Evolving Economic Systems and Competition 1 Chapter © 2004 by Nelson, a division of Thomson Canada Limited

Evolving Economic Systems and Competition

1Chapter

© 2004 by Nelson, a division of Thomson Canada Limited.

© 2004 by Nelson, a division of Thomson Canada Limited. 2

Learning Goals

1. What is an economic system and what economic systems are prevalent in the world today?

2. What is economics, and how are the three sectors of the economy linked?

3. How do economic growth, full employment, and price stability indicate a nation’s economic health?

4. What is inflation, how is it measured, and what causes it?


Learning Goals (cont’d)

5. How does the Bank of Canada and the government use monetary policy and fiscal policy to achieve their macroeconomic goals?

6. What are the basic microeconomic concepts and of demand and supply, and how do they establish prices?

7. What are the four types of market structure?

8. Which trends are reshaping micro- and macroeconomic environments?


Learning Goal 1

What is an economic system and what economic systems are prevalent in the world today?


Economic System:

the combination of policies, laws, and choices made by a nation’s government to establish the systems that determine what goods and services are produced and how they are allocated


Types of Economic Systems

1. Market economy (capitalism)

2. Command economy (planned)

3. Socialism

4. Mixed economy


Learning Goal 2

What is economics, and how are the three sectors of the economy linked?


Economics:

the study of how a society uses scarce resources to produce and distribute goods and services


Areas in Economics

There are two subareas in economics:

1. Macroeconomics– the focus on the economy as a whole

2. Microeconomics– the focus on individual parts of the

economy


Economics as a Circular Flow


Learning Goal 3

How do economic growth, full employment, and price stability indicate a nation’s economic health?


Macroeconomics

Macroeconomics has three main goals:

1. Economic Growth

2. Full Employment

3. Price Stability


Economic Growth

• An increase in a nation’s output of goods and services

• Growth is measured by GDP and GNP

• Changes in economic activity are called business cycles


Full Employment:

when the economy is producing to its maximum sustainable capacity, using labour, technology, land, capital, and other factors of production to their fullest potential


Types of Unemployment

• Frictional unemployment– short-term not related to the business

cycle

• Structural unemployment– mismatch of skills and available jobs

• Cyclical unemployment– downturn in the business cycle

• Seasonal unemployment– specific seasons of the year


Price Stability:

keeping prices for goods and services steady as measured by the rate of inflation


Learning Goal 4

What is inflation, how is it measured, and what causes it?


Inflation:

Inflation is the rising of prices of goods and services


Types of Inflation

1. Demand-pull inflation– demand for goods and services is

greater than supply

2. Cost-push inflation– increase in production costs


Measuring Inflation

The rate of inflation is measured by the consumer price index (CPI) – a basket of goods and services measured monthly by Statistics Canada.


Learning Goal 5

How does the Bank of Canada and the government use monetary policy and fiscal policy to achieve their macroeconomic goals?


Achieving Macroeconomic Goals

Monetary Policy

– Bank of Canada controls the money supply and affecting interest rates

Fiscal Policy

– Use of government taxation and spending


Learning Goal 6

What are the basic microeconomic concepts of demand and supply, and how do they establish prices?


Microeconomics:

microeconomics is concerned with how prices and quantities of goods and services behave in the marketplace


Demand Curve:a graph showing the quantity of a good or service that can be sold at various prices

Causes of Demand Change:• change in customer demand• changes in fashion or taste• change in price of related products • expectations about future prices• change in number of buyers

Demand


Demand Curve for Jackets for Snowboarders


Supply Curve:

a graph showing the quantity of a good or service that a business will provide at various prices

Causes of Supply Change:• new technology• change in price of resources• change in price of related products• change in number of producers• change in taxes

Supply


Supply Curve for Jackets for Snowboarders


Equilibrium:

the point at which quantity demanded equals quantity supplied


Equilibrium Price and Quantity


Learning Goal 7

What are the four types of market structure?


Market Structures

1. Perfect competition

2. Pure monopoly

3. Monopolistic competition

4. Oligopoly


a large number of firms selling similar products, where buyers and sellers have good market information, and businesses can be easily opened or closed

Perfect Competition


a single seller in the marketplace

Pure Monopoly


many firms sell close substitutes in a market that is easy to enter

Monopolistic Competition


few firms produce most or all of the output, is difficult to enter, and what one firm does will influence others

Oligopoly


Learning Goal 8

Which trends are reshaping micro- and macroeconomic environments?


Trends in Business

• Delivering value and quality

• Creating long-term relationships

• Creating a competitive workforce

• Entrepreneurial spirit developing in former command economies

Documents

Evolving Economic Systems and Competition 1 Chapter © 2004 by Nelson, a division of Thomson Canada Limited