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ECO1104 Midterm.docx

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University of Ottawa

ECO1104 MidTerm ReviewCh 1Ten Principles of EconomicsA society faces many decisions exWhat goods and services are produced how much is produced and who produces and consumes these goods and servicesA society needs a variety of producers for several productsservices food clothing computers etc Once society has allocated its resources people land buildings machines it must also allocate the output of goods and servicesAllocate Distribute or assign resources or duties for a particular purposeResourcesfactors of production Land labour and capital also includes entrepreneurialManaging these resources is important as they are scarce and society cannot cater to every individuals needsScarcity the limited nature of societys resourcesUnlimited wants of consumers with limited means to produceTherefore consumers and producers need to make choices opportunity costOpportunity costthe value of the option that was not selected ex Going to college as compared to theyou would make if you spent the year workingTechnology of production how we use these resources to produceLand Natural resources minerals land itself not renewable ex Extraction of oilLabour Human effort Takes energy to workCapital Something used to make something else structures machinery etc Not consumed during production but depreciates over timeLand and labour consumed quickly while capital depreciates slowlyAn economy consists of millions of producers and consumers households and firms who exchange within markets They produce consume and exchange in an economyGoods and services are produced by combining resourcesConsumers and producers are the primary economic actors who interact exchange within markets in a capitalist economyEconomy An institution in which these actors produce consume and exchangeEconomics the study of how society manages its scarce resourcesIndividual Decision MakingPrinciple 1 People Face TradeoffsExamining the value of the preferred option or choice compared to the alternativesNot necessarilyex Time spent studying psychology vs economicsevery hour spent on one she gives up an hour she could have been studying the other or napping biking etcNo such thing as free lunch to get one thing we like we usually have to give up another thing that we likeJust because a certain option has benefits does not mean scarce resources should be allocated to itEx Ottawas light rail underground or above Way more expensive for subwaysSociety faces different types of tradeoffs ex Clean environment vsHigh level of incomelaws that require a company to reduce pollution raises the costs of production therefore firms earn smaller profits pay lower wages and charge more for their goodsservicesSociety also faces a tradeoff bw efficiency and equity resulting from government policies ex Policies aimed to achieve equal distribution of economic wellbeing welfare EI help society members most in needalthough we see the benefit of greater equity efficiency is reduced as redistributing income from rich to poor reduces work incentives and people will work less and be less productiveEfficiency The property of society getting the most it can from its scarce resourcesEquity The property of distributing economic prosperity fairly among the members of societyPrinciple 2 The cost of something is what you give up to get it
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