South 고등학교 2학년 Economics
Chapters: 4
1. Economic thinking
Scarcity and choice · Economic systems · Incentives
- The Problem of Choice: Scarcity and Opportunity Cost – Our wants are unlimited but resources like money, time, land and workers are limited. This is scarcity, and it forces us to choose. The value of the next best option we give up is the opportunity cost. Economists study how people and societies make these choices. Every society must decide what, how and for whom to produce. Market, planned and mixed economies answer these differently, and a welfare state makes sure basic needs of all are met.
- Economic Systems: Who Decides What, How and for Whom? – Every society has limited resources and must decide what to produce, how to produce it and for whom. A traditional economy answers by custom, a market economy by prices and private choice, and a command (planned) economy by a government plan. Capitalism is built on private ownership and markets; socialism on shared or state ownership and planning. Real countries are mixed economies: markets make most goods while the government provides public services, rules and support.
2. Microeconomics
Market equilibrium · Role of the public sector · Market vs government
- Perfect Competition and Price Determination – In perfect competition, very many firms sell the same product to very many buyers, so each firm is a price taker. The market price is set where market demand equals market supply (Qd = Qs). If demand rises, price and quantity both rise; if supply rises, price falls and quantity rises.
- Market Failure – A market fails when buying and selling on its own does not give the best result for society. Resources are used in the wrong amounts: too much of some goods (pollution, cigarettes), too little of others (street lights, vaccines, education). Main causes: externalities, public goods, merit and demerit goods, imperfect information, market power and unfair inequality. Governments try to fix it with taxes, subsidies, rules, direct provision and information, but government action can also fail.
3. Macroeconomics
Macroeconomic variables · Economic growth · Business cycles and policy
- National Income Aggregates: GDP, GNP, NDP, NNP, Real GDP and Welfare – Start with GDP at market price: value of all final goods and services made inside the country in a year. Subtract depreciation to go from Gross to Net. Add net factor income from abroad (NFIA) to go from Domestic to National. Subtract net indirect taxes (indirect taxes − subsidies) to go from Market Price to Factor Cost. NNP at factor cost is National Income. Nominal GDP uses current prices; real GDP uses base-year prices; GDP deflator = nominal ÷ real × 100. A higher GDP need not mean more welfare because of unequal distribution, non-monetary exchanges and externalities.
- Economic Growth: How a Country Makes More Each Year – Economic growth is a rise in a country's real GDP: the value of all final goods and services it makes in a year, after removing the effect of price rises. The growth rate is the percentage change in real GDP. GDP per head tells us the average output per person. Growth goes up and down around a trend in the economic cycle, creating output gaps. Growth comes from more and better resources (workers, skills, machines, technology) and brings higher incomes and jobs, but can also cause pollution, inequality and inflation.
- The Business Cycle: Booms, Recessions and How Policy Helps – Real GDP grows along a long-run trend, but in the short run it swings above and below it. These swings are the business cycle: expansion, peak (boom), contraction and trough (recession). Booms bring low unemployment and rising inflation; recessions bring job losses and low inflation. Governments use fiscal policy and central banks use monetary policy to make the swings smaller.
4. International economics
International transactions · Comparative advantage · Exchange rates
- Balance of Payments – The balance of payments (BoP) is a yearly record of all money dealings between residents of a country and the rest of the world. The current account records goods, services, transfers and income; the capital account records investment, loans and deposits. Autonomous items are done for their own sake; accommodating items (reserve changes) settle the gap. A BoP surplus raises reserves; a deficit lowers them.
- International Trade: Comparative Advantage, Protection and the Forex Market – Countries gain by specialising in goods where their opportunity cost is lowest (comparative advantage) and trading at terms between their costs. Tariffs, quotas and subsidies protect local firms but raise prices and cause a deadweight loss. Trade blocs and the WTO shape the rules. In the foreign exchange market, a rise in a country's real interest rate pulls in capital, raises demand for its currency, makes it appreciate and lowers net exports.
- Foreign Exchange Rate – The foreign exchange rate is the price of one currency in terms of another, such as ₹80 per dollar. Under a flexible rate, demand for and supply of foreign currency set it; a rise means the rupee depreciates. Under a fixed rate, the government sets it and changes it by devaluation or revaluation. Managed floating mixes both: the market sets the rate, and the central bank smooths big swings.