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AGGREGATE SUPPLY SHIFTS: Changes in the aggregate supply determinants can shift either the short-run aggregate supply curve and the long-run aggregate supply curve. The mechanism is comparable to that for market supply determinants and market supply. We have two options -- an increase in aggregate supply and a decrease in aggregate supply. An increase in resource quantity or quality or a decrease in resource prices shift the aggregate supply curves to right. A decrease in resource quantity or quality or an increase in resource prices shift the aggregate supply curves to left.

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ECONOMIC GOALS:

Five conditions of the mixed economy, including full employment, stability, economic growth, efficiency, and equity, that are generally desired by society and pursued by governments through economic policies. The five goals are typically divided into the three that are most important for macroeconomics (the macroeconomic goals of full employment, stability and economic growth) and the two that are most important for microeconomics (the microeconomic goals of efficiency and equity).
A direct reflection of the scarcity problem is that human beings have always sought ways to improve their lives and living standards. On a society-wide basis these actions are commonly guided by the pursuit of generally accepted economic goals.

First consider the five goals in more detail.

Microeconomic Goals

Five Goals
InBs41
Efficiency and equity are the two microeconomic goals most relevant to markets, industries, and parts of the economy, and are thus important to the study of microeconomics.
  • Efficiency: Efficiency is achieved when society is able to get the greatest amount of satisfaction from available resources. With efficiency, society cannot change the way resources are used in any way that would increase the total amount of satisfaction obtained by society. The pervasive scarcity problem is best addressed when limited resources are used to satisfy as many wants and needs as possible.

    While efficiency is indicated by equality between demand price and supply price for a given market, there are no clear-cut comprehensive indicators for attaining this efficiency goal. While it is possible, in theory, to pinpoint what is needed for efficiency, the complexity of the economy makes the task difficult to accomplish in practice.


  • Equity: Equity is achieved when income and wealth are fairly distributed within a society. Almost everyone wants a fair distribution. However, what constitutes a fair and equitable distribution is debatable. Some might contend that equity is achieved when everyone has the same income and wealth. Others contend that equity results when people receive income and wealth based on the value of their production. Still others argue that equity is achieved when each has only the income and wealth that they need.

    Equity means income and wealth are distributed according to a standard of fairness. But what is the fairness standard? It could be equality. Or it could be the productive value of resources. Or it could be need. Standards for equity moves into the realm of normative economics.

Macroeconomic Goals

Full employment, stability, and economic growth are the three macroeconomic goals most relevant to the aggregate economy and consequently are of prime importance to the study of macroeconomics.
  • Full Employment: Full employment is achieved when all available resources (labor, capital, land, and entrepreneurship) are used to produce goods and services. This goal is commonly indicated by the employment of labor resources (measured by the unemployment rate). However, all resources in the economy--labor, capital, land, and entrepreneurship--are important to this goal. The economy benefits from full employment because resources produce the goods that satisfy the wants and needs that lessen the scarcity problem. If the resources are not employed, then they are not producing and satisfaction is not achieved.

  • Stability: Stability is achieved by avoiding or limiting fluctuations in production, employment, and prices. Stability seeks to avoid the recessionary declines and inflationary expansions of business cycles. This goal is indicated by month-to-month and year-to-year changes in various economic measures, such as the inflation rate, the unemployment rate, and the growth rate of production. If these remain unchanged, then stability is at hand. Maintaining stability is beneficial because it means uncertainty and disruptions in the economy are avoided. It means consumers and businesses can safely pursue long-term consumption and production plans. Policy makers are usually most concerned with price stability and the inflation rate.

  • Economic Growth: Economic growth is achieved by increasing the economy's ability to produce goods and services. This goal is best indicated by measuring the growth rate of production. If the economy produces more goods this year than last, then it is growing. Economic growth is also indicated by increases in the quantities of the resources--labor, capital, land, and entrepreneurship--used to produce goods. With economic growth, society gets more goods that can be used to satisfy more wants and needs--people are better off; living standards rise; and scarcity is less of a problem.

Tradeoffs

The five economic goals of full employment, stability, economic growth, efficiency, and equity are widely considered to be beneficial and worth pursuing. Each goal, achieved by itself, improves the overall well-being of society. Greater employment is typically better than less. Stable prices are better than inflation. Economic growth is better than stagnation. Efficiency is better than inefficiency. An equitable distribution is better than inequality.

However, the pursuit of one goal often restricts attainment of others. For example, policies that promote efficiency might create unemployment or policies that improve equity might limit economic growth.

Consider a few hypothetical situations, depicted by the hypothetical Republic of Northwest Queoldiolia, in which the pursuit of one goal limits achieving another goal.

  • Full Employment and Stability: The Central Bank of Northwest Queoldiolia seeks to promote lower rates of unemployment through expansionary monetary policy. The economy expands, unemployment falls, and full employment is achieved, but inflation emerges from the over stimulated economy.

  • Efficiency and Equity: The Congress of Northwest Queoldiolia seeks to address historical ethnic inequities by establishing an affirmative action program. Opportunities for ethnic minorities provided by the program enable more equal distributions of income and wealth, but efficiency is prevented because some of the employed workers are less skilled at their jobs.

  • Economic Growth and Full Employment: Seeking to keep pace with economic growth in neighboring Southeast Queoldiolia, the President of Northwest Queoldiolia enacts an intense program of scientific research and development. The program bears ample fruit, creating scores of new technological innovations that lead to high rates of economic growth, but implementation of the innovations disrupts the economy by throwing millions of people who lack the necessary skills or training needed by the new technologies out of work.

Policies and Politics

The pursuit of these five economic goals is inherently an act of normative economics. In fact, the normative part of normative economics is based on the word "norm" which is synonymous with the word "goal." Normative economics is essentially the pursuit of economic goals.

In a mixed economy, the pursuit of these goals is largely directed by governments. This, of course, brings into play the wonderful world of politics and never-ending debates over which of these five goals is most worth pursuing with economic policies.

As the discussion turns to politics and policies, two viewpoints tend to emerge--liberal and conservative. Generalities are, of course, fraught with exceptions. However, with that caution in mind, each of the two political views have historically placed greater emphasis on the attainment of some goals over others.

On the macroeconomic side, liberals have tended to seek full employment over stability and economic growth. Conservatives, in contrast, have sought economic growth and stability, especially price stability, more so than full employment. On the microeconomic side, liberals have tended to prefer equity over efficiency and conservatives have usually preferred efficiency over equity.

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Recommended Citation:

ECONOMIC GOALS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2014. [Accessed: July 30, 2014].


Check Out These Related Terms...

     | macroeconomic goals | microeconomic goals | full employment | stability | economic growth | efficiency | equity |


Or For A Little Background...

     | macroeconomics | microeconomics | economic thinking | normative economics | satisfaction |


And For Further Study...

     | mixed economy | economic good | scarcity | resources | labor | capital | land | entrepreneurship | seventh rule of complexity | distribution standards | political views | distribution standards | production possibilities | assumptions, production possibilities | short-run production analysis | utility analysis | business cycles | circular flow | competitive market | market efficiency |


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