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After this chapter, you will be able to:
LO1 - Describe the economic problem—the problem of having unlimited wants, but limited resources—that underlies the definition of economics.
LO2 - Explain how economists specify economic choice.
LO3 - Summarize the production choices an entire economy faces, as demonstrated by the production possibilities model.
LO4 - Identify the three basic economic questions and how various economic systems answer them.
Additional Key Content Below:
Working with statistics:
http://data.oecd.org/canada.htm
LO1 - Describe the economic problem—the problem of having unlimited wants, but limited resources—that underlies the definition of economics.
LO2 - Explain how economists specify economic choice.
LO3 - Summarize the production choices an entire economy faces, as demonstrated by the production possibilities model.
LO4 - Identify the three basic economic questions and how various economic systems answer them.
Additional Key Content Below:
Working with statistics:
http://data.oecd.org/canada.htm
1) Economic Issue: Pay Equity... Why do women earn less than men?
The pay gap between men and women has been narrowing for decades. But it persists, and it gets larger as women move toward the middle of their careers.
Harvard economist Claudia Goldin looked at the gap in a bunch of different ways — how it's changed over time, how it changes over the course of people's careers, and how it varies from industry to industry.The gap grows as women move through their careers largely because women are more likely than men to take time off to raise a family. (The gap shrinks after the prime child-rearing years.) But the penalty for taking time off to raise kids is much larger in some industries than in others.
One way to solve this, of course, would be for men to take more time off to raise kids. But even if that doesn't happen, Goldin says, the pay gap will continue to close if more industries allow for more flexible work schedules. Another method would be to incentivize more women to move into high paying fields traditionally occupied by men, such as business.
http://www.npr.org/blogs/money/2014/12/15/370357880/how-the-gender-pay-gap-has-changed-and-how-it-hasnt
The pay gap between men and women has been narrowing for decades. But it persists, and it gets larger as women move toward the middle of their careers.
Harvard economist Claudia Goldin looked at the gap in a bunch of different ways — how it's changed over time, how it changes over the course of people's careers, and how it varies from industry to industry.The gap grows as women move through their careers largely because women are more likely than men to take time off to raise a family. (The gap shrinks after the prime child-rearing years.) But the penalty for taking time off to raise kids is much larger in some industries than in others.
One way to solve this, of course, would be for men to take more time off to raise kids. But even if that doesn't happen, Goldin says, the pay gap will continue to close if more industries allow for more flexible work schedules. Another method would be to incentivize more women to move into high paying fields traditionally occupied by men, such as business.
http://www.npr.org/blogs/money/2014/12/15/370357880/how-the-gender-pay-gap-has-changed-and-how-it-hasnt
2) Economic Principle: The Paradox of Choice
It seems a simple matter of logic that if people have more options in a choice domain (cereals in the grocery, shirts in the department store, mutual funds in the financial market, health insurance plans under the Affordable Care Act), they’re better off. People who don’t care about added options can ignore them, and people who do care may be able to find the perfect thing. Adding options is what economists call a “Pareto improvement,” making some people better off while making nobody worse off.
Because of the “obvious” truth of the proposition that more choice makes us better off, it was big news when a series of studies showed the opposite. Economists found that there are circumstances in which adding options reduces the likelihood that people will select any, whether the decision in question is trivial (gourmet jam) or very significant (retirement plan participation).
This counter-intuitive result attracted a great deal of attention, and a whole book was written about it called “The Paradox of Choice.” In the book, two types of people are mentioned: a maximizer and a satisficer. A maximizer is like a perfectionist, someone who needs to be assured that their every purchase or decision was the best that could be made. The way a maximizer knows for certain is to consider all the alternatives they can imagine. This creates a psychologically daunting task, which can become even more daunting as the number of options increases. The alternative to maximizing is to be a satisficer. A satisficer has criteria and standards, but a satisficer is not worried about the possibility that there might be something better. As the options we have available increase, it becomes more and more difficult to be a satisficer... and anxiety is often experienced with making the wrong purchasing decisions.
3) What does economic contraction look like? Detroit.
As an economy declines and jobs evaporate, people start to leave. As people leave and spending in the city declines, more and more businesses must close. As more businesses close, more people lose their jobs, stop paying taxes, and even turn to crime if they are desperate to feed themselves and their families. It creates a very dark scenario, but some people in Detroit think they have the spirit to bring Detroit back, at least in spirit... and through art!
As an economy declines and jobs evaporate, people start to leave. As people leave and spending in the city declines, more and more businesses must close. As more businesses close, more people lose their jobs, stop paying taxes, and even turn to crime if they are desperate to feed themselves and their families. It creates a very dark scenario, but some people in Detroit think they have the spirit to bring Detroit back, at least in spirit... and through art!
4) Economic Principle: Loss Aversion
In economics (particularly in investing) and decision theory, loss aversion refers to people's tendency to strongly prefer avoiding losses to acquiring gains. Most studies suggest that losses are twice as powerful, psychologically, as gains. Loss aversion was first demonstrated by Amos Tversky and Daniel Kahneman.
5) Economic Principle: People Respond to Incentives; Economic Concern: Carbon Taxation
- PEOPLE RESPOND TO INCENTIVES
Incentives are rewards or punishments that influence people’s decisions. When incentives change, people’s behaviour changes in predicable ways. Incentives are shaped by a society’s institutions, the formal and informal “rules of the game.” Incentives can be both positive and negative, and it helps to consider examples of both positive and negative incentives in our society to illustrate the point. Key examples we utilize are prisons (negative), and employment compensation (positive).
- PRICES ARE EXTREMELY POWERFUL INCENTIVES
6) Economic Term: Emerging Economy
When an economy is "under-developed," it has a range of ways to improve its productivity, and expand its production possibilities. It can improve technology, improve the education of its workers (increase human capital), or use more natural resources that it has available. Countries like China, India, and Brazil have been "emerging," or increasing their production at a more rapid rate recently than Canada and the USA... for a whole variety of reasons. Below, look at how the picture has changed over time concerning who has the biggest economy in the world.
When an economy is "under-developed," it has a range of ways to improve its productivity, and expand its production possibilities. It can improve technology, improve the education of its workers (increase human capital), or use more natural resources that it has available. Countries like China, India, and Brazil have been "emerging," or increasing their production at a more rapid rate recently than Canada and the USA... for a whole variety of reasons. Below, look at how the picture has changed over time concerning who has the biggest economy in the world.
7) A Picture of Life in the Command Economy of East Germany