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Strand 1 Economic Decision Making. Course : CIA4U1 Teacher : Mr. Nicholson. Chapter Focus. The economic problem – the problem of having needs and unlimited wants, but limited resources – that underlies the definition of economics

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strand 1 economic decision making

Strand 1 Economic Decision Making

Course : CIA4U1

Teacher : Mr. Nicholson

chapter focus
Chapter Focus
  • The economic problem – the problem of having needs and unlimited wants, but limited resources – that underlies the definition of economics
  • The types of reasoning andinvestigativemethods that economists use
  • The production choices an entire economy faces
  • The three basic economic questions and how various economic systems answer them
  • The main economic goals of Canadian economy and the ways in which they are related
the economic problem
The Economic Problem
  • Needs– the essentials of life, such

as food and shelter

  • Wants– desires for non-essential items
  • Economic Problem – the problem of having unlimited wants, but limited resources to satisfy them
  • Scarcity – the limited nature of resources, which underlies the basic economic problem
  • Economic Resources – basic items that are used in all types of production, including natural, capital, and human resources
slide4
Natural Resources – the resources from nature that are used in production, including land, raw materials, and natural process
  • Capital Resources– the processed materials, equipment, and buildings used in production; also known as capital
  • Human Resources–the efforts of people involved in production, including labour and entrepreneurship
  • Economics–the study of how to distribute scarce resources among alternative ends
slide5
Microeconomics – the branch of economics that focuses on the behaviour of individual participation in various market
  • Macroeconomics – the branch of economics that takes a wide-ranging view of the economy, studying the behaviour of economic sectors
  • Economic models – generalizations about or simplifications of economic reality; also know as laws, principles, or theories
  • Hypothesis – a tentative principle of an observation or insight, to be tested for its validity
slide6
Variables – factors that have measurable values
  • Independent variables – the variable in a causal relationship that causes change in another variable
  • Dependent variables – the variable in a causal relationship that is affected by another variable
  • Inverse relationship – a relationship in which a change in the independent variable causes a change in the opposite direction of the dependent variable
  • Direct relationship – a relationship in which a change in the independent variable causes a change in the same direction of the dependent variable
slide7
Ceteris Paribus – the assumption that all other things remain the same
  • Division of labour – the extent to which jobs of different workers are specialized into separate task
  • Deduction – a type of reasoning in which one states a hypothesis before examining the facts
  • Induction – a type of reasoning in which one states a hypothesis after examining the facts
  • Positive economics – the study of economic facts and how the economy operates as it does
  • Normative economics – the study of how the economy ought to operate
economic choice
Economic Choice
  • Utility – the satisfaction gained from any action
  • Self-interest motive – the assumption that people act to maximize their own welfare
  • Opportunity Cost – the utility that could have been gained by choosing an action’s best alternative
  • Free Goods – items that are so plentiful that they do not have any cost
  • Economic value – the opportunity cost of product
the production possibilities model
The Production Possibilities Model
  • Consumer product – an item that gratifies people’s needs and wants
  • Capital good – an item that is used to produce other products
  • Production Possibilities Schedule – a table that shows the possible output combinations for an economy
  • Production possibilities curve – a graph that shows the possible output combinations

for an economy

economic systems
Economic Systems
  • Basic economic questions
    • What to produce?
    • How to produce?
    • For whom to produce?
  • Economic system - the organization of an economy, which represents a country’s distinct set of social customs, political institutions, and economic practices
  • Traditional economy – an economic system in which economic decisions are made on the basis of custom
  • Market economy – an economic system based on private ownership and the use of markets in economic decision-making
slide11
Command economy – an economic system based on public ownership and central planning
  • Modern mixed economy – an economic system that combines aspects of a market economy and a command economy
        • Production decisions are made in both private market and by government
  • Traditional mixed economies – economic systems in which a traditional sector co-exists with modern sectors
  • Laissez faire – the principle that governments benefit society the most by not interfering in economic activity
  • Market – a set of arrangements between buyers and sellers of a certain item
slide12
Product markets – markets in which consumer, or final, products are trade
  • Resource markets – markets in which economic resources are traded
  • Circular flows – the circulation of money and the circulation of consumer products and economic resources in the economy
  • Consumer sovereignty – the effect of consumer needs and wants on production decisions
  • Invisible hand – the tendency for competitive markets to turn self-interested behaviour into socially beneficial activity
  • Private sector – the part of an economy in which private markets dominate
slide13
Public sector – the part of an economy in which governments dominate
  • Traditional sector – the part of an economy in which custom and traditional production techniques dominate
economic goals
Economic Goals
  • Economic Efficiency
  • Income Equity
  • Price Stability
  • Full Employment
  • Viable Balance of Payments
  • Economic Growth
  • Environmental Sustainability