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COMM 101 > Module 1: Part 1B: Economics – Evolving Systems > Flashcards

Module 1: Part 1B: Economics – Evolving Systems Flashcards

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1
Q

Economic Systems

A
  • Determine how wealth is made and distributed in a country

o Affects business opportunities to make income and create wealth

o Affects the choices of consumers and the prices they pay (economic market system in place; free market system, controlled economy, planned economy or a mix = affects the choices available/prices)

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2
Q

Economy

A

The way in which people deal with the creation and distribution of wealth
-connected with ideal of wealth

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3
Q

Economics

A

The study of how society uses resources to produce and distribute goods and services

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4
Q

Macroeconomics (greater)

A

The sub-area of economics that focuses on the economy as a whole by looking at aggregate data for large group of people, companies, or products

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5
Q

Microeconomics (specific)

A

The sub-area of economics that focuses on individual parts of the economy, such as households or individual businesses

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6
Q

Macroeconomics: The Mixed Economy (what we use and enjoy here in SK)

A
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7
Q

Three macroeconomic goals of a mixed economy include:

A
  1. Full Employment
  2. Price Stability
  3. Economic Growth
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8
Q

Full Employment

A
  • All available resources used to produce goods & services
  • Measured by unemployment rate
    -there will be turnover, 3-4%
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9
Q

Price Stability

A
  • Absence of large or rapid increases or decreases in the price level
  • Measured by inflation rate, & change in Consumer Price Index (CPI)
    -keeping prices stable - aiming 0-2% inflation rate is considered stable pricing
    -we experience rapid and large increases currently
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10
Q

Economic Growth

A
  • Increasing the economy’s ability to produce goods & services
  • Measured by growth rate of production (increase in GDP) -gross domestic product
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11
Q

Factors of Production: Building Blocks of Business

A

Natural Resources: commodities that are useful inputs in their natural state

Labour: economic contributions of people

Entrepreneurs: combination of natural resources, labour, and capital to produce goods and services
-those that are able to combine - create it into production

Knowledge: the combined talents and skills of the workplace

Capital: inputs used to produce goods and services and get them to the customers
-what capital in need (human?)

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12
Q

Economic Systems

A

Socialism - most key natural resources are controlled by state (transportation, etc.) -more scandinavian

Mixed - government owns certain aspect like health care, energy production- not everything given to the market but most things are privately controlled (canada)- most fall in this category

Market- little government ownership/control– owned by businesses - government just keeps broad systems in place

Primary difference is how they manage the factors of production

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13
Q

Economic Systems

A

Socialism - in between the two -command and market (Sweden)
-
Mixed (in between socialism and market)
-
Market “capitalism”: little control by government (US)

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14
Q

Degrees Of Competition and Supply and Demand
Competition

A
  • Rivalry among businesses for sales to potential customers.
    -can lead to more choices in market and lower prices

Affect the number of choices an individual has and the prices he or she pays for products of an industry
* Helps business owners and employees to choose effective business strategies

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15
Q

Market Structures

A

-Perfect Competition
-Monopolistic Competition
-Oligopoly
-Monopoly

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16
Q

Perfect Competition

A
  • Large # of small firms, provide similar products, plenty available information, low barriers to entry/exit
    -new comps can enter and exit easily- fluid market
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17
Q

Monopolistic Competition

A
  • Many firms, differentiated substitutes (chose if you by truck, car or motorcycle), relatively easy entry
    -can be costly if one exits market
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18
Q

Oligopoly

A
  • Few firms, large capital requirements (high barriers to entry)
    -5-7 large banks in canada- companies come together and set practices and systems -make hard to enter market
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19
Q

Monopoly

A
  • 1 firm controls all industry sales, no entry of new firms
    -mixed market - sask power/energy, natural gas (enbridge) are examples
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20
Q

Perfect Competition and the Concept of Supply and Demand

A
  • Market situation in which there are many buyers and sellers of a product
  • No single buyer or seller is powerful enough to affect the price of that product.
  • Prices are decided by the economic concept of supply and demand
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21
Q

Equilibrium Price

A

price at which the quantity demanded is exactly equal to the quantity supplied
-supply exactly meets the demand of the market place

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22
Q

Microeconomics: Point of Equilibrium

A

micro= individual level

Supply: The quantity of a product that producers are willing to sell at each of various prices

Demand: The quantity of a product that buyers are willing to purchase at each of various prices

