1. Strand 1 Economic Decision Making
Course : CIA4U1
Teacher : Mr. Nicholson

2. Chapter Focus
The economic problem – the problem of having needs and unlimited wants, but limited resources – that underlies the definition of economics
The types of reasoning and investigative methods that economists use
The production choices an entire economy faces
The three basic economic questions and how various economic systems answer them
The main economic goals of Canadian economy and the ways in which they are related

3. The Economic Problem Needs – the essentials of life, such
as food and shelter
Wants – desires for non-essential items
Economic Problem – the problem of having unlimited wants, but limited resources to satisfy them
Scarcity – the limited nature of resources, which underlies the basic economic problem
Economic Resources – basic items that are used in all types of production, including natural, capital, and human resources

4. Natural Resources – the resources from nature
Natural Resources – the resources from nature that are used in production, including land, raw materials, and natural process
Capital Resources – the processed materials, equipment, and buildings used in production; also known as capital
Human Resources – the efforts of people involved in production, including labour and entrepreneurship
Economics – the study of how to distribute scarce resources among alternative ends

5. Microeconomics – the branch of economics that
Microeconomics – the branch of economics that focuses on the behaviour of individual participation in various market
Macroeconomics – the branch of economics that takes a wide-ranging view of the economy, studying the behaviour of economic sectors
Economic models – generalizations about or simplifications of economic reality; also know as laws, principles, or theories
Hypothesis – a tentative principle of an observation or insight, to be tested for its validity

6. Variables – factors that have measurable values
Independent variables – the variable in a causal relationship that causes change in another variable
Dependent variables – the variable in a causal relationship that is affected by another variable
Inverse relationship – a relationship in which a change in the independent variable causes a change in the opposite direction of the dependent variable
Direct relationship – a relationship in which a change in the independent variable causes a change in the same direction of the dependent variable

7. Ceteris Paribus – the assumption that all other things remain the same
Division of labour – the extent to which jobs of different workers are specialized into separate task
Deduction – a type of reasoning in which one states a hypothesis before examining the facts
Induction – a type of reasoning in which one states a hypothesis after examining the facts
Positive economics – the study of economic facts and how the economy operates as it does
Normative economics – the study of how the economy ought to operate

8. Economic Choice Utility – the satisfaction gained from any action
Self-interest motive – the assumption that people act to maximize their own welfare
Opportunity Cost – the utility that could have been gained by choosing an action’s best alternative
Free Goods – items that are so plentiful that they do not have any cost
Economic value – the opportunity cost of product

9. The Production Possibilities Model
Consumer product – an item that gratifies people’s needs and wants
Capital good – an item that is used to produce other products
Production Possibilities Schedule – a table that shows the possible output combinations for an economy
Production possibilities curve – a graph that shows the possible output combinations
for an economy

10. Economic Systems Basic economic questions
What to produce?
How to produce?
For whom to produce?
Economic system - the organization of an economy, which represents a country’s distinct set of social customs, political institutions, and economic practices
Traditional economy – an economic system in which economic decisions are made on the basis of custom
Market economy – an economic system based on private ownership and the use of markets in economic decision-making

11. Command economy – an economic system based on public ownership and central planning
Modern mixed economy – an economic system that combines aspects of a market economy and a command economy
Production decisions are made in both private market and by government
Traditional mixed economies – economic systems in which a traditional sector co-exists with modern sectors
Laissez faire – the principle that governments benefit society the most by not interfering in economic activity
Market – a set of arrangements between buyers and sellers of a certain item

12. Product markets – markets in which consumer, or final, products are trade
Resource markets – markets in which economic resources are traded
Circular flows – the circulation of money and the circulation of consumer products and economic resources in the economy
Consumer sovereignty – the effect of consumer needs and wants on production decisions
Invisible hand – the tendency for competitive markets to turn self-interested behaviour into socially beneficial activity
Private sector – the part of an economy in which private markets dominate

13. Public sector – the part of an economy in which governments dominate
Traditional sector – the part of an economy in which custom and traditional production techniques dominate

14. Economic Goals Economic Efficiency Income Equity Price Stability
Full Employment
Viable Balance of Payments
Economic Growth
Environmental Sustainability