nature of economics Flashcards
economics
- study of choices
- most efficient way to use scarce resources
scarcity
- use of resources and response to incentives
- wants always exceed what can be produced with limited resources
- human wants are unlimited
macroeconomics
- looks at the economy as a whole
- impacts of choices on main economic indicators
microeconomics
- how individuals and businesses make decisions (what influences choices) in a world of scarcity
- bottom-up approach
- the role consumers and businesses play in the economy
micro breaks down…
- individuals make decisions based on the concept of utility (satisfaction)
- businesses make decisions based on competition faced in the markets
- opportunity cost of their actions
ways the pandemic is changing consumer shopping habits
- buy local
- e-commerce
- touch-free payments
- cost-conscious shopping
- health and hygiene are priorities
- trying new brands and products
labour shortage
- balance of power has shifted to workers in high-demand industries
- solution: rescaling
choices and incentives
- deciding to have more of something means deciding to have less of something else
- financial, moral and social
opportunity cost
- less of something else is the cost of having more of something
- rational decision making
production possibilities curve
- all possible production combinations of two goods that can be produced
- scarcity, choice, efficiency, opportunity, unemployment
going further than the boundary is economic growth
capitalist vs command
capitalist: free market, private ownership, self-interested, supply and demand
command: planned economy, public ownership of all resources, production and price regulated
planned: decisions made by the private and public sector
hello
allo
adam smith
father of economics (1776 wealth of nations)
- the water and diamond paradox
law of demand
when the price goes up, the quantity demanded goes down
law of supply
when the price goes up, the quantity supplied goes up
equilibrium
Qd = Qs
pepit (non-price determinants of demand)
price-related goods (complements and substitutes) expectations population (nb of buyers) income (normal goods and inferior goods) tastes and preferences
pints (non-price determinants of supply)
price expectations
input costs
number of firms in the industry
subsidies and taxes
shifts in demand
increase: shortage
decrease: surplus
shifts in supply
increase: surplus
decrease: shortage
price system
prices are constantly changing to reflect changes in supply and demand
simultaneous shifts
if both the supply and demand curves shift simultaneously, the outcome is indeterminate for either equilibrium price or quantity
both demand and supply increase
change in price is indeterminate
equilibrium quantity increases unambiguously
both supply and demand decrease
change in quantity is indeterminate
equilibrium price increases unambiguously
supply decreases and demand increases
equilibrium price increases
change in equilibrium quantity is uncertain
supply increases and demand decreases
equilibrium price decreases
change in the equilibrium quantity is uncertain
consumer behaviour
how people decide to spend their money based on their individual preferences and budget constraints
consumer’s choice
how needs, perceptions and info shape consumer choices
- maximize utility
- incentives
consumer confidence
how consumer expectations for the future influence spending saving investment and labour participation (non-price determinants of demand)
cost minimization (producer behaviour)
a necessary condition for profit maximization
business confidence
how producer expectations for the future influence hiring, capital investment and supply
producer behaviour
actions of firms in hiring and combining productive inputs to supply commodities at appropriate prices
competitive conditions
the number and size distribution, forms, entry conditions, and the extent to which production differentiation (or branding) limits price rivalry
financial statement
revenues and expenses or profit and loss statement
gdp and its “factors”
- economic growth
- consumption + investments + government spendings + (exports - imports)
unemployment
when a person is available to work and is seeking work
inflation
- an upward movement in the average level of prices in an economy
- purchasing power
- target control of 1-3% set by the bank of Canada
normal recession
- sharp decline in economic activity
- a decline in gdp for two consecutive quarters
pandemic recession
- demand vs supply shocks
- small vs large shock
- concentrated vs widespread
the k-shaped recession recovery
after a recession, some parts of the economy recover and some parts sink or stagne