-usually the higher the price per unit the less demand there is = more supply in the market b/c high price so producers want to earn that high price

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23
Q

Changes in Demand

A

-change in customer income
-changes in fashion or taste
-change in price of related products
-expectations about future prices
-change in number of buyers

These are causes in changes in of demand
Income- more debts /morgages= less money to spend of travel/or non necessities
If product all a sudden higher price= people might not want to pay

Feeling houses going to go up in price= buy now= surge in market
Increase from national to global market buyer numbers

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24
Q

Changes in Supply

A

-new technology (New tech change or enhance the availability or effect supply)

-changes in price of resources (Higher price for resource- maybe find new product - or use a filler (to keep price same, or shrink-flation)

-change in price of related products

-change in number of producers (More producers in market place)

-change in taxes (New taxes involved add tariffs - less supply, take away= more supply)

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25
Q

Economic Performance

A
  • Economies fluctuate between high and low points resulting in business cycles consisting of four phases:
  1. Peak or Boom
  2. Recession (or Contraction)
    * Two or more consecutive three-month periods of a decline in a country’s GDP
  3. Depression
  4. Expansion or Recovery

More of a roller coaster - peak= high point moved to decline/recession 2 or more consecutive 3 months periods of decline
Bottom trough (opposite of peak)- if lasts a long time = depression – then expansion pulls out of the trough/recession

look at image

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26
Q

Key Economic Indicators: Measuring Performance

A

Gross Domestic Product (GDP)

Price Indexes

Purchasing power

Unemployment rate

Housing starts, commodity prices, stock markets

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27
Q

Gross Domestic Product (GDP)

A

Total dollar value of all goods and services produced by all people within the boundaries of a country during a one-year period. Growth in GDP increases employment and incomes

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28
Q

Price Indexes

A

inflation, disinflation, deflation, consumer price index (CPI), producer price index (PPI) – created by different government agencies bank of canada (key indicators that can measure economic performance)

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29
Q

Purchasing power

A

the value of what money can buy (compared price of product in different countries)

30
Q

Unemployment rate

A

percentage of a country’s labour force unemployed at any time. Calculated as the number of unemployed divided by the number of people currently in the labour force –measured around 6-7% in canada

31
Q

Key Economic Indicators: Measuring Performance

A

Inflation

Deflation

Consumer Price Index (CPI)

32
Q

Inflation

A

tracks the increase in general level of prices of goods and services over a period of time
* low Inflation rate of 2% or less is a sign of a stable economy. (0-2%)
* inflation rate of 10% can be a troubling sign for the economy because rising prices cause a loss of purchasing power.
-over 3% can be troubling sign

33
Q

Deflation

A

decrease in the price of goods and services; the opposite of inflation. (less than 0%)
* usually a sign of economic trouble
* declining prices lead to declining profits for companies
* can lead to an increase in unemployment rates and a shrinking economy for the country. (can lead to layoffs, unemployment, etc.)

-when prices are falling no incentive for companies to keep producing their goods and services, instead will cut production to try to decrease supply in the market place, when less supply hopefully prices rise again

34
Q

Consumer Price Index (CPI)

A

A monthly index that measures the changes in the prices of a fixed basket of goods typically purchased by a typical consumer in an urban area.
-key indicator of inflation or deflation

35
Q

What Makes Up the CPI?

A

Food 16%
Shelter 27%
Household operations, furnishings and equipment 12%
Clothing and footwear 5%
Transportation 21%
Health and personal care 5%
Recreation, education and reading 11%
Alcoholic beverages and tobacco products 3%

Put together by Bank of Canada

-combines to create the average basket of good a canadian consumer would purchase within a given month or year - tracked to determine if inflation or deflation and at what level

36
Q

Inflation

A

The average of all prices of goods and services is rising.

37
Q

Demand Pull Inflation

A
  • When demand for goods and services is greater than the supply
  • Ex. Sask housing market in 2008
38
Q

Cost Push Inflation

A
  • Triggered by increases in production costs
    -ex. When price of oil shoots up- higher cost of gas/transportation/products that use oil increase
39
Q

The Future of Economics

A

*High degrees of competition
* Globally interconnected -problem in one country can influence others
* Consumers are changing
* Price fluctuations
* Canada is resource rich

40
Q

What are the two main branches of economics?

A

Macroeconomics and microeconomics.

41
Q

Why is studying economics important for business people and citizens?

A

It helps them understand economic principles, make informed decisions, and grasp the implications of economic changes.

