Economic Perspective GDP C Consumption I Investment G Government Spending X Exports M Imports X M Surplus X M Defeceit How is Japan s GDP different from US Japan has trade surplus How does Sweden s GDP differ from US Sweden has huge public sector way more public spending Alternatively GDP Productivity x Input or Productivity x Working Population How can a country raise their GDP Raise Productivity or Raise Input How does China s GDP differ from the rest of the G7 countries They get ahead by pure input from their huge population Supply and Demand Markets are dynamic and constantly evolving Changes in supply and demand drive changes in output and prices Demand curve is downward sloping Vertical Prices Horizontal Quantity Sellers are in the market to sell goods at the highest prices that they can The law of demand is the most important of the laws Production Possibility Frontier shows max amounts of production that can be obtained by an economy given its technological knowledge and quantity of inputs available Represents menu of goods and services available to society Change in PPF Change in Supply Oil Market Why are oil prices so important to the overall economy India and China are expanding and they need more energy and they re willing to pay for it it lifts the demand curve along the supply line Why do buys take advantage of the futures market growth Many CEOS see energy prices as the biggest threat to US economic Everything has to do with oil construction transportation retail Price signals are powerful forces in the marketplace in this case serving as a significant incentive to conserve energy What does this mean If the oil prices are higher the more attractive alternative fuels are Gasoline Prices around the world A lot of fluctuation european countries at the top really expensive US Saudi arabia Kuwait Egypt Venezuela Russia at the bottom cheapest exception of Norway put lots of taxes because they want to be a green country in Europe lots of public transportation Related Topic In 2000 Enron purchased a controlling stake in the California electricity market The regulation of electricity was not fully developed in California and Enron took full advantage of this they fabricated blackouts in California so the supply is very very low and the demand goes way way up driving prices way way up they basically made people beg for their electricity back Labor Market Ld Labor demand curve slopes downward firm will hire more workers at low w and fewer at high w Ls Labor supply curve slopes upward number of workers who are willing to work at a certain w Market is at equilibrium at w and E Computer boom increases demand for workers trained with this technology Everybody wants to go to college so there is more of a supply for educated workers Principal Agent Problem Principal employer tries to pay as little as possible and tries to extract as much labor as possible out of the workers Agent worker tries to get paid as much as possible and work as little as possible It is a general problem that arises whenever one party is being paid to do Cant trust the workers will try to slack off can t trust the employers will try to for their employers something exploit the workers Profit Maximization Profit Output Input pQ we Employers view Scenario 1 Mass Production Industrial Revolution Quantity goes up profit goes up wages go down Scenario 2 Monopoly Scenario 3 Competition Can charge or pay as much as you want to wages go down Have to be more competitive with wages and prices Worker s View Scenario 4 Buyer s Market Monopoly ex petroleum engineering degree there s not enough people can command very high prices wages w go up Scenario 5 Seller s market or unions want to improve worker s rights wages go up dont care about In a competitive economy and firms push too low workers will move to a company s profits better paying job If unions have too much power What is profit sharing Redistribution of profits at the end of the year If there s a way to tie the profits into the worker s compensation the workers will care about the profits and work harder If your profit margins are sinking you are going to lower wages or start firing workers If you are in Japan you will do nothing Varieties of capitalism Shareholders capitalism the most important thing for companies is to maximize shareholder value Stakeholder capitalism companies are responsible to the stakeholders employees customers suppliers investors Prioritize employment security and the well being of workers more so than maximizing shareholder value leads to lifetime employment loyalty etc pQ wN number of workers Discretionary Income Money that is available to houses for consumption or saving after taxes and necessary costs food clothing etc DI C 1 r S 1 y wT K 1 r L Y tax rate w wages T working hours K costs and expenses r market interest rate L debt C Consumption S savings You can maximize DI by adding more hours getting a job with higher wages Lower discretionary income affects individual consumption and savings Government can increase discretionary income by lowering taxes boost consumption Sweden and US actually have around the same DI Swedes have less expenses but higher taxes US has a lot of out of pocket expenses but less taxes Interest rates affect consumption higher interest rates encourage saving discourage consumption if you have debt If you push interest rate too low it will encourage consumption but it might cause inflation Putting it with Principal Agent Problem Firms problem profit w Worker s consumer s problem DI w What happens when you push wages too low Discourages consumption bad for the economy Punchline Workers Consumers Minimum Wage Ongoing debate we need to push federal min wage higher in support Support it will increase consumption increase standard of living Against It will also decrease demand for workers and companies will not be able to hire as many people companies will find cheaper labor somewhere else