unit 2

Question 1

WHAT IS AN ECONOMIC SYSTEM?⭐

Answer 1

Is the way a country organizes its resources and distributes goods and services to its citizens.

Question 2

WHAT DEFINES A COUNTRY’S ECONOMIC SYSTEM?

Answer 2

The answers to these four questions:

1.What should the country produce and in what quantities?

2. How should scarce resources such as labour and capital (money, machinery etc) be allocated?

3.How should goods and services be distributed throughout the country?

4.What should be the price of the goods and services?

video:http://www.youtube.com/watch?v=B43YEW2FvDs

Circular flow model: https://docs.google.com/presentation/d/1eJ6Q0O2N9Nip2c32eZA8nXqipbkQvg0WltzgDWXDnsg/edit#slide=id.p5

Question 3

invisible hand

Answer 3

a metaphor for the unforeseen forces that move the free market econ (self interest)

Question 4

THREE TYPES OF ECONOMIC SYSTEMS⭐
Each economic system addresses the three major characteristics (below) in 3 different ways:

Answer 4

1.Market Economy
2.Centrally Planned Economy
3.Mixed Economy

Each economic system addresses the three major characteristics (below) in different ways:
Private Property
Profit
Competition

Question 5

MARKET ECONOMY

Answer 5

-Also known as capitalism or private enterprise.⭐️⭐️

-Businesses and consumers answer the 4 questions.

-⭐Businesses, consumers and the government act independently of one another.⭐

-Market forces and self-interest determine what goods are created and sold.

example:US
The government has little direct involvement in
business.
Main duty is to create an atmosphere in which citizens and corporations can be successful

Question 6

⭐explain the 3 components of a market economy (priv property, profit, competition)⭐

Answer 6

1.Private Property

⭐Corporations & people are encouraged to own property (real estate, equipment, automobiles, etc.)⭐

Owners can purchase, rent, trade, sell and give their property to whomever they want

2. Profit

⭐The reward for risk is encouraged

Profitable companies provide employment, create new products, expand and start new ventures

Belongs to the owners of the business and they can choose how to spend it (reinvest or personal goods)⭐

3.Competition

⭐Is critical in this system

Companies compete on quality, services, price, reputation and warranties

Encourages companies to provide quality products at reasonable prices

As a result consumers have access to greater selection and new products⭐

Question 7

⭐6 advantages and 3 disadvantages of a market economy⭐

Answer 7

ADVANTAGES
Freedom of speech, religion, assembly
Efficient use of resources
New products
Economic growth
Good quality products
Low prices

DISADVANTAGES
Gap between rich and poor expands
Lack of consumer education
Unhealthy products

(⭐Q: DOES A “TRUE” MARKET ECONOMY EXIST IN THE WORLD?

A: NO!! BECAUSE EVERY COUNTRY HAS SOME GOVERNMENT INTERVENTION⭐.)

Question 8

⭐CENTRALLY PLANNED ECONOMY⭐

Answer 8

⭐Also known as communism or command economy.⭐

Decisions are made centrally by the gov’t.

⭐ Gov’t controls all elements of the economy
and determines how income is distributed.

Gov’t provides education, health care,
employment and housing to ALL members
of society.

Question 9

CENTRALLY PLANNED ECONOMY define the 3 components

Answer 9

1. Private Property

Ownership is restricted

Citizens may own small household items and furniture

⭐𝐆𝐨𝐯𝐞𝐫𝐧𝐦𝐞𝐧𝐭𝐬 𝐨𝐰𝐧 𝐚𝐥𝐥 𝐡𝐨𝐮𝐬𝐢𝐧𝐠 𝐚𝐧𝐝 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬

⭐Governments determine who will work in the business (𝐭𝐡𝐞𝐲 𝐬𝐞𝐭 𝐭𝐡𝐞 𝐰𝐚𝐠𝐞𝐬) 𝐚𝐧𝐝 𝐰𝐡𝐞𝐫𝐞 𝐭𝐡𝐞𝐲 𝐰𝐢𝐥𝐥 𝐥𝐢𝐯𝐞⭐

