What is the economic problem?
We have unlimited demand but limited supply, so we must optimize resources
What are the 4 types of economies?
Traditional economy:
-Started the economies
-Heavily focused on bartering
-Limited in choice
Market economy: (Finland)
-Private companies have control over production
-Self-interest, individual choice, and consumer sovereignty is key
-product markets for consumer goods
-resource markets for capital goods
Command economy (China)
-Government controls production
-3 economic questions are answered by the government
-The economy is centrally planned
-limited choice
Mixed-Modern economy (Canada)
-A mix of both market and command economies
-Crucial production is controlled by the government while the rest is controlled by private ownership.
What is an externality?
Economic actions that impose a cost/benefit on third parties outside of the consideration
Positive externality: education
Negative externality: pollution from factories
What are all the market structures (from most to least)
- Monopoly/Pure monopoly
One company ruling over 60%+ of the market
Impossible to enter
Total control over prices
E.g. Canada Post - Duopoly
2 major companies have control over a market
Very high barriers to entry
Actions of one will influence the other
Competitive pricing
E.g. Apple vs. Samsung
3.Oligopoly
Few companies have control over a market
High barriers to entry for new competitors
Around 3-5 companies having 75% of the market
E.g. telecoms
- Monopolistic competition
Multiple companies competing
Products are somewhat differentiated
Low barriers to entry
E.g. Jeans: gaps, levi, guess - Perfect competition
Multiple companies competing
Products are identical
No barriers to entry
E.g. Bananas
What is a collusion
When oligopolies cooperate to make profits.
What market structure has a kinked demand curve?
Oligopoly. Starts elastic, then inelastic.
What are price ceilings/price floors?
Government intervention to limit how much/less you can charge on something.
Price floor = Minimum you can charge (above equilibrium price)
Price ceiling = Maximum you can charge (below equilibrium price)
What is predatory pricing?
Predatory pricing is when a producer charges a low amount under the market price to try to drive competitors out of the market and gain a monopoly
What is fiscal policy?
Fiscal policy is when the government increases/decreases AD using taxes to stabilize the economy back to LRAS.
What is monetary policy?
When the Bank of Canada increases/decreases AD using interest rates and bonds to stabilize the economy back to LRAS
What is stagflation
There is high inflation, low GDP, and high unemployment. Basically, very, very doomed.
What is Keynesian economics?
Saying the government should intervene to stabilize the economy
What is a tariff?
A tariff is a balancing fee to even out price differences between a foreign product and a domestic one.
What is an import quota?
Import quotas are when there are limits on how much a foreign product can be imported. (prices shift up due to the market, not direct actions)
What is an exchange rate?
The value of one currency in a foreign currency. The formula is self-explanatory: currency of 1$/0.?$.
How does the Bank of Canada (monetary policy) shift the money supply?
This is done through the Bank of Canada buying/selling bonds in the open market.
When others buy bonds, more money goes into charter banks, increasing money supply that can be loaned out
When others sell bonds, less money goes into charter banks, decreasing the money supply
When the money supply is increased/decreased, interest rates decrease/increase, and people buy more/less depending on interest rates.
What are the type of taxes?
Progressive: The more you make, the more you are taxed
Regressive: The more you make, the less you are taxed
Flat: regardless of income, you are taxed on a flat amount
Is economic growth a good or bad thing for human society?
Economic growth is good because:
An increase in GDP, therefore, increases resources per person. In turn, more purchasing power for housing, transportation, food,
Also leads to less unemployment since economic growth shifts AD right, increasing output. Since firms produce more, they need more jobs
Raises tax revenue without increasing tax rates, allowing for a better quality of life for people through public services.
Is GDP the only consideration that should measure economic performance?
No, this is because
GDP only accounts for the total output of goods and services in a country, not how well its citizens are doing. A country can have a high GDP but a horrible education.
GDP also does not account for inequality, since it is an average of the country
A better measure should add something similar to the HDI (human development index) that measures
Income per capita (standard of living)
Education (how many years of schooling)
Life expectancy
Do tariffs help or harm an economy and its participants?
I believe that tariffs help an economy since it acts as a balancing fee so that domestic and foreign goods are equal. If tariffs did not exist, people might neglect domestic markets and fully send to foreign markets, crashing manufacturing and companies that reside in Canada. In turn, will also reduce the number of available jobs in Canada since factory work is a large portion of the jobs. Then it will reduce the GDP of Canada.
Do price floors and price ceilings benefit or harm stakeholders in an economy?
I believe that they harm them in the long run. Taking inspiration from the rent control crisis of 2017-2018, the price ceiling caused a shortage, which, in turn, created a shortage since people were satisfied with their rent control; no new houses were being built. In turn, when the policy ended, houses were scarce, raising prices.
Which type of economy is superior? A market or command economy?
I believe a market economy is superior to a command. This is because in a market economy, consumer sovereignty is key. Meaning that people buy want they desire more. In turn, increases competition. When competition is increased, innovation skyrockets since people are always trying to 1 up eachother. In the long run, the most desirable goods and services will automatically be developed to be priority. Therefore, in a command economy where choice is limited, not only will there be unhappy citizens stripped of consumer freedom, but there will be little to no innovation.
Shift factors of Demand
of buyers (more buyers = more demand
Change in income (more income = more demand for luxury, less demand for inferior)
Changes in $ for substitutes (more cost of good = more demand for substitutes)
Consumer preference (less want = less demand)
Changes in expectations (if expected for $ to rise, demand increases to invest)
Shift factors of Supply
of producers (more producers = more supply)
$ of resources (more expensive resource = less supply)
Changes in technology (automation = more supply)
Changes in $ of related goods (if one product sells for more, more supply for the better product)
Changes in producer expectation (if expected for prices to rise, supply falls since you should produce more when the buying price is up)
