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Economics 1021A/B Study Guide - Great Moderation, Ceteris Paribus, Alcoholic Drink


Department
Economics
Course Code
ECON 1021A/B
Professor
Jeannie Gillmore

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Chapter 1 Notes
Economics
What is Economics?
Economical questions arise because we want more than we can get
What we can get, is limited by time, income earned and prices must pay.
Productive resources: gifts of nature, human labour and ingenuity, tools and
equipment. These resources limit what we can get as a society.
Scarcity: the inability to satisfy our wants
Choices we make depend on the incentives faced
Incentives: reward that encourages an action or penalty that discourages
one
Economics: The social science that studies the choices that individuals,
businesses, governments, and entire societies make as they cope with
scarcity and incentives that influence and reconcile choices
The good- the information age and all the benefits that it brings
The bad- terrorism
The ugly- the 2009 financial meltdown
Another reason: Economics sometimes yields surprising answers
Ex: When a government spends more to combat a recession the defecit
might in the end become smaller
Suicide terrorists tend to be relatively rich, not poor
Economics is a way of thinking
It is not restricted to markets or business
Your inability to satisfy all our wants is called scarcity.
Because we face scarcity, we must make choices. The choices we make
depend on the incentives we face
An incentive is a reward that encourages or a penalty that discourages an
action
Can be price (price of beer falls, you want to buy more) or non-price
(possibility of jail if you try to steal the beer)
Economic Way of Thinking
Assumes people are rational (Their goal may be irrational but the person
himself is rational) Person chooses the best method to achieve their goals

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Choose subject to a constraint (What you want, and what stops you from
doing so)
Markets or some other mechanism provides incentives that make their
choices consistent (Mainly supply and demand)
Budget Line constraint choice (look up in textbook)
Guns and Butter concept
Production Possibility frontier
What if we are inside the curve?
Resources are wasted (ex: when there is unemployment)
This is inefficient because if we are inside the curve, it means we could have
had more butter with no fewer guns and vice versa
Two main parts of econ:
Microeconomics
Macroeconomics
Microeconomics: The study of choices that individuals and businesses make,
the way these choices interact in markets, and the influence of
governments.
Ex: Why buy more DVDs and fewer movie tickets
Macroeconomics: The study of performance of the national economy and the
global economy of the choices that individuals, businesses and governments
make.
Ex: Why the inflation in Canada started to increase in 2008.
Two questions that summarize economics:
How do choices end up determining what, how and for whom goods and
services are produced?
How can choices made in the pursuit of self-interest also promote the social
interest?
What, How, and For Whom?
Goods and services: Are the objects that people value and produce to satisfy
human wants.

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Ex of goods: physical objects
Ex of services: Tasks and performances
What we produce changes over time
65 years ago, more farmers. Now it has decreased. More manufacturing and
construction, now it has decreased. This means an increase in services.
Today more than 75% of Canadians have service jobs
Goods and services are produced by using productive resources called
factors of production:
Land
Labour
Capital
Entrepreneurship
Land
Natural resources
In econ, considered minerals, oil, gas, coal, water, air, forests and fish
Labour
work time and effort that people devote to produce goods and services
Can be physical and mental effort
Human capital: quality of labour. The knowledge and skill people obtain from
education, job training and work experience.
92% of Canadians have completed high school and 62% have
college/university degrees
Capital
Capital: The tools, instruments, machines, buildings, and other constructions
that businesses use to produce goods and services
Financial capital: Stocks, bonds, and money. An important part in enabling a
business to buy physical capital. It is not used to produce goods and
services; Therefore, not a productive resource
Entrepreneurship- The human resources that organizes labour, land, and
capital. Entrepreneurs make business decisions and take risks that arise
from the decisions made.
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