Sumy State University Fundamentals Of economic theory student’s Guide Sumy State University 2005 методичні вказівки icon

Sumy State University Fundamentals Of economic theory student’s Guide Sumy State University 2005 методичні вказівки




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Ministry of Education and Science of Ukraine

Sumy State University


Fundamentals

Of

ECONOMIC THEORY


Student’s Guide


Sumy State University 2005

Методичні вказівки та плани семінарських занять з курсу «Економічна теорія» для іноземних студентів 1-го курсу медичного факультету / Укладач І.В. Крапивний. – Суми: Вид-во СумДУ, 2005. – 42 с.


Preface


Economic theory (economics) is the science studying the economic life of society and providing us with certain assumption and principles of the economy learning. The main purpose of economics is to help us understand modern capitalism and to develop a better understanding of where capitalism will be going in the future.

Why should you study economics? Economics is important because it affects your life every day. It not only identifies economic problems; it provides you with a logical, effective decision-making process. The study of economics helps people and societies make a better choice. An understanding of economics is vital to your success in the workplace, the marketplace, and the voting booth.

Economics deals with the basic problem of scarcity and how you make tradeoffs between alternatives. In addition to this basic problem economics studies the creation and distribution of wealth; economic development and economic growth, unemployment and inflation, role of government, and others. You also should be referred to some supplementary readings, including those on problems of health economics.

Class Sessions


Class sessions are designed to achieve four important objectives:

  1. To initiate and encourage group discussion on various important aspects/issues of economics;

  2. To explain and clarify any confusing or difficult materials in the lectures or in the readings;

  3. To present additional supplementary materials;

  4. To present and work out major health economics problems.


Problem sets, class participation and cases


A lot of practice is required to learn the basic principles of economics and use them. Students must complete all such problem sets and discuss these in class participation. Students must come to class prepared to discuss the assigned problem sets, readings, or cases. Students are encouraged to work in groups on the problem sets and cases. Collaboration should be treated as an aid to individual learning, not a substitute for it, and the preparation of the final version of each assignment should be individual, not a group exercise.

^ Test Grades


Test grades will be as follows:



Grade

Rating

A

B

C

D

F

90-100

80-89

70-79

60-69

59 and above

”5”

“4”

“3”

“2”

“2”


^ Grade Determination


A letter grade will be assigned based upon your performance in the following areas:

Areas

% of Grade

1. Participating in group discussion on important

aspects/issues of economics

15

2. Preparing a report on various important

aspects/issues of economics.

10

3. Preparing a report on various health economics

cases

15

4. Internet sites visit report on important issues or/and

problems in health economics

10

5. First Examination

25

6. Second Examination

25

Total

100

  1. Participating in group discussion on various important aspects/ issues of economics (see: Lesson Questions).

  1. Preparing a report on various important aspects/issues of economics (see: Appendix 1). Your report should be about 3-5 minutes.

  2. Preparing a report on various important aspects/issues of health economics (see: Appendix 2). Your report should be about 3-5 minutes.

  3. Internet sites visit report on important issues or/and problems in Health Economics. This will involve writing a short research paper about 5 pages. Details will be discussed in class.

  4. First Examination. The main, objective of the first examination is to assess students’ performance, to give students feedback about progress in the course (Lessons 1, 2 and 3). The examination will be in class and closed book.

  5. Second Examination. The main objective of the second examination is to assess students’ performance, to give students feedback about progress in the course (Lessons 4, 5, 6 and 7). The examination will be in class and closed book.


