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Economic Systems Ohio Wesleyan University Goran Skosples 3. Comparing Economic Outcomes Comparing Economic Outcomes

Economic Systems Ohio Wesleyan University Goran Skosples Comparing Economic Outcomes 3. Comparing Economic Outcomes

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Page 1: Economic Systems Ohio Wesleyan University Goran Skosples Comparing Economic Outcomes 3. Comparing Economic Outcomes

Economic Systems

Ohio Wesleyan University

Goran Skosples

3. Comparing Economic OutcomesComparing Economic Outcomes

Page 2: Economic Systems Ohio Wesleyan University Goran Skosples Comparing Economic Outcomes 3. Comparing Economic Outcomes

2

LEARNING OBJECTIVES

How does an economic system impact economic outcome?

How do we evaluate performance of an economic system?

Page 3: Economic Systems Ohio Wesleyan University Goran Skosples Comparing Economic Outcomes 3. Comparing Economic Outcomes

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Economic Outcomes

What is an economic outcome? Name few.

In general, several inputs are combined to achieve the final output

Inputs:

• environmental factors

• economic systems

• policies

Output:

• economic outcome

Page 4: Economic Systems Ohio Wesleyan University Goran Skosples Comparing Economic Outcomes 3. Comparing Economic Outcomes

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Outcome Evaluation

Objective:maximize economic outcome given the constraints imposed by the environmental factors, the economic system, and policies.

Then, it is simple to compare economic outcomes across different economic systems – a system with the maximum economic outcome performs the best

Or, is this the end of the story? Can you think of any problems with this analysis?

Page 5: Economic Systems Ohio Wesleyan University Goran Skosples Comparing Economic Outcomes 3. Comparing Economic Outcomes

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Outcome Evaluation

Criteria:

• economic growth

• efficiency

• income distribution (equity)

• stability (business cycle)

• viability of the ES

Page 6: Economic Systems Ohio Wesleyan University Goran Skosples Comparing Economic Outcomes 3. Comparing Economic Outcomes

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1. Growth

increase in the volume of real output

output GDP per capita (most commonly used)

• Human Development Index (life expectancy, infant mortality, literacy, nutrition…) highly correlated to GDP per capita.

problems in using GDP per capita for comparison?

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2. Efficiency captures _____________ of an economy

compares the actual output to the maximum possible output given inputs.

_____ efficiency: how could the existing resources be reallocated to increase current output?

_______ efficiency: is the long-run value of output being maximized?

intensive vs. extensive growth

The problem of _________________!!!

Page 8: Economic Systems Ohio Wesleyan University Goran Skosples Comparing Economic Outcomes 3. Comparing Economic Outcomes

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3. Equity (inequality)

0

1

5Quantiles

Cum

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=

• distribution of wealth, income and opportunity– ________ curve and the ____ coefficient

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4. Stability

5. Viability

can the system __________? is the economic system ___________? is it sustainable in the use of its natural resources? (_____________ sustainability)

no significant negative ___________ fluctuations

• business cycle what is affected?

Is this list of criteria exhaustive?Can a country pursue all goals simultaneously?