Resources → Usually divided into land, labour and capital.

Resources → Usually divided into land, labour and capital.

Resources → Factors of production.

Outputs → goods (tangibles) or services (intangibles).

Scarcity → Demands of People > Resources Availible

Scarcity → Need for choice.

Each choice → Assiciated opportunity cost.

Oppotunity Cost → What we needed to give up to make/change something.

Production Possibilities Boundary → Show scarcity, choice opportunity.

Economic Systems → Three types, traditional, command and market.

In practice, real economies are a mix of all three.

Demerit goods → Goods deemed bad in terms of their effect on health.

Demerit goods are sometimes taxed to push people away from using them. Trait of a commad economy.

Key government-provided institutions in market economies are private property and freedom of contract.

Governments intervene → Correct market failures, provide public goods, offset externalities.

Resource Allocation → Follows Demand.

Resource Allocation → Determines quantities of goods.

Microeconomics → The study of the allocation of resources as it is affected by price.

Macroeconomics → The study of determination of economic aggregates.

Aggregate → Collection of individual behaviour.

Positive Correlation → X and Y move together

Negative Correlation → X and Y move in opposite directions

Either way → X and Y might not be **casually related** or they may be related in an opposite way than exprected; **reverse causality.**

Quantity Demanded → Total amount that consumers desire to purchase in some time.

Quantity Demanded → Flow (quantity / period time) or Stock (quantity / specific time)

Price → Negatively correlated with Quantity Demanded

Substitutes → Alternate products that can satisfy another want.

Demand Curve → Shifts when change in average income, prices of other products, consumer tastes, population, expectation about future.

Shift in Demand Curve → Right: Increase, Left: Decrease

Change in Demand → Shift of entire curve of demand.

Change in Quantity Demanded → Shift of a single point on the curve of demand.

Quantity Supply → The amount of product that people want to sell over some time period.

Quantity Supply → Is not necessarily how much is actually sold.

Quantity Supply → Flow measurement, not stock.

Price → Positively correlated with Quantity Supplied. ???

Change in Supply → Shift of entire curve of supply.

Change in Quantity Supply → Change of single point on the curve of supply.

Variables for Supply Curve → Price of inputs, prices of other products, government policies, technology, number of suppliers.

Market → Any situation in which buyers and sellers negotiate the transaction of some goods or services.

Equilibrium Price → Every buyer finds a seller and every seller finds a buyer. Clear market


Demand → Positively correlated with Equilibrium Price and Equilibrium Quantity.

Supply → Negatively correlated with Equilibrium Price but positively with Equilibrium Quantity.

Price Determination Theory Conditions →

- Large Number of Consumers (each one insignificant to market size)

- Large Number of Produces (each one insignificant to market size)

- Produces must be selling homogeneous products (same products)

# Review

Demand → Relationship between various possible prices and the quantities consumers are willing to purchase.

Quantity Demanded → The amount of a good/service consumers are willing to purchases at a price.

Law of Demand → There is an inverse relationship between price and quantity demanded.

Demand Curve → Represents possible price/quantity demanded.

Demand Schedule -: Table showing various possible prices and quantity demanded.

Supply → Relationship between various possible prices and the quantities producers are willing to offer.

Quantity Supplied → The amount of goods producers are willing to sell.

Law of Supply → Positive relationship between price and amount of people who want to produce.

Supply Curve → Graph representing possible price/quantity supplied.

Supply Schedule → Table representing possible price/quantity supplied.

Government Intervention → Governments attempting to influence the market to protect producers/consumers.

Government Intervention → Common ways include price floors and price ceilings.

Price Floor → Minimum on price, must be higher than equilibrium price (minimum wage).

Price Ceiling → Protects consumers against prices that would make commodities prohibitively expensive.

Elasticity → responsiveness of quantities demanded and supplied to changes in price.

Elasticity → Change in Qd/Qs for a change in price.

Elasticity Demanded → delta %Qd / delta %P

Decision Making → A process or sequence of activities involving stages of problem recognition, search for information, definitions of alternatives and the selection of an actor of one or more alternatives.

Decision Making Theory → A mathematical study of strategies for optimal decision-making.

- Decision making is a matter of compromise.

- There must be rationality in the decision making process.

- A decision is never the product of of a single man.

- Decision making relates to a number of issues at a time.

### Stages of Decision Making

- Policy Initiation

- Formulation of Decision

- Implementation of Policy

- Evaluation

- General Assessment

Economic Policies → Sometimes benefit some groups while disadvantaging others.

