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Midterm

Midterm Chapter Summaries.pdf

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Department
Economics
Course
ECON 1050
Professor
Eveline Adomait
Semester
Fall

Description
Chapter 1 What is EconomicsYour life will be shaped by challenges that you face and the opportunities that you create Definition of Economics Scarcity our inability to get everything we want Examples what we want can be limited by our incomes the prices we pay and the fact that our day has 24 hours what governments can afford is limited by the taxes they collect what society can get is limited by the productive resources human talents and labor tools etc available since we face scarcity we must choose and those choices must be somewhat consistent with others choices ex if you want to buy a laptop someone must be willing to sell itchoices are reconciled by incentives Incentive a reward that encourages an action or a penalty that discourages one ex Price Economics the social science that studies the choices that individuals businesses governments and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choices I Microeconomics the study of the choices that individuals and businesses makeWhy are people downloading more movies How would a tax on ecommerce affect eBay II Macroeconomics the study of the performance of the national economy and the global economyWhy is the Canadian unemployment rate so high Can the Bank of Canada make our economy expand by cutting interest ratesTwo Big Economic Questions 1 How do choices end up determining what how and for whom goods and services are produce 2 Can the choices that people make in the pursuit of their own selfinterest also promote the broader socialinterestWhat How and For Whom Goods and services GS the objects that people value and produce to satisfy good physical service task WhatWhat we produce varies across countries and changes over time ex Decrease in Canada of agriculture in total productionreplaced with services How Factors of Production the productive resources used to produce GS Grouped into 4 categories 1 land 2 labor 3 capital 4 entrepreneurship1 LandGifts of human natureNatural resourcesRenewable or nonrenewableMinerals oil gas coal water air forests fish2 Labor The work time physical and work effort mental that people devote to producing GSThe quality of work depends on human capital the knowledge and skill that people obtain from education onthejob training and work experience3 CapitalThe tools instruments machines buildings and other constructions that businesses use to produce GS Financial capital money stocks bonding etc This is not used to produce GS so it is not a productive resource4 Entrepreneurship The human resource that organizes labor land and capital Entrepreneurs come up with new ideas about what and how to produce make business decisions and bear the risks that arise from these decisions For WhomIncomedependent so people with smaller incomes have fewer options and can afford a smaller range of GSPeople earn their incomes by selling the service of the factors of production they own Land earn rent labor earns wages earns the most capital earns interest capital earns interest entrepreneurship earns profit The 20 of people with the lowest incomes earns about 5 of total income while the richest 20 earns close to 50 percent of the total incomeCan the Pursuit of SelfInterest Promote the Social Interestt Selfinterest a choice is in your selfinterest if you think that choice is the best one available for youMost of your choices are made based on what makes sense to you with little thought on how your choices will affect someone elseSocial Interest a choice is in social interest if it leads to an outcome that is the best for society as a whole Two dimensions 1 efficiency and 2 equity What is best for society is an efficient and fair use of resources Efficiency when the available resources are used to produce GS at the lowest possible cost in the quantities that give the greatest possible value or benefit The Big QuestionCan we make decisions that improve bothExamples relating to social interestGlobalization expansion of international trade borrowing and lending investmentSelfinterested for those who buy consumers and produce firms at low costsLow in the best interest for the low wage worker and locals who lose jobsBring international job opportunities but destroys local ones or requires a new set of skills The InformationAge Economy the past 40 years Selfinterest of technology users but it hasnt served social interest quality etcAbsence of competition gave Microsoft and Intel the ability to charge way more than production costs
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