Course Program





Lecture

Discussion

1. Subject Matter of Economic

Theory

2. Economic Development and

Economic Systems

3. Production of Wealth

4. Economic Theory of Money

5. Market Economy

6. Government Regulation of

Business Cycles

7. International Economics


4 hours


2 hours


4 hours

2 hours

4 hours

2 hours


2 hours


2 hours


1 hours


2 hours

1 hours

2 hours

1 hours


1 hours


Total

20

10

Lesson 1 Subject Matter of Economic Theory

^

Problems for Discussion





  1. The Role and Meaning of Economic Theory in Modern Society

  2. Major Economic Paradigms

  3. The Subject Matter of Economic Theory

  4. Areas of study in economics

  5. Methods of Economic Analysis


Questions

  1. Can human society exist without a material life? Without economy?

  2. Why is it important for everyone to understand economics?

  3. What is the economic way of thinking?

  4. Demonstrate how modern commentators understand the term “new economy”.

  5. Explain why economics is called the science of choices?

  6. Develop an opposing view to Keynessians paradigm.

  7. Speak about Post-Keynessian economics.

  8. Describe the major directions of the new economics contributed to the understanding of a new economy

  9. Is there general definition of economics in different economic paradigm? If so, which one?

  10. Present economics as a way of thinking that involves the application of economic principles to problems.

  11. Define the notion “scarcity” and speak about opportunity cost as a value of the best alternative identifying.

  12. Apply the concepts of marginal benefit and marginal cost to private health care.

  13. Give examples of the research themes in heals economics.

  14. Identify the major focus of health economics courses studied in USA and British universities.

  15. What does the student should be able to do after the successful completion of the healthcare economics course?

Assignments


  1. Prepare a report on the “Economics is Important” and “Costs and Benefits” -Wilson J.Holton, Clark J.R. Economics, Chapters 4 and 5 (pp. 4-5, 6-7).

  2. Prepare a report on the notion “Scarcity” – Issue 1 (Appendix 1).

  3. Prepare a report on the notion “Marginal Cost/Benefit” – Issue 2 (Appendix 1).

  4. Prepare a preliminary list of important issues or/ and problems in health economics - Cases 1-4 (Appendix 2).

  5. Internet sites visit report (using, e.g. “Yahoo” Search) on important issues or/and problems in Health Economics.


Sources





  1. Крапивний І.В. The Bases of Economic Theory: Конспект лекцій з курсу “Основи економічної теорії” для іноземних студентів 1-го курсу медичного факультету. - Суми: Видавництво Сумського державного університету, 2004.- Chapter 1 (pp. 10-21).

  2. Wilson J.Holton, Clark J.R. Economics.- Cincinnati, 1997. – Chapter 1 (pp. 4-13).

  3. Web Encyclopedia/http://www.encyclopedia4u.com/

  4. Web Encyclopedia /http://www.nation master.com/encyclopedia/




Lesson 2 Economic Development and Economic Systems

^

Problems for Discussion





  1. Measuring Economic Development

  2. Problems of Underdevelopment

  3. Theories of Underdevelopment

  4. Types of Economic Systems

Questions

  1. Define the term “economic development”.

  2. Why it is important to know different concepts of economic development?

  3. Characterise the human development theory.

  4. Speak about new development strategies of underdeveloped countries.

  5. Describe the policy-making in the old and new paradigm.

  6. What role does education play in economic development?

  7. Explain how poverty affects people in terms of material goods in less-developed economies.

  8. Explain how poverty affects people in terms of heals in less-developed economies.

  9. Review the concepts presenting traditional understanding of economic systems.

  10. Define and provide examples of social goals as the criteria used for evaluating an economic system.

  11. How is resources allocation determined in market and command economies?

  12. Describe how incentives influence people’s behaviour in both market and command economies.

  13. What are the advantages and disadvantages of the resource allocation in market and command systems?

  14. How do command and market economies answer the basic economic problems?

  15. Describe the main features of mixed economy.

  16. Show the role of institutions in economic system.

Assignments


  1. Prepare a report on the “Life in Less-Developed Countries” -Wilson J.Holton, Clark J.R. Economics, Chapters 24 (pp. 656-664).

  2. Prepare a report on the “Economic Development” -Wilson J.Holton, Clark J.R. Economics, Chapters 24 (pp. 656-664; 665-678)

  3. Prepare a report on the notion “Allocation of Goods and Services” – Issue 3 (Appendix 1).

  4. Prepare a report on the “Poverty and Health” - Case 5 (Appendix 2).



Sources





  1. Крапивний І.В. The Bases of Economic Theory: Конспект лекцій з курсу “Основи економічної теорії” для іноземних студентів 1-го курсу медичного факультету. - Суми: Видавництво Сумського державного університету, 2004. - Chapter 2 (pp. 21-32).

  2. Wilson J.Holton, Clark J.R. Economics.- Cincinnati, 1997.

Chapters 22 and 24 (pp. 592-621; 656-678).