⭐ 2. Profit⭐

𝐀𝐥𝐥 𝐩𝐫𝐨𝐟𝐢𝐭 𝐛𝐞𝐥𝐨𝐧𝐠𝐬 𝐭𝐨 𝐭𝐡𝐞 𝐠𝐨𝐯𝐞𝐫𝐧𝐦𝐞𝐧𝐭

𝐓𝐡𝐞 𝐩𝐫𝐨𝐟𝐢𝐭 𝐢𝐬 𝐫𝐞-𝐢𝐧𝐯𝐞𝐬𝐭𝐞𝐝 𝐢𝐧𝐭𝐨 𝐭𝐡𝐞 𝐛𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐨𝐫 𝐮𝐬𝐞𝐝 𝐟𝐨𝐫 𝐬𝐨𝐜𝐢𝐚𝐥 𝐩𝐫𝐨𝐠𝐫𝐚𝐦𝐬 𝐬𝐮𝐜𝐡 𝐚𝐬 𝐞𝐝𝐮𝐜𝐚𝐭𝐢𝐨𝐧 𝐚𝐧𝐝 𝐦𝐢𝐥𝐢𝐭𝐚𝐫𝐲

3. Competition

Competition is limited⭐

Government determines the 𝐩𝐫𝐢𝐜𝐞, 𝐪𝐮𝐚𝐥𝐢𝐭𝐲, 𝐬𝐭𝐲𝐥𝐞 𝐚𝐧𝐝 𝐚𝐦𝐨𝐮𝐧𝐭 𝐨𝐟 𝐠𝐨𝐨𝐝𝐬 𝐚𝐧𝐝 𝐬𝐞𝐫𝐯𝐢𝐜𝐞𝐬

Consumers have 𝗹𝗶𝘁𝘁𝗹𝗲 𝗰𝗵𝗼𝗶𝗰𝗲 in products sold

Question 10

advantages and disadvantages of centrally planned economy✨

Answer 10

ADVANTAGES

1. All citizens are assured a minimum standard of living
2. Health, education and other social programs are provided free to all
3. No unemployment
4. Long-term stability

DISADVANTAGES

Restriction of individual freedoms
Little motivation to work hard
Large military presence
Lack of innovation
Corruption

ex. North Korea

Question 11

Mixed economy✨

Answer 11

Most world economies are between a market economy and a centrally planned one.

Canada has social programs such as universal health care, employment insurance, and the Canada Pension Plan.

Canada also has thriving competitive businesses.

Question 12

Mixed Economy
Three Components Defined

Answer 12

1.Private Property

✨Property is owned by individuals, corporations or government✨

Government owns schools, parks and real estate

Government sets regulations on ownership

Corporations run by the government are called Crown Corporations (Canada Post, CBC)

2.Profit
✨Is encouraged but taxed to support government projects and provide social assistance✨

Taxes are collected at the federal and provincial levels through: Sales tax, Income tax and Corporate taxes

Municipal projects are funded through property taxes

3.Competition

✨Strong competition exists amongst corporations

However, the government may also be a competitor
(canada post)✨

Question 13

✨advantages and disadvantages of mixed economy✨

Answer 13

ADVANTAGES

1. Individual incentive
2. Basic social services
3. Consumer protection

DISADVANTAGES

Higher taxation

Individuals have little input into how taxes are spent

Gov’t intervention may stifle growth

Less motivation to work hard

Question 14

Facts about the UN✨

Answer 14

51 Countries gathered that year to sign a Charter, creating the UN

Over 75 years later, the United Nations is maintaining international peace and security; 193 current members

In 1945, nations were in ruins. World War II was over, and the world wanted peace.

The UN runs the:
International Labour Organization (ILO)
International Monetary Fund (IMF)
World Health Organization (WHO)
World Bank
UNICEF

It is upholding international law, protecting human rights and promoting democracy.