Utility → The usefulness or satisfaction a consumer receives from a product/service. 

Total Utility → Measures the total satisfaction gained from consuming all the units a consumer purchases.

Marginal Utility → Measures the extra satisfaction gained from consuming another unit of the product.

Utility Theory → Diminishing returns means that after you consume enough products, marginal utility is low and a consumer might be more interested in selecting another product.

Utility Maximization Formula → MUx / Px = MUy / Py, x is a product, y is a product

Consumer Surplus → Difference between what the consumer is willing to pay and what the product actually costs.

# Macroeconomics

Microeconomics → Focus on specific markets

Macroeconomics → Focus on whole economy

Measures of Economic Performance → Output, Employment and Price Stability

Reasons to Measure Economic Performance

- Helps government decide taxes and laws.

- Helps compare our economy to other economies.

- Allows us to look at roles played by different industries.

- Can be used in an argument (unions, wage earners).

- Helps with investment decisions.

GDP → Gross Domestic Product

GDP → The total market value of all final goods and services produced within a country in one year. Measures **output**.

Expenditure Approach → Add up the total that is spent on all final goods and services in one year.

Income Approach → Add up all the income that is earned by different factors of production in producing goods and services.

Expenditure Approach → GDP = C + G + I + X - M

- C represents consumption

- G represents government purchases

- I represents investment (the purchase of new capital goods for the use in the production process)

- X - M represents that value of net exports in Canada

- X represents exports

- M represents imports

GDP Growth Rate → Calculated by using change in GDP figures in two successive years.

GDP Growth Rate → (G2 - G1) / G1 in %

GDP → Represents the standard of living in a country.

Standard of Living → The quantity and quality of goods and services that people are able to obtain to accommodate their needs and wants.

Per Capital GDP → GDP / Population of economy

Drawbacks to GDP →

- Population Size: Comparing GDP for different years might be misleading if there was a change in population.

- Non-market production is not measured. Doesn't count output with no $ transaction.

- Underground economy can add between 3 to 20% of the GDP.

- Types of good produced: Some products (guns) can weaken GDP as a measure of well-being.

- Leisure: GDP doesn't consider the positive effect leisure can have on well being.

- Environmental Degradation: GDP does not consider the effects production has on the environment.

- Distribution of Income: GDP doesn't take into account how evenly the income in a country is distributed.

Unemployment Rate → Measure of efficiency of the economy for its resources.

Unemployment Rate → The percentage of the labour force not working at any given time.

Employment Groups →

- People unable to work, people in prison, people under the age of 15.

- People able to work but have decided not to (retired people).

- Labour Force: people who decide to work.

Unemployment → Members without work or are seeking work.

Unemployment Rate = Unemployed/Labour Force in % 

Problems with Unemployment Rate →

- People who are working full time appear to be fully employed.

- The unemployment rate does not include workers who get tired of looking for a job. If they are not looking for a job, they are not counted as part of the labour force.

- There are many people who accept jobs for which they are overqualified (underemployed). Their skills are not fully utilized, therefor it UE is not indicative of the full efficiency of the market.

Unemployment Rate → Does not drop to 0 even with full employment. There is always some unemployment.

Frictional Unemployment → Workers are moving between jobs, including student graduates.

Seasonal Unemployment → Workers who lose jobs due to climate (fishers, farmers, construction workers).

Structural Unemployment → Explains why workers lose jobs when the market/economy changes (closing of a store).

Cyclical Unemployment → Reduction in overall consumer spending. As demand for goods and services falls, demand for labour falls and workers get fired.

Economists believe that a 4% to 5% unemployment rate is the best that can be obtained in Canada, this would be considered Full Employment.

Natural Rate of Unemployment → Highest rate possible in an area.

Price Stability → Federal Government Goal

Prices of Goods Rise + Consumers Income Stay the Same → Consumer Income Effectively Decreases

Inflation → When a general price level in a country increases.

Mild Inflation → 1-2% per year.

Hyperinflation → Discouraged, involves increase of over 12%.

Deflation → Less common, general level of prices decrease.

Consumer Price Index → Indicator of inflation that measures changes in prices of consumer goods.

CPI → Price of Basket / Price of Basket in Previous Year in %

Consumer Price Index → Also used to judge how to adjust wage and pension or "indexing".

C1/C2 = W1/W2 → Where C is CPI and W is wage or pension amount in a year.

GDP Deflator → Similar CPI to deflate GDP increase. A price index based on a certain basket of goods and services measured by the GDP.

