The Economy
What is an economy?

Economics - the social science that analyzes the production, distribution,
and consumption of goods and services.

Ultimately, it is how money is produced, wealth is achieved, and how objects are
bought and sold.

Production – the ability to makes products, also known as goods.

Distribution – the ability to trade or sell goods

Goods – products that can be bought and sold

Services – The ability to provide a service for a client
Types of Economies

There are three types of economies

1) Capitalism

2) Mixed Economies

3) Socialism
Capitalism
(Free Market Economy)

Capitalism - is an economic system in which trade, industry, and the means
of production are privately owned and operated via profit and loss.

All businesses are privately owned

The success of the business is based on making profits

Relies on a market system – the rule of “Supply and Demand”

If markets are good, business is good, if markets are down business is bad

Business is good = employment opportunities, business is bad = no employment
opportunities.

Government should NOT INTERVENE
Capitalism
(Free Market Economy)
Pros
Cons
• You can make a lot of money
• Very susceptible to the demands of the
market place
• Businesses is where the real power and • Regulary in flux via the boom bust cycle
control is within a society
• Chance for a lot of employment
• Employees are and can be treated like
slaves
• Profits are more important than
employees
Supply and Demand

Supply and Demand – there are two parts to this rule

A) if the supply of a products goes up the price of goods goes down and vice versa.

B) if the demand for a product goes up the price goes up and vice versa
Supply & Demand
Supply
$ Price $
Supply
$ Price $
Demand
$ Price $
Demand
$ Price $
Communism
(Command Economy)

An economic system in which the state or the community owns all property
and the means of production, and all citizens share the wealth equally.

Creates, theoretically, a classless society – i.e. no upper, middle or lower
classes.
Communism
(Command Economy)
Pros
Cons
• Everyone has equal opportunity for
wealth redistribution
• People who do not pull their own
weight will be rewarded equally to
those who work hard
• Government, instead of select
individuals, looking out for the public
• Government sets the rules and
regulations to the point that it can
infringe on private citizens
• Employees are the most important to
society, not profits
• Opportunity for growth is dependent
upon government needs, not individual
desire – i.e. stymies research and
growth
Socialism
(Mixed Economy)

Mixed Economy - refers to market economies with strong regulatory
oversight and governmental provision of public goods with some state-run
enterprises (businesses).




It is a mix between communism and capitalism
The idea is to allow capitalism all the while have strong regulations to protect the
workers – ex. minimum wage, age restrictions for workers, fair labour practices,
Keynesian Economics, and etc…
Government can also own businesses, usually businesses that are for the public
good – like BC Hydro, Potash Corp, CBC, and etc….
The goal is to find a balance between 100% government ownership and the
volatility of capitalism.
Capitalism
(Market economy)
Ownership and
Individuals control
control
means of production
Competition
Standard of
Living
Socialism
(mixed economy)
Basic means of production
owned and managed by
government
Communism
(Command economy)
Government owns means
of production
Market determines what
goods will be sold at
Private ownership, with
what price
regulation, of businesses
Government determines
what goods will be sold at
what price
Competition keeps
prices low and quality
high
Cooperation stressed over
competition
No competition, lower
quality goods
High standard of living
and economic security
High standard of living
and economic security
Individuals free to earn
profits, but may risk
losses
Goal is equality for
everybody, enforced by
the government
High taxes provide free
health care and education
What does Canada have?

We have a mixed economy

Key terms that affect and have an impact on our economy

Gross Domestic Product (GDP),

Boom Bust Cycle,

Unemployment Rates,

Inflation and;

Cost of Living Increases (CPI)

Government Intervention
Gross Domestic Product (GDP)

Our economy is successful if we have a strong Gross Domestic Product

GDP measures the output of all labor and capital within the Canadian
geographical boundary.

If we have a high GDP that means we are doing well economically.

If we have a negative GDP we have entered a recession and could be in a
depression.
Boom Bust Cycle

A process of economic expansion and contraction that occurs repeatedly in
our economy. It is based on the GDP of a country.

During the boom the economy grows, jobs are plentiful and the market brings
high returns to investors.

In the subsequent bust the economy shrinks, people lose their jobs and investors
lose money.

Boom-bust cycles last for varying lengths of time; they also vary in severity.
Boom Bust Cycle
Boom Bust Cycle
Unemployment Rates

The percentage of the total labor force that is unemployed but actively seeking
employment and willing to work.










Canada - 6.5%
United States – 5.3%
Russia – 5.5%
Germany – 4.5%
Norway – 4.3%
China – 4.1%
Finland – 9.7%
Sweden – 7.2%
France – 10.7%
Laos – 2.5%
Inflation

Inflation - is the rate at which the general level of prices for goods and
services is rising.

consequently the purchasing power of employees is falling if they do not get a
raise at the rate of inflation.

Central banks attempt to limit inflation, and avoid deflation, in order to keep the
economy running smoothly.

2014 – 1.47%, 2013 – 1.24%, 2012 - .83%, 2011 – 2.3%, 2010 – 2.35%, 2009 –
1.32%, 2008 – 1.16%, 2007 – 2.38%,
Cost of Living & Consumer Price Index

Cost of Living is based on the Consumer Price Index (CPI)

The CPI is the percentage increase in the cost of products sold within a geographic
location (nation).

It would be best for employees to get raises that are at or greater than the CPI.
That way their purchasing power does not decrease.

Purchasing power is the ability to purchase an object every year and the amount
of money in your pocket never decreases.
Government Intervention

In a mixed economy, governments intervene in two ways:

1) Setting regulations around employment, the economy, and businesses

2) Creating a public enterprise (business)
Government Regulations
1.
Government ensures
 1) that capitalism doesn’t run freely at the detriment of
workers and
 2) businesses do not let profits usurp the health and
safety of the worker.
 Some regulations include minimum wage, work hours,
child labour laws, tax laws, workplace health and safety
laws and etc…
Government Regulations
2.
3.
Economic regulations are ones that are created to protect us so that food
that we get from other countries do not harm us or cause potential harm
 Example - hormone induced milk, non-mad cow diseased meat, canned
goods and raw foods that are free of dangerous pesticides.
 Downside is the price of these goods are a little more expensive, but
the benefit is we get healthier food.
Governments have programs where they can infuse money into the
economy to help it get out of a recession – example welfare state.
Public Enterprises
1.
Governments create businesses in areas that the private sector tends to
avoid, but is needed – example B.C. Hydro
2.
Governments also create businesses in areas that the private sector is not
doing well in – Potash Corp and SaskTel (both from Saskatchewan).
3.
Governments create businesses as a way to create employment to keep
unemployment down and to set up a system where citizens can make
money that they can spend in an economy to keep the economy healthy.
Why is this important?

ALL OF THESE ECONOMIC THEORIES, TERMS and ETC… affect your ability to
be employed, income sustainability, budget flexibility, and the ability to
make ends meet in this world.
1.
Gross Domestic Product (GDP) – low GDP = lower chances to find a job, or higher
chances of being laid off.
2.
Boom Bust Cycle – During the boom you have a chance to be employed (low
unemployment), during the bust you have a chance of being unemployed (high
unemployment)
3.
Unemployment Rates – Helps establish a countries work force. High
unemployment rates = low productivity and low productivity = recession or
depression = no business investment.
Why is this important?

4.
Inflation - identifies the rise in the cost of goods and services. It helps establish the
economic growth, or decline, in a country and affects your income and purchasing
power.
5.
Cost of Living Increases (CPI) – identifies what you should be asking for with respect
to raises within your job. It helps ensure that your purchasing power does not
decrease, and if it does, it helps you adjust your budget.
6.
Government Intervention – helps protect employees from businesses, ensures
opportunity for economic growth and during recessions helps stimulate the economy
to create jobs. They also create regulations to protect its citizens and its workers.
Ultimately, the government we elect have a profound impact on our economy
and as such have a HUGE IMPACT on you as a worker/citizen in Canada.