Economic Systems Factors of Production Scarcity and Wants/Needs Basic Economic Questions Types

Introduction Economics is the study of how economies work. It is an analysis of the production, distribution, and consumption of goods and services. In Canada, as well as in any nation, when the economy is doing well, Canada does well. People have jobs, they spend money, and they keep the economy going. They have a good quality of life. When the economy is suffering, everyone suffers.

Economic systems are the way that society organizes its economy; and therefore organizes the production, distribution, and consumption of goods and services. Canada and the United States have the two most common systems; Canada has traditionally been considered a mixed economy, and the United States has traditionally been considered a market economy.

Consumers play a role in the economy as well Consumers play a role in the economy as well. Consumer buying and selling impacts the economy. The economic theory of consumerism says that the more people buy, the better it is for the economy. The decisions consumers make have an impact on their quality of life, citizenship, and identity.

Factors of Production Also called economic resources. These are anything used to produce a good or a service. In any society, the supply of economic resources is limited. There are three main types of economic resources.

Factors of Production Land (natural) Consists of all the useful materials found in the environment. Renewable resources can be replaced over time. Ex: forests. Nonrenewable resources are materials that have limited quantities. Once used up, they can never be replaced. Ex: oil

Factors of Production Labour (human) Consists of the human effort that goes into producing a good or a service. Includes physical work, mental effort, management and entrepreneurship (risk taking business people).

Factors of Production Capital Consists of all the money used to purchase equipment, tools and other resources needed to produce a good or service.

Scarcity Imagine you have just won 1 million dollars. How would you spend it? There be things you wanted and still could not afford. In your daily life you have to make decisions about how you spend your money. You simply can not have it all.

Scarcity Societies also face the same dilemma that you face when you are trying to spend your money. Economists call this the problem of: SCARCITY

Scarcity Scarcity is the basic economic problem facing all societies. Scarcity exists because people want more than their society is able to produce with the resources available to it.

Scarcity Because of scarcity, societies are forced to make decisions about how the scarce resources will be used. Economic systems exist to manage the problem of scarcity. An economic system is simply the process by which a society decides how to use its resources.

Human Wants and Needs Includes both needs (basic necessities for life including food, shelter and clothing) and wants (things that people desire). It is often difficult to distinguish between wants from needs. They are often unlimited because people tend to want more goods and services.

Economic Decisions Scarcity and Wants Unlimited Wants and Limited Resources lead to Scarcity. Because of Scarcity, societies must make some Economic Decisions

Economic Decisions

4 Types of Economic Systems TRADITIONAL ECONOMY Economic decisions are based on the past practices and the wisdom of ancestors. (Tribes, Native groups)

MARKET ECONOMY Decisions are based on the actions of the individual buyers and sellers exchanging goods and services with each other. There is little to no government involvement in the economy. (U.S.A.) Resources are PRIVATELY OWNED Individual producers make decisions on how to use the resources. Individual consumers make decisions by choosing what to buy. This style has the least government control and minimal spending on the economy.

4 Types of Economic Systems CENTRALLY PLANNED ECONOMY Also called a command economy. All of the economic decisions are made by the government based on its political judgement. (Cuba, North Korea) The resources are PUBLICALLY OWNED (controlled by the government for the people). The government makes ALL decisions on how to use the resources. Therefore, this style has the most control and spends the most on society. Individuals have LITTLE to NO influence on economic decision making.

MIXED ECONOMY Decisions are based both on the actions of individuals in the market and on government policies. (Canada) Some resources are publically owned, others are privately owned. Producers, consumers and the government make decisions on what to produce. This style is considered to be in between market and command systems.

How does the economy of Canada work? Trade agreements

Canada’s Economy There are three main types of industries in Canada: Service Industries These jobs include transportation, education, health care, construction, banking, communications, retail services, tourism and government. More than 75 % of working Canadians now have jobs in service industries.

Manufacturing Industries This area produces items to sell in Canada and around the world. Manufactured products include paper, high technology equipment, aerospace technology, automobiles, machinery, food, clothing and many other goods. Our largest international trading partner is the United States.

Natural Resource Industries Includes forestry, fishing, agriculture, mining and energy. These industries have played an important part in the country’s history and development. A large percentage of Canada’s exports are natural resource commodities.

Canada’s Economy Canada has always been a trading nation and business remains the engine of our economic growth. As Canadians, we could not maintain our standard of living without engaging in trade with other nations.

NAFTA In 1988, Canada enacted free trade with the United States. Mexico became a partner in 1994 in the broader North American Free Trade Agreement (NAFTA), with 445 million people and reaching a combined output of US$17 trillion dollars. NAFTA has eliminated most tax barriers on goods crossing borders creating free trade and new investments between the three NAFTA countries.

Since NAFTA came into effect, trade and investment levels in North America have increased, bringing strong economic growth, job creation, and better prices and selection in consumer goods. For Canada, 1 in 5 jobs is in part linked to international trade. NAFTA provides an important competitive advantage for Canada and provides business opportunities worldwide.

NAFTA Issues Softwood Lumber Dispute Disputes on softwood lumber have simmered for more than 20 years, but the conflict boiled over in May 2002, when the United States imposed duties (taxes) of 27 per cent on Canadian softwood lumber (wood that is easily cut).

The dispute centred on “stumpage fees” (a fee for the right to log the land) charged to companies that log trees on public land. The U.S. saw the Canadian fees as being too low and showing favour to those companies. This is because in Canada, the government owns the land. Canada saw U.S. fees being overpriced. This is because in the U.S., land is privately owned and logging rights are given to the highest bidder.

A U.S. coalition of lumber producers wanted the provincial governments to follow the American system and auction off timber rights at market prices. The softwood debate has gone on for years with new deals made, then broken and even affecting jobs. The majority of cases brought forward favoured Canada.

Rick Mercer and softwood lumber Youtube video #1 Assginment: Softwood Dispute: Tariffs and Subsidies The Canadian Response