CIE3M - Unit 1 Test

What is scarcity in economics?

The fundamental economic problem of having unlimited human wants in a world of limited resources.

What is microeconomics?

the study of how individuals and firms make decisions and how they interact in markets

What is macroeconomics?

The study of the economy as a whole (national, regional, global economies)

What are positive statements?

Are objective, fact-driven statements that can be tested or proven.

What are normative statements?

Subjective statements that have a value judgement. They are debatable.

What words do normative statements typically include?

Right, wrong, should, etc.

What is a fallacy?

A hypothesis that has been proven false but is still accepted by many people because it appears to make sense

What are the three types of fallacies?

Fallacy of composition, Post-Hoc/Cause& Effect, Single causation

What is the fallacy of composition?

States that what is good for everyone is good for the individual.

What is an example of the fallacy of composition?

Free trade can benefit Canadian society by resulting in lower prices for certain goods. However, some Canadians may lose their jobs because cheaper foreign goods are now available to compete with the more expensive goods produced in Canada.

What is an example of the Post-Hoc fallacy or the Cause & Effect fallacy?

Joan is scratched by a cat while visiting her friend. Two days later she comes down with a fever. Joan concludes that the cat's scratch must be the cause of her illness.

Fallacy of Single Causation

An oversimplification that a particular event has one cause rather than several.

What is the difference between the fallacy of single causation and the Post-Hoc fallacy?

The single causation fallacy is an oversimplification, but that cause still had an impact on the event. Post-Hoc fallacies typically have nothing to do with the actual event.

Social interest & Self interest

When people make decisions, they are acting in what is best for them, in their own self-interest. But in being selfish, we pursue the social interest by contributing something good for society.

What are the 3 factors of production?

Land, Labour, and Capital

Land

natural resources that can produce things like minerals and food

Labour

work that is contributed by humans

Captital

the tools, money, equipment, machinery, and facilities needed to produce a product/service

What is opportunity cost?

The sum of all that is lost from taking one course of action over another. There are always trade-offs.

What is opportunity benefit?

what is gained by making a particular choice

When does economic growth occur?

When society produces the correct products and service and the right amount.

Law of Diminishing Returns

When additional units of a variable input are added to fixed inputs after a certain point, the marginal product of the variable input declines.

Effective and Efficient Resource Use

when the desired results are achieved while expending the least amount of resources possible.

Law of Demand

The higher the price, the less the quantity demanded. The lower the price, the greater the quantity demanded.

5 Factors that influence demand

• I: ncome

• N: umber of buyers

• S: ubstitutes (related goods)

• E: xpectations (of future prices)

• C: omplements (related goods)

• T: astes and Preferences 

What is demand?

Having the desire and the ability to purchase a product/service.

What is quantity demanded?

Refers to how much of something you would demand at various prices

What is market demand?

the demand of all consumers - added up all of the individual demand curves

Normal products

Something you buy more of if your income rises, and less of if your income falls

1 ex. of normal products

A vacation

Inferior products

Something you buy more of if your income falls and less of if your income rises

1 ex. of an inferior product

Ramen - student buy it but change to something more gourmet as the get good paying jobs

1 ex. of a complementary product

printers and ink, burgers and fries

Complementary products

Products that are consumed/purchased together

Substitute products

Products that can replace each other easily due to similarity

1 ex. of a substitute product

Pepsi-Cola and Coca-Cola

Law of Supply

The higher the prices, the greater the quantity supplied. The lower the price, the less the quantity supplied.

How do you graph supply vs demand?

Supply increases, demand decreases

What are the 8 determinants of supply?

• P: roducer Expectations

• A: dvertising

• I: ntervention

• N: umber of Suppliers

• T: echnology

• S: hortage of raw materials

• W: eather

• C: osts of Production 

How do the factors of production impact supply?

Cost of production --> The more expensive the factors of production, the fewer goods/services supplied

Example of how factors of production impact supply

If business can't rent a factory beacuse it's too expensive then they can't produce their product

Prices of productive resources

If the business has to pay a lot of money to purchase machinery and equipment, then the price of the product/service will go up. The opposite is true.

Business Taxes/Government Intervention

If government raises taxes on business, the businesses will supply fewer products due to it costing more to do so.

Technology

If tech improves & businesses are able to produce goods more efficiently/cheaply then businesses will supply more goods

Producer expectations

If producers expect for prices to drop in the future, the will supply more goods now. Opposite is also true.

Number of suppliers

If there are fewer suppliers, there will be less supply. Opposite is also true.

Advertising

Ads are expensive and cause the price of the product to increase. If more advertisements are produced for the product/service, the supply will increase (higher price, greater supply)

Weather

Can effect the supply when transportation lines are flooded/frozen. Or if you are selling fruit, sunny weather w/rain will increase supply while a drought would decrease it.

