Download Units of food Units of clothing (millions)

Introduction: Economic Issues
Burlington Central High School
Mr. LaPlante
Grade 12 University Credit
Economics
Unit 1
Chapters 1-3
The Nature of Economics and
the Economy
Economics and Key Skills
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•
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Note taking
News Issues & Analysis
Debate
Research
Organisation
Interpreting graphs and statistics
Basic principles of
economics
“Social Science of Scarcity
and Choice”
Economics defined
• Greek origins
• Oikos – “house”
• Nemo
– “to manage”
• Wise management of
one’s house
• “The study of the
way we make
decisions about the
use of scarce
resources”
• Why?
– Because our needs
and wants are
insatiable and our
resources are finite
Human Behaviour
• Rational and social beings therefore we
are able to predict the groups behaviour
but not always the individuals that make
up the group.
• Knowledge of the group behaviour can be
useful for decision makers.
As a student are you?...
• Effective?
• Using resources to
achieve the desired
results
• Efficient?
• Using the bare
minimum of
resources to achieve
the desired result
Economic decisions need to be both
effective and efficient
Efficiency means we have to
realise we give up
something else to achieve
our goals
Opportunity coststhe sum of all that is lost from
taking one course of action
over another.(maximum
potential loss)
The Economic Problem
• Economic problems
– production and consumption
– Scarcity: the central economic problem
• Macroeconomic ideas
– growth
– unemployment
– inflation
– balance of payments problems
– cyclical fluctuations
The Economic Problem
• Microeconomic issues
– choices:
• what
• how
• for whom
– the concept of opportunity cost
– rational decision making
What are the four
categories of
Resources?
Land
Labor
Capital
Entrpreneurship
What is a
Land Resource?
A shorthand expression
for any natural resource
provided by nature
What is Labor?
The mental and
physical capacity of
workers to produce
goods and services
What is Capital?
The physical
plants,
machinery, and
equipment used
to produce other
goods
What is
Financial Capital?
The money used
to purchase
capital
What is
Entrepreneurship?
The creative ability of
individuals to seek
profits by combining
resources to
produce innovative
products
Land
Labor
Capital
Entrepreneurship organizes
resources to produce goods
and services
What is
Ceteris Paribus?
A Latin phrase that
means that while
certain variables can
change, “all other
things remain
unchanged”
What is
Positive
Economics?
An analysis limited
to statements that
are verifiable
What is
Normative
Economics?
An analysis based
on value judgement
Society
Chooses
Resources
Scarcity
Unlimited
wants
The Economic Problem
• The production possibility curve
– what the curve shows
A production possibility curve
8
Units of food (millions)
7
6
Units of food Units of clothing
(millions)
(millions)
5
4
8m
7m
6m
5m
4m
3m
2m
1m
0
3
2
1
0.0
2.2m
4.0m
5.0m
5.6m
6.0m
6.4m
6.7m
7.0m
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
A production possibility curve
8
a
Units of food (millions)
7
6
5
Units of food Units of clothing
(millions)
(millions)
4
a
8m
7m
6m
5m
4m
3m
2m
1m
0
3
2
1
0.0
2.2m
4.0m
5.0m
5.6m
6.0m
6.4m
6.7m
7.0m
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
A production possibility curve
8
b
Units of food (millions)
7
6
Units of food Units of clothing
(millions)
(millions)
5
4
8m
7m
6m
5m
4m
3m
2m
1m
0
b
3
2
1
0.0
2.2m
4.0m
5.0m
5.6m
6.0m
6.4m
6.7m
7.0m
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
A production possibility curve
8
Units of food (millions)
7
c
6
Units of food Units of clothing
(millions)
(millions)
5
4
8m
7m
6m
5m
4m
3m
2m
1m
0
c
3
2
1
0.0
2.2m
4.0m
5.0m
5.6m
6.0m
6.4m
6.7m
7.0m
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
A production possibility curve
8
Units of food (millions)
7
6
Units of food Units of clothing
(millions)
(millions)
5
4
8m
7m
6m
5m
4m
3m
2m
1m
0
3
2
1
0.0
2.2m
4.0m
5.0m
5.6m
6.0m
6.4m
6.7m
7.0m
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
A production possibility curve
8
Units of food (millions)
7
6
5
4
3
2
1
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
A production possibility curve
8
w
Units of food (millions)
7
x
6
5
4
3
2
1
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