  1. Web Encyclopedia/http://www.encyclopedia4u.com/.

  2. Web Encyclopedia /http://www.nation master.com/ encyclopedia/.






Lesson 3 Production of Wealth

^

Problems for Discussion


  1. Human Wants

  2. Wealth and Goods

  3. Structure of Modern Production

  4. Factors of Production

  5. Business Firm in the Economy


Questions

  1. What are the human wants?

  2. Define the notion “economic incentives”.

  3. Describe how incentives influence people’s economic behaviour.

  4. Analyse the process of social reproduction.

  5. Show the difference between simple and expanded reproduction.

  6. Analyse the structure of modern production.

  7. What are the productive resources?

  8. Define and provide examples of major factors of production.

  9. Define and provide examples of natural, human and capital resources.

  10. Evaluate the meaning of information resources for national production growth.

  11. Speak about knowledge as a major resource of modern production.

  12. Focus on theoretical and practical application of Internet in the national and global economy.

  13. Examine and solve a hypothetical problem of resource allocation using the production possibilities curve.

  14. Demonstrate how the efficiency principles can be used to solve scarcity problem from an economic perspective.

  15. What is the role of knowledge intensive services in the modern information society?

  16. Speak about the role of eentrepreneurs in market economy.

  17. Identify the main positive and negative entrepreneurial characteristics and show how they affect economy development.

Assignments


  1. Prepare a report on the “Business Firm in the Economy” -Wilson J.Holton, Clark J.R. Economics, Chapter 9 (pp.214-222).

  2. Prepare a report on the notion “Role of Incentives” – Issue 4 (Appendix 1).

  3. Prepare a report on the notion “Profit and the Entrepreneur” – Issue 12 (Appendix 1).

  4. Prepare the reports on the problems devoted to Cases 6-11 - Appendix 2.

  5. Web encyclopedia visit report on “Primary and Secondary Sectors of Industry”.



Sources


    1. Крапивний І.В. The Bases of Economic Theory: Конспект лекцій з курсу “Основи економічної теорії” для іноземних студентів 1-го курсу медичного факультету. - Суми: Видавництво Сумського державного університету, 2004. - Chapter 3 (pp. 33-43).

    2. Wilson J.Holton, Clark J.R. Economics.- Cincinnati, 1997. – Chapter 9 (pp. 212-241).

    3. Web Encyclopedia/http://www.encyclopedia4u.com/.

    4. Web Encyclopedia/http://www.nation master.com/encyclopedia/.




Lesson 4 Economic Theory of Money

^

Problems for Discussion





  1. The Origins of Money

  2. Functions of Money

  3. Modern Money

  4. Inflation


Questions

  1. Speak about the origins and development of money.

  1. What does the term “barter” mean?

  2. What is money?

  3. Why do we have money?

  4. Review three functions that money should perform.

  5. Explain the differences between coin and banking money.

  6. Give the definitions of money forms.

  7. What does the term “inflation” mean?

  8. How does inflation distort the economic system?

  9. Explain how inflation affects different groups of people.

  10. How can inflation be controlled?


Assignments


  1. Prepare a report on the “Inflation” -Wilson J.Holton, Clark J.R. Economics, Chapter 17 (pp. 444-449).

  2. Prepare a report on the notion “Role of Money” – Issue 9 (Appendix 1).

  3. Prepare a preliminary list of important issues or/ and problems in health economics - Cases 1-4 (Appendix 2).

  4. Internet sites visit report (using, e.g. “Yahoo” Search) on important issues or/and problems in Health Economics.





Sources


    1. Крапивний І.В. The Bases of Economic Theory: Конспект лекцій з курсу “Основи економічної теорії” для іноземних студентів 1-го курсу медичного факультету. - Суми: Видавництво Сумського державного університету, 2004. - Chapters 4 (pp. 43-51).

    2. Wilson J.Holton, Clark J.R. Economics.- Cincinnati, 1997. – Chapter 17 (pp. 442-467).

    3. Web Encyclopedia/http://www.encyclopedia4u.com/.

    4. Web Encyclopedia/http://www.nation master.com/encyclopedia/.



Lesson 5 Market Economy

^

Problems for Discussion





  1. Market Economy

  2. Market Mechanism

  3. Economic Laws of Market Economy

  4. Commodity Markets

Questions

  1. What is the market?

  2. Give examples of modern virtual markets.

  3. Show the role of prices in market economy. Show the role of competition in market economy.

  4. Review the major elements of market mechanism.

  5. Define the notion “demand”.

  6. Draw a demand curve and explain the acting of the law of demand.

  7. Give examples of demand determinants and show how they influence the demand for goods.

  8. Define the notion “supply”.

  9. Draw a supply curve and explain the acting of the law of supply.

  10. Give examples of supply determinants and show how they influence the supply of goods.

  11. What is the market equilibrium?

  12. What is the equilibrium price?

  13. Why equilibrium price is called a “clearing price”?

  14. Define the notions “shortage” and “surplus” of goods.

  15. What happens to price and the quantities of goods supplied and demanded when there is a shortage or surplus on the market.

