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Macro Economics Chapter Notes .docx

20 Pages

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Geography 2050A/B
Mireya Folch- Serra

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Macro EconomicsCanada in the Global EnvironmentChapter NotesChapter 1What is Economics Scarcity is our inability to get everything we want Incentive is a reward that encourages an action or a penalty that discourages one Economic is the social science that studies the choices that individuals businesses governments and entire societies make as they cope with scarcity and the incentives that influence and reconcile those choicesMicroeconomics is the study of the choices that individuals and businesses make the way these choices interact in markets and the influence of governments Some examples of micro questions are Why are people downloading more movies How would a tax on ecommerce affect eBayMacroeconomics is the study of the performance of the national economy and the global economy Some examples of macro questions are Why is the Canadian unemployment ratio so damn high Can the Bank of Canada make our economy expand by cutting interest rates 2 Big Economic Questions 1How do choices end up determining what how and for whom goods and services are produced2Can the choices that people make in the pursuit of their own selfinterest also promote the broader social interestGood and Services are objects that people value and produce to satisfy human wants Goods are physical objects such as cell phones and automobiles Services are tasks performed for people such as cellphone service and autorepair service Goods and services are produced using productive resources that economists call factors of production Factors of production are grouped into 4 categories1Land2Labor3Capital 4Entrepreneurship The gift of nature that we use to produce goods and services are called land In economics land is what in everyday language we call natural resources Examples are minerals oil gas coal water forests air and fish The work time and work effort that people devote to producing goods and services is called Labor Labor includes the physical and mental efforts of all people who work on farms and construction sites and in factories shops and officesThe quality of labor depends on human capital which is the knowledge and skill that people obtain from education onthejob training and work experience You are building your own human capital right now as you work on your economics course and your human capital will continue to grow as you gain work experienceThe tools instruments machines buildings and other constructions that businesses use to produce goods and services are called capitalThe human resource that organizes labor land and capital is called entrepreneurship Land earns rentLabor earns wagesCapital earns interestEntrepreneurship earns profit A choice is in your selfinterest if you think that choice is the best one available for youA choice is in the social interest if it leads to an outcome that is the best for society as a whole The social interest has two dimensions efficiency and equity or fairness What is best for society is an efficient and fair use of resources Economists say that efficiency is achieved when the available resources are used to produce goods and services at the lowest possible cost and in the quantities that give the greatest possible value or benefitThe term globalization means the expansion of international trade borrowing and lending and investment The Economic Way Of ThinkingA choice is a tradeoff People make rational choices by comparing benefits and costs Benefit is what you gain from something Cost is what you must give up to get something Most choices are howmuch choices made at the margin Choices respond to incentives Tradeoff is an exchangegiving up one thing to get something else Rational choice is one that compares costs and benefits and achieves the greatest benefit over cost for the person making the choice Benefit that arises from an increase in an activity is called marginal benefit The opportunity cost of an increase in an activity is called marginal cost
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