Download Economy Books for FREE. All formats available for PC, Mac, eBook Readers and other mobile devices. Large selection and many more categories to choose from. Economics for Dummies What is economics? Why do we have money? What determines the cost of the things we buy? Economics is the study of our market system; it's the study of how people make choices about what they buy, what they produce, and how our market system works. This guidebook should. Buy Macroeconomics For Dummies - UK UK by Manzur Rashid, Peter Antonioni (ISBN: 624) from Amazon's Book Store. Everyday low prices and free delivery on eligible orders. Dummies helps everyone be more knowledgeable and confident in applying what they know. Whether it’s to pass that big test, qualify for that big promotion or even master that cooking technique; people who rely on dummies, rely on it to learn the critical skills and relevant information necessary for success.
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People have to make choices because of scarcity, the fact that they don’t have enough resources to satisfy all their wants. Economics studies how people allocate resources among alternative uses. Macroeconomics studies national economies, and microeconomics studies the behavior of individual people and individual firms. Economists assume that people work toward maximizing their utility, or happiness, and firms act to maximize profits.
Eyeing the Four Basic Market Structures
An industry consists of all firms making similar or identical products. An industry’s market structure depends on the number of firms in the industry and how they compete. Here are the four basic market structures:
- Perfect competition: Perfect competition happens when numerous small firms compete against each other. Firms in a competitive industry produce the socially optimal output level at the minimum possible cost per unit.
- Monopoly: A monopoly is a firm that has no competitors in its industry. It reduces output to drive up prices and increase profits. By doing so, it produces less than the socially optimal output level and produces at higher costs than competitive firms.
- Oligopoly: An oligopoly is an industry with only a few firms. If they collude, they reduce output and drive up profits the way a monopoly does. However, because of strong incentives to cheat on collusive agreements, oligopoly firms often end up competing against each other.
- Monopolistic competition: In monopolistic competition, an industry contains many competing firms, each of which has a similar but at least slightly different product. Restaurants, for example, all serve food but of different types and in different locations. Production costs are above what could be achieved if all the firms sold identical products, but consumers benefit from the variety.
Finding Market Equilibrium Price and Quantity
Buyers and sellers interact in markets. Market equilibrium occurs when the desires of buyers and sellers align exactly so that neither group has reason to change its behavior. The market equilibrium price, p*, and equilibrium quantity, q*, are determined by where the demand curve of the buyers, D, crosses the supply curve of the sellers, S. At that price, the amount that the buyers demand equals the amount that the sellers offer.
In the absence of externalities (costs or benefits that fall on persons not directly involved in an activity), the market equilibrium quantity, q*, is also the socially optimal output level. For each unit from 0 up to q*, the demand curve is above the supply curve, meaning that people are willing to pay more to buy those units than they cost to produce. There are gains from producing and then consuming those units.
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Identifying Market Failures
Sometimes markets fail to generate the socially optimal output level of goods and services. Several prerequisites must be fulfilled before perfect competition can work properly and generate that output level. Causes of market failure include the following:
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- Externalities caused by incomplete or nonexistent property rights: Without full and complete property rights, markets are unable to take all the costs of production into account.
- Asymmetric information: If a buyer or seller has private information that gives her an edge when negotiating a deal, the opposite party may be too suspicious for both parties to reach a mutually agreeable price. The market may collapse, with no trades being made.
- Public goods: Private firms can’t make money producing certain goods or services because there’s no way to exclude nonpayers from receiving them. The government or philanthropists usually have to provide such goods or services.
- Monopoly power: Monopoly power is the ability to raise prices and restrict output in order to increase profits. Both monopolies (firms that are the only sellers in their industries) and collusive oligopolies (industries with only a few firms that coordinate their activities) can possess monopoly power. Monopolies and collusive oligopolies produce less than the socially optimal output level and produce at higher costs than competitive firms.
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Linking Macroeconomics and Government Policy
Macroeconomics studies national economies, concentrating on economic growth and how to prevent and ameliorate recessions. Governments fight recessions and encourage growth using monetary policy and fiscal policy.
