Economic Statistics

Consumer indicators.

• Consumer indicators are economical statistics and allow us to interpret the future performance and analyze economic performance.
• Economic indicators include such indices and economic reports such as: unemployment, Consumer Price Index, GDP, Money Supply, Stock Market Prices etc.

Misleading economic statistics

1. GDP measures national output. Using official statistics GDP measures National output. However there are some variances e.g. You spend £1000 on vegetables annually, but then you decide to grow everything from seed in your garden. Therefore your expenditure falls by £1000, so then National output appears to fall too, even-though you are still consuming the same amount of vegetables.
2. GDP per capita. e.g. US GDP per capita is $20000, when Tanzania GDP per capita is only $500. Does this mean that living standards are severely worse in Tanzania? It does not, due to currency value dollar will ' go a lot further' in Tanzania rather than in US, so for example to rent an apartment in LA would cost around $500 and in Tanzania, you could rent a similar apartment for only $20. In fact Tanzania's economy is underestimated, because a lot of people grow and consume their own food, without claiming an income.

Some people may interpret this chart is showing a fall in GDP, even-thought it seems as it is, it is actually increasing, but at a slower rate.

This might seem confusing for some as the vertical axes show GDP growth, but we actually want to know about GDP, and this is where rates of change and absolute change can be confused.

How can economic indicators be used to mislead people?

A good example would be the GDP of Korea. It's GDP ranking has fallen down to number 15 in the world and GDP per capita fell below $17000. Some may derive a conclusion from the given data that Korean economy is simply slipping, but it is not the case here. Both figures are quite misleading and do not reveal the entire truth about Korean economy.

Everytime Korea is talking about being one of the relatively largest economies based on the GDP, it is trying to give an impression that it is one of the best performing economies in the world, but again this is not the case here.

Nation's GDP is used for comparative purposes to determine whether nation's economy has grown or contracted. The real indicator of economy's performance is GDP per capita.

Korea's per capita GDP is much worse than it's GDP. If GDP is hovering between 13-15th places in the world, per capita GDP is around 48-50th. This ranking is not only unflattering, it also 'underscores' Korea's claiming of being an economically advance country. There are at least 33 countries with a much higher people's income and a lower GDP than Korea.

GDP and GDP per capita were used here to mislead the general public about Korean economic strength.

Most Korean's economy is developing basing their information on GDP, which in fact does not indicate economy's performance. It is easy to mislead people who do not have a deep understanding in economics.

Elasticity; Demand for Goods

Demand for Goods.

You can have demand for normal goods.

-inverse relationship between price and demand.

Demand for inferior goods.

-demand for goods that are cheap and available to low-income people.

Some goods are in derived demand, meaning that this demand emerges from something else.

Some goods are in composite demand , this is where demand for one thing is composed of two distinct and exclusive demands.

DO NOT CONFUSE COMPOSITE DEMAND WITH JOINT SUPPLY

Joint supply is where two goods come from the same source at the same time.

Elasticity.

Inelastic demand.

• Goods are usually necessities
• Things people are addicted to
• Markets are 'sticky'

Elastic demand.

• Consumers are very sensitive to price change
• Goods can be traded very quickly

Price Elasticity of Demand is the relationship between price and demand or responsiveness of price to demand.

PED= % Change in Demand/ %Change in Price

If elasticity is 1 or more= Elastic (+/- can be neglected in this case)

If elasticity is 0 or near zero= Inelastic

• It is easy to substitute an elastic good
• It is easy to abandon it
• Consumers are sovereign, price makers

Both demand and supply can be price inelastic or elastic.

Demand.

• Necessities
• Compulsory products
• Public goods

Supply.

• Agricultural goods can be limited by geography
• Non-renewable sources are limited by quantity
• Limited by cost or number of firms

Types of Demand.

PED= % Change in Quantity Demanded/ % Change in Price

Price Elasticity of Supply= % Change Quantity Supplied/ % Change in Price

Income Elasticity of Demand= % Change Quantity Demanded/ % Change of Income

Cross Elasticity of Demand= % Change Quantity Demanded of Good A/ % Change in Prices for Good B

Supply/Demand curves; Types of Goods; Types of Economy.

Why does the demand curve slope down?

• People are willing to pay more if there are fewer goods
• People might find that rare things are more useful-more utility. Demand curve might show marginal utility
• People might be indifferent when prices are not high

Why does the supply curve slopes upwards?

• Resources run down
• Costs go up
• Lots of firms produce, so profit goes down

Consumer and Producer surplus.

Producer surplus is a difference between what a producer would have sold for and what they actually sell for.

Consumer surplus is a difference between what a consumer would pay and what he actually pays. Surplus utility or surplus satisfaction.

Surplus is a benefit but only in terms of planning and anticipation.

Substitute and Complementary goods.

Substitute goods:

• Goods that can be used instead of another
• The benefit from the goods is similar or the same as from the other
• Direct relationship in terms of cross-elasticity

Complementary goods:

Are goods that are bought together:

• Cars and Petrol
• Bread and Butter
• Tea and Biscuits

Free Market Economy

• Lot's of suppliers
• Consumer sovereignty
• Price Mechanism

Mixed Economy

• Some degree of government control
• Some free markets
• Same prices do not reflect pure cost

Command Economy

• Government control
• Plan
• State business

Cool Factor.

