Life: Economics Point of View
Marcus Murdock
Introduction
Economics is a key aspect of life, and plays a significant role in the world today. What is Economics? Economics is described as the branch of knowledge concerned with the production, consumption and transfer of wealth. Many people may argue that Economics is scarcity, the study of decision making and how people use resources. Leading to the common misconception that Economics focuses primarily on the stock market and money, which is completely incorrect. It is considered a “Social Science” in which human behaviour is studied by looking at the choices individuals make and how these choices are influenced by the anticipated costs and benefits of each choice.
Business has been an important part of my life in particular, because my father, step-father and grandfather all share the same career as financial planners/advisors. I took the initiative to get into the field in order to experience what my grandfather’s company is like first hand. My father and step-father both work within my grandfather’s firm, so I assisted and shadowed them in this exciting business environment. Witnessing their drive and passion for what they do made me even more excited about my future, and where I could potentially be in the next five years. This experience allowed me to know with full conviction that this is what I want to do, and with that decision I can work towards identifying and embracing the values I will need to be successful.
PART 1 — “Microeconomics”
a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources.
Originating in Portland, Oregon starting out as “Blue Ribbon Sports” Nike has EXPLODED into one of the most profitable sportswear companies known to man. Nike Inc. has brought inspiration and innovation to every athlete in the world. Mike Parker CEO was recently crowned ‘Fortune’ Magazines 2015 Businessperson of the year.
Elasticity
the degree of responsiveness in supply or demand in relation to changes in price
Elasticity varies among products because some products may be more useful to the customer. Elasticity also varies in regards to a product being a necessity (an indispensable thing) or a luxury (great comfort or extravagant living). Water, a necessity is (an inelastic product) less sensitive to price change because consumers will continue to purchase the product no matter what the price is. If a luxury, for example a $1000 Gucci handbag (an elastic product) were to change its price, consumers would react more sharply whether the price increases or decreases.
Demand Elasticity Coefficients
Elasticity = (% change in quantity / % change in price) If elasticity is greater than or equal to one, the curve is considered to be elastic. If it is less than one, the curve is said to be inelastic.
SPLAT: Reasons of DEMAND Elasticity
a measure of how much the quantity demanded will change if another factor changes.
Substitutes: Depending on the number of substitutes for a product, the more the substitutes the more elastic the product is. For example if the price of an Aero Bar increases, a consumer will settle for a different chocolate bar at a cheaper price.
Proportion of Income: The higher the price of a good (relative to a consumers income), the greater the price elasticity of demand. For example if the price of toothpaste were to rise 10%, only a few extra dollars that will be spent, and consumers will likely still buy the toothpaste because it is relatively cheap. However, if the price of an expensive sports car were to increase by 10%, that is a few thousand extra dollars and consumers will react differently considering the price is already so high.
Luxury or Necessity: A luxury is considered elastic because it is not something we absolutely need in our lives such as a $2500 fur coat. A necessity on the other hand is something we essentially can not live without for example, something as simple as food or water.
Addictive: If a product is addictive or habit forming it is inelastic. Cigarettes are inelastic because once a person is addicted, it is non-replaceable and is a ‘necessity,’ considering one can not live without it.
Time: Short time to consider to buy a product is considered inelastic because we don’t have time to adjust to price change. Long time to consider whether to buy a product is considered elastic because we have more time to adjust to price change and make an educated decision, or produce the money that is needed to buy the product.
Reasons of SUPPLY Elasticity
As a producer you want an ELASTIC product, to keep your production ahead of price increases. If the demand for your product were to increase, you want to be able to produce it quickly (time), to store the product for later use (storage), and you want the cost of production to be cheap (cost to produce).
- TIME: to make the product. Fresh produce is inelastic because a producer of fruits can not grow fresh fruit over night. Things such as pencils or newspapers are elastic because they can be produced at such a rapid pace and rate of production can also be monitored effectively.
- STORAGE: Fresh produce is also inelastic because it can not be stored for a certain amount of time and will eventually rot. A pencil would be considered elastic because they can be stored for an extended period of time. If a product is expensive to store (for example a yacht), it is also considered inelastic.
- COST TO PRODUCE: Producing any type of vehicle or as mentioned above a yacht, is very expensive to produce which is why it is inelastic. An elastic product on the other hand such as pencils, do not cost companies much to produce.
Marginal Utility
Marginal Utility is the enjoyment of each additional good or service. Total Utility is the overall enjoyment of each additional good or service. For example, the consumption of hamburgers illustrated below.
