Social Economics Course

Dr. Maie Ali Eldeen

Course Outline
• Poverty & Role of Economic reasoning
• Types of Economic Systems & resource allocation
• Government Control of prices (rent control & minimum wages)
• Social issues (economic perspective)
• Pollution
• Crime
• Education
Course Requisites
• Textbook: Economics of Social Issues (Register & Grimes)
• 7 Chapters (4 before mid-term+3 after mid-term)
• Applications on Egypt: Individual assignment after each chapter
• Grades: 100 marks
• Final 60
• Mid-term 30
• Research 5
• Quiz 5
Chapter One
Alleviating Human Misery
Role of Economic Reasoning
 World Poverty and Economics
1980s Ethiopian Famine (1million
1990s Famine in North Korea (1-2 million deaths) deaths)
 Chapter Outline
Role of Economic
Reasoning

Causes of Poverty
World Poverty &
& Requisites of Role of Gov.
Economics
growth

Unlimited wants
and limited Gov. of LDCs
resources

Capacity of the
economy to Gov. of DCs
produce

Assessing well-
being using GDP
Unlimited Wants
Unlimited Wants
Unlimited Wants
Unlimited Wants
 World Poverty and Economics
The Fundamental Economic Problem
Scarcity
• Unlimited human wants
• Limited Means
• Limited resources
• Labor resources
• Capital resources (natural and man-made)
• Limited technology
 The Capacity of the Economy to produce
GDP (Gross Domestic Product)
• Scarcity forces society to make choices (how to use resources).
• Goal of eco system: Maximize social well-being
• GDP (Gross Domestic Product): primary measure of production
• Total market value of all final goods and services produced within an
economy during a specific time period.
• A 1st approximation of how well the economy is maximizing social well-being.
• It has limitations.
• Production Possibilities Curve
 The Capacity of the Economy to produce
Production Possibilities Curve

• Graphical representation
of the maximum quantities
of two goods and/or
services that an economy
can produce.
 The Opportunity Cost Principle
• Opportunity cost: The true cost of producing an additional unit of a
good/service is the value of other goods or services that must be
given up to obtain it.
• Increasing opportunity cost (convex bow shape of PPF): As more of a
particular good or service is produced, the cost in terms of other
goods or services given up grows (Resources are not equally
productive in all activities).
Increasing opportunity cost
 The Opportunity Cost Principle
• Opportunity cost: The true cost of producing an additional unit of a
good/service is the value of other goods or services that must be
given up to obtain it.
• Increasing opportunity cost (convex bow shape of PPF): As more of a
particular good or service is produced, the cost in terms of other
goods or services given up grows (Resources are not equally
productive in all activities).
Optimal combination of goods and services
• Goal: Maximize social well-being
• Marginal Social Cost (MSC) vs. Marginal Social Benefit (MSB)
• MSC: The opportunity cost borne by society when the production of a
good/service is increased by one unit.
• MSB: The true benefit to society of a one-unit increase in the
production of a good/service.
• Cost-Benefit Analysis: A technique for determining the optimal level
of an economic activity. Expand production as long as MSB>MSC.
• Optimal combination (allocative efficiency): MSB=MSC
 Economic Growth
General Economic Growth Specific Economic Growth
 Chapter Outline
Role of Economic
Reasoning

Causes of Poverty
World Poverty &
& Requisites of Role of Gov.
Economics
growth

Unlimited wants
and limited Gov. of LDCs
resources

Capacity of the
economy to Gov. of DCs
produce

Assessing well-
being using GDP
 Assessing Well-Being Using GDP
Adjusting GDP for inflation
• Higher GDP may result from inflation
• To correct for inflation, nominal GDP must be converted to real GDP using
a base year price level (Real GDP = nominal GDP/ Price index in decimal form )
Nominal GDP and Real GDP
Real GDP is the value of final goods and services produced in a given year
when valued at the prices of a reference base year.
Nominal GDP is the value of goods and services produced during a given year
valued at the prices that prevailed in that same year.
Nominal GDP is just a more precise name for GDP.

© 2016 Pearson Education, Ltd.

 Assessing Well-Being Using GDP
Adjusting GDP for population
• GDP is divided by population (GDP Per Capita) to assess how it’s spread
among different people in the economy.
• Per Capita GDP: GDP in current dollars divided by population (used to
analyze situation for one year).
• Per capita real GDP: Real GDP divided by population (to analyze
performance over time).
 Assessing Well-Being Using GDP
Adjusting GDP for Distribution
• GDP/capita is an average measure which assumes that GDP is
distributed evenly among people (underestimate of poverty problem).
• In South Africa, poorest 20% receive 2.5% of income while richest
20% receive 70% (extreme inequality).
• The extent of income inequality is greater in LDCs than DCs.
Assessing Well-Being Using GDP
Adjusting GDP for Distribution
 Chapter Outline
Role of Economic
Reasoning

Causes of Poverty
World Poverty &
& Requisites of Role of Gov.
Economics
growth

Unlimited wants
and limited Gov. of LDCs
resources

Capacity of the
economy to Gov. of DCs
produce

Assessing well-
being using GDP
 Causes of Poverty and Requisites of
Growth
• Poverty can occur even when the country is producing near its
potential (on PPF) (solution: Economic Growth).
• Poverty can occur due to inefficient production methods (solution:
push economy towards PPF).
Causes of Poverty and Requisites of
Growth
• Low quality of Labor Force
• Low capital stock & capital accumulation
• Poor technology
• Inefficiency of production
• Population (not a fundamental cause but complicates the problem).
 Can Governments Help?
Governments of LDCs Governments of DCs

• Reduce gov interference in • Aid programs

resource allocation decisions • Loans
• Allow private property rights • Grants
• Technical assistance
• Interfere in case of market
failure • World Bank
• Provide universal education
• Favorable investment climate
• Develop social infrastructure
Alternative Measures of Social Well-being
• HDI (UNDP)
• Measure of Domestic Progress MDP (New Economics Foundation)
• Social Progress Index (Social Progress Imperative)
• OECD Better Life Index
• World Happiness Report
Assignment
• Watch this video: Quiz on video next lecture
• https://www.youtube.com/watch?v=eQVnw-Agaic