Chapter 3 Flashcards
Micro economics
Is the study of how individual consumer and corporate behaviour affects the prices of goods and services
For instance, the way the change in the price of a good influences the families purchasing decisions is a micro economic issue
Supply and demand
The relationship between supply and demand determines the cost of goods and services
Supply is the amount of a good or service available in the market at a specific price and time
Demand is the amount of a good or service bought by consumers at a specific price in time
Market equilibrium
When I buying price matches the selling price market equilibrium is reached this equilibrium is challenged when either supply or demand changes for example
When a product becomes too expensive, if you are consumers will buy it, and supply can exceed demand
When competition increases, pressures put on companies to reduce prices. However when the price consumers are willing to pay is too low supply ceases
When enough product cannot be made to meet have a command the price of that good or service will rise
Market failure
Market failure occurs when goods or services stop being supplied to consumers it can result from
Asymmetric information: when information is not available to all parties for example when a buyer of a mutual fund does not know the portfolio manager has resigned
Public goods: their objectives are accomplished by taxation public goods cannot be excluded from the public and are universally available for example when healthcare was introduced to Canada that there was a market failure in private medical services
Monopoly: when one controls access and price of a good or service to the detriment of market forces and competition
Externalities: when an activity occurs with disregard for its affects on others
Macro economics
Macro economics study is the entire economy
Measurement of national income
GDP is the most commonly used measure of economic growth
It is the value of all final goods and services produced in the country in a year
Final goods are the last stage of the production process and represent the finished product
Measurement of GDP
There are two measurements of GDP it will be the same no matter which measurement is used
The expenditure – approach formula is
GDP = C+I+G+(X-M)
C is personal consumption the amount spent by Canadian households on Canadian and foreign produced goods and services
I is investment: the amount spent by businesses on capital goods and the amount spent by consumers on new homes
G is the amount spent by government at all levels are good and services
X is the market value of Canadian exports, from which is subtracted M, the value of Canadian imports
GDP is directly related to levels of employment, since economic growth is associated with rising appointment and economic contraction with unemployment
Nominal GDP
Nominal GDP calculates economic activity for a given year in dollars of that year.
Nominal also GDP makes comparisons between periods difficult, due to the effects of inflation.
Real GDP
Real GDP calculates economic activity for a given year in dollars of a base here
Real GDP allows for easy comparisons between periods since inflation is factored out
Productivity and Determinants of Economic growth
Increasing GDP can be a result of:
- population growth and growth of the work force
- increasing worker productivity
- increasing business productivity due to technological innovations
- the impact of productivity is considerable: yearly GDP increases of 2-3% can double a country’s standard of living over 30-40 years