The Economic Problem
• The production possibility curve
– what the curve shows
– microeconomics and the p.p. curve:
The Economic Problem
• The production possibility curve
– what the curve shows
– microeconomics and the p.p. curve:
• choices and opportunity cost
The Economic Problem
• The production possibility curve
– what the curve shows
– microeconomics and the p.p. curve:
• choices and opportunity cost
• increasing opportunity cost
Increasing opportunity costs
8
Units of food (millions)
7
x
6
1
5
y
1
2
4
z
3
1
2
1
0
0
1
2
3
4
5
Units of clothing (millions)
6
7
8
The Economic Problem
• The production possibility curve
– what the curve shows
– microeconomics and the p.p. curve:
• choices and opportunity cost
• increasing opportunity cost
– macroeconomics and the p.p. curve:
The Economic Problem
• The production possibility curve
– what the curve shows
– microeconomics and the p.p. curve:
• choices and opportunity cost
• increasing opportunity cost
– macroeconomics and the p.p. curve:
• production within the curve
Making a fuller use of resources
x
Food
Production inside
the production
possibility curve
y
v
O
Clothing
The Economic Problem
• The production possibility curve
– what the curve shows
– microeconomics and the p.p. curve:
• choices and opportunity cost
• increasing opportunity cost
– macroeconomics and the p.p. curve:
• production within the curve
• shifts in the curve
Food
Growth in potential output
Now
O
Clothing
Growth in potential output
Food
5 years’ time
Now
O
Clothing
Food
Growth in potential and actual output
O
Clothing
Growth in potential and actual output
y
Food
x
O
Clothing
Canada’s Economic Goals
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Political stability
Reduced Public Debt
Economic growth
Increased productivity and Efficiency
Equitable distribution of Income
Price Stability
Full Employment
Viable balance of payments and Stable Currency
Economic Freedom
Environmental stewardship
The Economic Problem
• The circular flow of income
– firms and households
The circular flow of goods and incomes
The Economic Problem
• The circular flow of income
– firms and households
– goods markets
• real flows: goods and services
The circular flow of goods and incomes
The circular flow of goods and incomes
Goods and services
The Economic Problem
• The circular flow of income
– firms and households
– goods markets
• real flows: goods and services
• money flows: consumer expenditure
The circular flow of goods and incomes
Goods and services
The circular flow of goods and incomes
Goods and services
$
Consumer
expenditure
The Economic Problem
• The circular flow of income
– firms and households
– goods markets
• real flows: goods and services
• money flows: consumer expenditure
– factor markets
The Economic Problem
• The circular flow of income
– firms and households
– goods markets
• real flows: goods and services
• money flows: consumer expenditure
– factor markets
• real flows: services of labour and other factors
The circular flow of goods and incomes
Goods and services
$
Consumer
expenditure
The circular flow of goods and incomes
Goods and services
$
Consumer
expenditure
Services of factors of production (labour, etc)
The Economic Problem
• The circular flow of income
– firms and households
– goods markets
• real flows: goods and services
• money flows: consumer expenditure
– factor markets
• real flows: services of labour and other factors
• money flows: wages and other incomes
The circular flow of goods and incomes
Goods and services
$
Consumer
expenditure
Services of factors of production (labour, etc)
The circular flow of goods and incomes
Goods and services
$
Consumer
expenditure
Wages, rent
dividends, etc.
$
Services of factors of production (labour, etc)
The Economic Problem
• The circular flow of income (cont.)
– macroeconomic issues
• the size of total flows
– microeconomic issues
• individual markets
• choices within goods and factor markets
TOP 10 REASONS TO STUDY ECONOMICS
1. Economists are armed and dangerous: "Watch out for our invisible
hands.”
2. When you call 1-900-LUV-ECON and get Kandi Keynes, you will
have something to talk about.
3. You can talk about money without every having to make any.
4. You get to say "trickle down" with a straight face.
5. Mick Jagger and Arnold Schwarzenegger both studied economics
and look how they turned out.
