Term 1 Part 1 Review.docx

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Department
Economics
Course
Economics 1021A/B
Professor
Jeannie Gillmore
Semester
Fall

Description
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 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. 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. Who consumes the goods and services that are produced depends on the incomes that people earn. People earn money by selling services of the factors of production: Land earns rent Labour earns wages Capital earns interest Entrepreneurship earns profit Wages and fringe benefits are around 70% of the total income People earn livings off of experiences but not always equal. The rich earn 10 times what the poor earn How can the Pursuit of Self Interest promote the social interest? One makes a choice based on their self interest (what decision is the best for them) When decisions are made based on self interest, one comes into contact with those who give one services and goods based on self interest. Ex: One buys pizza for delivery because they are hungry. Delivery guy delivers pizza because he is earning income. Self interested choices promote social interest that leads to an equal and best outcome for society as whole Social Interest- an outcome that used resources efficiently and distributes goods and services equitably among individuals. Resources are used efficiently when goods and services are produced at the lowest possible cost In the quantities that give the greatest possible benefit The big question is how to make choices that are based on self interest that also benefits the social interest at a whole. Globalization- The expansion of international trade, borrowing, ad lending and investment. Information-Age Economy- Technology change of the 1990s and 2000s (Information Revolution) Global Warming- Refer to pg. 6 Natural Resouce Depletion- refer to pg.7
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