Textbook Notes (369,067)
Canada (162,366)
Economics (385)
ECO100Y5 (290)
Edward Ho (6)
Chapter 1

Chapter 1 notes economics.docx

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Edward Ho

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1.1 COMPLEXITY OF THE MODERN ECONOMY Economy: A complex system in which scarce resources (ex. labour, land, and machines) are allocated among competing uses. Market economy: Self-Organizing  Who/what provides the G&S individuals desire?  Early economists noticed that the interaction of self-interested ppl (consumers/producers) creates a spontaneous social/economic order Efficient Organization  Efficiency: organizing available resources to produce the G&S that people most value, when they most want them, and by using the fewest possible resources to do so Main Characteristics of Market Economies  Self-interest guides individuals. ppl buy and sell what’s best for them & their family  Individuals respond to incentives. sellers want to sell more when high price, & buyers, when low price 1.2 SCARCITY, CHOICE, & OPPORTUNITY COST Resources/Factors of Production  Land: natural endowments (arable land, forests, crude oil, minerals)  Labour: mental/physical HRs (entreprnl capacity & mgm skills)  Capital: manu’d aids to prod’n (tools, machinery, buildings)  Outputs are goods (tangibles) or services (intangibles)  Production: making G/S  Consumption: using G/S to satisfy wants Scarcity  Fundamental problem faced by all economies.  Not enough resources are available to produce all the G&S that people would like to consume. Opportunity cost  Measures the cost of obtaining a unit of one product in terms of the number of units of other products that could have been obtained instead. Production possibilities boundary  Shows all the combinations of Gs that can be produced by an economy whose resources are fully/efficiently employed.  Movement from one point to another along the boundary requires a reallocation of resources.  Negatively sloped line provides a boundary b/w attainable & unattainable combinations  OC of getting +1 lollipop is the 2 gums that must be given up PPB illustrates…  Scarcity (d): unattainable with current resources  Choice (a & b): both attainable  OC: shown by negative slope  Shape is concave to the origin  Each factor of prod’n is not equally useful in prod’ng all Gs  OC of producing one G rises as more of that G is produced Key Economic Questions… 1. What is produced and how?  Resource allocation determines the quantities of various Gs that are produced  On a PPB, what combo will be chosen?  Will there be inefficiently used resources (where economy is inside the ppb)? 2. What is consumed and by whom?  What determines how economies distribute total output? Why do some ppl get more than others  Will the economy consume exactly what it produces? 3. Why are resources sometimes idle?  When economy is operating inside its ppb  Under what circumstances are workers seeking jobs unable to find them? Should govts worry about them? 4. Is productive capacity growing?  Growth in productive capacity is shown in outward shift of ppb  After sufficient growth, d becomes attainabl 1.3 WHO MAKES THE CHOICES & HOW? The Flow of Income and Expenditure  Illustrates interaction of consumers & producers  Individual consumers sell factor services to producers in factor markets & thus earn their income. (part-time job in uni = participating in factor market)
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