LECTURE 1 Sep/12/2012 – Chapters 1, 2 (partial) Basic Principles and Glossary of Terms for
I’D LIKE TO KNOW…
-What is this course all about?
-Why do I have to make choices?
-What does it really cost me to come to Mac?
WHAT IS ECONOMICS?
What is Economics?
-Economics: Study of how society allocates scarce resources to satisfy people’s unlimited wants.
-Scarcity: Society has limited resources and therefore can’t produce all the goods + services people wish
-Microeconomics: focus on individual parts of the economy. How households + Firms make decisions+
how they interact in specific markets.
-Macroeconomics: The economy as a whole. E.g.: inflation, unemployment, economic growth.
-Market Economy: allocates resources through the decentralized decisions of firms + households.
Households decide what to buy, and who to work for. Firms decide who to hire, and how much to
-Command or centrally planned economy: all production and distribution decisions are made by a
central authority, like a government. E.g.: former USSSR.
-Traditional Economy: Economic decisions are based on customs, beliefs, region, and habits. Term is
often used to refer to underdeveloped economies that rely heavily on agriculture for domestic
consumption (subsistence economy).
-Mixed Economies: combination of market and command economies. Canada is a mixed economy.
Mostly free market. *Crown Corp.
BASIC PRINCIPLES OF ECONOMICS
-A household and an economy face many decisions: 1) Who will work? , 2) What goods and how much
will be produced?, 3) What resources should be used in production?, 4) At what prices should goods be
Every economic issue involves individual choice. We assume that when people are making decisions,