The UN is committed to devoting resources to improving the standard of living, the unemployment rate, and the economic conditions throughout the world.
The UN creates a strong economic climate so that international trade and business can succeed.

It is promoting development and giving humanitarian assistance to those in need

Question 15

Theocracy

Answer 15

A form of government in which a god or deity is recognized as the state’s supreme civil ruler.

POPE FRANCIS

VATICAN CITY

Question 16

Monarchy

Answer 16

Is a form of government in which all political power is with an individual, known as a monarch (“single ruler”), or king or queen.

https://www.visualcapitalist.com/which-countries-still-have-monarchy/

SAUDI ARABIA

KING
SALMAN

Question 17

Democracy

Answer 17

A state governed by all eligible members of the population through elected representatives.

Question 18

CHARACTERSITICS OF A DEMOCRACY

Answer 18

free and fair elections
the rule of law
free speech and press
the right to assembly, and freedom of religion
economic opportunity for all citizens
politicians may be more concerned with re-election than the good of the country

Question 19

AUTOCRACY/AUTHORITARIANISM

Answer 19

A state governed by a single individual or a small group of people with unlimited power.

CUBA

FIDEL CASTRO

Question 20

CHARACTERISTICS OF AN AUTOCRACY

Answer 20

Usually has strong military presence
Strives to control all aspects of citizens’ lives
Citizens have no influence on government
Closest economic system is a centrally planned one

Question 21

TOTALITARIANISM

Answer 21

Similar to an autocracy
One ruling party

WORKER’S PARTY OF KOREA

NORTH KOREA

KIM JONG- UN

political stability index:
https://www.theglobaleconomy.com/rankings/wb_political_stability/

Question 22

watch videos about the UN

Answer 22

1:https://youtu.be/E67ln5yJtyE
2: https://youtu.be/QoIafzc0k74

sustainable goals: https://docs.google.com/presentation/d/1gjYU0uHtBu1q0wb0dghtoKUxGGY2c_rzJ6hQ0eNgO4A/edit#slide=id.p7

Question 23

World’s countries are classified by their level of economic development
Three classifications determined by the United Nations (UN) and its partners:

Answer 23

Developed countries
Economies in Transition
Developing Economies

Question 24

Developed Economies (list characteristics!!)✨

Answer 24

-Also known as industrialized or first-world countries

-Nations that are characterized by a high per capita income or strong gross domestic product (GDP)
✨GDP is the total goods and services produced in one country in one year. ✨

A reliance on secondary and predominantly tertiary industries, rather than primary industries
High standards of living
High literacy rates
Major advancements in health care and technology
World leaders in international business
Have formed strong trade alliances, agreements and organizations
Strong correlation between these countries and democratic political systems

Question 25

Economies in Transition

Answer 25

Countries moving from a centrally planned economy toward a market economy

Transition involves:
Decreasing role of government
Privatizing government assets
Reducing tariffs
Liberalizing markets

Question 26

✨While the country is experiencing economic transitions, what are 3 problems it may encounter?✨

Answer 26

INFLATION

As a result of the removal of price controls imposed by the government.
Newly privatized firms begin to charge prices that reflect the true costs of production.

INCREASED UNEMPLOYMENT

Newly privatized firms tried to become more efficient.
Under communism, state owned industries tend to employ more people than needed

WIDENING INCOME GAPS

Privatized companies now set employee salaries/wages

Examples of countries in transition:
Albania
Serbia
Ukraine

Question 27

Developing Economies

Answer 27

Includes a number of subcategories
Included as a subcategory: Least Developed Countries

