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How Economy WorksTeerawat Tussanapirom D.D.S, M.P.A.
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He generally, indeed, neither intends topromote the public
interest, nor how
much he promoting it. By ... Directingthat industry in such a
manner as itsproduce may be of the of the the
greatest value, he intends only his owngain, and he is in this,
as in many other
cases, led by invisible hand to promotean which was no part of
his intention.Nor is it always the worse for thesociety that it was
no part of it. Bypursuing his own interest he frequently
promotes that of the society moreeffectually than when he really
intendsto promote it.
Adam Smith
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Homo economicus
In economics, homo economicus, or economic human, isthe concept
in many economic theories of humans asrational and
narrowlyself-interested actors who have theability to make
judgments toward their subjectively definedends. Using these
rational assessments, homoeconomicus attempts to maximize utilityas
a consumerand economic profit as a producer.[1] This theory stands
incontrast to the concept ofhomo reciprocans, which
states that human beings are primarily motivated by thedesire to
be cooperative and to improve their environment.
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Micro Economic
VSMacro Economic
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Freedom Equality
Capitalism Communism
Mix economy
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(Fiscal policy)
(Monetary policy)
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Our absolute inability as individuals to produce allthe things
we need or desire.
The limited amount of time, energy , and resourceswe have for
producing those things we could make
for ourselves.
the basic goals ofutility maximization,profit maximization,
and welfare maximization explain most market activity.
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demand is an expression of consumerbuyingintentions, of a
willingness to buy, not a statementof actual purchases, ceteris
paribus.
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The amount we buyof a good depends
on its price .
As the price of agood falls, people
purchase more of it
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Tastes (desire for this and other goods).
Income (of the consumer).
Other goods (their availability and price).
Expectations (for income, prices, tastes).
Number of buyers.
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The total quantities of a good that sellers are willingand able
to sell at alternative prices in a given timeperiod, ceteris
paribus.
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The quantity of a good supplied in a given time
period increases as its price increases, ceteris
paribus.
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The quantity of a
good supplied in a
given time periodincreases as itsprice increases,
ceteris paribus.
Market supply is an
expression of sellers
intentions an offer tosell not a statement
of actual sales.
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Taxes and subsidies
Factor cost
Expectations
Other goods
Number of sellers
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equilibrium price:The price at which
the quantity of agood demanded in a
given time periodequals the quantity
supplied.
Self-Adjusting Prices.
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Tastes (desire for this and
other goods).
Income (of the consumer).
Taxes and
subsidies
Factor cost
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Increase the quantity demanded
Decrease the quantity supplied
Create a market shortage
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Public goods
Market power
Externalities
Equity
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The problem is that the market
tends to underproduce public goods
and overproduce private goods
government intervention
Public goods
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Social demand = market demand +/- externalities
externalities
Whenever
externalities are
present, marketprices aren't a valid
measure of a good s
value to society.
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Restricted Supply
monopoly
control of resources
restrictive production agreements
efficiencies of large-scale production
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Taxes and Transfer
Merit good
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The tax-and-transfer system is the principal
mechanism for redistributing incomes. The idea here isto take
some of the income away from those who have
too much and give it to those whom the market has left
with too little.
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When the market does not distribute that minimum
provision, the government is called on to fill in the gaps.
In this case, the income transfers take the form of in-
kind transfers (e.g., food stamps, housing vouchers,
Medicaid) rather than cash transfers (e.g., welfare
checks, Social Security benefits)
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