Shortage of raw materials

If you require materials to make products you hope to sell but you run out of those materials, you'll have less supply to offer

Why don't you want to over-rely on technology?

It is a deleicate balance because new, untested tech often breaks and can't be fixed in house which decrease production

Market equilibrium

The happy balance between suppy and demand curves (where they meet) ideally the market would always be here because both buyers and sellers are satisfied and no one is left waiting

Market shortage and why does it occur?

If a supplier produced less products than need to supply demand. Demand is difficult to predict since it takes a lot of time, planning, and money to bring an idea to reality.

Market surplus

businesses sometimes overestimate the demand and over supply. This means that quantity supplied is more than quantity demanded.

How to get rid of surplus

Stop producing it

Store the surplus

Convert the product: If no one is buying lemons in winter, convert them into concentrated frozen lemonade mix to be sold in the hot summer months.

“Dumping” the product: Sell the product in another country for a lower price than would be charged in the home country. Controversial - essentially saying someone should be grateful.

“Clearing” the product: Unsold surplus can be sold at a lower profit, at cost, or at a loss either through sales, price reductions, or external “liquidation”

Donate the product to another country: Free of charge to low-income countries.

What are the 5 subcategories of ethical consumerism?

Public goods, fair trade, cruelty free, boycott, green products

• Friendly Bears Can’t Play Golf

Public good

aka collective good is a good available to everyone. One person's access doesn't diminish another's access. An example is street lamps

Fair trade products

Ensure the human rights of the people producing a product

Cruelty free

products that didn't harm animals in order to test/produce their products

Boycott

Can be political or controversial - involves not using a product/service because they don't agree with the principles/practices of a company

Green products

Products that are concerned about the global climate, reduction in chemicals, using sustainable resource, and non-polluting. They are often more expensive

What are the 4 words green products typically use?

Organic, natural, eco, bio

Underground/illegal/black market products

economic transactions that aren't measured by the government or ignore government regulations. Can be an illegal product or paying for something w/o the government's knowledge (ie cash transactions)

What are the 4 basic economic questions?

1. What goods and services and how much to produce?

2. For whom to produce?

3. How to produce?

4. Who controls production?

Command economies

When the national government answers/controls/owns all of the economic questions. This means they own all property and control market forces by dictate/decree.

Examples of command economies

North Korea, Cuba, former Soviet Union

Market economies

Individuals, consumers, businesses answer the economic questions. Characterized by economic freedom - individuals own prperty and decide what to buy, sell, use

Examples of market economies

It is hard to find a purely market economy the best example would be the U.S. then U.K., and Canada

Mixed Economies (hybrid)

This is the range of economies in between command and market. They have elements of both. This is the majority of economies

Examples of Mixed economies

Canada (only way to sell alcohol is through government owned businesses 'crown businesses'), China, Sweden

Relationship between political idealogy and market systems

Politcal ideas will determine was system a country will practice

List the four political ideologies from left to right

Communism, socialism, capitalism, fascism

Communism (x-treme left)

States that all people, in theory, are the same/equal. The gov't owns all means of production and all property. Everyone works for the government. The results of production are, in theory, distributed equally. Have never seen a truly communist country since there is always x-treme wealth and x-treme poverty.

Socialism

Means of production are collective efforts, pluralistic and coalition-based (everyone, even those with different beliefs, come together and tolerate one another for a common purpose) and thus the returns benefit society as a whole and are available to everyone. Focus of equity.

Example of socialism

Canada due to the socialized medicine which is created from people paying taxes

Capitalism

Society where means of production, distribution, and exchange are controlled by supply and demand. Ir is completely free from rules and regulation. Competition between individuals and corporations is encouraged and meant to benefit consumers through more choice lowering prices.

Fascism (x-treme right)

Regime that ranks the nation above the individual. States that the country is a person who has more rights/importance than you. Obedience and subservience to the state. There are severe economic and social rules and forcible supression of opposition.

Democratic choice of leadership

People have the authority to deliberate and decide legislation or choose governing officials to do so

Authoritarian choice of leadership

Concentrates power to one leader/small elite that isn't constitutionally responsible to the people - there's no way to vote someone out

Hybrid choice of leadership

Where most countries live and is often created as the result of an incomplete transition from authoritarian regime to a democratic one.

Changes affecting demand OR supply

If quantity demanded for a product increases at the same time quantity supplied decreases, the equilibrium price increases and vice versa. The equilibrium quantity is unknown.

Changes affecting demand AND supply

If the quantity demanded for a product increases at the same time as the quantity supplied increases, the equilibrium quantity increases as well. The price of product will change and unknown amount given that the quantity supplied and demanded has changed.