  16. Review the major commodity markets.

  17. Identify the major activities forming the markets of health services.

Assignments





  1. Prepare a report on the notion “Markets, Price and Quality Determination” – Issue 5 (Appendix 1).

  2. Prepare a report on the notion “Role of Price in Market System” – Issue 6 (Appendix 1).

  3. Prepare a report on the notion “Role of Competition” – Issue 7 (Appendix 1).

  4. Prepare a report on the “Aging and the Growth of Long-term Care” - Case 12 (Appendix 2).

  5. Internet sites visit report (using, e.g. “Yahoo” Search) on important issues or/and problems in Health Economics.


Sources


    1. Крапивний І.В. The Bases of Economic Theory: Конспект лекцій з курсу “Основи економічної теорії” для іноземних студентів 1-го курсу медичного факультету. - Суми: Видавництво Сумського державного університету, 2004. - Chapter 5 (pp. 53-64).

    2. Wilson J.Holton, Clark J.R. Economics.- Cincinnati, 1997. – Chapters 6, 7 and 8 (pp. 122-149; 150-179; 180-311).

    3. Web Encyclopedia/http://www.encyclopedia4u.com/.

    4. Web Encyclopedia/http://www.nation master.com/encyclopedia/.



Lesson 6 Government Regulation of Business Cycles

^

Problems for Discussion





  1. Economic Growth

  2. Business Cycles

  3. Keynesian Approach to General Equilibrium Problem

  4. Mechanism of State Regulation

Questions





  1. What is the economic growth?

  2. How economic growth is conventionally measured?

  3. Speak about possible negative impacts of economic growth on the environment and human society.

  4. What is a business cycle?

  5. Speak about the main concepts of business cycles.

  6. Characterise the economic growth during two major stages of a business cycle.

  7. Show the Keynesian approach to unresolved problems of general equilibrium.

  8. Speak about the role of government in market economy.

  9. Define the notion “public goods”.

  10. What kinds of goods and services does government provide in market economy?

  11. How to measure the efficiency of government regulation?

  12. Review the major directions of state economic policy.

  13. Show the role of government in defining, establishing, and enforcing the property rights. Show why government can use subsidies to correct the production output.

  14. When the government regulation may be used to try to control price, output, and goods quality.

  15. Identify some public policies that may cost more than the benefits they generate.

  16. Speak about the health care state policy.


Assignments


  1. Prepare a report on the “Sources of Economic Growth” -Wilson J.Holton, Clark J.R. Economics, Chapter 22 (pp. 605-612).

  2. Prepare a report on the term “Growth” – Issue 13 (Appendix 1).

  3. Prepare a report on the notion “Unemployment and Inflation” – Issue 17 (Appendix 1).

  4. Prepare a report on the notion “Role of Government” – Issue 14 (Appendix 1).

  5. Prepare a report on the notion “Monetary and Fiscal Policy” – Issue 18 (Appendix 1).

  6. Internet sites visit report (using, e.g. “Yahoo” Search) on important issues or/and problems in Health Economics.



Sources


    1. Крапивний І.В. The Bases of Economic Theory: Конспект лекцій з курсу “Основи економічної теорії” для іноземних студентів
      1-го курсу медичного факультету. - Суми: Видавництво Сумського державного університету, 2004. - Сhapters 6 and 7 (pp. 64-73; 73-83).