As more hamburgers are consumed, the Marginal Utility of each additional hamburger continues to decrease while the Total Utility continues to increase.
Why is this important and how is it used?
Economists use this concept to determine how much of a product a consumer may buy. Lets use water as an example. Water is a necessity and consumers will continue to buy it regardless. Since it is purchased so often, the Marginal Utility will be low, but the Total Utility will be high. A luxury such as a diamond ring, will create an opposite effect. Since consumers do not purchase diamond rings often, when they do, Marginal Utility is high but Total Utility is Low.
Paradox of Value
the apparent contradiction that, although water is on the whole more useful, in terms of survival, than diamonds, diamonds command a higher price in the market.
In other words, the paradox of value is the observation that although a critical good or service in our lives such as water is so inexpensive, we continue to waste our money on expensive and useless goods such as diamonds rings. Even though water is more useful in regards to survival, diamonds ask for a higher price on the market.
R E F L E C T I O N
Elasticity plays different roles in peoples lives, and may have a bigger impact on one person compared to another. There are inelastic products that people essentially cannot live without, and people are forced to buy this product because it is simply irreplaceable. Where as an elastic product is more opinion based, depending on the consumers income and how much they are willing to spend on a particular product.
This affects many people each day, including myself. How does elasticity impact my life? A prime example is buying a vehicle but more specifically the type of vehicle I chose to purchase. My sister purchased a car in her grade 12 year along with many other students, so I thought there were no other options, than to purchase one myself. I bought a 2008 Audi A4. At the time I thought unrealistically, focusing primarily on the look, brand and speed. The brand Audi is elastic because I can buy a different brand of car (substitute) and is it is more of a luxury than a necessity, I did not NEED this in my life. I wanted a vehicle for hockey practice, school and work however I did not have to spend so much. I would have gotten equivocal use out of a Honda Civic or Mazda 6, which are cheaper in every aspect.
Elasticity vs Inelasticity
The initial purchase of the car isn’t so bad, but the ongoing expenses is what really began to add up. GAS. As you already know, gas is inelastic because there are absolutely no substitutes, and in order to drive you must purchase gas. My tank would last me from two and half weeks to maybe a month, considering how much driving I did in that period of time. Filling up my entire tank is roughly $65-$75 depending on gas prices. Since gas is inelastic, continuing to purchase gas put a dent in my bank account and I quickly realized the mistake I made. Audi has branded themselves into an innovative, “German” vehicle to reel in customers, like myself. The Audi itself was not inelastic because I was able to live without a car, let alone an Audi. It is ironic because after purchasing an elastic product (Audi) it theoretically became inelastic because I had no choice but to purchase premium gas (which was expensive for this type of vehicle) in order to drive my car.
Theoretically the government can raise gas prices to whatever they want because it is inelastic and the demand would not increase nor decrease but stay relatively the same. Audi on the other hand has to be careful with their prices because it competes with other car brands, such as BMW or Volkswagen (substitutes). I did not realize how much elasticity impacted me in this situation and I thought to myself whether I would have reacted differently after learning the concept in Economics 12. All in all, I realized the mistake I made but rather than dwelling on the fact I found ways to cope with the problem and fix it. I mean… Isn’t it all about the look anyways?
PART 2— “Microeconomics”
a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of limited resources.
Opportunity Cost
the loss of potential gain from other alternatives when one alternative is chosen.
We all make different decisions, that may benefit us more than someone else. We choose different resources for our own personal use because every single person values different resources in their own particular way. Why do we do this? Since every resource can be put to alternative uses and every action or decision has an associated opportunity cost. We must give up something in order to acquire something else. “Opportunity Costs” are fundamental costs in Economics, what is lost when making a choice instead of another.
Opportunity Cost using PPC
PPC = Production Possibility Curve.
A PPC graph demonstrates the theory of scarcity. When creating a PPC graph you must assume 3 things.
- Only 2 products can be produced
- Economy is at 100% employment
- Economy has fixed technology and resources
This is an example of a PPC graph. Point ‘B’ Is where all companies theoretically want to be. Point ‘C’ is completely unattainable because anything beyond the PPC line means that a company doesn’t have enough workers nor supply. Point ‘A’ is basically “underproducing” a product in which you are not allocating your resources effectively. Continuing to push the “frontier” (point b) out towards the right will increase production and in order to do this a company must either increase the labor force (immigration, birth rate etc..) or increase resources (improve education/health) which are both very difficult to accomplish.
Law of Increasing Relative Cost
Also known as Law of Increasing Opportunity Cost is when an increasing amount of one product is given up in In order to produce more of another product. Stating that as we increase the production of one good, the opportunity cost of producing an additional good will increase.
Law of Diminishing Returns
“economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output.”
If a famer owned a specific acreage of land, he/she would only hire a certain amount of workers for that size of land. This is also commonly reffered to as “too many cooks in the kitchen.” Any person/company supplying workers wants to hire enough where they can continue to produce, but make money at the same time. Sure, it’s easy to hire a large amount of workers to increase the rate at which you are producing, but the cost of having this many workers will lower the amount of money you’re making all together. A company wants to find the perfect combination between labour, profit and what they are paying their workers, to not only continue to make money but produce at a fast rate as well.
Scarcity
Scarcity refers to the basic Economic problem, in which a resource is “limited” or in short supply. We come across scarcity along with opportunity cost everyday, without even realizing it. Many resources are scarce which is why we must allocate them effectively. How does this relate to opportunity cost? People have unlimited needs and wants however the available resources in order to satisfy one needs and wants are LIMITED. Therefore we have to make decisions accordingly, essentially giving up something in order to gain something else and using these “scarce” resources effectively.
R E F L E C T I O N
We are faced with the concept Opportunity Cost every single day, but how does it affect me? Growing up, hockey has played an important role in my life teaching me not only to work hard for myself, but a team. I’ve made incredible memories throughout the years, road trips, tournaments, playoffs… Time’s I’ll never forget. The competetive edge is what really kept me going, having the opportunity to compete at such a high level throughout my career. I love the game and will continue to do so for the rest of my life, but in my grade 12 year as of right now I am faced with the hardest decison of my life. University or Hockey.
In my opinion not everyone wants to go to university, but is more obligated to. In other words, it makes having a life-long career EASIER in the long run. The thought of going to University excites me however, 4 more years of studying absolutely does not. I’ve been accepted into both SFU and UBC. Beedie (Business at SFU) and Arts at UBC however I am currently on the watilist for the sauder program (Business at UBC). Right now I am faced with a number of choices and decisions that will essentially pave the next 5 years of my life. Business is always something I’ve wanted to pursue, both my father and step-father are CFP’s (certified financial planners) and have influenced me greatly. The process of unviersity is dreadful but the thought of acquiring my degree, and obtaining a high paying job as a financial planner is what really motivates me. Now I am faced with 3 choices, Hockey, SFU or UBC.
Hockey
If I were to continue to play hockey, I would likely be playing for the Coquitlam Express of the BCHL next year becasue I was an affiliate for them my past year as Captain, for the Vancouver North East Chiefs. Why would I continue to play hockey? Well, I ask myself that question every single day. If I were to continue to pursue my love and passion for the sport, my ‘Perfect’ path would look something like this. Playing Junior A for the next 2 or 3 years until I’ve been scouted for a scholarship, preferably a full ride somewhere in the states, where I could go to school and play hockey all together. This is very possible, and if I were to stay motivated I believe I could do it. However, If I struggled as Junior player and didn’t impress the scouts as much as I wanted, I could be offered NOTHING essentially wasting 3 precious years in which I could be attending universitiy. My biggest nightmare is being behind, I feel that since most of my friends will attend University right after highschool I am obligated to aswell. I don’t want to waste 3 years playing hockey where I could be 3 years into University, 1 or 2 years away from graduating and having a successful career.
University/Hockey
In my opinion school can be difficult on it’s own, and continuing to give full effort on the ice can put a toll on a players mind and body. Balancing both school and hockey would be very difficult. I’ve done it all my life however, at the NCAA level players are being scouted by NHL teams. Having to worry about that and getting good grades would not be easy. The experience in a university down south is incredible, described as the real “university experience.” Obtaining a scholarship would make not only my family proud but myself. It’s something every hockey player has dreamed of once in their life. Playing in front of thousands of fans, being apart of a school where the atmosphere is breath taking, filled with so much energy and pride. If I were to get a scholarship through my Junior years of playing hockey I would have no choice but to leave home however, the schooling would be free. Having the opportunity to go away would be an awesome experience but having so much pressure on me without the support of family is something I’d be missing. I could move away to a big school, far away by myself, leaving everything behind OR I could stay home go to school locally and give up the opportunity of playing NCAA.
Simon Fraser University
Being accepted into the Business Program is reassuring, knowing full well that in 5 years I can be where I’ve always wanted to be with a business degree. I feel I could get through these years fine, considering my sister is in the business program right now, in which she’d be able to offer me help if needed. 4 of my cousins have also attended SFU and have all acquired successful high paying jobs which is the ultimate goal. Since my family is so heavily invested in “business” and has so many connections in this field of work I feel that finding employment once graduated would not be a problem.
Tuition
The cost of going to SFU is relatively cheap compared to other schools and business programs. After calculating the cost of books and the recommended course each year, the price came to about $2800 per semester. Which is VERY cheap. Once getting into 3rd or 4th year “Beedie” the price increases to about $3500 per semester, because people tend to focus more on business courses rather than “useless” electives. SFU’s Burnaby location is only about a 15 minute drive from my house, and not having to live on campus is saving me a significant amount of money. All in all if I were to attend this university, a notable amount of money.
Experience/Environment
As I mentioned earlier, a lot of money would be saved not having to live on campus however, in my opinion that’s what University is all about. Having the opportunity to live on my own along with thousands of other students is something I would love to experience throughout my university years, but this would be unrealistic at SFU. I’m not going to pay to live on campus primarily for the experience when I live only 15 minutes away. Therefore, if I were to attend SFU this is a huge factor I would be missing. The opportunity to grow up and meet new people on my own, university being the perfect chance to do so or continuing to live at home completely missing out on the true university life.
University of British Columbia
If I were to choose to go to UBC the only thing I would regret is knowing that I had the perfect opportunity to acquire a business degree at SFU where at UBC I do not, only because I was accepted for ARTS and not BUSINESS. Going to UBC means I would have to transfer from faculty of arts to sauder which would be extremely difficult. If I can’t transfer I am essentially throwing away my chances to pursue a career in business.
Tuition
After calculating the price of books, food, housing etc… The price came out to almost $26,000 per year which is significantly larger than the price of SFU. Where in reality I would be getting degrees that are exactly the same. It doesn’t matter where a business person graduates from, but the personality and confidence they are able to express. Yes, graduating from the Ivey program at Western University is very impressive, but without social skills you are going no where. So, is spending the extra $20,000 really worth it?
Experience/Environment
The experience UBC has to offer for students is out of this world, every students dream. $26,000 is a large sum of money and this could all be avoided by doing something as easy as accepting my SFU offer. I’ve always pictured university in a dorm, partying, meeting new people and living on a beautiful campus, which is UBC in a nutshell. It may seem unrealistic to use “partying” as a factor affecting my decision but it is true… I want to be able to explore, meet new people and make new connections. There are almost double the amount of students at UBC compared to SFU, from all over the world. The opportunity of missing out on meeting these new people and experience living on campus is something I’d hate to pass on.
We are faced with multiple decisions everyday that will affect our lives in either a positive or negative way. We have regrets because we feel we could have made a different choice that would have affected us differently. These are all choices that will impact the rest of my life. Leaving hockey behind is heartbreaking but I know I am making the right choice. After choosing University over hockey and leaving that aspect of my life behind, I have to now choose what University to attend. In my opinion, experience holds a higher value than price. I have one chance at life, one opportuity to go to university, and one last year to play hockey… I may as well live it to the fullest.
PART 2 — “Macroeconomics”
a branch of the economics field that studies how the aggregate economy behaves. In Macroeconomics, a variety of economy-wide phenomena is thoroughly examined such as, inflation, price levels, rate of growth, national income, gross domestic product and changes in unemployment.
The “Great Depression” and it’s resulting high unemployment rate greatly influenced the development of macroeconomics. In 1936, John Maynard Keynes published The General Theory of Employment, Interest and Money. This created the idea that government spending and tax policies could be used to stabilize economies.
Unemployment
the state of being unemployed: the number or proportion of unemployed people.
From this category (unemployment) in economics, the unemployment rate in an economy can be calculated as seen below..
What if I don’t want to be employed?
Everyone can relate to this, in a sense that we are all either employed or unemployed in an economy but how do you determine if someone is “unemployed” or not? The ‘unemployed’ does not account for people who have given up work, and the ‘labor force’ does not account for people who are not working the hours they want and people not working jobs they are qualified for. It is unrealistic for a country to be have their unemployment rate at 0%, which is why Canada is considered at full employment with 6–7% unemployed (Commonly reffered to as the natural rate of unemployment).
Amidst Europe’s own unemployment crisis, London-based artist/photographer Slinkachu installed a series of miniature workplace scenes around Paris to depict the difficulties that surround youth unemployment, a statistic that has reached nearly 30% in some areas.
