does not include education, national defence and law enforcement.
Government services difficult to value as they are not sold- CoP often used as
a value
Nominal GDP: sum of price of goods x quantity of goods produced
Real GDP uses base year prices; if real GDP remains unchanged could be
inferred that the composition of output has changed
Real GDP is a measure of economic growth
PPP used to compare living standards across countries- achieve parity in real
purchasing power
Prices typically higher in richer countries; higher wages
At current exchange rates, GDP per capita in Indonesia is only 6% of the level
of Sweden; at PPP where the comparison uses international prices, GDP per
capita in Indonesia is 21% of the level of Sweden.
Produces different results than using exchange rates
1.3 History’s hockey stick: Growth in income
Ratio scale used to compare growth rates across countries at different
periods as opposed to absolute changes; ratio scale shows GDP per capita
double as move up vertical axis
China and India’s kink happened later (mid 20th); European nations
dominated China’s politics and economics; British colonial rule of India- GDP
per capita fell during this
Ratio scale shows India and China’s current growth rate were greater than
other countries.
Some countries, e.g. China, India and Latin America did not see an increase in
living standards until gaining independence, e.g. India’s life expectancy
increased from 27 to 65 in 50 years
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