Part 1.

B: Economics – Evolving Systems

 Learning Outcomes

 Introduce basic terms

 Classify various economies
 Identify the effects of various price changes on supply and demand
 Explain how different economic indicators are positive or negative
indications of economic conditions
 Examine some of the trends that are reshaping the political and
economic environment
 Economics
Economic Systems
• Determine how wealth is made and distributed in a country
o Affects business opportunities to make income and create wealth
o Affects the choices of consumers and the prices they pay

Economy
• The way in which people deal with the creation and distribution of wealth

Economics
• The study of how society uses resources to produce and distribute goods and services

Macroeconomics
• The sub-area of economics that focuses on the economy as a whole by looking at
aggregate data for large group of people, companies, or products

Microeconomics
• The sub-area of economics that focuses on individual parts of the economy, such as
households or businesses
Macroeconomics: The Mixed Economy
 Three macroeconomic goals of a mixed economy include:
Economic
Full Employment Price Stability
Growth
• All available • Absence of • Increasing the
resources used large or rapid economy’s
to produce increases or ability to
goods & decreases in produce goods
services the price level & services
• Measured by • Measured by • Measured by
unemployment inflation rate, growth rate of
rate & change in production
Consumer (increase in
Price Index GDP)
(CPI)

 Why might these be unachievable???

Factors of Production: Building Blocks of Business

Natural Capital: inputs

Resources: used to produce
Entrepreneurs:
commodities goods and
combination of
that are useful services and get
natural resources,
inputs in their them to the
labour, and capital
natural state customers
to produce goods
and services
Labour: Knowledge:
economic the combined
contributions talents and
of people skills of the
workforce
 Economic Systems Continued

Mixed
Socialism

Command Market
“Communism” “Capitalism”
(Strong Control (Little Control by
by Government) Government)

Primary difference is how they manage the factors of production

Degrees Of Competition and Supply and Demand

Competition
• Rivalry among businesses for sales to potential customers.

Affect the number of choices an individual has and the prices he or

she pays for products of an industry
• Helps business owners and employees to choose effective
business strategies
 Market Structures

Perfect Competition
• Large # of small firms, similar products, available information, low barriers to
entry/exit

Monopolistic Competition
• Many firms, differentiated substitutes, relatively easy entry

Oligopoly
• Few firms, large capital requirements (high barriers to entry)

Monopoly
• 1 firm controls all industry sales, no entry of new firms
 Perfect Competition and the Concept of Supply and Demand

• Market situation in which there are many buyers and

sellers of a product
• No single buyer or seller is powerful enough to affect the price of
that product.
• Prices are decided by the economic concept of supply and
demand
• Equilibrium Price
• price at which the quantity demanded is exactly equal to the quantity supplied
 Microeconomics: Point of Equilibrium

Supply: The quantity of a product

that producers are willing to sell
at each of various prices

Demand: The quantity of a

product that buyers are willing to
purchase at each of various
prices
 Changes in Demand

Changes in
Demand Change in
Changes in
customer
fashion or taste
income

Change in price of Expectations

related products about future prices

Change in number of buyers

 Changes in Supply

Changes in
Supply Change in price
New Technology
of resources

Change in price of Change in number

related products of producers

Change in taxes
 Economic Performance

• Economies fluctuate between high and low points resulting in

business cycles consisting of four phases:
1. Peak or Boom
2. Recession (or Contraction)
• Two or more consecutive three-month periods of a decline in a country’s GDP
3. Depression
4. Expansion or Recovery
Peak

Recession

Expansion or
Depression Recovery
 Key Economic Indicators: Measuring Performance

• Gross Domestic Product (GDP): Total dollar value of all goods

and services produced by all people within the boundaries of a
country during a one-year period. Growth in GDP increases
employment and incomes
• Price Indexes: inflation, disinflation, deflation, consumer price
index (CPI), producer price index (PPI)
• Purchasing power: the value of what money can buy
• Unemployment rate: percentage of a country’s labour force
unemployed at any time. Calculated as the number of
unemployed divided by the number of people currently in the
labour force
• Housing starts, commodity prices, stock markets
 Key Economic Indicators: Measuring Performance

• Inflation: tracks the increase in general level of prices of goods and services over
a period of time
• low Inflation rate of 2% is a sign of a stable economy.
• inflation rate of 10% can be a troubling sign for the economy because rising prices cause a
loss of purchasing power.
• Deflation: decrease in the price of goods and services; the opposite of inflation.
• usually a sign of economic trouble
• declining prices lead to declining profits for companies
• can lead to an increase in unemployment rates and a shrinking economy for the country.

• Consumer Price Index (CPI): A monthly index that measures the changes in the
prices of a fixed basket of goods typically purchased by typical consumer in an
urban area.
What Makes Up the CPI?
 Inflation

The average of all prices of goods and services is rising.

Demand Pull Inflation

• When demand for goods and services is greater than the supply
• Ex. Sask housing market in 2008

Cost Push Inflation

• Triggered by increases in production costs
 The Future of Economics

• High degrees of competition

• Globally interconnected
• Consumers are changing
• Price fluctuations
• Canada is resource rich