Nominal GDP → Total value of goods and services before the effect of price increases is removed.

Real GDP → Nominal GDP / GDP Deflator in %

Chain Fisher Volume Index → Used by Canada to replace GDP deflator.

Chain Fisher Volume Index → Eliminated the use of a base year and uses a formula to rebase the GDP each quarter.

Chain Fisher Volume Index → More accurate than GDP.

Aggregate Demand → Total demand for all goods and services in a society.

Aggregate Demand → Equal to GDP that would occur at the same price level, or sum of all consumption, investment, government spending and net export.

Economic Growth → Real GDP Growth → Aggregate Demand must increase at each price level.

Aggregate Demand Curve → Similar to Market Demand Curve.

Aggregate Supply → Total supply of all goods and services produced in a society.

Aggregate Supply Curve → Total amount of goods and services supplied at each price level.

Aggregate Supply Curve → Similar to Supply Curve.

Aggregate Supply Curve @ Low Output Levels → Very Elastic (resources are idle, price level will stay low as output increases)

Aggregate Supply Curve @ Scarce Resource Time → Prices go up and put upward pressure on other prices. Inelastic.

Equilibrium Output and Price Level → Point where AD curve intersects the AS curve.

Economy @ Full Employment → Aggregate Curves intersect at a point on the AS curve where prices rise more rapidly.

Below Full Employment Equilibrium → Occurs when the AD curve intersects AS to the left of full employment equilibrium. (real GDP is lower, prices are rising slowly, higher unemployment levels, recession)

Above Full Employment Equilibrium → Occurs when the AD curve intersects AS to the right of full employment equilibrium. (real GDP is high, prices are rising very fast, lower unemployment levels, inflationary)

Delta Aggregate Demand → Directly Related to Delta GDP (CIGXM)

Increase in Consumption → Increase in AD (right)

Increase in Investment & Strong Profits & Business Environment → Increase in AD (right)

Increase in Government Spending → Increase in AD (right)

Increase in Exports → Increase in AD (right)

- Increase in Domestic Inflation Rate → Other imported products become more expensive, decrease in AD (left)

- Increase in Relative Income in Other Countries → Demand for domestic goods increase, increase in AD (right)

- Increase in Value of Domestic Currency → Lowers demand for products of other countries, decrease in AD (left)

Delate Aggregate Supply →

- Increase in Amount of Resources/Methods/Developments → More inputs available, AS shifts down and to the right.

- Increase in Price of Inputs → Land, labor or capital is more expensive, AS shifts up and skews to the left.

- Increase in efficiency → New technologies make it easier to produce more, AS shifts down and to the right.

Business Cycle → Periods of alternating economic growth and recession and measured by changes in real GDP.

Economic Expansion → Period in which GDP is rising steadily.

Economic Recession → Period in which GDP is falling steadily.

Economic Recovery → Brief period after recession, early period of expansion.

Length of cycles → Difficult to predict

Prosperity Cycle → Result of aggregate demand feeding itself, the cycle where business continues on expanding further than before after each recession.

Business Cycle → Should continue until run out of resources.

Circular Flow → Money goes from business to consumer to business to consumer through monetary compensation.

Leakage → Someone gets money but does not spend it, taking it away from circular flow.

Injection → Someone spends a larger deal of money, adding it to the circular flow.

Budget → Government statement of fiscal policies. Presented every year (typically no requirement for yearly presentations).

Balanced Budget → Budget where expenditures equal income in this year.

Deficit → Budget where expenditures exceeded income.

Surplus → Budget where income exceeded expenditures.

Debt → Accumulated deficits of past year budgets. Owed to both Canadians and investors from abroad.

Debt Charges → The total cost of servicing or paying interest on the accumulated debt for one year. Related to size of debt and level of interest.

Things governments consider for their annual budget →

- Taxes (Income)

- Expenditures (Spending)

- Budget Cycle Location Currently

- Deficit or Surplus in Budget

Federal →

- **Spending**

- Social Welfare

- General Government Services

- Transfer Payments to Provinces

- Debt Charges

- Foreign Affairs and International Assistance

- Aboriginal Affairs

- National Defence

- Penitentiaries

- Housing

- Agriculture

- Heritage and Culture

- Trade, Industry and Tourism

- **Revenue**

- Personal Income Tax

- Corporate Income

- Customs duties and exercise taxes

- Taxes on alcohol, tobacco and gasoline

- Contributions to social security plans

Provincial →

- **Spending**

- Health Care

- Education

- Welfare

- Supervision of Municipalities

- Provincial Prisons

- Highways

- Ontario Provincial Police

- Workers Compensation Plan

- **Revenue**

- Income tax

- Provincial Sales Tax

- Transfer Payments from Federal Government

- Fees and Licenses

- Gaming Profits

- LCBO Profits

Municipal →

- **Spending**

- Local Police Service

- Fire Service

- Welfare

- Parks and Recreation

- Garbage Collection

- Snow Clearance

- Libraries

- Recycling

- Public Transportation

- **Revenue**

- Property Tax

- Transfer Payments from Provincial Government

Money → Anything acceptable as payment.

Reasons Money is Helpful →

- Medium of exchange, saves you time.

- Measure of value, helps make decisions.

- Store of value, prevents it from disappearing/wearing.

Bank Cash Reserve → Money lent out can only be as much stored in vaults (100% cash reserve).

Banks → Can issue IOU loans greater than their actual amount in bank. Since people don't ask for full cash back often, this is feasible as long as there is enough cash in the bank to support the occasional withdraw.

Loans → Can be created since people demand little cash relative to the size of their deposits.

Fractional Reserve → The amount of cash the banks keeps as deposits in reserve.

Canada → Allows only 13 banks, but they are allowed to have as many branches as they wish.

Bank of Canada → Established in 1934

- Bring stability and security to banking system.

- Provide deposits and loans to central banks.

- Banker to the federal government.

- Handles foreign exchange reserves.

- Issues paper currency, and anti-counterfeiting measures.

Monetary Policy → Set of decisions a government makes through a central bank about the amount of money in circulation.

Money Supply → Amount of money in circulation in the economy.

Canada's Monetary Policies → Adjusting very short term interest rates to get a good rate of monetary expansion and stable rate of inflation.

 Increase in Money Supply wo/ Increase in Production → Increase in Inflation

Decrease in Money Supply → Sometimes leads to a stagnant economy (not enough money available for loans and expansion).

Bank of Canada → Operates the monetary policy/adjusts interest rates.

Increase in Interest Rates → Borrowing money more expensive (shrink in money supply).

Decrease in Interest Rates → Borrowing money less expensive (expanse in money supply).

Minister of Finance → Has the right to issue a public directivec to the Governor of the Bank (never happened before).

Overnight Lending Rate → Main tool used by Bank of Canada for Monetary Policies.

Overnight Lending Rate → The rate in which the Bank of Canada lends money to chartered banks.

Lower Overnight Lending Rate → Interest rates fall, households increase their demand for credit, commercial banks increase their quantity of credit supplied.

Higher Overnight Lending Rate → Interest rates rise, households reduce their demand for credit, commercial banks decrease their quantity of credit supplied.

Tight Money Policy → Contractionary Monetary Policy

Tight Money Policy → Interest rates are raised, country's money supply is reduced. Effectively reduces consumption/demand. 

Easy Money Policy → Interest rates are lowered, country's money supply is increased. Effectively increases consumption/demand.

International Trade → Essential to maintain a high quality lifestyle.

Trade → Allows industries to specialize and achieve greater efficiency.

Globalization → Increase in international trade and investments.

Absolute Advantage → A nation that produces something more efficiently than another has an absolute advantage.

Absolute Advantage → Characterized by production of same quantity using fewer resources.

Absolute Advantage → Does not prevent trade, there will still be trade between these countries in the same product potentially.

Comparative Advantage → Country takes advantage by specializing in exporting with the highest opportunity cost for another country.

Comparative Advantage → Someone may not produce as efficiently but offer at lower cost, hence comparative advantage.

Advantage → Can be inferred by looking relatively at how this country produces other things. In following picture, Spain Wine costs 1.5 Spain Oranges, Portugal Wine costs 2 Portugal oranges. Portugal Wine costs 3 Spain Oranges and Spain Wine costs 1 Portugal Orange. They can still benefit by trading across.


Specialization → In what each country is really good at can increase overall global output.

Law of Comparative Advantage → Countries will grow if they focus on producing items that they are most efficient at producing at lowest opportunity cost, assuming there are no transportation costs/tariffs. 

Why Restrict Trade → Protect domestic industries from foreign competition, obtain a more favorable balance of trade or retaliate against another country's actions.

Tariff → Tax on imports, encourages producing a resource domestically. Also used as a source of revenue.

Subsidy → Tax advantage or monetary grant to a local business.

Quotas → Limit on number of product allowed into country. 