    2. Wilson J.Holton, Clark J.R. Economics.- Cincinnati, 1997. – Chapters 19, 21 and 22 (pp. 517-527; 572-579; 592-621).

    3. Web Encyclopedia/http://www.encyclopedia4u.com/.

    4. Web Encyclopedia/http://www.nation master.com/encyclopedia/.






Lesson 7 International Economics

^

Problems for Discussion


  1. International Trade

  2. Globalisation

  3. Millennium Development Project

  4. Innovation Police under Globalisation


Questions


  1. What is the international trade?

  2. Tell about the economic concepts of free trade.

  3. Apply the cost/benefit analysis to the international trade.

  4. Show why the policies supporting trade barriers are often adopted through the political process.

  5. What is an exchange rate of national currency?

  6. Like other prices, exchange rates are determined by the forces of supply and demand. Is it correct?

  7. Show the impact of the changes in the exchange rate between two currencies on the exporters and importers of goods.

  8. Identify how the foreign direct investment affects the economic development in less-developed countries.

  9. What is globalisation?

  10. Review the major features of globalisation.

  11. Review the major goals of the UN’s “Millennium Development Project”

  12. Show the interrelation between poverty and health.

  13. Why do developed states provide aid to less-developed countries?

  14. Characterise the innovation process under globalisation.

  15. Identify modern innovation policies.

  16. Identify positive and negative impacts of foreign technology diffusion.

  17. Show the role of the innovation policies in less-developed countries for fulfilment of the Millennium Development Project goals.


Assignments


  1. Prepare a report on the “Some Financial Aspects of International Trade” -Wilson J.Holton, Clark J.R. Economics, Chapters 23 (pp. 640-653).

  2. Prepare a report on the notion “Using Cost/Benefit Analysis to Evaluate Government Programs” – Issue 15 (Appendix 1).

  3. Prepare a report on the “Mobility between Nations” - Cases 13 (Appendix 2).

  4. Prepare a report on the “Millennium Development Goals and Targets” - Cases 14 (Appendix 2).

  5. Internet sites visit report (using, e.g. “Yahoo” Search) on important issues or/and problems in Health Economics.


Sources


    1. Крапивний І.В. The Bases of Economic Theory: Конспект лекцій з курсу “Основи економічної теорії” для іноземних студентів 1-го курсу медичного факультету. - Суми: Видавництво Сумського державного університету, 2004. - Сhapters 8, 11 (pp. 83-90; 104-106).

    2. Wilson J.Holton, Clark J.R. Economics.- Cincinnati, 1997. – Chapter 23 (pp. 622-653).

    3. Web Encyclopedia/http://www.encyclopedia4u.com/.

    4. Web Encyclopedia/http://www.nation master.com/encyclopedia/.



APPENDIX 1


Issues Devoted to Decision-Making 1


Issue 1 Scarcity

Students will understand that: Productive resources are limited. Therefore, people can not have all the goods and services they want; as a result, they must choose some things and give up others.

^ Students will be able to use this knowledge to: Identify what they gain and what they give up when they make choices. Students face many choices every day. Is watching TV the best use of their time? Is working at a fast-food restaurant better than the best alternative job or some other use of their time? Identifying and systematically comparing alternatives enables people to make more informed decisions and to avoid unforeseen consequences of choices they or others make.

Some students believe that they can have all the goods and services they want from their family or from the government because goods provided by family or by governments are free. But this view is mistaken. Resources have alternative uses, even if parents or governments own them. For example, if a city uses land to build a football stadium, the best alternative use of that land must be given up. If additional funds are budgeted for police patrols, less money is available to hire more teachers. Explicitly comparing the value of alternative opportunities that are sacrificed in any choice enables citizens and their political representatives to weigh the alternatives in order to make better economic decisions. This analysis also makes people aware of the consequences of their actions for themselves and others, and leads to a heightened sense of responsibility and accountability.

^ Issue 2 Marginal Cost/Benefit

Students will understand that: Effective decision making requires comparing the additional costs of alternatives with the additional benefits. Most choices involve doing a little more or a little less of something: few choices are "all or nothing" decisions.

Students will be able to use this knowledge to: Make effective decisions as consumers, producers, savers, investors, and citizens. Apply the concepts of marginal benefit and marginal cost to an environmental policy to find the optimal amount of pollution for two firms that have substantially different costs of reducing pollution. Use the concepts of marginal cost and marginal benefit to evaluate proposals for a pollution control ordinance aimed at maximizing economic efficiency; then select the best proposal, and explain why it seems best.


^ Issue 3 Allocations of Goods and Services

Students will understand that: Different methods can be used to allocate goods and services. People acting individually or collectively through government, must choose which methods to use to allocate different kinds of goods and services.

Students will be able to use this knowledge to: Generate different methods of allocating of goods and services; tell who gains and who loses with each distribution method, and conclude that no distribution method satisfies all wants. Compare the advantages and disadvantages of different methods of allocating various goods and services, such as cookies, houses, student time on playground equipment at recess, elective class offices, military service in times of war or peace, and athletic championships. Examine economic systems used in different countries, select the one that provides the most effective method for allocating resources, and explain why this method is effective. Also, assess the effectiveness of various systems for allocating organ transplants, hunting and fishing licenses, elective offices, time with a parent, and access to hospital maternity facilities.


