7/29/2019 Economics By Dasgupta summary

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Key Concepts for Midterm!!

DasguptaMacroeconomic History-Gerald Diamond talks about why some are rich, poorUse GDP as measuring rod

Use up resourcesPolarized world: rich and poor, virtuous and vicious cycle (poor get poorer)-productivityInstitutions account for differences in Becky and Desta’s lives

 Trust And Communities Trust: agreement of conditionsNash equilibrium (game theory) best interest to keep trust, have to know it is in theother person’s best interest to keep their word as well-mutual trust makes the best outcomeAll or Nothing: if one person makes a mistake you’re out of agreementGraduated sanctions: ok if you make a mistake

Government Enforcing Trust Rule of lawMutual EnforcementR: 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 continueLocal 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 elseUse money so you can have a relationship with someone that doesn’t have acommodity you want, but you can still tradeProperty rightsWeak Networks: you don’t need to know people personally to engage in trade oragreementsStrong Network: if you have a large family, rely on personal connections for trustand exchangeEveryone has a price, so even if you’re in a tight community, there is a point atwhich someone won’t want to be in a dealPeople have inherent sense of justice and fairness

MarketsExamining a single markets supply and demand curve-each market isn’t representative of the entire market; you ned to look at themarket as a wholeEfficiency: thebest allocation of goods and services that all parties are satisfied withPareto efficiecy: can’t make on person better without making another person worse

 The worldMarket Failures:Free Riding problem:Monopolies: single producerAsymmetry of informationSlumps in the economy result from the self-reinforcement of an economic slowdownScience and TechnologuyKnowledge two categories: Epistene and Technology Tekne

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Science is a behavior in the community enforced by normsDifference is that science is nonpecuniary and only produces further research

 Technology generates money by creating goods and servicesHouseholds and FirmsHousehold is the consumers and consumption-INSURANCE: makes sure nobody is left with nothing

Firms deal with producers and suppliers who make goods for households andmarket-limited liability: if something goes wrong, the corp is okBorrowing Saving and Investing enable households to keep goingSustainable Economic DevelopmentNatural capital has value and is arbitrarily allocatedExpansion 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 don’t think about the effect and negative externaliities associated with notprotecting the natural resources

-global climate change’s costs are under-estimated-GDP increasing although natural resources decreasingShadow prices: the SOCIAL productivity of capital assetsSustainable Development is leaving the same productive base as you inherited frompast generationProductive base includes human capital institutions, natural resourcesPreferences help make choices between goods-institutions, laws and society allows for mobility-growth of mobility-diminished corruption protects markets and allows them to thriveFriedman IntroductionAdam smith and capitalism

-free competitive markets-he likes capitalism-Hayek. Nobel prize-Google this, doesn’t like govt interventionFriedman Chapter 1: TO BE CONTINUEDFriedman Chapter 2: