Chapter 1 and 2 Notes

Chapter 1: Economic Issues and Concepts

Seven economic issues pressing concern inside and outside of Canada:
1) Productivity Growth
- Lies at the heart of the long-term increase in average living standards
- Measure of how much output (income) is produced by one hour of work effort
- Gradually rising over the past century
- Slowing down in Canada in recent years
2) Population Aging
- Average age of Canadian population has been rising
- Due to long-term fertility and increased life expectancy
- Issues to come include health care spending, lack of worker leading to higher
wages
3) Climate change
- Long term increase in Earth’s temperature
- Melting ice caps, rising sea levels, reductions in agricultural productivity
- Challenge for the design of better economic policies to reduce greenhouse gas
emissions without slowing the growth of material living standards
4) Global Financial Stability
- Relates to the U.S. housing market crash of 2007-2008
- Governments are actively redesigning their financial regulations to reduce the
chances that a similar event would occur in the future
5) Rising Government Debt
- Massive public spending to reduce the impact of Global Financial Crisis
- Governments went into significant debt between 2008 and 2015
6) Globalization
- Canada relies on international trade
- Globalization is crucial for Canada’s prosperity
- Challenges include competition for domestic businesses, job loss
7) Growing Income Inequality
- Past three decades have shown an increase in income inequality
- Richest one percent incomes are increasing significantly whereas middle class
and poor incomes are not
- What government actions can be taken to reverse this?

1.1| What is Economics?

- Economy with unlimited resources is impossible
- We live in a world of scarcity
- Scarcity gives us the basic economic problem of choice
- We cannot have everything we want so we must choose what we will and will not have
- Economics is the study of the use of scarce resources to satisfy unlimited human wants
Resources
- Factors of Production are divided into land, labour, and capital
- Land includes all natural endowments
- Labour includes all mental and physical human resources
- Capital includes all manufactured aids to production

- Products are either Goods or Services

- Goods are tangible products
- Services are intangible products
- Goods and Services satisfy wants
- The act of making products is called Production
- The act of using products is called Consumption

Scarcity and Choice

- There are enough resources to produce only a fraction of the desired products
- Societies face the problem of deciding what to produce and how much each person will consume
- Scarcity implies the need for choice and choice implies the existence of cost
- Decision to have more of one thing results in less of something else
Opportunity Cost
- Everytime a choice is made, opportunity costs are incurred
- Cost that is measured in terms of other products that could have been obtained instead
Production Possibilities Curve/Boundary/Frontier
- Illustrates three concepts: Scarcity, Choice, and Opportunity Cost

Four Key Economic Problems

1) What is Produced and How
2) What is Consumed and by Whom?
3) Why are Resources sometimes Idle?
4) Is Productive Capacity Growing?
1.2| The Complexity of Modern Economies

1.3| Is there an Alternative to the Market Economy?