- Learning Objectives:

- Describe basic economics

- Explain what capitalism is and how free markets work
- Explain the benefits and limitations of socialism and communism
- Describe the mixed economy of Canada
- Illustrate the significance of key economic indicators and the business cycle.
- Learning Objective 1: Describe basic economics
- Economics is the study of how society chooses to employ resources to produce
goods and services and distribute them for consumption among various
competing groups and individuals.
- Two major branches of economics:
- Macroeconomics looks at the operation of a nation’s economy as a whole
- Microeconomics looks at the behavior of people and organizations in
markets for particulars product and services.
- Resource development is the study of how to increase resources and to create
the conditions that will make better use of them.
- The secret to creating a wealthy economy: (excerpt)

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- The challenge for macroeconomists is to determine what makes some countries
relatively wealthy and other countries relatively poor, and then to implement
policies and programs that lead to increased prosperity for everyone in all
countries
- Growth economics and adam smith
- Smith believed that freedom was vital to the survival of any economy,
especially the freedom to own land or property and the freedom to keep
profits from working the land or owning a business.
- How businesses benefit the community
- Smith said that while people work primarily for their own prosperity and
growth, their efforts serve as the “invisible hang” that helps the economy
grow and prosper through the production of needed goods, services and
ideas.
- Thus, the invisible hand turns self-directed gain into social and economic
benefits for all.
- Learning Objective 2: Explain what capitalism is and how free markets work.
- Under capitalism, all or most of the factors of production and distribution - such
as land, factories, railroads, and stores, are owned by individuals.They are
operated for profit, and business people, not government officials, decide what to
produce and how much, what to charge, and how much to pay workers. They
also decide whether to produce goods in their own countries or have them made
in other countries.
- Capitalism is the popular term used to describe free-market economies.
- Some countries have noticed the advantages of capitalism and have instituted
what has become known as state capitalism.
- State capitalism is a combination of freer markets and some government
control.
- How free markets work
- The free market is one in which decisions about what to produce and in
what quantities are made by the market. Consumers tell signals to tell
producers what to make, how many, what colors, etc.
- We do that by choosing to buy certain goods and services.
- How prices are determined
- In a free market, prices are not determined by sellers; they are
determined by buyers and sellers negotiating in the marketplace.
- Simplified: Supply and demand
- The economic concept of supply
- Supply refers to the quantity of products that manufacturers or owners are
willing to sell at different prices at a specific time. Generally speaking, the
amount supplied will increase as the price increases because sellers can
make more money with a higher prices.
- The economic concept of demand
- Demand refers to the quantity of products that people are willing to buy at
different prices at a specific time. Generally speaking, the quantity
demanded will increase as the price decreases.
- The equilibrium point and the market price.
- The market price is determined by supply and demand.
- Competition Within Free Markets (4 different types)
- (1) Perfect competition exists when there are many sellers in a market
that no seller is large enough to dictate the price of a product.
- (2) Monopolistic competition exists when a large number of sellers
produce goods that are very similar but are perceived by buyers as
different.
- Under monopolistic competition, product differentiation is a key to
success.
- (3) An oligopoly occurs when a few sellers dominate a market.
Oligopolies exist in industries that produce goods in the areas of oil and
gas, tobacco, automobiles, aluminum, and aircraft.
 - (4) A monopoly occurs when there is only one seller for a good or
service, and that one seller controls the total supply of a product and the
price.
- Benefits and limitations of free markets.
- One benefit of the free market is that it allows open competition among
companies.
- Limitation is that business owners and managers make more money and
have more wealth than lower-level workers.
- Learning Objective 3: Explain the benefits and limitations of socialism and
communism
- Understanding socialism
- Socialism is an economic system based on the premise that some, if not
most, basic businesses - such as steel mills, coal mines, and utilities -
should be owned by the government so that profits can be distributed
among the people.
- Entrepreneurs often own and run the smaller businesses, and individuals
are often taxed relatively steeply to pay for social programs.
- Benefits of socialism
- Social equality
- Free education, free health care, free child care
- Longer vacations, work fewer hours per week, more employee
benefits
- Limitations
- Takes away some of business people’s incentives to work hard.
Loss of the best and brightest people to other countries is called a
brain drain.
- Understanding Communism
- Communism is an economic and political system in which the state (the
government) makes almost all economic decisions and owns almost all of
the major factors of production.
- Communism affects personal choices more than socialism does.
- One limitation with communism is that the government has no way of
knowing what to produce because prices do not reflect supply and
demand as it does in free markets.
- The trend toward mixed economies.
- Two major economic systems vying for dominance in the world today:
- A free market economy exists when the market largely determines
what goods and services are produced, who gets them, and how
the economy grows.
- Capitalism is the popular term used to describe this
economic system.
- A command economy exists when the government largely decides
what goods and services are produced, who gets them, and how
the economy will grow.
 - Socialism and communism are the popular terms used to
describe variations of this economic system.
- Mixed economies exist where some allocation of resources is made by
the market and some is made by the government.
- In different countries

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- Learning Objective 4: Describe the mixed economy of Canada
- Canada has a mixed economy. The degree of involvement in the economy today,
in areas such as health care, education, and business regulation, just to name a
few, is a matter of some debate.
- Government’s perceived goal is to grow the economy while maintaining some
measure of social equality.
- In the years to come, we can expect to see more examples of our mixed
economy moving toward a more capitalist system, as the private sector will play
a greater role in delivering some goods and services that have historically been
managed by public institutions.
- Learning Objective 5: Illustrate the significance of key economic indicators and
the business cycle
- Key economic indicators (3)
- (1) Gross domestic product is the total value of final goods and services
produced in a country in a given year. Either a domestic company or a
foreign-owned company may produce the goods and services include in
the GDP as long as the companies are located within the country’s
boundaries.
- (2) The unemployment rate refers to the percentage of the labor forces
that actively seeks work but is unable to find work at a given time.
- Types of unemployment
- Frictional unemployment: refers to those people who have
quit work because they don’t like the job, boss, working
conditions, or who have not yet found a new job.
- Structural unemployment; refers to unemployment caused
by the restructuring of firms or by a mismatch between the
skills (or location) of job seekers and the requirements of
available jobs.
- Cyclical unemployment: occurs because of a recession or
a similar downturn in the business cycle.
- Seasonal unemployment: occurs where demand for labor
varies over the year, as with the harvesting of crops.
- (3) The price indexes
- Price indexes indicate the health of the economy by measuring
the levels of inflation, disinflation, and stagflation.
- Inflation refers to a general rise in the prices of goods and
services over time.
- Disinflation describes a condition where price increases
are slowing
- Deflation means taht prices are actually declining.
- The consumer price index (CPI) is a monthly statistic that
measures the pace of inflation or deflation. To determine the CPI,
costs of a “basket” of goods and services for an average family
are calculated to see if they are going up or down.
- The business cycle
- Business cycles (aka economic cycles) are the periodic rises and falls
that occur in economies over time.
- Chart and different parts of the business cycle.