South 고등학교 3학년 Economics
Chapters: 5
1. Economic life and problems
Scarcity · Costs and benefits · Economic systems · Economic agents
- 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.
- Circular Flow of Income and the Three Methods of Measuring National Income – In a two-sector economy households give factor services to firms and get factor payments (rent, wages, interest, profit); they spend this income on the firms' goods. Money moves in a circle opposite to the real flow of goods and services. Because the same money passes three points, national income can be measured three ways: value added by producers (product method), incomes paid to factors (income method) and spending on final goods (expenditure method). All three give the same total.
2. Markets
Price determination · Market equilibrium and efficiency · Market failure · Government responses
- 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. The national economy
Economic growth · Circular flow and GDP · Unemployment and inflation · Aggregate demand and supply
- 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.
- 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.
- Inflation: Why Prices Keep Rising – Inflation is a general, continuing rise in the price level, which lowers the purchasing power of money. It is measured with a price index such as the CPI: inflation rate = (new index − old index) ÷ old index × 100. Causes: demand-pull (demand grows faster than output), cost-push (costs rise) and expectations. Effects hit savers, fixed incomes and competitiveness. Deflation is a falling price level. Central banks aim for low, stable inflation, often about 2%, using interest rates; governments also use fiscal and supply-side policies.
- Aggregate Demand, Propensities to Consume and Save, and the Investment Multiplier – Aggregate demand (AD) is total planned spending on final goods: C + I + G + (X − M); in a two-sector model AD = C + I. Consumption depends on income: C = c̄ + bY, where b = MPC. APC = C/Y, MPC = ΔC/ΔY, APS = S/Y, MPS = ΔS/ΔY; APC + APS = 1 and MPC + MPS = 1. Short-run equilibrium output is where AD = AS (planned spending = output), or saving = planned investment. A rise in investment raises income by a multiple: k = ΔY/ΔI = 1/(1 − MPC) = 1/MPS.
4. World markets and trade
Comparative advantage · Exchange rates · Balance of payments
- 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.
- 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.
5. Finance in life
Role of finance · Income and spending · Managing assets · Life-cycle financial planning
- Smart Ways to Manage Your Finances – Inflation makes prices rise, so the same money buys less. Money kept in a bank earns interest: simple interest is paid only on the original amount, while compound interest also earns interest on earlier interest, so it grows faster over time. A budget plans income into needs, wants and savings. Savings are kept safe; investments can grow but carry risk, and higher possible returns mean higher risk. Insurance shares risk among many people. Income tax is paid on income above a limit, at rates that rise with income.
- Investing Basics: Shares, Bonds, Funds and Risk – Saving keeps money safe; investing puts money to work so it can grow faster than prices rise. Shares make you part-owner of a company, bonds are loans that pay fixed interest, and funds are baskets of many shares or bonds. Higher possible return comes with higher risk. Spreading money across many investments (diversification) and staying invested for many years (compounding) are the two safest habits.