Severe poverty and substandard living conditions
Economies are predominantly agricultural or resource-based
Lack social services (health care, education) and have poor infrastructure
Low levels of literacy and limited access to technology
Examples: Bangladesh, Haiti, Cambodia
___________________________________
watch videos!!! read article
http://www.youtube.com/watch?v=0hFOIVZD0dM

https://youtu.be/EljY4vkOxX8

https://www.investopedia.com/terms/d/developed-economy.asp
see the nearpod!!! (☆▽☆)
————————————————————
-Also include countries such as:
Brazil, Mexico, China, India
✨(ECONOMIES IN TRANSITION!!!)🌸⭐
-They are in the process of moving away from agriculture and natural resources toward industrialization, manufacturing, and technology

-Skill level of workforce is steadily improving as more of the population move away from rural areas to cities

-These countries are becoming important in the world of global trade
If a country requires improved infrastructure, Canadian businesses like Bombardier can assist with railway technology or public bus transport

-These countries can also afford Canadian exports (trade between Canada and Mexico has been increasing)

-They are also a threat to Canadian businesses—>Lower labour costs
Strong competition for Canadian products
Weak regulatory and legal systems therefore risky investing in these countries

Question 28

Economic Indicators of the Business Cycle
Measure how well an economy is doing (3 types)

WATCH THIS VIDEO PLZ

Answer 28

https://youtu.be/XOiZGFc5N1s

Question 29

What are the three types of Economic Indicators of the Business Cycle (LLC)😂

Answer 29

Leading, Lagging, Coincident

Question 30

✨explain Leading. 2 Examples of Leading Indicators?

Answer 30

𝐋𝐞𝐚𝐝𝐢𝐧𝐠🏠👚🛍️
⇨Predict where the economy is headed
⇨These indicators adjust before the economy experiences a change and predict where the economy is going.
⇨These indicators help guide investors, businesses and governments to act according to what is about to happen

𝐄𝐱𝐚𝐦𝐩𝐥𝐞𝐬 𝐨𝐟 𝐋𝐞𝐚𝐝𝐢𝐧𝐠 𝐈𝐧𝐝𝐢𝐜𝐚𝐭𝐨𝐫𝐬: 🏡🛍️
𝑯𝒐𝒖𝒔𝒊𝒏𝒈 𝒔𝒕𝒂𝒓𝒕𝒔 (# 𝒐𝒇 𝒏𝒆𝒘 𝒉𝒐𝒖𝒔𝒆𝒔 𝒐𝒏 𝒘𝒉𝒊𝒄𝒉 𝒄𝒐𝒏𝒔𝒕𝒓𝒖𝒄𝒕𝒊𝒐𝒏 𝒊𝒔 𝒔𝒕𝒂𝒓𝒕𝒊𝒏𝒈) 𝒂𝒏𝒅 𝒄𝒐𝒏𝒔𝒕𝒓𝒖𝒄𝒕𝒊𝒐𝒏 𝒄𝒐𝒏𝒕𝒓𝒂𝒄𝒕𝒔
✨⇨People are unlikely to purchase a new house if they believe the economy will decline
✨⇨ Retail sales: Strong retail sales increase GDP and strengthen the currency = higher employment rates

Question 31

✨explain Lagging. 2 Examples of Lagging Indicators?

Answer 31

𝐋𝐚𝐠𝐠𝐢𝐧𝐠
➳𝑫𝒐 𝒏𝒐𝒕 𝒂𝒅𝒋𝒖𝒔𝒕 𝒖𝒏𝒕𝒊𝒍 𝒂𝒇𝒕𝒆𝒓 𝒕𝒉𝒆 𝒆𝒄𝒐𝒏𝒐𝒎𝒚 𝒉𝒂𝒔 𝒆𝒙𝒑𝒆𝒓𝒊𝒆𝒏𝒄𝒆𝒅 𝒂 𝒄𝒉𝒂𝒏𝒈𝒆.
➳It may take two or three quarters of economic change to influence a lagging indicator

𝐄𝐱𝐚𝐦𝐩𝐥𝐞 𝐨𝐟 𝐚 𝐋𝐚𝐠𝐠𝐢𝐧𝐠 𝐈𝐧𝐝𝐢𝐜𝐚𝐭𝐨𝐫:
➳✨Employment rate
Once the economy starts to improve, it may take six months for the employment rate to increase
➳✨Interest Rates
➳Corporate Profits

Question 32

explain Coincident. Example of a Coincident Indicator?

