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Missing markets Inequality Market economy is an efficient system, but it also has major flaws which require government intervention to correct them. Money — anything that can be used as a medium of exchange.
Characteristics — divisible, portable, durable, limited in supply, accepted by all. Inflation — persistent rise in general price level.
High inflation will reduce the purchasing power and the value of money. Store of value — affected. Cannot perform this function Medium of exchange — if seller still accept payment in existing currency, then can.
If it is not accepted, it cannot perform this function any more. Standard for deferred payment — measuring the value of money with time. If inflation is high and uncertain, this function is also lost. High inflation, prices keep changing and rising.
May not be able to use this also. Conclusion — high inflation will severely affect the functions of money. In serious case of inflation, money can lost the functions entirely. Equilibrium means no tendency to change. Show the demand and supply curve, and equilibrium is achieved when the two curves intersect.
Explain how a price above the equilibrium will react and move towards the equilibrium, and how a price below the equilibrium also react. Definition of a maximum price. Diagram, showing a maximum price below the equilibrium.
Objectives — ensure affordability, prevent hoarding activity, Why it fail? Create a shortage, lack of incentive for producer to produce Over-consumption — market distortion. Because not showing the actual market price, consumer will consume too much eg.
Only in rare occasion they work and able to achieve the original objectives. Externalities — a benefit or cost borne by a third party. Marginal social cost, marginal private costs diagram. Marginal social benefit and marginal private benefit diagram.
Drawing up rules and legislation for firms to abide. This would move production level closer towards the optimal level. Housing developers are required to build low cost housing to reduce the shortage of housing for the lower income.
Housing, of course, has many external benefits. Difficulty face by this policy — government lack of information and knowledge of the externalities. These externalities are also difficult to place a monetary value on it. Tax Tax is imposed on consumption of goods that produce negative externalities.Macroeconomics in Context Distinguish the concerns of macroeconomics from microeconomics.
2. Define the difference between normative and positive questions. b. laissez-faire and the functioning of markets free of government intervention. c. the pursuit of individual self-interest leads to positive economic outcomes.
(Alfred M., ) On the contrary, the significant disadvantage of corporation is the probability of taxes being charged twice.
This means that the profits generated in a corporation are firstly taxed as income of the corporation and then secondly as income of the shareholder. To better understand the trade-offs faced by an individual or society, we are going to use an economic model called the production possibilities curve (PPC), sometimes referred to as the production possibilities frontier (PPF).
Recall that an economic model is a simplification of the real world and is designed to illustrate economic theories. When you have some spare time, watch this more in-depth lecture on price controls. (windows media) The first 45 min of the  is dedicated to rent control.
Includes segments on how a landlord became a “serf” to his tenants, “Bomb Damage or Rent Control?”, and celebrity beneficiaries of rent control.
! (a)!Explain!what!externalities!are!and!how!they!may!arise.!! (b)!Discuss!whether!governments!should!always!involve!themselves!in!markets. Also known as a concave PPC. When points move along the curve, the market is at productive efficiency.
Points outside of PPC: unattainable given present resources, can ONLY be reached with trade Shifters of PPC 1) Change in resource quantity or quality 2) Change in technology 3) Change in trade.