42
Q

What was the trend in interest rates prior to the COVID pandemic?

A

Interest rates were historically low.

43
Q

How have interest rates changed since the COVID pandemic?

A

They have been increasing sharply to counter rising inflation.

44
Q

What is the circular flow of economics?

A

A model where households provide inputs (factors of production) and businesses convert these inputs into goods and services for consumers.

45
Q

How do consumers obtain money to purchase goods and services?

A

Through income earned from supplying inputs, such as wages.

46
Q

What do businesses receive in exchange for the goods and services they provide?

A

Income from consumer purchases.

47
Q

What are the main types of economic systems?

A

Market economy, command economy, socialism, and mixed economy.

48
Q

How does government control differ among economic systems?

A

The level of government control over the factors of production varies, influencing how resources are allocated.

49
Q

What type of economic system does Saskatchewan (and Canada) have?

A

A mixed economic system.

50
Q

In 2020, how many of the top 10 businesses in Saskatchewan were publicly traded?

A

Four businesses were publicly traded.

51
Q

What is a monopoly?

A

A market structure where a single company accounts for all of an industry’s sales.

52
Q

Why are pure monopolies rare?

A

They typically exist only in specific sectors, like public utilities (e.g., SaskPower).

53
Q

What is an oligopoly?

A

A market structure where a few large firms dominate the market, often resulting from firms purchasing one another to reduce competition.

54
Q

What distinguishes perfect competition from monopolistic competition?

A

Perfect competition has many firms and products are commodities, while monopolistic competition has fewer firms with differentiated products (real or perceived differences).

55
Q

Give an example of a product that might be found in a perfectly competitive market.

A

Wheat (a commodity).

56
Q

What is the significance of product differentiation in monopolistic competition?

A

It allows firms to compete based on unique features, branding, or options, rather than just price.

57
Q

Types of competition

A
  1. Perfect : (# of businesses or suppliers) Many
    Ex. Corn, wheat, peanuts, many agricultural
  2. Monopolistic: Many
    Ex. clothing, shoes
  3. Oligopoly: Few
    Ex. automobiles, cereals
  4. Monopoly: One
    Ex. software protected by copyright, many local public utilities
58
Q

What is the basic principle behind supply and demand?

A

Prices are determined by the interaction between the availability of goods/services (supply) and the desire of consumers to purchase them (demand).

59
Q

How does a low price affect demand and supply in a market?

A

A low price increases demand (more people want to buy) but can lead to a shortage in supply (not enough products or services available).

60
Q

What might happen if a taxi company sets a flat rate of $2 per ride?

A

The low price would likely create high demand for taxi rides, making it difficult for the company to meet customer needs and be profitable.

61
Q

What is an equilibrium price?

A

The price at which the quantity of goods supplied equals the quantity demanded, determined by the intersection of the supply and demand curves.

62
Q

What happens when demand exceeds supply at a given price?

A

A shortage occurs, prompting sellers to increase prices to balance demand and supply.

63
Q

What effect would increasing the price of taxi rides have on consumer demand?

A

It would likely reduce the number of consumers using the service as some might seek alternative transportation options.

64
Q

Why is it important for businesses to understand supply and demand?

A

Understanding these concepts helps businesses set prices, manage inventory, and predict consumer behavior.

65
Q

What are the three main macroeconomic goals for most countries?

A

Economic growth, full employment, and price stability.

66
Q

What does GDP stand for, and why is it important?

A

Gross Domestic Product; it measures the total value of all goods and services produced in a country, indicating economic health

67
Q

How is the unemployment rate defined?

A

The percentage of the labor force that is actively seeking employment but is unable to find work.

68
Q

What does CPI stand for, and what does it measure?

A

Consumer Price Index; it measures the average change over time in the prices paid by consumers for a basket of goods and services, indicating inflation.

69
Q

Why is price stability an important macroeconomic goal?

A

It helps maintain consumer confidence and encourages investment, leading to a healthier economy.

70
Q

What can rising inflation indicate about an economy?

A

It may suggest increasing demand, rising production costs, or potential economic overheating.

71
Q

Why is full employment a desirable macroeconomic goal?

A

It maximizes the productive capacity of the economy and minimizes the social issues associated with unemployment.

72
Q

How can GDP growth be beneficial for a country?

A

It can lead to higher living standards, increased job opportunities, and improved public services.

COMM 101 (3 decks)

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