Core Economic Principles: Markets, Development, and Global Trade
Understanding Supply and Demand
The Law of Supply and Demand is the fundamental economic model explaining the formation of market prices for assets. It is used to clarify a wide variety of macroeconomic and microeconomic phenomena and processes.
The Law of Supply states that supply is directly proportional to price: the higher the product price, the more units will be offered for sale. Conversely, the Law of Demand indicates that demand is inversely proportional to price: the higher the price, the less consumers will demand. Therefore, supply and demand significantly influence the price of goods.
Defining Economic Demand
In economics, demand is defined as the quantity and quality of goods and services that can be purchased at different market prices by a single consumer (individual demand) or by all consumers (total or market demand) at a given time.
Human Development Index
The Human Development Index (HDI) measures the capacity of people to earn income in an economy, based on instruments that allow access to a better quality of life, leading to higher incomes and higher levels of welfare.
What is Economics?
Economics is the social science that studies the economic behavior of individual agents in the production, exchange, distribution, and consumption of goods and services. It recognizes these activities as means of satisfying human needs and as individual or collective outcomes within society.
Globalization and Glocalization
- Globalization:
- An economic integration process articulated through industrial and financial centers. Its objective is the standardization of needs.
- Glocalization:
- The means by which global brands (e.g., McDonald’s, Burger King, Coca-Cola) achieve gains in the local environment by adapting to local tastes and customs.
- Cultural Globalization:
- The process of creating habits and ideologies stemming from globalization.
Key Economic Concepts
Amartya Sen’s Capabilities Approach
For Amartya Sen, “capabilities” include anything that allows a person to be well-nourished, write, read, communicate, and take part in community life. These are considered fundamental capabilities.
Human Welfare and Development
Human Welfare involves developing the capacities of people. Therefore, true development occurs when people are able to do more things, not merely when they are able to buy more goods or services.
Competitive Advantages
Competitive Advantages are often referred to alongside comparative advantages, which stem from a country’s specific allocation of natural resources or similar factors. However, competitive advantages specifically highlight the skills and technology incorporated into production processes. The term emphasizes the difference between traditional exports of raw materials (with little technology) and exports that incorporate more advanced technology and efficient management.
Comparative Advantage
Also known as the Comparative Cost Theory, this principle states that, given technical conditions, the total product obtained from specialization and exchange (instead of autarky and economic isolation) will be maximized if each country or region specializes in the production of those goods or services where its comparative cost is relatively lower.
Country Classifications
- Emerging Countries: Countries whose economies have not yet attained the status of developed nations but have made significant macroeconomic progress compared to their counterparts in the developing world. In many emerging nations, social change can occur, such as migration from rural, agriculture-dependent populations to cities, where growth and manufacturing plants attract thousands of workers.
- Developed Countries: Generally refers to a country that has a high standard of living and very high human development. The primary indicator used to classify a country as developed is the Human Development Index (HDI). The HDI takes into account the distribution of wealth, life expectancy, safety, education, human rights, health, and other factors.