^ Issue 4 Role of Economic Institutions

Students will understand that: Institutions evolve in market economies to help individuals and groups accomplish their goals. A different kind of institution, clearly defined and enforced property rights, is essential to a market economy.

^ Students will be able to use this knowledge to: Describe the roles of various economic institutions.

Institutions play a number of roles in a market economy. Property rights help insure that people bear the costs and reap the benefits of their decisions. Property rights and contract enforcement encourage investment by assuring investors that they will reap the rewards of deferring consumption and assuming risk if these investments perform well. Limiting individual liability and allowing people to pool their investment resources through joint stock corporations also increases investment and future income.

Other institutions lower the costs buyers and sellers incur in their efforts to find each other in different kinds of markets. For example, banks match savers with borrowers; and investment banks match entrepreneurs who organize new firms with investors who provide the needed funds. Many institutions work to promote the goals of certain interest groups. Labour union, for example, increases the negotiating power of workers in their dealings with employers.

Understanding economic institutions and the purposes they serve will help students use institutions more effectively and help them evaluate proposed new institutions or changes in the existing legal and institutional environment.


^ Issue 5 Role of Incentives

Students will understand that: People respond predictably to positive and negative incentives.

Students will be able to use this knowledge to: Identify incentives that affect people's behaviour and explain how incentives affect their own behaviour. Identify examples of incentives and categorize them as positive or negative. Identify the incentives that would encourage them to read a book, to return their library books on time, to repay money they borrow from the school cafeteria for lunch, and to complete their homework assignments on time; explain why various students respond differently to incentives to do these things. Also, explain why some students will do extra-credit work and some will not. Compare and contrast the incentives an individual might face in serving as an elected official, the owner of a small business, the president of a large company, and the director of a local United Way office.

^ Issue 6 Profit and the Entrepreneur

Students will understand that: Entrepreneurs are people who take the risks of organizing productive resources to make goods and services. Profit is an important incentive that leads entrepreneurs to accept the risks of business failure.

Students will be able to use this knowledge to: Identify the risks, returns, and other characteristics of entrepreneurship that bear on its attractiveness as a career. Understanding the roles of entrepreneurs, profits, and losses is important to workers, business owners, and consumers. Challenges abound: hiring and managing the workers to make and serve the freezes, ordering supplies and making sure they arrive on time, giving prompt and courteous service so customers will return, and earning enough money to pay workers, taxes, suppliers and everyone else involved in the production and sales process, while still leaving something for the owner.

Spending money and using resources to supply a product is risky, because costs are incurred before consumers decide whether they will purchase the product at a price sufficiently high to cover the costs. Starting a new business or producing an entirely new product is especially risky because in the case of a new product producers know even less about how consumers will react. Entrepreneurs accept the risks and organize productive resources to get products produced. Profits are the financial incentive and the income that entrepreneurs receive in return for their effort and risk if they are successful. If they aren't successful, losses are the financial incentives that tell entrepreneurs to stop using resources as they have been using them.

Understanding the roles of entrepreneurs, profits, and losses is important to workers, business owners, and consumers. Wages and employment opportunities at a business depend on the business' success in earning profits and avoiding losses. Similarly, public policies that affect the profitability of a business will influence not only the owners and employees of the business, but also the consumers who buy the products produced by the business.


^ Issue 7 Role of Money

Students will understand that: Money makes it easier to trade, borrow, save, invest, and compare the value of goods and services.

Students will be able to use this knowledge to: Explain how their lives would be more difficult in a world with no money, or in a world where money sharply lost its value. Most people would like to have more money. Students, however, often fail to understand that the real value of money is determined by the goods and services money can buy. Doubling the amount of money in an economy overnight would not, by itself, make people better off, because there would still be the same amount of goods and services produced and consumed, only at higher prices. Money is important to an economy, however, because as it replaces barter, it makes exchange less costly. As a result, people are more likely to specialize in what they produce, and then use money to buy whatever they want to consume, this increases the overall levels of production and consumption in a nation.

Understanding what determines the real buying power of money and earnings will help students make better decisions about their jobs and spending. Understanding the importance of money to society will also help them make more informed decisions about national policies related to banking, controlling the supply of money, and inflation.


^ Issue 8 Markets, Price and Quantity Determination

Students will understand that: Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce goods and services.

