Agenda for February 22 nd , 2012.

1. Agenda for February 22nd, 2012. • Test on Monday (Kiwanis Festival Friday) • Return Assignments, Including # 5 • Attendance • Review Chapter Three • Introduction to Chapter Four: An Overview of the Canadian Economy. • “Capitalism: A Love Story” is on its way. Only $9 including shipping : ) due to competition in the market economy.

2. The Canadian Economy • We have a well-developed market economy. Developed alongside the expansion of British & American style market-capitalism. • Private property is a hallmark of our system. It is the right of private persons to obtain, own, control, employ, dispose of, and bequeath land, capital and other property.

3. Characteristics of Capitalism:1. Private Property & Incentives • Private property provides incentives and encourages investment, innovation, exchange, maintenance, and the expansion of production or economic growth. • Private property extends to intellectual property in Canada and most western nations, but challenges to this are numerous in modern society.

4. 2. Freedom of Enterprise & Choice • Freedom of Enterprise is the freedom of firms to obtain and use economic resources to produce their own choice of goods and services, and sell them where they wish. • Freedom of Choice allows owners to employ or dispose of their property as they see fit. Workers can do whatever work they wish and consumers can buy what they want.

5. Economic Freedoms Vary • Clearly economic freedoms vary. Figure 4.1 on page 77 illustrates Hong-Kong as the most free, with Canada at number 14 in the world. • Currently, the ``Index of Economic Freedom`` still lists Hong-Kong as #1 and Canada as #6, the United States has dropped to #10. Last is North Korea. • http://www.heritage.org/index/ranking

6. 3. Self-Interest • Self-Interest is the motivating force of all various economic units. It means that each unit tries to do what is best for itself. • We seek to maximize our utility by gaining the largest marginal benefit at the least marginal cost. It is the hallmark of true competition.

7. 4. Competition • The basis of competition is freedom of choice. Independently acting sellers and buyers operating in a particular resource market. With limited numbers, competition is hampered. • Sellers and buyers must be free to enter and leave based on their own self-interest.

8. 5. Markets and Prices • Innumerable individual free choices act to create markets and prices that organize our economic system. Prices guide us. • Those who respond to market signals and obey them are rewarded with higher profit and income, those who do not are penalized.

9. 6. Active but Limited Government • Though governments often act to inhibit a free-market system, they can also help to enhance it by enforcing the rule of law and private property and enhancing competition.

10. Specialization • Specialization is the use of the resources of an individual, a firm, a region, or a nation to produce one or a few goods and services. • The Division of Labour is human specialization. It saves time, fosters learning, and makes good use of different or varying abilities.

11. Why Money? • Medium of Exchange: It acts as something that buyers and sellers both want, which facilitates the trading process and prevents bartering. Figure 4-1 on page 81 illustrates this concept well. • Money can be any item that is generally accepted to sellers in exchange for goods and services. It has value simply because we think it does.

12. Four Fundamental Questions of the Market System: • What will be produced? Those that produce a continuing profit. • How will goods and services be produced? Productive efficiency will determine how. • Who will get the goods and services? Depends on ability and willingness to pay. • How will the system accommodate change? It is dynamic and guided by incentives.

13. Competition and the “Invisible Hand” • It is the tendency of economic actors when acting in their own self-interest to simultaneously promote the public's interest along with their own. • In their pursuit of higher profits businesses shift production to the goods that people want the most. And to earn higher profits, they reduce costs, which increases our productive potential.

14. Market Failure : ( • Spillovers or Externality Costs are imposed on third parties by the production or consumption of buyers and sellers. • Spillover costs cause a good to appear cheaper than it should be, so we over-allocate it. Consider the spillover costs of pollution from carbon fuels.

15. More Terrible News : ( • Spillover Benefits: benefits obtained by a third party from the production or consumption of buyers and sellers. Benefits occur that were not paid for! • Immunizations, education, et cetera benefit people other than the direct recipients. We rectify this through subsidies and the government providing goods and services.

16. Public & Quasi Public Goods • Public goods are indivisible. They generally cannot be sold to individual buyers because of their size or extraordinary cost. • Benefits derived from public goods cannot be excluded on the basis of price, because once they come into existence, anyone can reap the benefits. • Free-Rider problem exists when people receive benefits from a good without contributing to it.

17. Assignment # 7Title: The Canadian Economy • Read 75-95, Review the up-dated Circular-Flow Diagram (91), which now includes taxes and the role of government. Note how the government diverts resources. • Answer Questions: 9, 12, and 14. • For 14, closely read “Market Failure and the need for Government” so that you can develop a well-thought out and reasoned answer.