ECONOMICS

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ECONOMICS

• The study of
• the production and distribution
• of goods and services.

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• Microeconomics
• ? The study of individual sectors or
  specific issues.
• Macroeconomics
• ? Performance of the economy as a
  whole.

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CHAPTER 1A Simple Economic Model

• Inputs Outputs

ECONOMICSYSTEM
Land Labour Capital
Goods Services
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CHAPTER 1A Simple Economic Model

• INPUTS
• Land- all natural resources
• Labour- work, all productive talents- includes
  entrepreneurial ability
• Capital- tools, equipment, machinery,
  buildings- used to produce goods- ?
  productivity ? ? standard of living

productivity
standard of living
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• DEFINITION
• Productivity
• ? Output per worker.
• ? Usually measured per hour.

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• DEFINITION
• Standard of Living ? Goods and services
  available to a society.
• ? Usually measured per capita total
  output / total population

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Relationship between capital
productivity standard of living
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labour
capital
output
?
300
SCENARIO 1
PRODUCTIVITY 300 / 3 / 8 12.50 per hour
STANDARD OF LIVING 300 / 3 100.00 per capita
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labour
capital ?
output ?
?
300
?
300
?
300
SCENARIO 2
PRODUCTIVITY 900 / 3 / 8 37.50 ?
STANDARD OF LIVING 900 / 3 300.00 ?
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Relationship between capital
productivity standard of living
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• DEFINITION
• EconomicsThe study of the production and
  distribution of goods and services.
• The study of how individuals, firms, and
  governments make optimal choices from a set of
  alternatives when facing scarce resources.

choices
scarce resources
alternatives
Source Microeconomics, 3rd Cdn ed., Colander
Richter Rockerbie
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• DEFINITION
• Problem of ScarcityThe problem that, while
  economic inputs (and thus potential outputs) are
  limited peoples wants and needs are apparently
  unlimited.

Source Canadian Microeconomics Problems and
Policies, 8th ed., Brian Lyons
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• DEFINITION
• Effective
• ? allocative efficiency
• ? produce the goods and services that are
  needed and wanted

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• DEFINITION
• Efficient
• ? productive efficiency
• ? produce the most goods and services with the
  fewest resources
• ? produce at a low cost per unit

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• DEFINITION
• Opportunity Cost ? The cost of the
  forgone (or next best) alternative.

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CHAPTER 1Three Basic Questions

• Every economic system must answer 3 basic
  questions
• WHAT do we produce?
• HOW do we produce it?
• WHO gets how much?

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CHAPTER 1Three Basic Questions

• MARKET ECONOMY
• WHAT Consumers decide.
• HOW Producers decide.
• WHO Decided by income, price.

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CHAPTER 1Three Basic Questions

• COMMAND ECONOMY
• WHAT Central planning board.
• HOW Central planning board.
• WHO Central planning board.

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CHAPTER 1Three Basic Questions

• TRADITIONAL ECONOMY
• WHAT What was produced in the past.
• HOW Same way as in the past.
• WHO Decided by tradition, position.

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CHAPTER 1Homework

• READ
• Textbook, p. 1-7, 10-14
• STUDY GUIDE
• Q1-12, p. 16-18