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Economics – is the study of how individuals, businesses, and government make decisions about how to allocate limited (scarce) resources to best satisfy people’s wants, needs, and desires.

Scarcity refers to the economic problem of how to reconcile unlimited human wants and desires with limited economic resources.

The circular flow of Canada’s economy is an economic cycle in which businesses and households provide government with tax payments generated from revenue and wages, and government uses the tax money to provide businesses and households with incentives, programs, and services.

Microeconomics is the study of how individual businesses, households, and consumers make decisions to allocate their limited resources in the exchange of goods and services

Macroeconomics is the study of the behaviour of the overall economy

• Types of economic systems:
• Traditional economies
• Planned (or controlled) economies
• Market economies
• Mixed economies

Traditional economies were found in earlier agrarian communities, which were primitive in nature, relying on agriculture for survival. Traditional economies were grounded in the strength of the family and developed a strong social network.

Planned economic systems are systems in which the government has more control over what is produced, the resources to produce the goods and services, and the distribution of the goods and services. Communism and socialism are planned economic systems.

Market economies give the control of economic decisions to the individual and private firms. One form of market economy is capitalism.

Most modern economies in the Western world are mixed economies, which are a blend of market and planned economies.

Communism is an economic system in which the government makes all the economic decisions and controls all the social services and many of the major resources required for production of goods and services.

Socialism is an economic system in which the government owns or controls the most basic businesses and services so that profits can be distributed evenly among the people.

Many socialist and communist countries are beginning to change their economics into free market through the practice of privatization - the conversion of government-owned production and services to privately owned, profit seeking enterprises.

Capitalism an economic system that allows for freedom of choice and encourages private ownership of the resources required to make and provide goods and services.

Currency represents a unit of exchange for the transfer of goods and services and provides a consistent standard, the value of which is based on an underlying commodity, such as gold.

The market price for a product or service is the price at which everyone who wants the item can get it without anyone wanting more or without any of the item being left over.

Supply refers to how much of a product or service is available for purchase at any given time. The amount supplied will increase as the price increases.

Demand refers to how much people want to buy at any given time. The amount demanded increases as the price decreases.

Because bidders state the price they are willing to pay for a particular item. The price increases depending on the demand: the greater the demand, the higher the price bidders are willing to pay. Supply also affects price on eBay: if similar or identical items are available for auction, the price is kept lower. When a unique item is auctioned, prices tend to be higher because demand is higher and supply is lower. Eventually, the winning bid establishes the market price.

• The law of supply - a direct relationship between price and quantity, the amount supplied will increase as the price increases; if the price is lower a lower quantity of the product is supplied.
• The more money a business can get for its good or service, the more of its product it is willing to supply. In economic terms, the amount supplied will increase as the price increases; also, if the price is lower, less of the product is supplied.

• The law of demand - people will buy more of an item at a lower price than at a higher price.
• People are willing to buy as much as they need, but they have limited resources (or money). Therefore, people will buy more of an item at a lower price than at a higher price

• consumers’ demand increases as the price of an item falls. Meanwhile, suppliers’ interest in providing the product decreases as the price falls—this is because they would make less money.The market price is the price at which supply equals demand.
• If products are not offered for sale at the market price, there will be a surplus or a shortage.

A surplus happens when supply exceeds demand.

A shortage happens when demand exceeds supply

• Determinants of Supply:
• Technology changes
• Changes in resource prices
• Price expectations
• Number of suppliers in the market
• Price of substitute goods

Technology changes - Improvements in technology enable suppliers to produce their goods or services more efficiently and with fewer costs. For example, a builder upgrades from a hammer to a nail gun.

Changes in resource prices - An increase in resource prices increases the cost of production and reduces profits, thus lowering the incentive to supply a product. For example, an increase in the price of lumber and other building supplies can increase housing projects.

Price expectations - If prices are expected to increase in the future, the supplier may reduce supply now to supply more at a later time when prices are higher. Similarly, if prices are expected to decrease in the future, the supplier may make every attempt to deplete supplies now at the higher price.

Number of suppliers - The supply of a good or service increases as the number of competitors increases. The number of suppliers often increases in more profitable industries.

Price of substitute goods - If there are other equally comparable goods that are available at a lower price, the supply of goods will be affected. A change in any of these determinants of supply will affect the supply of a product and shift the demand curve.

• Determinants of Demand:
• Changes in income levels  
• Population changes 
• Consumer preferences
• Complementary goods
• Substitute goods

Changes in income levels - When income increases, people are able to buy more. Conversely, when income levels decrease, most people cut back and buy fewer products.

Population changes - Vacation rentals during the ‘in’ season vs. the ‘off’ season; increased population increases demand for utilities and public and consumer services; demographic changes such as the aging baby boomers also affect demand for certain goods.

Consumer preferences – The demand for products can change quickly. For example, remember when people waited in line to buy a Wii system.

Complementary goods - Products or services that go with each other. For example, an iPod and iTunes

Substitute goods - Goods that can be used in place of other goods. For example, Coke for Pepsi. If one product’s demand decreases, the substitute good’s demand might increase.

• Gross Domestic Product (GDP) - measures economic activity - the overall market value of final goods and services produced in a country in a year.
• The broadest measure of the health of any country’s economy is the gross domestic product, or GDP.

• Nominal GDP – reflects current market prices when measuring total output.
• Real GDP - attempts to remove the effects of inflation, by using constant prices in some base year, when measuring total output

The market value (selling price) of all products produced at all of Bombardier’s locations is included in Canada’s GNP. The market value of all products produced at Bombardier in China is included in China’s GDP, but not in Canada’s GDP. So the GNP measures the Canadian income resulting from production, whereas the GDP measures production in Canada, regardless of country of ownership.

• Rising GDP indicates:
• A healthy economy
• Goods and services are being produced
• Businesses are healthy

• Declining GDP indicates:
• A sluggish economy
• Fewer goods are being produced
• Businesses are relatively inactive
• Unemployment is increasing

• Productivity measures the quantity of goods and services that human and physical resources can produce in a given time period.
• Productivity is an indicator of a business’s health.
• An increase in productivity indicates that workers are producing more goods or services in the same amount of time.

Higher productivity numbers often result in lower costs and prices. Increasing productivity means that the existing resources are producing more, which generates more income and profitability. Companies can reinvest the economic benefits of productivity growth by increasing wages and improving working conditions, by reducing prices for customers, by increasing shareholder value, and by increasing tax revenue to the government, thus improving GDP. Overall productivity is an important economic indicator of the economy’s health.

• economic indicators
• gross domestic product (GDP),
• price indexes,
• unemployment rate
• productivity
• reflect the economic health of a country.

Fiscal policy - relates to how the government determines the appropriate level of taxes and spending.

Monetary policy - relates to how the Bank of Canada manages the supply of money and interest rates.