Answer 32

𝐂𝐨𝐢𝐧𝐜𝐢𝐝𝐞𝐧𝐭
Move in conjunction with the business cycle.

𝐄𝐱𝐚𝐦𝐩𝐥𝐞 𝐨𝐟 𝐚 𝐂𝐨𝐢𝐧𝐜𝐢𝐝𝐞𝐧𝐭 𝐈𝐧𝐝𝐢𝐜𝐚𝐭𝐨𝐫:
𝗜𝗻𝘁𝗲𝗿𝗻𝗮𝘁𝗶𝗼𝗻𝗮𝗹 𝘁𝗿𝗮𝗱𝗲
☆When economies are slumping, countries do not import as many goods and services
☆When the economy is strong, countries are able to purchase more goods from other countries

𝐂𝐡𝐚𝐧𝐠𝐞 𝐢𝐧 𝐆𝐃𝐏
Real Wages (adjusted after inflation)

Question 33

Explain how Governments can influence the business cycle

Answer 33

In recessionary times, gov’ts increase their spending to stimulate the economy:
-Provide employment
-Customers for businesses
-Economic growth
-Job training for the unemployed
-Stability

Think about: How do governments typically respond to economic downturns, and what role do policies play in stabilizing the economy?

Question 34

Provide a short summary of economic indicators

Answer 34

Economic Indicators: Measures of economic health.
Types: Leading, Lagging, Coincident.
Leading: Predict future economic trends.
Lagging: Reflect past economic changes.
Coincident: Move in line with the business cycle.

Question 35

provide a summary of Classifications of Economic Development. ✨List the 7 characteristics of a developed country. ✨✨List the characteristics of a developing country

Answer 35

𝐃𝐞𝐯𝐞𝐥𝐨𝐩𝐞𝐝 𝐜𝐨𝐮𝐧𝐭𝐫𝐢𝐞𝐬 are developed in terms of 𝗲𝗰𝗼𝗻𝗼𝗺𝘆 𝗮𝗻𝗱 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝗶𝗮𝗹𝗶𝘇𝗮𝘁𝗶𝗼𝗻, whereas 𝐝𝐞𝐯𝐞𝐥𝐨𝐩𝐢𝐧𝐠 𝐜𝐨𝐮𝐧𝐭𝐫𝐢𝐞𝐬 are in the 𝗯𝗲𝗴𝗶𝗻𝗻𝗶𝗻𝗴 𝘀𝘁𝗮𝗴𝗲𝘀 𝗼𝗳 𝗶𝗻𝗱𝘂𝘀𝘁𝗿𝗶𝗮𝗹 𝗱𝗲𝘃𝗲𝗹𝗼𝗽𝗺𝗲𝗻𝘁 and 𝗵𝗮𝘃𝗲 𝗹𝗼𝘄 𝗽𝗲𝗿 𝗰𝗮𝗽𝗶𝘁𝗮 𝗶𝗻𝗰𝗼𝗺𝗲𝘀.

Developed countries generate revenue from the industrial sector and have more advanced technology and infrastructure, whereas developing countries tend to rely more on the service and agriculture sectors.

Question 36

Watch this video on why some countries are rich and some are poor
As you watch the video, make a list of important points you learned about the video.

list at least 5 things that you learned from the video and 5 things that you found interesting

Answer 36

http://www.youtube.com/watch?v=UHiUYj5EA0w

Question 37

see the Fraser Institute - Economic Freedom Report
https://www.fraserinstitute.org/economic-freedom/map?geozone=world&year=1970&page=map

The index measures the degree of economic freedom present in five major areas:

Answer 37

Size of Government
Legal System and Security of Property Rights
Sound Money
Freedom of Trade Internationally
Regulation

watch the video!!:
http://www.youtube.com/watch?v=3_HnZa2XSrc

Question 38

What is the market system also known as?

