Agenda for February
nd
22 ,
2012.
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Test on Monday (Kiwanis Festival Friday)
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Return Assignments, Including # 5
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Attendance
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Review Chapter Three
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Introduction to Chapter Four: An Overview of
the Canadian Economy.
“Capitalism: A Love Story” is on its way. Only $9
including shipping : ) due to competition in the
market economy.
The Canadian Economy
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We have a well-developed market economy.
Developed alongside the expansion of British &
American style market-capitalism.
Private property is a hallmark of our system. It
is the right of private persons to obtain, own,
control, employ, dispose of, and bequeath land,
capital and other property.
Characteristics of Capitalism:
1. Private Property & Incentives
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Private property provides incentives and
encourages investment, innovation, exchange,
maintenance, and the expansion of production
or economic growth.
Private property extends to intellectual property
in Canada and most western nations, but
challenges to this are numerous in modern
society.
2. Freedom of Enterprise & Choice
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Freedom of Enterprise is the freedom of firms to
obtain and use economic resources to produce
their own choice of goods and services, and sell
them where they wish.
Freedom of Choice allows owners to employ or
dispose of their property as they see fit.
Workers can do whatever work they wish and
consumers can buy what they want.
Economic Freedoms Vary
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Clearly economic freedoms vary. Figure 4.1 on
page 77 illustrates Hong-Kong as the most free,
with Canada at number 14 in the world.
Currently, the ``Index of Economic Freedom``
still lists Hong-Kong as #1 and Canada as #6,
the United States has dropped to #10. Last is
North Korea.
http://www.heritage.org/index/ranking
3. Self-Interest
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Self-Interest is the motivating force of all various
economic units. It means that each unit tries to
do what is best for itself.
We seek to maximize our utility by gaining the
largest marginal benefit at the least marginal
cost. It is the hallmark of true competition.
4. Competition
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The basis of competition is freedom of choice.
Independently acting sellers and buyers
operating in a particular resource market. With
limited numbers, competition is hampered.
Sellers and buyers must be free to enter and
leave based on their own self-interest.
5. Markets and Prices
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Innumerable individual free choices act to
create markets and prices that organize our
economic system. Prices guide us.
Those who respond to market signals and obey
them are rewarded with higher profit and
income, those who do not are penalized.
6. Active but Limited Government
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Though governments often act to inhibit a freemarket system, they can also help to enhance it
by enforcing the rule of law and private property
and enhancing competition.
Specialization
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Specialization is the use of the resources of an
individual, a firm, a region, or a nation to
produce one or a few goods and services.
The Division of Labour is human specialization.
It saves time, fosters learning, and makes good
use of different or varying abilities.
Why Money?
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Medium of Exchange: It acts as something that
buyers and sellers both want, which facilitates
the trading process and prevents bartering.
Figure 4-1 on page 81 illustrates this concept
well.
Money can be any item that is generally
accepted to sellers in exchange for goods and
services. It has value simply because we think
it does.
Four Fundamental Questions of the
Market System:
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What will be produced?
Those that produce a continuing profit.
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How will goods and services be produced?
Productive efficiency will determine how.
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Who will get the goods and services?
Depends on ability and willingness to pay.
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How will the system accommodate change?
It is dynamic and guided by incentives.
Competition and the “Invisible Hand”
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It is the tendency of economic actors when
acting in their own self-interest to
simultaneously promote the public's interest
along with their own.
In their pursuit of higher profits businesses shift
production to the goods that people want the
most. And to earn higher profits, they reduce
costs, which increases our productive potential.
Market Failure : (
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Spillovers or Externality Costs are imposed
on third parties by the production or
consumption of buyers and sellers.
Spillover costs cause a good to appear
cheaper than it should be, so we over-allocate
it. Consider the spillover costs of pollution from
carbon fuels.
More Terrible News : (
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Spillover Benefits: benefits obtained by a third
party from the production or consumption of
buyers and sellers. Benefits occur that were not
paid for!
Immunizations, education, et cetera benefit
people other than the direct recipients. We
rectify this through subsidies and the
government providing goods and services.
Public & Quasi Public Goods
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Public goods are indivisible. They generally
cannot be sold to individual buyers because of
their size or extraordinary cost.
Benefits derived from public goods cannot be
excluded on the basis of price, because once
they come into existence, anyone can reap the
benefits.
Free-Rider problem exists when people receive
benefits from a good without contributing to it.
Assignment # 7
Title: The Canadian Economy
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Read 75-95, Review the up-dated Circular-Flow
Diagram (91), which now includes taxes and the
role of government. Note how the government
diverts resources.
Answer Questions: 9, 12, and 14.
For 14, closely read “Market Failure and the
need for Government” so that you can develop
a well-thought out and reasoned answer.