• Aggregate demand, fiscal policy, and foreign tradeAggregate demand, fiscal policy, and foreign trade

    Fiscal policy – the government’s decisions about spending and taxes  Stabilization policy – government actions to try to keep output close to its potential level  Budget deficit – the excess of government outlays over government receipts  National debt – the stock of outstanding government debt

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  • The determination of national incomeThe determination of national income

    Potential output – the output the economy would produce if all factors of production were fully employed  Actual output – what is actually produced in a period – which may diverge from the potential level

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  • Privatization and regulationPrivatization and regulation

    Nationalization – the acquisition of private companies by the public sector  Privatization – the return of state enterprises to private ownership and control

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  • Taxes and government spendingTaxes and government spending

    EQUITY – a progressive tax and transfer system redistributes income from rich to poor  EFFICIENCY – correction of market failure may improve resource allocation

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  • Coping with risk in economic lifeCoping with risk in economic life

    A risk neutral person – is only interested in whether the odds will yield a profit on average  A risk-averse person – will refuse a fair gamble  i.e. one which on average will make exactly zero monetary profit  A risk-lover – will bet even when a strict mathematical calculation reveals that the odds are unfavourable

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  • The analysis of factor markets- LabourThe analysis of factor markets- Labour

    Why does a top professional footballer earn so much more than a professor?  Why does an unskilled worker in the EU earn more than an unskilled worker in India?  Why do market economies not manage to provide jobs for all their citizens who want to work?

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  • The information economyThe information economy

    An e-product: – can be digitally encoded then transmitted rapidly, accurately and cheaply  e.g. music, films, books, sport  Fixed costs of producing e-products are huge  but marginal costs of distribution are tiny  implying vast economies of scale

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  • Market structure and imperfect competitionMarket structure and imperfect competition

    Most markets fall between the two extremes of monopoly and perfect competition  An imperfectly competitive firm – would like to sell more at the going price – faces a downward-sloping demand curve – recognises its output price depends on the quantity of goods produced and sold

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  • Perfect competition and monopoly-The limiting cases of market structurePerfect competition and monopoly-The limiting cases of market structure

    many buyers and sellers – so no individual believes that their own action can affect market price  firms take price as given – so face a horizontal demand curve  the product is homogeneous  perfect customer information  free entry and exit of firms

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  • Business organization and behaviourBusiness organization and behaviour

    Sole trader – owned by an individual entitled to income and responsible for losses  Partnership – jointly owned by two or more people – unlimited liability  Company – ownership divided among shareholders – legal entitlement to produce and trade – limited liability – shares of public companies resold on the stock exchange

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