1 - Understanding Economic Issues and Concepts

Nov 12, 2024

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.