Answer 38

free enterprise, free market, capitalism..

Question 39

Which countries currently use a centrally planned economic system?

Which countries currently use a mixed economic system?

Answer 39

CENTRALLY PLANNED: China, Cuba, Vietnam, and Laos still maintain a strong degree of economic planning, but they have also opened their economies to private enterprise. Today, only North Korea can be accurately described as a command economy, although it also has a small degree of underground market activity.

MIXED: US, Canada, France, Sweden, Norway ect. (A mixed economy is an economy organized with some free-market elements and some socialistic elements; it lies on a continuum between pure capitalism and pure socialism.
Mixed economies typically accept private ownership of most means of production, with some government intervention, mainly through regulations.
Mixed economies socialize select industries that are deemed essential or that produce public goods)

Question 40

remember the 5 types of political systems!!!

Answer 40

https://docs.google.com/presentation/d/1q5BxVB3TM57SHY-2Z0hEmrK5LEmRbsDrOoGayhR-6Kw/edit

Question 41

What is the UN?

Answer 41

The United Nations is an international organization founded in 1945. Currently made up of 193 Member States, the UN and its work are guided by the purposes and principles contained in its founding Charter. The UN has evolved over the years to keep pace with a rapidly changing world.
…
The United Nations is a diplomatic and political international organization whose stated purposes are to maintain international peace and security, develop friendly relations among nations, achieve international cooperation, and serve as a centre for harmonizing the actions of nations.

Question 42

What is a developed country also referred as?

Answer 42

1st world, industrialized country,…

Question 43

Define a developing country. Give an example.
List the characteristics of a developing country

Answer 43

._.

Question 44

see the nearpods….

Answer 44

!!!

Question 45

⭐ monetary & fiscal policies video

Answer 45

http://www.youtube.com/watch?v=_tULRch1PRQ

Question 46

Some of the ways government affects
international trade and business include:

Answer 46

Establishing import and export laws

Setting tariffs

Maintaining membership in trade organizations and negotiating trade agreements

Determining monetary policy, including currency exchange rates

Determining fiscal policy, including taxation laws

Building infrastructure, such as roads and sewer systems

Question 47

⭐What is monetary policy

Answer 47

The process by which the government affects the economy by influencing the expansion of money and credit

(cycle of inflation to money supply to interest rates and back again)

to ensure that Canada’’s economy has just the right amount of money to purchase goods and services without causing inflation or deflation. The government uses monetary policies to adjust 𝗶𝗻𝘁𝗲𝗿𝗲𝘀𝘁 𝗿𝗮𝘁𝗲𝘀.

Question 48

⭐What WHAT THE BANK OF CANADA TRIES TO DO? (tight vs easy money)

Answer 48

periodic type graph–> econ conditions vs time
concave down (+): expansion then peak (tight money to reduce inflation)
concave down (-): Recession, then trough (easy $ to help stimulate the economy)
concave up (+) Recovery

TIGHT MONEY: term used to describe monetary policies of high interest rates, more difficult availability of credit, and a decrease in money supply
-used to restrain the economy in times of expansion

EASY MONEY:
term used to describe monetary policies of low interest rates, easy availability of credit, and growth of the money supply
-used to curb recessions

Question 49

⭐What is fiscal policy

Answer 49

the use by government of its powers of expenditure, taxation, and borrowing to alter the size of income in the economy as to being about greater consumer demand, more employment, inflationary restraint, and other economic goals

Question 50

IMPORTANT FISCAL POLICY TERMS

Answer 50

𝗗𝗶𝘀𝗰𝗿𝗲𝘁𝗶𝗼𝗻𝗮𝗿𝘆 𝗳𝗶𝘀𝗰𝗮𝗹 𝗽𝗼𝗹𝗶𝗰𝘆: when gov takes 𝐝𝐞𝐥𝐢𝐛𝐞𝐫𝐚𝐭𝐞 𝐚𝐜𝐭𝐢𝐨𝐧𝐬 through legislation to alter spending or taxation policies in order to influence the level of spending and employment

𝗘𝘅𝗽𝗮𝗻𝘀𝗶𝗼𝗻𝗮𝗿𝘆 𝗽𝗼𝗹𝗶𝗰𝘆: Entails a tax cut, an increase in government spending, or both to stimulate economic growth and lower unemployment rates.

