ECON201 - Chapter 1: Economic Issues and Concepts

Chapter Overview

• Title: Microeconomics - Seventeenth Canadian Edition
• Chapter: Economic Issues and Concepts
• Publisher: Pearson Canada Inc.

Learning Objectives

1. What is Economics?

   • Importance of scarcity, choice, and opportunity cost.
   • Illustrated by the production possibilities boundary.

2. The Complexity of Modern Economies

   • Market economy as self-organizing; order emerges from decentralized decisions.

3. Is There an Alternative to the Market Economy?

   • Specialization and the need for trade, facilitated by money.
   • Maximizing and marginal decisions.
   • All economies are mixed, combining free markets, tradition, and government intervention.

Pressing Issues

• COVID-19 Pandemic
• Population Aging
• Climate Change
• Productivity Growth and Technological Change
• Rising Protectionism
• Growing Income Inequality
• Government Debt and Priorities

What is Economics?

• Economics is the study of the use of scarce resources to satisfy unlimited human wants.
• Resources:
  • Land (Natural endowments)
  • Labour (Human effort)
  • Capital (Tools, machinery, equipment)
• These resources are known as factors of production.

Goods and Services

• Goods: Tangible items (e.g., cars, steel)
• Services: Intangible items (e.g., legal advice)
• Production involves making goods and services, while consumption is about using them.

Scarcity and Choice

• Scarcity means resources are limited compared to desires.
• Necessitates making choices about how resources are allocated.

Opportunity Cost

• Choices imply costs.
• Opportunity Cost: Value of the next best alternative given up when a choice is made.

Example: Road Repair vs. New Bicycle Paths

• Budget constraints: $12 million available.
• Cost of repairs: $1 million/km; New paths: $500,000/km.
• Opportunity cost of 1 km of repairs is 2 km of new paths, and vice versa.

Production Possibilities Boundary (PPB)

• Illustrates scarcity, choice, and opportunity cost.
• Different points show attainable and unattainable options.
• Points within boundary show efficiency.

Key Economic Problems

1. What is Produced and How?
   • Resource allocation determines production quantities.
   • Government intervention is considered in resource allocation.