3.

● Economics: the social science that studies the choices people and governments
make when dividing up their scarce resources
● Macroeconomics: the study of a nation’s overall economic issues, such as how an
economy maintains and divides up resources and how a government’s policies affect
its citizens’ standards of living
● Microeconomics: the study of small economic units such as individual consumers,
families, and businesses
● Demand: the willingness and ability of buyers to purchase goods and services
● Supply: the willingness and ability of sellers to provide goods and services

● Factors driving demand

○ Prices of substitute goods
○ Prices of complementary goods
○ Preferences and tastes
○ Number of buyers
○ Income
○ Outside conditions
○ Larger economic events

● Demand curve: a graph of the amount of a product that buyers will purchase at
different prices
○ Slopes downward → buyers will purchase greater quantities of a good or
service as its price falls
○ E.g., gasolin prices

● Factors driving supply

 ○ Change in cost
■ Inputs
■ technologies
○ Availability of any inputs
○ Taxes
○ Cost of technologies
○ Number of suppliers

● Supply curve: a graph that shows the relationship between different prices and the
amount of goods that sellers will ofer for sale regardless of demand
○ As prices rise, the quantity sellers are willing to produce increases

● How demand and supply interact

○ Changes in more than one factor can lead to conflicting pressures on prices
and quantities
○ Equilibrium price: the current market price for an item
■ Found in the intersection of the supply and demand curves

3.2

● Economic systems
○ The private enterprise system (capitalism)
○ Planned economies
○ Mixed economies
● The private enterprise system (capitalism)
○ Based on competition and rewards businesses for meeting the needs and
demans of consumers
○ Different industries exhibit different competitive market structures
○ Competition manages economic life by creating opportunities and challenges
that business people must deal with to succeed
○ 4 types of competition
■ Pure competition: a market structure where large numbers of buyers
and sellers exchange similar products and no single participant has a
large influence on price
● E.g., small scale agriculture / fishing
● Firms can easily enter or leave a purely competitive market
because no single company controls the market
● Little difference between the goods and services offered by
competitors
■ Monopolistic competition: a market structure where large numbers
of buyers and sellers exchange distinct and differentiated (dissimilar)
products so each participant has some control over price
● E.g., market for pet food
● Success of one seller often attracts new competitors
■ Oligopoly: a market situation where relatively few sellers compete
and high startup costs act as barriers to keep out new competitors
● E.g., paper and steel industries / aircraft manufacturing
industry
● Sell in similar prices
■ Monopoly: a market situation where a single seller controls trade in a
good or service and buyers can find no close substitutes
● A pure monopoly occurs when a firm has unique features so
important to competition in its industry that these features act
as barriers to prevent entry
○ E.g., new technology
● A regulated monopoly is a firm that is granted exclusive rights
in a specific market by a local, provincial, or federal
government
○ Pricing decisions = regulate by authorities
○ E.g., electricity and natural gas rates

● Planned economies (socialism and communism)

○ Planned economies: an economic system where business ownership,
profits, and resource allocation are shaped by a plan to meet government
goals, not goals set by individual firms
■ Socialism: an economic system where the government owns and
operates the major industries, such as communications
● Allows private ownership in industries considered less
important to social welfare
○ Retail shops, restaurants, and some manufacturing
facilities
 ■ Communism: an economic system where all property is shared
equally by the people in a community under the direction of a strong
central government
● Less freedom = totalitarian socialism
● Suffer from inefficiency

● Mixed Market Economies

○ Mixed market economy: an economic system that draws from both private
enterprise economies and planned economies to different degrees
○ Privatization: the conversion of government-owned and -operated
companies to privately held businesses
■ E.g., postal service

3.3

● An economic system should provide two important benefits for its citizens
○ Stable business environment
■ The overall supply of needed goods and services matches the overall
demand for these items
■ Consumers and businesses have access to supplies of desired
products at affordable prices and also have money to buy the items
they demand
○ Sustained growth
■ Ideal economy → always changing because it is always expanding the
amount of goods and services it produces from the nation’s resources
■ Growth leads to expanded job opportunities, improved wages, and a
rising standard of living

● Flattening the business cycle

○ Business cycle:
■ Prosperity
■ Recession
 ■ Depression
■ Recovery

○ Prosperity
■ Unemployment is low
■ Consumers are confident about the future and make more purchases
■ Businesses expand
■ Businesses hire more employees, invest in new technology, and
purchase new technology to take advantage of new opportunities

○ Recession
■ Cycle of economic contraction that lasts for six months or longer
■ Consumers often wait before making major purchases
■ Business slow production, decide to wait before expanding
● Reduce stock and number of employees

○ Depression
■ Economic slowdown
■ Hard to find food and basic products

○ Recovery
■ Comes out of the recession and consumers start spending again
■ Need part time and temporary workers during the early stages of a
recovery
■ Unemployment begins to decline
■ Consumers start spending again