Economists use gross domestic product (GDP) to keep track of how an economy is doing. GDP measures the value of all final goods and services produced in an economy in a given period of time, usually a quarter or a year. A recession occurs when the overall level of economic activity in an economy is decreasing, and an expansion occurs when the overall level is increasing. The unemployment rate, which measures what fraction of the labor force consists of those without jobs who are actively seeking jobs, normally rises during recessions and falls during expansions.
Anti-recessionary economic policies come in two flavors:
- Expansionary monetary policy: The government can increase the money supply to lower interest rates. Lower interest rates make loans for cars, homes, and investment goods cheaper, which means increased consumption spending by households and increased investment spending by businesses.
- Expansionary fiscal policy: Increasing government purchases of goods and services or decreasing taxes can stimulate the economy. Increasing purchases increases economic activity directly, giving businesses money to hire new workers or pay for increased orders from their suppliers. Decreasing taxes increases economic activity indirectly by leaving households with more after-tax dollars to spend.
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Macroeconomics is the study of the economy as a whole. What follows are summaries of some key information about how the economy works, including: the basics of fiscal and monetary policy; the key summary statistics that macroeconomists examine in order to assess the health of an economy: real GDP, unemployment and inflation; and how the economy behaves in the short run when prices are sticky and in the long run when prices are flexible.
Understanding Types of Economic Policy
Our lives are constantly being influenced by economic policy. But for many, the policy is just lots of words, with no real meaning. This should help you understand what is behind the policy. Policy makers undertake three main types of economic policy:
- Fiscal policy: Changes in government spending or taxation.
- Monetary policy: Changes in the money supply to alter the interest rate (usually to influence the rate of inflation).
- Supply-side policy: Attempts to increase the productive capacity of the economy.
Fiscal and monetary policy comes in two types:
- Expansionary: Intended to stimulate the economy by stimulating aggregate demand.
- Expansionary fiscal policy involves increasing government spending or reducing taxes. Increasing government spending increases aggregate demand directly, whereas decreasing taxes increases aggregate demand indirectly by increasing consumption and investment.
- Expansionary monetary policy involves increasing the money supply, which decreases the interest rate and stimulates consumption, investment and net exports.
- Consumption increases because borrowing is now cheaper, but also because people need to spend less on things such as mortgage interest payments.
- Investment increases because the opportunity cost of investment (the return from sticking the money in a savings account) has fallen.
- Net exports increase because a fall in the interest rate makes holding the domestic currency less attractive, which causes it to depreciate, making exports cheaper and imports more expensive.
- Contractionary: Intended to slow the economy down by decreasing aggregate demand. It’s the opposite of expansionary policy, in that it involves reducing government spending, increasing taxes or reducing the money supply.
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Supply-side policies are designed to increase the natural level of output, for example, by making markets work better, increasing the level of investment or increasing the rate of technological progress. Examples are making the labour market more flexible, giving firms incentives to invest or engaging in research and development.
Identifying 3 Key Economic Statistics
Economics can seem overwhelming, especially when examining statistics. Take a look at the following information to gain a better understanding of those statistics. Macroeconomists look at the following summary statistics to assess the health of an economy:
- Real GDP (or output): The total value of goods and services produced in an economy in one year. Basically, GDP is the size of the whole cake that will then be cut up into (quite unequal) slices, with each person getting a slice.
- Unemployment: The proportion of people who are unemployed out of those who are able and willing to work.
- Inflation: The percentage increase in the average price of goods and services.
Watching the Economy over Time
How do you know how changes in the economy will affect you? You should observe the change over time. Macroeconomists consider these three timeframes when assessing the impact of a change on the economy:
- Short run: Prices are sticky in the short run, which means that fiscal and monetary policy (or indeed any change in aggregate demand) has real effects. For example, expansionary fiscal policy (increasing government spending or reducing taxes) increases output, as does expansionary monetary policy (reducing the interest rate by increasing the money supply).
- Long run: Prices are flexible in the long run, which means that fiscal and monetary policy (or any change in aggregate demand) has no real effects (unless it also impacts on the supply side of the economy). For example, expansionary fiscal or monetary policy leaves output unchanged and creates only inflation.
- Very long run: Prices are flexible and the emphasis is on economic growth. Policies that increase the quantity and quality of factors of production or encourage technological progress result in economic growth.