𝗖𝗼𝗻𝘁𝗿𝗮𝗰𝘁𝗶𝗼𝗻𝗮𝗿𝘆 𝗽𝗼𝗹𝗶𝗰𝘆: Entails a tax increase, a decrease in government spending, or both to reduce upward pressure of prices.

Question 51

1. see the worksheet about absolute and comparative advantage
2. see the comparative advantage videos and exercises ⭐

Answer 51

https://classroom.google.com/u/2/c/NjQ3MDQ5ODY4NzY1/m/Njc4MTQxMDUzNzc5/details

2. https://classroom.google.com/u/2/c/NjQ3MDQ5ODY4NzY1/m/NjYwMzI2MjE3OTY3/details

Question 52

Define absolute advantage. Give some reasons why a country can have an absolute advantage.⭐

Answer 52

The ability of one country to use its resources to make a product or service more efficiently than other countries
Example:
-Producing a good at lower cost or higher rate of productivity
-Canada has absolute advantage in producing forest products
-Zambia has absolute advantage in producing copper

◘ Countries export products or services in which they have an absolute advantage

◘ Countries import products or services in which other countries have an absolute advantage

Question 53

Specialization & Trade

Answer 53

In previous lessons we discussed the following questions relating to trade:

What types of goods & services should each nation produce?
How many goods & services should each nation produce?
Should each nation focus exclusively (or specialize) on the production of particular goods & services?

The answers to these economic questions are often found in an examination of the competing theories of absolute and comparative advantage

They largely influence how and why nations and businesses devote resources to the production of particular goods.

Question 54

absolute advantage video!

Answer 54

http://www.youtube.com/watch?v=-7co04C8l-c

Question 55

absolute advantage example⭐

Answer 55

Assume that there are only two countries in the world: Canada & USA
They can each produce apples and peaches, but if each country uses half of its resources to produce each product, they produce different amounts

Canada—>1000 A 6000 P
US———->800 A 1400 P
TOTAL: 1800A 200P

If each country were to specialize in products in which they have an absolute advantage, each country would make twice as much of the product and none of the other product.

Can (abs advant on A) 2000A 0P
US (abs advant on P ) 0 A 2800 P
Total 2000 A 2800 p

Question 56

Define opportunity cost and give an example.⭐

Answer 56

The value of what is foregone, or the cost of giving something up to get something else

Example:
The opportunity cost of being in class is the money a student could earn working at a job.

The opportunity cost of having breakfast at Tim Horton’s is not having it at McDonald’s

Question 57

Define Comparative Advantage⭐

Answer 57

-The ability of a country to produce a good at a lower opportunity cost than another country.

-Comparative advantage is the foundation for specialization and trade
ex. Specializing in what you do well at a reasonable rate

-China has a comparative advantage in production of toys because of inexpensive labour

VIDEO: http://www.youtube.com/watch?v=ol4NexZ0iII

Question 58

Comparative Advantage Example

Answer 58

Let’s look at how efficient each country is at producing each fruit based on this new scenario

CANADA: 1000 A 500P
US: 1200 A 800P
TOTAL: 2200 A 1300P

Canada: 1 peach costs
1,000 / 500 = 2 apples
(lower for can so should produce apples)

USA: 1 peach costs
1,200 / 800 = 1.5 apples
_______________________________________
Canada: 1 apple costs
500 / 1,000 = 0.5 peaches

USA: 1 apple costs
800/1,200 = 0.667 peaches

(lower for US so should produce peaches)

Us can sell peaches and get more apples than if they were producing them