Students will be able to use this knowledge to: Identify markets in which they have participated as a buyer and as a seller and describe how the interaction of all buyers and sellers influences prices. Also, predict how prices change when there is either a shortage or surplus of the product available.

In market economies there is no central planning agency that decides how many different kinds of sandwiches are provided for lunch every day at restaurants and stores, how many loaves of bread are baked, how many toys are produced before the holidays, or what the prices will be for the sandwiches, bread, and toys. Students should understand that, instead, most prices in market economies are established by the interaction between buyers and sellers.

Understanding how market prices and output levels are determined helps people anticipate market opportunities and make better choices as consumers and producers. It will also help them realize that market allocations are impersonal.


^ Issue 9 Role of Price in Market System

Students will understand that: Prices send signals and provide incentives to buyers and sellers. When supply or demand changes, market prices adjust, affecting incentives.

Students will be able to use this knowledge to: Predict how prices change when the number of buyers or sellers in a market changes, and explain how the incentives facing individual buyers and sellers are affected.

Understanding the role of prices as signals and incentives helps people anticipate market opportunities and make better choices as producers and consumers. It also helps citizens understand the consequences and weigh the costs and benefits of price controls, such as minimum-wage laws and rent ceilings, that set legal minimum or maximum prices and result in sustained surpluses or shortages. Identify markets in which they have participated as a buyer and as a seller and describe how the interaction of all buyers and sellers influences prices.


^ Issue 10 Role of Competition

Students will understand that: Competition among sellers lowers costs and prices, and encourages producers to produce more of what consumers are willing and able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them.

^ Students will be able to use this knowledge to: Explain how changes in the level of competition in different markets can affect them.

Fast-food restaurants that set prices too high, or give slow, unfriendly service, risk losing customers to competing restaurants that offer lower prices, higher-quality products, and better service. In this way, competition benefits consumers. Understanding the benefits of competition and the costs of limiting competition helps students evaluate public policies that affect the level of competition in various markets. It also helps students understand their own roles as producers and consumers in a market economy in terms of opportunities to compete with others and in terms of the limits that competition places on their incomes, career plans, and what they can buy and consume.

Competition improves productivity by forcing all suppliers to "be the best that they can be." Productivity improvements, in turn, foster economic growth and a better quality of life for current and future generations. It is important for students to recognize that competition contributes in a positive way to economic growth and the quality of life.


^ Issue 11 Growth

Students will understand that: Investment in factories, machinery, new technology, and in the health, education, and training of people can raise future standards of living.

Students will be able to use this knowledge to: Predict the consequences of investment decisions made by individuals, businesses, and governments.

Students should recognize that by saving and investing money today they can benefit in the future by being able to buy such things as a car, a compact disk player, a trip to an amusement park, or other things they want that cost more than what they can afford immediately. They will face similar trade-offs throughout their lives. As adults they will save for many things other than toys and vacations including housing, medical expenses, taxes, household and automobile repairs, their children's education, and their own retirement. Savings deposited in banks and other financial institutions earn interest because those savings are loaned to businesses that want to invest in capital goods, or to people who are willing to pay higher interest rates to purchase homes, cars, or other things now rather than later. The new physical capital will, in turn, increase production and promote faster economic growth.

Businesses, governments, and other organizations face decisions similar to those confronting individuals: future benefits that arise from saving and investing today make it worthwhile to sacrifice some current spending. Knowing this will help students understand the various investment and dividend programs adopted by different corporations, as well as public policies involving taxation, spending programs, and investment in infrastructure, education, and other things that will increase future standards of living. It will help them appreciate that a better life in the future often requires patience and sacrifice in the present. It will also help them understand the importance of personal investment in education and training, and of business investments.


^ Issue 12 Unemployment and Inflation

Students will understand that: Unemployment imposes costs on individuals and nations. Unexpected inflation imposes costs on many people and benefits some others because it arbitrarily redistributes purchasing power.

Students will be able to use this knowledge to: Make informed decisions by anticipating the consequences of inflation and unemployment.

Inflation and unemployment are important because they affect national levels of economic growth and standards of living. Some aspects of inflation and unemployment can be addressed with public policies. Various political leaders and parties often have different ideas about which policies should be followed to deal with inflation and unemployment, however. The controversial policies, and the fact that almost everyone is affected by unemployment or inflation, explain why these two problems and alternative approaches to combat them are so widely reported in the news media, and why understanding them is important to people in a democratic political system.


