Econ Chapter one

Economic problem

wants are unlimited, and there are limited resources

Economic resources include

​ natural resources, capital resources, and human resources

natural resources

nature’s contribution to production​

capital resources

the processed materials, equipment, and buildings used in production​

human resources

which include both labour and entrepreneurship

Economics

the study of how to distribute scarce resources to make choices

Microeconomics

focuses on how consumers decide on the quantity of a product to consume or the quantity of the product businesses will produce.​

Macroeconomics

focuses on the production within a country and opportunities of trade with other countries.

Economic models

simplify economic reality​

Variables

factors that have measurable values​

dependent variables

the variable in a causal relationship that is affected by another variable are affected by

Independent variables

the variable in a causal relationship that causes change in another variable

inverse relationship

a change in the independent variable causes a change in the opposite direction of the dependent variable

direct relationships

a change in the independent variable causes a change in the same direction of the dependent variable

Ceteris paribus

the assumption that all other things remain the same

Positive economics

the study of economic facts and why the economy operates as it does​

Normative economics

the study of how the economy ought to operate(opinions).

utility

the satisfaction gained from any action​

Self-interest motive

the assumption that people act to maximize their own welfare​

The production possibilities model is based on three assumptions

​ an economy makes only two products, resources and technology are fixed​, all resources are employed to their fullest capacity​

The production possibilities schedule

a table that shows the possible output combinations for an economy​

The production possibilities curve

shows a range of possible output combinations for an economy.​ It highlights the scarcity of resources.​

the law of increasing opportunity costs

the concept that as more of one item is produced by an economy, the opportunity cost of additional units of that product rises.

Economic growth occurs

​ the production possibilities curve shifts outwards due

Economic contraction occurs

​ the production possibilities curve shifts inward

There are three basic economic questions

what to produce​, how to produce​, for whom to produce

​Economic systems

the organization of an economy which represents a country’s distinct set of social customs, political institutions, and economic practices​

Traditional economies

focus on non-economic concerns and have tight social constraints.​

Market economies

are consumer-centered and innovative but create inequality and instability.​

Command economies

equalize incomes but often have a lack of freedom.

Market

a set of arrangements between buyers and sellers of a certain item​

Product markets

markets in which consumer products are traded​

Resource markets

markets in which economic resources are traded

There are seven major economic goals

​ economic efficiency​, income equity​, price stability, full employment​, viable balance of payments​, economic growth​, environmental sustainability

​economic efficiency

employing scarce resources in a way that derives the highest benefit​

income equity

what is fair?​

price stability

gov’t. policy-makers try to minimize rate of inflation​

full employment

gov’t. tries to minimize involuntary unemployment​

viable balance of payments

a summary of all transactions between Canadians and foreigners that involve exchanging Canadian dollars for other currencies​

economic growth

helps raise the standard of living of citizens​

environmental sustainability

economic activity must be carried out so that the quality of our physical environment can be sustained without significant harm

Economic goals- complementary

An example is the relationship between full employment and economic growth.​

Economic goals- conflicting

An example is the relationship between price stability and full employment.​

the principle of laissez faire

means that governments should not intervene in economic activity​

opportunity cost

the utility that could have been gained by choosing an action’s best alternative

Private sector

Retail, hospitality, aviation, real estate, construction, home services and financial services

Public Sector

healthcare, education, defense, and infrastructure