Cool factor is opportunity cost of not having an ipod or individual benefit of having it.

Imputed Value.

Imputed value is a value an individual gives to a thing.

Comparative advantage.

Comparative advantage- if costs of production differ, countries should trade. Costs will be explained in terms of different opportunity cost.

Types of goods.

• Normal good- if price goes up, demand goes down; if price goes down, demand goes down
• Inferior good- if income went down, the demand would go up, alternatively if income went up, demand would go down.
• Giffen good- a kind of substitute when goods are expensive or scarce.
• Veblen good- luxury goods with imputed value. ( Price up, demand up)

Quick recap of topics covered at CIC

Here are the topic that have been covered so far at college.

Microeconomics is about one market, one demand, one supply.

Basic economic problem.

• Scarcity
• Unlimited wants can be broken up into luxury goods and necessary goods
• Scarce resources are divided into non renewable resources and renewable or sustainable resources.

Price system.

What does the price do?

1. Allocates
2. Indicates (Where resources go)
3. Incetivizes

What is price?

- Price is where demand and supply meet- equilibrium.

Demand is only affected by three things:

1. Tastes and fashion
2. Another goods such as complementary or connected goods
3. Income

Supply is affected by:

1. Resources
2. Number of suppliers
3. Costs

Free Market System.

Free market system answers to the basic question by using the price mechanism.

Free market system has several advantages and disadvantages.

Advantages:

• Should, if free, balance resources
• Runs itself
• Shouldn't be waste
• Encourages productivity and innovation discovery
• Indicates
• Allocates
• Incenitivizes

Disadvantages:

• Completely amoral
• No space for social cost or benefit
• Sometimes information fails
• Not all suppliers or consumers are equal
• Government and society do regulate the market.

What is the importance of economics?

“Economics is a social science that studies individual and group decisions on how to use scarce resources to satisfy wants and needs”- Oxford Dictionary of Economics.
In a much simpler language, economics is a science that studies how people and groups make decisions, which would allow them to use the resources to the full potential and get the most out of them. It analyses how well the limited resources that are available are converted to satisfy the human wants and need. The behaviour of individuals, companies and various institutions are closely examined in order to avoid recession, inflation and high unemployment.
Study of Economics is divided into two main “pieces”: Macroeconomics and Microeconomics, each one of these focuses on different aspects of Economics. Macroeconomics looks at factors such as inflation, interest rates, unemployment, recession and how to avoid or reduce an already exciting problem using monetary and fiscal policies. Microeconomics, on the other hand, looks at individual people and businesses, looks at their behaviour concerning where to invest and what is the best way to spend earned money. It also investigates the firms that are trying to maximise their profits, looks at them individually and one firm competing another.
Macroeconomics and Microeconomics are two most essential parts in economics. They look at the behaviour of people, government, and businesses, poor government policies that can create inflation and recession. Macroeconomics has ways of “fighting” with recessions using Monetary and Fiscal policies. An English economist John Maynard Keynes first introduced these antirecessionary policies in 1936. Monetary policy is aimed to stimulate economic activity changing interest rates and the supply of money. Fiscal policy, is the one which is directly aimed to fight recession by increasing government spending or lowering taxes. These “tools” seem to work very well, although they are powerful means to fight recession, they too have their limitations.
Microeconomics looks closer into Supply and Demand issues. Demand is determined by the consumers, when Supply by the producer, microeconomics focuses on how these determine the prices of goods, it looks even closer at individuals with very limited income and how they get most happiness from that. It also examines competition between different firms and businesses, the problems which may be caused by the lack of completion between businesses, worst problem than can be resulted from the lack of competition is monopoly, or no competition at all. Usually in order to increase the prices monopoly businesses restrict their output, this creates problems for consumers, it “hurts” their interests.
Economics is quite a scarce science, which looks at many everyday factors that we face, consumption of goods, what we demand, whether we can afford to buy what we want, and we cant what to we do to maximise our happiness with the income that’s available. It also looks into behaviour of competitive firms and businesses, government policies, inflation and recession. Economics provides us with ways of balancing out demand and supply, avoiding inflation and recession.
Monetary and Fiscal policies help prevent recession by increasing money supply and government spending.
There are some ways of preventing the economy from failing, preventing inflation. There may be a trade off for example, attempts to increase economic growth may cause inflation. Also if a government tries to decrease inflation, this can lead to unemployment.
Economics is a science that closely studies all of this. Without economics, in my view, people would suffer, there would be high poverty no economic stability, there would be no markets, maybe we would not be able to exist without it. Frankly, it is quite hard for me to imagine a world without economics. It seems as such an essential science for today’s world. Economics “is important to our social life, political life, economic life and daily life.” (source)

Bibliography
“Economics for dummies” by Peter Antonioni and Sean Masaki Flynn
“Economics” by Richard G. Lipsey and K. Alec Chrystal
“Oxford Dictionary of Economics” by John Black, Nigar Hashimzade and Gareth Myles.