^ Issue 13 Role of Government

Students will understand that: There is an economic role for government in a market economy whenever the benefits of a government policy outweigh its costs. Governments often provide for national defence, address environmental concerns, define and protect property rights, and attempt to make markets more competitive. Most government policies also redistribute income.

^ Students will be able to use this knowledge to: Identify and evaluate the benefits and costs of alternative public policies, and assess who enjoys the benefits and who bears the costs.

Why does government pay private construction firms to build roads and highways? Why do the firms that build the roads not own them themselves and charge tolls to users? All kinds of goods and services are produced and distributed through private markets, so why not roads and highways, too? In flipping through the pages of the telephone directory, we observe a vast array of businesses and government agencies. Why do markets work well to supply much of what we want, while failing to produce other things we want?

Citizens should understand the limitations and shortcomings of markets and how some government policies attempt to compensate for market failures. Learning the economic as well as the political and social reasons for public sector services helps citizens make better choices about the appropriate size and scope of markets and government. It is also important that students be able to evaluate redistributive effects of government programs.


^ Issue 14 Using Cost/Benefit Analysis

to Evaluate Government Programs

Students will understand that: Costs of government policies sometimes exceed benefits. This may occur because of incentives facing voters, government officials, and government employees, because of actions by special interest groups that can impose costs on the general public, or because social goals other than economic efficiency are being pursued.

^ Students will be able to use this knowledge to: Identify some public policies that may cost more than the benefits they generate, and assess who enjoys the benefits and who bears the costs. Explain why the policies exist.

Do government officials try to promote the general welfare of the nation, or are they guided by their own self-interests? Businesses that fail to satisfy consumer wants go bankrupt; but how do we know when government programs fail, and how do we change or eliminate failed government programs? Why do some farmers receive large subsidies from the government, and why are many businesses protected from competition by tariffs or quotas even when only a small percentage of the U.S. labour force is employed in those industries? Why don't taxpayers rise up and put a stop to the favouritism accorded to certain industries and special interest groups? And why do so few people participate in the political process, and so many choose not to register or vote?

It is important to realize that governments, like markets, also have shortcomings and imperfections. Citizens should understand the sources of these imperfections, including the distribution of costs and benefits of some programs that lead to special-interest problems, the costs involved in gathering and using information about different candidates and government programs, and the incentives that can induce government leaders and employees to act in ways that do not promote the general national interest. Understanding this allows citizens to compare actual with ideal government performance, and to decide about the appropriate role for federal, state, and local government.


^ Issue 15 Monetary and Fiscal Policies

Students will understand that: Federal government budgetary policy and the Central Banks monetary policy influence the overall levels of employment, output, and prices.

Students will be able to use this knowledge to: Interpret media reports about current economic conditions and explain how these conditions can influence decisions made by consumers, producers, and government policy makers.

Changes in national levels of spending, production, and income can seem rather abstract and remote to students, because individuals can do little or nothing to change overall levels of economic activity. However, these activity levels can have a profound effect on students' future welfare, their job opportunities, the level of their prospective earnings, and the prices they will pay for things they buy. It is important, therefore, for students to understand possible causes of changes in these levels and how such changes can produce problems (such as unemployment and inflation) or opportunities (such as increased employment). Understanding these macroeconomic forces equips students to anticipate and respond intelligently to economic developments. It also enables students to predict the economic consequences of proposed government policies and to make informed choices among alternative public policy proposals.


Навчальне видання


^ МЕТОДИЧНІ ВКАЗІВКИ

Та плани семінарських занять з курсу»Економічна теорія»

для іноземних студентів 1-го курсу

медичного факультету


Укладач доцент, канд. екон. Наук

^ Крапивний Іван Васильович


Відповідальний за випуск заст. зав. Кафедри економічної теорії,

канд. екон. наук, доц. Н.М. Нілова


Редактори: А.М. Дядечко, Н.О. Кравченко


Комп’ютерний набір І.В. Кропивного


План 2005 р., поз. 140. Ум. друк. арк.. 2,44 Формат 60х84/16.

Підп. до друку 19.10.05. Обл..-вид. арк.. 1,92 Наклад 50 прим.

Замовлення № 487. Собівартість вид. 1,43 грн. Безкоштовно


Вид-во СумДУ, Р.с. № 34 від 11.04.2000 р.

40007, м. Суми, вул. Римського-Корсакова,2


Друкарня СумДУ, 40007, м. Суми, вул. Римського-Корсакова, 2



1 Source: US National Council of Economic Education



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