chapter 1 Flashcards
what is the definition of economics (more for understanding what it is)
study humans and society to make choices about resources to produce goods and services
- social science because human behaviour is studied.
- production results in consumption which results in a transfer of wealth
micro vs. macro economics
micro- small segments of economy while macro is large segments of economy
ex: micro: market structure
ex: macro: exchange rate, unemployment
what is the economic problem
scarcity forces a choice which involves opportunity cost
what is opportunity cost
the opportunity cost of buying this one product for example is forgone to buying a different product
you are giving up one opportunity for another
example of economic problem
scarcity is time, you can either go to class, sleep, watch tv, or exercise. this forces you to make a choice, you decide to go to class. this decision involves opportunity cost. the opportunity cost of going to class means that you forgo sleep, tv, and exercise
what are 3 fundamental questions in economics?
- What to produce?
- how to produce it?
- for whom it is produced( who is it produced for)
- - for whom it is produced: how would total output (income) of an economy be distributed?– equally? shared by contribution? no one starves?
* the goals of the society influence how they answer these questions
what are the 4 Cs of economics
all economies can be described by the 4cs cooperation custom command competition
describe canada in terms of the 4 C’s of economics
Command and competition
- the type of economy or blend of 4 C’s helps to answer what?
the 3 fundamental questions in economy
what does factors of production mean
factors of production are resources that can produce a good or service so labour, capital, land and enterprise
what are the 4 factors of production
labour(people)
capital( machines/equipment)
land(natural resources-oil-hill-coal-fish)
enterprise(new ideas)
what are the incomes of each factor of production?
-labours income is wage,
-capital income is interest(rate of return
-lands income is rent
enterprises income is profit
can market based economies own factors of production
yes and they would receive an associated factor income
what are the 3 types of statements in economics
positive: facts that can be proven it costs 10$ to buy a coffee at starbucks
negative: opinions, statements that SHOULD be backed with postive statements, ex: coffees at starbucks are too expensive
economic statements: these are economic theories or laws that are created by finding casual links between positive statements ex: law of demand, as prices rise the quantity of demand falls
Productions possibilities curve (PPC)
shows maximum possible output an economy can produce using its current level of inputs or potential
- assumes 3 things:
1. there’s full employement
2. best technology
3. efficiency
- assumes 3 things:
Capital
human made goods used to produce other goods
what is represented outside of productions possibilities curve?
scarcity, there are not enough resources to obtain, therefore outside the curve is unattainable
what is occurring when there is a point inside the products possibility curve
the three assumptions are not being met, it is inefficient
opportunity cost on the productions possibility curve
YOU ARE MOVING from one point to another you are showing that to increase the amount of one item you must decrease the amount in another, when you look for the opportunity cost you are finding out much you decrease in the other, thats what the original costs
economic growth on the production possibilities curve
means that there are more resources/productivity, and therefore more goods and services can be produced
the ppc shifts out
technological breakthrough and the ppc
one industry has a technological break through and can create more of the max amount what it produces– you
if you dont reallocate your resources, the other item doesn’t change and you just make more of what has the technological advancement, if you reallocate your resources you can make more of both
technology
method of production
-how you use the factors of production/resources to produce goods and services
efficiency
getting the most for the least
productive efficiency
production of the output at the lowest cost
allocative effeicency
production of the combination of products that best satisfies the needs and wants of a society
what are the 7 macroeconomic goals
- improved living standards
- economic growth
- full employment
- stable prices
- viable balance of trade
- equitable distribution of income
- manageable government debt and deficit
improved standard of living
- better health and longer live expectancy
- less poverty
- less pollution and a cleaner environment
economic growth
- more production consumption income and jobs
- may result in more pollution
- lower unemployment: higher economic growth = lower unemployment- INVERSELY RELATED
- higher inflation: -DIRECTLY RELATED
- may create more tax revenue to pay for social services
Full employment
- everyone who wants a job has one
- people are employed in their most productive occupation
- usually go hand in hand with economic growth– POSITIVELY RELATED
stable prices
suggest LOW INFLATION
- good for household and firm planning
- conflict with economic growth– since inflation and economic growth are positively related
Viable balance of trade
Trade balance = exports - imports
>0 = trade surplus
<0= trade deficit
More experts= more canadian employment
more imports= more foreign employment, less canadian employment
equitable distribution of income
less poverty and a larger middle class
-positively correlated with economic growth generally
Budget balance
Budget balance = net tax revenue - government spending
>0= surplus
<0= deficit
manageable government debt and deficit
more spending might lead to higher deficit and debt,
more jobs, improved standard of living
higher tax rates
result in less disposable income for some people might lead to more tax avoidance
tools to achieve macro economic goals
- fiscal policy_ governments taxation and spending policies
- monetary policies - bank of canadas interest rate and money supply policies