● Productivity and the Nation’s GDP

○ Productivity: the relationship between the number of units produced and the
number of human and other production inputs needed to produce them
■ Increased in productivity → lead to economic growth
■ Total productivity
● Output (goods or services produced) / Input (human or natural
resources, capital)
■ An increased in labour productivity → the same amount of work
produces more goods and services than before
● Technology
■ Productivity can be increased by outsourcing work to lower-cost
employees
● Cheaper labour
● Productivity = a measure of a company’s efficiency
■ Gross Domestic Product (GDP): the sum of all goods and services
produced within a country during a specific time period, such as year
● Measure when looking at per capita welfare
○ When comparing living conditions or use of resource
across countries
● The GDP per capita output of a country = total national output
divided by the number of citizens
● Price level changes
○ Another indicator of economic stability within an economy
○ Inflation: rising prices caused by a combination of excess consumer demand
and higher costs of raw materials, component parts, human resources, and
other factors of production
○ Core inflation rate: the inflation rate after energy prices and food prices are
removed
■ Accurate estinate of the inflation rate that consumers, businesses, and
other organizations can expect in the near future
○ Excess consumer demand creates demand-pull inflation
○ Increases in the costs of factors of production create cost-push inflation
■ Hyperinflation: an economic situation marked by soaring prices
○ Inflation devalues money because the constant price increases → people can
purchase fewer goods and services with a given amount of money
○ Deflation: the opposite of inflation; occurs when prices continue to fall
■ Waken the economy
■ Jobs are lost
○ Consumer Price Index (CPI): a measurement of the monthly average
change in prices of goods and services
■ A running measurement of changes in consumer prices

● Employment levels
○ People need incmoes to be consumers
■ The number of people employed → important indicator of how well the
economy is doing
○ Unemployment rate: the percentage of the total workforce actively seeking
work but currently unemployed
■ Measure of economic health
■ Grouped into 4 categories
● Frictional
● Cyclical
● Structural
● Seasonal

○ Frictional unemployment: the

joblessness of people in the
workforce who are temporarily not
working but are looking for jobs
■ E.g., new graduates
○ Seasonal unemployment: the
joblessness of workers in a
seasonal industry
■ E.g., construction workers, farm labourers, fishing boat operators
○ Cyclical unemployment: the joblessness of people who are out of work
because of a cyclical contraction in the economy
○ Strucural unemployment: the joblessness of people who remain
unemployed for long periods of time, often with little hope of finding a job
3.4

● Government can use two policies to fight unemployment, increase business and
consumer spending, and reduce the length and severity of economic recessions
○ Monetary policy
○ Fiscal policy

● Monetary policy: a government action to icnrease or decrease he supply of money

by changing interest rates or banking requirements
○ Expansionary monetary policy: a plan to increase the money supply to
stimulate business activity and cut the cost of borrowing
■ Lower interest rates encourage businesses to make new investments,
which leads to employment and economic growth
○ Restrictive monetary policy: a plan to reduce the money supply to curb
rising prices, overexpansion, and overly rapid economic growth
○ Bank of Canada = responsible for implementing the nation’s monetary policy
■ Lends money to Canadian banks, which then make loans to
businesses and individuals

● Fiscal policy: a plan of government spending and taxation decisions designed to

control inflation, reduce unemployment, improve the general welfare of citizens, and
encourage economic growth
○ Increased taxes → restrict economic activity
○ Lowering taxes & increased government spending → fuels economic
expansion (increase spending and profits, cut unemployment rates)
○ Budget: an organization’s plan for how it will raise and spend money during a
specific period of time
■ Federal budget
● Includes numerous spending categories
○ During a recession, the federal government may
increase spending on highway repairs to improve
transportation and increase employment in the
construction industry
○ During prosperity, the government may fund scientific
research on new medical treatments or alternative fuels

● The main sources of government funds to pay for the annual budget
○ Taxes, fees, and borrowing
■ Raising taxes → reduce inflation
■ High taxes → slow economic growth
○ Budget deficit: what results when the government spends more than it
raises through taxes
○ National debt: the money owed by a government to individuals, businesses,
and government agencies who purchase Treasury bills, Treasury notes, and
Treasury bonds
○ Budget surplus: the excess funding when a government spends less than it
raises through taxes and fees
 ○ Balanced budget: a situation where total revenues raised by taxes and fees
equal the total proposed government spending for the year

3.5

● Global risks
○ Economic
○ Environmental
○ Geopolitical
○ Societal
○ Technological

● Global challenges
○ International terrorism
○ A shift to a global information economy
○ The aging of the world’s population
○ The growth of China and India
○ Improving the competitiveness of every country’s workforce