6. When you are in the unemployment line, at least you will know
why you are there.
...TOP 10 REASONS TO STUDY ECONOMICS
7. If you rearrange the letters in "ECONOMICS", you get
"COMIC NOSE".
8. Although ethics teaches that virtue is its own reward,
in economics we get taught that reward is its own
virtue.
9. When you get drunk, you can tell everyone that you
are just researching the law of diminishing marginal
utility.
10. Economists can supply it on demand.
1. Scarcity exists
a. when people consume beyond
their needs.
b. only in rich nations.
c. in all countries in the world.
d. only in poor nations.
C. No matter what economic system a
country has, it is always faced with the
problem of scarcity.
2. Which of the following would eliminate
scarcity as an economic problem?
a. Moderation of people’s competitive
instincts.
b. Discovery of large new energy reserves.
c. Resumption of steady productivity
growth.
d. None of the above because scarcity can
not be eliminated.
D. Because it is impossible to provide
everyone with everything they want,
we will always have scarcity.
3. Which of the following is not a
resource?
a. Land.
b. Labor.
c. Money.
d. Capital.
C. Money is not a resource because it has no
intrinsic value. Money that is used to make
an investment is called financial capital.
4. Economics is the study of
a. how to make money.
b. how to operate a business.
c. people making choices because
of the problem of scarcity.
d. the government decision-making
process.
C. Economics is the study of how people must
decide among alternatives to meet their
wants and needs in this world of scarcity.
5. Microeconomics approaches the study of
economics from the viewpoint of
a. individuals or specific markets.
b. the operation of the Federal Reserve.
c. economy wide effects
d. the national economy.
A. Microeconomics is the study of the
decision- making process for individuals,
business owners, and government.
6. A review of the performance of the
Canadian economy during the 1990’s is
primarily the concern of
a. macroeconomics.
b. microeconomics.
c. both macroeconomics and
microeconomics.
d. neither macroeconomics nor
microeconomics.
A. Macroeconomics is the study of the
economy as a whole.
7. An economic theory claims that a rise in
gasoline prices will cause gasoline purchases
to fall, ceteris paribus. The phrase “ceteris
paribus” means that
a. other relevant factors like consumer
incomes must be held constant.
b. the gasoline prices must first be adjusted
for inflation.
c. the theory is widely accepted, but cannot
be accurately tested.
d. consumers need for gasoline remains the
same regardless of price.
A. Anytime price changes we always make
the assumption that nothing else changes.
8. An economist notices that sunspot activity
is high just prior to recessions and
concludes that sunspots cause recessions.
The economist has
a. confused association with and causation.
b. misunderstood the ceteris paribus
assumption.
c. Used normative economics to answer a
positive question.
d. built an untestable model.
A. Just because one action follows another, does
not mean that the first caused the second.
9. Which of the following is a statement of
positive economics?
a. The income tax system collects a lower
percentage of the incomes of the poor.
b. A reduction in the tax rates of the rich
makes the tax system more fair.
c. Taxes ought to be raised to finance
health care.
d. All of the above are primarily
statements of positive economics.
A. Positive economic statements are testable
by facts and explain the world as it is
without making value judgements.
10. Which of the following is a statement of
positive economics?
a. An unemployment rate of greater than 8
percent is good because prices will fall.
b. An unemployment rate of 7% is a serious
problem.
c. If the overall unemployment rate is 7%,
black unemployment rates will average 15%.
d. Unemployment is a more severe problem
than inflation.
C. Other answers are based on a value
judgement concerning the relationship between
black and white unemployment rates.
11. Which of the following is a statement of
normative economics?
a. A minimum wage is good because it
raises wages for the working poor.
b. The minimum wage is supported by
unions.
c. The minimum wage reduces jobs for
unskilled workers.
d. The minimum wage encourages firms
to substitute capital for labor.
A. Even though the minimum wage reduces
jobs for some working poor, it is a value
judgement that the minimum wage is good
for the economy overall.
12. Select the normative statement that
completes the following sentence: If the
minimum wage is raised rapidly, then
a. inflation increases.
b. workers will gain their rightful share of
total income.
c. profits will fall.
d. unemployment will rise.
B. To say that workers have right to a
certain part of total income entails a
value judgement.