Embargo or Sanction → Limit of trade or import to country. 

Barriers → Called "protection" since they are meant to shield or advance a segment of the economy.

Dumping → Selling a product abroad at a lower price than producing the product during an over production.

Intellectual Property Infringement → Protected, copyrighted/trademarked items are protected from duplication.

Certification and Testing Requirements → A barrier that ensures a minimum quality. Can discourage trade since a lot of testing needs to be done to approve it.

Boycotts → A decision to not trade with someone.

Merchandise Trade or Visible Trade → Goods grown/extracted/manufactured in another country then sold to another.

Non-Merchandise Trade or Invisible Trade → Exchange of services, tourism, investments, incomes and other transfers of funds.

Balance of Merchandise Trade → Difference between the value of the merchandise exports and imports.

Trade Surplus → Greater exports than imports.

Trade Deficit → Greater imports than exports.

Balance of Payments → Comprehensive statement of a country's economic transactions with the rest of the world.

Balance of Payments → Typically for a period of time. Length is usually quarter year or full year.

Balance of Payments → Shows surplus, deficit or equilibrium.

Exchange Rates → The price at which one currency can be purchased for another.

Value of a Currency → Measured in its price in terms of other currencies.

Increase in Price → Appreciation

Decrease in Price → Depreciation

Demand for Domestic Currency → If domestic country has something global economy wants.

Falling Exchange Rate → Importers demand more dollars because our exports become less expensive.

Appreciation in Currency → Rest of the world is less expensive.


Exchange Rate Equilibrium → Intersection between demand and supply exchange rate curves.

Factors Effecting Exchange Rate →

- Large amount of external trade, dollar value is important for relationships between other countries (Canada * US).

- If interest rate is higher in a country than in others, investors may choose to invest in Canada, increasing demand for dollar.

- If rate of inflation is increasing means a projected erosion of dollar value, decreasing demand.

- Supply > Demand → Dollar goes down, Demand > Supply → Dollar goes up.

- If world prices for what a country exports rise in comparison with cost of imports, citizens will be earning more for exports than they pay for imports. Basically, trade balance has an impact on dollar value.

Multinational Corporation or Transnational Corporation → Company the produces goods or delivers services in at least two countries.

Against Multinational Corporations →

- Raise labour and environmental concerns in developing countries.

- Control a lot of resources in many countries. Shut down domestic industries.

- Disrupts the native economy and agricultural cycle.

- Move dependance away to imported foods.

- In developing countries, sometimes undeveloped worker rights are exploited.

- Profit driver, do not care about human conditions.

- Money goes from developing countries to developed countries (share holders).

For Multinational Corporations →

- They provide a good route for new countries to enter free trade and competition.

- Produce goods more efficiently.

- Promote good among between country relationships.

- Provide jobs.

- Bad things like poverty and child labour tend to be less prevalent when multinationals have presence.

Free Trade Deals → Deals that remove trade barriers between countries.

- WTO

- NAFTA

- IMF

- APEC

- EU

- Kyoto Protocol

WTO → Created in 1995, evolved from GATT. Headquarters in Geneva, Switzerland.

WTO → Deals with rules of trade and settles disputes, ensure countries are adhering to their rules.

WTO's Goals → Improve welfare of the peoples of its member countries by overcoming trade barriers and providing a platform for free trade.

WTO Trade → Non-discriminatory, no advantages to another country. No "special" taxes can be placed on imports and subsidies for domestic goods are discouraged.

Some Individuals → Believe WTO supports richer nations and neglects poorer nations (bias to countries with less negotiation power).

Large Corporations → Have too much influence on free-trade policies.

Safety Standards → Can be viewed as trade barriers occasionally, pushing national organizations to do things against their citizen's health.

Transparency of WTO Decisions → Is hard to really see...

Battle of Seattle → People didn't like the WTO decisions in US and therefor 40000 decided to protest.

Universal Declaration of Human Rights → Document drafted by different people from different backgrounds, proclaimed by the UN in 1948. Common standard for all people.

Article 25 → Providing a high level of economic security for their citizens. US only lets people provide their own, while Sweden provides it all. For example, Sweden provides child care, dentistry, surgery payments, paid leave...

Disadvantages for these systems → Extremely high tax rates (56% Sweden vs 10% US). Marked by excessive government intervention.

HDI → Measure of life expectancy, education/literacy and standard of living for countries.

HDI → `Life Expectancy + Adult Literacy Rate + Enrollment Ratio + GDP`