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Transcript
Chap. 1 - The Economic Problem having unlimited wants but limited resources to attain or meet these wants creates a tension, both internal and external - the necessity to constantly make choices Economic Resources "items" used in all types of production 1. Natural resources provided by nature or are present in/on/around the planet land, raw materials, natural processes 2. Capital resources processed materials buildings, equipment used in production cash 3. Human resources labour skills attitudes Microeconomics stiidies the way consumers and businesses interact in a given market Macroeconomics studies the entire/total economy of a region or country Economic Models are really theories or "laws" 1. Cause and Efifect uses "variables" that have measurable values 2. Direct/Inverse Relationships direct - all "variables" values move in the same direction inverse - one "variable" goes up, the other "variable" value goes down 3, Need for Assumptions assumes some "variables" temporarily do not change in order to simplify a problem rationality assumption - people do mil not make decisions that will leave them worse off 4. Positive/Nonnative Economies positive - why an economy operates the way it does the study of economic facts, does not involve opinions or value judgements normative - deals with how an economy "should" operate, theoretical involves value judgements, whether things (decisions, policies) are good or bad utility - satisfaction gained from a decision or choice opportunity cost -the tradeofifs resulting from any economic decision what you could have had if you had used your resources for something else Basic Economic Questions 1. What to produce? 2. How to Produce? 3. How will the output of production be distributed? choices people collectively make as they answer these questions organizes a country's economy this results in the development of an economic system - social customs political institutions economic practices Economics is a social science which studies the choices people/govemments/society make in an attempt to satisfy their wants Economic Systems 1. Traditional economy was the only type of system in existence 150 yrs ago choices/decisions were based on cultural customs usually provided a very stable lifestyle considered backward by modem European and N.A. cultiires 2. Market economy also referred to as a "free" market economy or "capitalism" based on : a. private ownership or resources b. unrestricted competition c. resource owners keep profits market - a coming together of buyers and sellers to exchange goods/svcs according to a mutual agreed upon system benefits: a. consumer sovereignty production based on the needs/wants of consumers b. prices theoretically prices are determined by consumer demand and business supply c. innovation new products/svcs are constantly being introduced or improved encourages entrepreneurship disadvantages a. income distribution some people get rich, others live in poverty b. private business does not always act in the best interest of the consumer c. instability prices, incomes, employment is constantly changing a true/pure market economy does not exist today 3 Command economy often called socialism or "communism" based on: a based on "public" or gov't ownership of resources b. competing businesses are not allowed to operate c. if profits exist, gov't collects and distributes these economic decisions are made by planners, usually gov't benefits a. income distribution profrts/wages usually distributed by gov't according to need b. econoniic growth can be sustained due to potentially more efficient use of resources - disadvantages a. planning good planning is difficult because future is basically unpredictable b. inefificient due to lack of a profit motive, no one cares about waste there is no demand for quality c. lack of freedom no choice for consumers, often lacks political freedom as well 4 Mixed economy combines the use of markets and gov't regulation in economic decisions based on; a. private and gov't ownership of resources b. coinpetition allowed but is usually regulated to some extent c. resource owners keep profits, but are taxed by gov't - benefits a, gov't can provide goods/svcs where entreprise does not exist b. gov't can prevent business from taking advantage of consumers disadvantages; confusion and often conflict over decision making results poor or no decisions at all Economic Goals of Canadian Economy 1. Economic efficiency getting the highest benefit from our economies resources 2. Income equity 3. Price stability attempt to minimize inflation inflation - arise in the genera! level of prices for goods/svcs results in a declining purchasing power 4. Full employment unemployment - percentage of the national labour force that is involuntarily unemployed 5. Viable balance of payments balance of payments - summary of all transactions between Canadians and foreigners that involve exchanging Canadian dollars for other currencies value of Canada's imports and exports should roughly balance one another out. financial flows in and out of the country should be fairly evenly matched 6. Economic growth increase in an economy's total output ofgoods/svcs fi-om one year to the next 7. Environmental sustainability economic activity must not decrease the quality of our environment Canadian Economy 80% of our total output is produced by the private sector role of government 1. provides all major svcs: health care education law enforcement public transit postal svc some public utilities paid for with tax money 2. regulate the operation and practices of businesses: product standards employment standards some price regulation 3. Redistribution of income : El - employment insurance pensions subsidy of some production welfare income tax and GST rebates