Eco 360 Week one Chapter Summary

Chapter One

Chapter one consisted on defining economies and how economies affect as a whole. Coordination problems that an economy may face are what to produce, how to produce, and for whom. It also explained an economy’s cost/benefit framework which consist of sunk and opportunity costs. Sunk costs are costs that cannot be regained and opportunity costs is a planned or market economy. For example, every decision consists of an opportunity cost; time, money, raw materials. America’s economy is going through a rough patch that has people wondering whether or not America will go into a recession. Forces of scarcity in economics give rise to the concept of opportunity cost but market forces ration prices. The market forces play a part in the rates set by the FED. The main concern of the FED is to balance inflation and growth of the economy; if growth is too high and inflation rates spike, then higher rates lower down. A perfect example would be in the housing industry. Two years ago interest rates were high because the demand for houses was high. Now, interest rates for home loans are very, very low because no one is buying houses. The chapter explained how economics can be divided into microeconomics and macroeconomics. Macroeconomics refers to world and national economic factors, government regulations, laws, interferences, gross national products and trade balances. Microeconomics focuses on smaller groups such as a particular industry, a corporation, or a class of workers.

Chapter Three

Chapter three recapped on a market economy which is a system based on a private property and the market and solves the what, how, and for whom problems (Colander, 2006). All aspects of the U.S economy is based on Market economy. For example, in a free market, the producer or the consumer relationship will dictate the fluctuation of value of the monetary system. The chapter also discussed on socialism, capitalism, and feudalism. Socialism has many aspects that are beneficial to society. The control of certain services by the people is good idea but the only drawback to socialism is that it encourages personal stagnation in individuals and may cause social resentment. Capitalism has its good points but it can be fundamentally flawed due to the nature of humans to exploit the weak. Capitalism is an internally stable economic system, in that it is consistent with human behavior and people understand that life is not fair; there's no "free lunch" (). People have to work hard to survive and only the lucky who manage to thrive within the socio-economic matrix make it to the top (). Capitalism is also externally stable, in that survival in a capitalistic system requires innovation and flexibility to keep up with the changes in supply and demand (). Disadvantages of capitalism are that it is not acceptable in most modern societies and it is not allowed for portions of the population to be culled (). Those in power tend to construct rules that limit diversity and competition, thereby weakening the flexibility and strength of the system as a whole (). Feudalism can be defined as a system that existed in ancient Europe in which kings built castles, asserted rules in small areas of land and charged high taxes. The chapter also discussed on global corporations and how globalization increases competition by providing more competitors to domestic firms at all levels of production and by allowing firms to specialize (Colander, 2006). Globalization is having a global market with the end goal resulting in free trade amongst competing countries and competitive markets. Some people say that many may benefit from this but some people think that nations are forced to work for low wages.

Chapter Four

Chapter four explained the meaning of supply and demand. For example, as the money supply increases, people have more to spend, which in turn boosts the economy. At times, it may create inflationary pressures which is one of the reason the FED monitors interest rates so closely. There are several factors that can shift the demand and supply curves. Regarding demand curves, any factor that affects household consumption, business investment, government spending, or foreign countries' demand will shift the curve. For example, consumers might become apprehensive about the future and decide to consume less and save more. Or, an increase in interests will reduce consumption and investment demand. On the supply side, any factor that affects the supply of labor or capital or any other input into the production process will affect the supply curve. For example, since oil is an important input (such as heating and electricity), a rise in oil prices adversely affects supply. Here are a few factors that may affect supply and demand. American-made cars become more popular overseas. This means that the