Key Concepts for Midterm!!

Dasgupta Macroeconomic History -Gerald Diamond talks about why some are rich, poor Use GDP as measuring rod Use up resources Polarized world: rich and poor, virtuous and vicious cycle (poor get poorer) -productivity Institutions account for differences in Becky and Destas lives Trust And Communities Trust: agreement of conditions Nash equilibrium (game theory) best interest to keep trust, have to know it is in the other persons best interest to keep their word as well -mutual trust makes the best outcome All or Nothing: if one person makes a mistake youre out of agreement Graduated sanctions: ok if you make a mistake Government Enforcing Trust Rule of law Mutual Enforcement R: rate at which each party discounts the future benefits of cooperation, trust Smaller r longer relationship can last Tipping point: where R is too high for relationship to continue Local commons: Private good versus public goods: private goods are excludable and can be used up, public goods, you can benefit without taking away from someone else Use money so you can have a relationship with someone that doesnt have a commodity you want, but you can still trade Property rights Weak Networks: you dont need to know people personally to engage in trade or agreements Strong Network: if you have a large family, rely on personal connections for trust and exchange Everyone has a price, so even if youre in a tight community, there is a point at which someone wont want to be in a deal People have inherent sense of justice and fairness Markets Examining a single markets supply and demand curve -each market isnt representative of the entire market; you ned to look at the market as a whole Efficiency: thebest allocation of goods and services that all parties are satisfied with Pareto efficiecy: cant make on person better without making another person worse The world Market Failures: Free Riding problem: Monopolies: single producer Asymmetry of information Slumps in the economy result from the self-reinforcement of an economic slowdown Science and Technologuy Knowledge two categories: Epistene and Technology Tekne

Science is a behavior in the community enforced by norms Difference is that science is nonpecuniary and only produces further research Technology generates money by creating goods and services Households and Firms Household is the consumers and consumption -INSURANCE: makes sure nobody is left with nothing Firms deal with producers and suppliers who make goods for households and market -limited liability: if something goes wrong, the corp is ok Borrowing Saving and Investing enable households to keep going Sustainable Economic Development Natural capital has value and is arbitrarily allocated Expansion of free trade stratified rich and poor countries -poor countries willing to exploit their naturl resources The firms are willing to exploit the poor countries -the present value is viewed as greater than future value -people dont think about the effect and negative externaliities associated with not protecting the natural resources -global climate changes costs are under-estimated -GDP increasing although natural resources decreasing Shadow prices: the SOCIAL productivity of capital assets Sustainable Development is leaving the same productive base as you inherited from past generation Productive base includes human capital institutions, natural resources Preferences help make choices between goods -institutions, laws and society allows for mobility -growth of mobility -diminished corruption protects markets and allows them to thrive Friedman Introduction Adam smith and capitalism -free competitive markets -he likes capitalism -Hayek. Nobel prize -Google this, doesnt like govt intervention Friedman Chapter 1: TO BE CONTINUED Friedman Chapter 2: