Economics – First mid term
Chapter 1
1.0 - What is economics
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Productivity
How much output is produced by one hour of work
Increases standard of living
Canadas is slowing down, how can it be increased
Population aging
Decline in labour force
Decrease in labour supply will equal an increase in wages
Increase in government spending on health care
Climate change
Extreme weather
Need for better economic policy relating to environment
Accelerating technological change
Digitalization of information has led to revolutionary technological change
Important diver of long term prosperity
Business will find it hard to compete against others with better technology
Jobs taken over by machine
Governments need to find out how to keep the benefits while keeping workers happy
Rising protectionism
International trade crucial to Canadas economy
Many countries switching to protectionism which leads to less international trade, and less
production and income
Growing income inequality
Rise in income inequality trend
Technological change and ability to move production to lower wage countries believes to be the
factor
1.1
What is economics
Decisions that are made with scare resources – Not enough resources to have everything we
want
Resources
Land – All natural endowments – land, forest, lakes, oil, minerals, etc
Labour – mental and physical human resources – entrepreneurial capacity, management
Capital – manufactured aids to production – tools, machinery, buildings
These are factors of production – Because they are used to produce things people want
Scarcity
Implies that choices must be made, and making choices implies the existence of costs
Opportunity cost
The value of the next best alternative given up when another choice is chosen
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Production possibilities boundary
Point inside inefficient
Scarcity - Point outside unattainable
Point on the line perfectly efficient
Movement change in labour force/technology
Choice – chose between attainable choices on the boundary
Opportunity cost – to produce more of one good you must sacrifice another
Bowed out – The more of one good produced the more opportunity cost given up
The four key economic problems
What to produce?
Allocation of scare problems
Try to limit and correct market failures
What is consumed and by Whom?
What determines a nations distribution of outputs
Fairness?
Is fairness reasonable or does it lead to market inefficiency
Why are resources sometimes idle?
Countries/and companies sometimes lie within there PPB
Is productive capacity growing?
The capacity grows rapidly in some countries and declines in others.
What are the determinants of growth and what can governments do to influence them.
Microeconomics – The study of the causes and consequences of the allocation of resources as it is
affected by the workings of the price system.
1.2 – The complexity of the modern economy
Economy – An economic system in which scare resources – land , labour, and capital – are allocated
among competitive users.
Self organizing – Let the market organize itself, free market. Self interest regulates the market
Efficiency – producing goods people want to consume with the least possible amount of resources
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Invisible hand, market itself works to make itself efficient.
Usually the market generates relatively affective outcomes
Self interest and incentives
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Buy and sell what’s best for your families
Sellers want to sell more with high prices
Buyers want to buy more at lower prices
Other factors motivate people Love, compassion, generosity
Decision makers and their choices
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Consumers – individuals/households - purchase goods with their incomes
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Producers – firms for profit/or non profit – hire workers, purchase/ rent supplies, sell their
product
Government - Hirer workers, buy supplies, produce goods and services provided products for no
direct costs, paid for by taxes. Also creates and enforces laws
Maximizing decisions
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People assumed to be maximizers – people maximize utility when deciding how much to sell or
buy.
Producers assumed to try and maximize profits
Marginal decisions
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You only buy if marginal benefit/ satisfaction you get exceeds the cost
Marginal cost out weighs the marginal benefit – worker? – maximize profit