COMMERCE 1B03 Chapter Notes - Chapter 1: Invisible Hand, Externality, Market Economy

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 1B03
• Professor: Rita Cossa

Document Summary

Economics the study of how society uses its scarce resources to satisfy society"s wants. Scarcity society has limited resources (can"t produce everything we want) Microeconomics focuses on individual parts of the economy (households and firms) Macroeconomics focuses on the economy as a whole (inflation, unemployment, economics growth) Market economy relies on the decision of firms and households. Households decide on what to buy and who to work for. Firms decide who to hire and how much to produce. Command/centrally planned economy relies and is controlled by the government. Production/distribution is fully controlled by the government. Traditional economy relies on customs, beliefs, religion, and habits of people. Undeveloped countries that rely on agriculture for domestic consumption. Mixed economy a mix between the market and command economy. Canada is an example (mostly mixed, but we have government-controlled industries) Economic rationality decisions that maximize the benefit of the decision-maker. We assume everybody who makes decisions act rationally.