COMM 171 Week 1.1

Question 1

What is an economy

Answer 1

An economy is a system for coordinating society’s productive activities:

Question 2

What is economics

Answer 2

Economics: the social science that studies the production, distribution, and
consumption of goods and services

Question 3

what is micro and macro economics

Answer 3

Microeconomics: how individuals, households, and firms make decisions

Macroeconomics: how the economy behaves as a whole.

Question 4

What is the invisible hand and market failure

Answer 4

The invisible hand: the way in which pursuit of self-
interest can lead to good results for society as a whole

Market failure: individual pursuit of self-interest leads to
bad results for society as a whole

Carbon emissions and climate change
* Fast food industry and the obesity pandemic
* The opioid crisis in the US/Canada

Question 5

Principles of individual choice

Answer 5

1) Choices are necessary because resources are scarce

2) the true cost of something is its opporutity cost

3) “How much” is a decision at the margin

4) People usually respond to incentives, eploiting opportunities to make themselves better off

Question 6

what are the defintinon for resource, scarce, opporunity cost, marginal decision, marginal analyisis, trade off, incentive

Answer 6

Resource: anything that can be used to produce
something else.

Scarce: there is not enough of the resource available to
satisfy all the various ways a society wants to use it

Opportunity cost: what you must give up in order to get
something.

marginal decision: decision made at the margin of an activity about whether to
do a bit more or a bit less of that activity

• Marginal analysis: the study of marginal decisions
• Trade-off: comparison of the costs and benefits of an activity

Incentive: anything that offers rewards to people who change their behaviou

Question 7

Principles that govern interactions

Answer 7

5) There are gains from trade

Two of the key reasons for these gains from trade:
- Comparative Advantage (next lecture)
- Specialization of Labour

6) Because people respond to incentives, markets move toward equilbirum
7) Resources should be used as efficiently as possible to achieve societies goal
8) Because people usually exploit gains from trade, markets usually lead to efficiency
9) When markets don’t achieve efficiency, gverment intervention can improve societies welfare

Question 8

What are The principles of Economy- Wide interactions:

Answer 8

Principle 10. One person’s spending is another person’s income

Principle 11. Overall spending sometimes gets out of line with the economy’s productive capacity

Principle 12. Government policies can change spending

Question 9

What is equity and efficency

Answer 9

Equity: a condition in which everyone gets his or her “fair
share.” (There are many definitions of equity.)

Not all forms of trade are
efficient
* Market equilibrium
usually leads to efficiency
* Trade-offs between
equity and efficiency
may justify interventio

Question 10

Economy wide interactions

Answer 10

9) One person’s spending is another person’s income

10) Overall spending sometimes gets out of line with the economy productive capacity

overnment policies can
change spending.
* COVID-related lockdowns caused:
– Shortages (e.g., toilet paper, bicycles)
– Eating out; Takeout and home cooking
* Cigarette taxes
 Some users reduce their
consumption, others do not.