Social Policy, Welfare States, and Economic Institutions
Society, Institutions, and the Social Contract
Policy Analysis: Positive is factual and descriptive, focusing on how reality is. Normative is value-based, focusing on how society should be.
Correlation vs. Causation: Correlation occurs when variables move together. Causation occurs when one variable changes another. Correlation does not equal causation because of confounding variables and reverse causality. Policy should rely on causal evidence.
Basic Institutions
- Family: Provides care and shared resources.
Industrial Organization and Competitive Strategy Essentials
Topic 0: Economic Primer
- Cost Definitions: TC = FC + VC. Fixed costs remain constant in the short run; variable costs fluctuate with output. Sunk costs are unrecoverable and should be ignored in decision-making.
- Key Metrics: AC = TC/Q; MC = dTC/dQ (slope of TC).
- Time Horizons: Short run (fixed capacity); Long run (variable capacity, entry/exit possible).
- Elasticity: %ΔQ/%ΔP. High elasticity indicates price sensitivity; low elasticity indicates price insensitivity.
- Monopoly: TR = P·Q; Profit maximization
Macroeconomics: Nature, Scope, and National Income Analysis
Macroeconomics focuses on the “big picture” of an economy. While microeconomics looks at how individual people and businesses make decisions, macroeconomics zooms out to look at the entire economic system as a whole.
Nature of Macroeconomics
The nature of macroeconomics is aggregative. Instead of looking at a single consumer or a single company, it clumps everything together to study broad trends.
- Study of Aggregates: It deals with total national numbers, like total consumption, total savings, and
Business Profit Analysis: Case Study Calculations
a) Define Fixed Costs
Fixed costs are expenses that do not change with the level of output or sales volume in the short run. Razia must pay for items such as her car lease, insurance, and other overheads even if she runs fewer courses.
b) Define Sales Volume
Sales volume is the total quantity of units sold by a business during a specific period. In this case, the unit is a 1-day training course; Razia sold 200 courses in 2016 and 150 courses in 2017.
c) Calculate the 2016 Business Profit
Revenue: 200
Read MoreClassical vs. Keynesian Economic Theories
Say’s Law of Markets
Formulated by the French economist Jean-Baptiste Say, Say’s Law forms the absolute foundation of Classical economic thought. The law is famously summarized as:
“Supply creates its own demand.”
Core Logic
The act of producing goods automatically generates an equivalent amount of income. When a manufacturer builds a product, they pay out wages to workers, rent to landlords, interest to lenders, and keep profit for themselves.
The sum of all these factor payments exactly equals
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Macroeconomic Foundations and the Great Depression
1. Explain why the Great Depression is an important event in the history of Macroeconomics?
The Great Depression (1929–1930s) caused a severe fall in GDP and very high unemployment. It showed that markets are not always self-correcting and led to the development of Keynesian macroeconomics.
2. List 3 main macroeconomic goals:
- High and stable economic growth
- Low unemployment
- Low and stable inflation
Measuring Economic Activity and GDP
3. Write down the
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