Types of unemployment
There are reasons as to why a person is unemployed, which is why there are DIFFERENT types of unemployment as followed…
Structural Unemployment
Occurs when the skills or location of workers no longer matches the patterns of demand in the economy. For example, many people used to hand weave sweaters, but since technology has improved, these people are simply unneeded in the economy.
Technological Unemployment
This type of unemployment results from industries using more technology in the production process, essentially reducing the amount of workers. For example suppose technological change makes it is easier to produce food, less workers are needed causing unemployment.
Frictional Unemployment
Results from people moving between jobs, including both students who are graduating from school looking for jobs or people who are simply moving from one job to another. An example of frictional unemployment could be me, graduating high school and looking for a decent paying job while attending university.
Replacement Unemployment
This unemployment occurs when a country such as Canada replaces local labour with labour in another country. For example, Lululemon originated in Vancouver where as now all of their clothing is made in Asia, because labour is ultimately cheaper.
Cyclical Unemployment
This type of unemployment increases during a recession. During a recession a common mistake is to spend LESS. Businesses are unwilling to spend money on wages when they believe nobody is buying their product. For example if we were in a recession and there was a low demand for computers, Apple would decrease their labour force because it is not needed during this time.
Seasonal Unemployment
Seasonal Unemployment occurs when people are unemployed during particular times of the year. An example of this could be lifeguards. In the summer time there is a significant demand for lifeguards because this is when pools are open, but during the winter and fall months lifeguards simply are not needed.
Okun’s Law
the relationship between an economy’s unemployment rate and its gross domestic product
In the twentieth century Arthur Okun made the connection between unemployment and GDP. Developing the idea that for every 1% the unemployment rate increases over the natural rate there will be a gap of 2% on GDP. Why is this formula important? The GDP gap indicates how efficiently a country is using its productive resources. This formula shows the potential GDP if an economy was to reach FULL employment.
Results of high unemployment
Many things can go wrong if an economy lacks employment, the main issues that arise in the midst of high unemployment are Canada’s employment insurance, less tax collect, fewer goods produced, civil unrest and rising crime rate. The higher the unemployment the more our tax dollars go to “Canada’s unemployment insurance” rather than using that money toward different projects that would better our economy. Less goods are being produced because the economy has a LOWER supply of workers. Civil unrest and rising crime rate go hand and hand, if one is unemployed they have no source of income which results in stealing and rioting in hopes of the government improving conditions of employment.
R E F L E C T I O N
We have all experienced unemployment, including myself. Unemployment plays an important role in the economy today and affects almost everyone throughout the world. Having invested so much time in Hockey throughout my life, I have never had the opportunity to work until this year. I guess you could say I’m experiencing “frictional unemployment.” Since hockey is no longer a priority I can now spend my time applying for jobs, and finding a way to make money.
Working in a Business Environment
Something I’m interested in doing for the rest of my life is financial planning. Not only have my father and step-father greatly influenced me to pursue this type of business, but my enjoyment has impacted me as well. Michael (step-father) has given me the opportunity to assist him in a business environment which helped me prepare for what life will be like after University, and makes me excited for what awaits. I would not consider this a real job, but an experience that will help me in the future.
Hockey Schools
I find it ironic that as soon as I quit hockey and put the sport behind, I find myself running hockey schools 2 months later as my primary source of income ($30/hour). Every weekend I teach young developing hockey players to get better and push themselves. This job is extremely easy for me because I have been in the exact same position and I know how important it is to take advantage of every opportunity whether it’s on or off the ice. Being involved in high-level hockey can benefit me in the sense that I can help teach kids and also find a job related to hockey quite easily, but I would still not consider this a real job.
How does unemployment affect me?
Right now I am currently looking for a “real job.” Completely unrelated to my parents and hockey. I want to apply, get an interview and ultimately a job as an individual. I have applied at Browns Social house and Cyclone Taylor Sports. Anywhere I’ve applied, including these two places have told me they simply do no need workers. It’s like having “too many cooks in the kitchen,” what is the point in paying for more employees when they are not needed? They simply do not have a demand for labour. It is frustrating but at the same time I am being very picky in regards to where I want to work. If I NEEDED work I would go and apply as a dishwasher at a restaurant where no prior experience is needed. Where as working in retail or as an expo in a restaurant, experience is highly recommended. I’ve recently applied at Westwood Plateau Golf Course and was given the opportunity to have a brief discussion with the manager. I got a call about 2 weeks later for a second interview since they are short staff and ultimately have a demand for labour, I feel confident in the recent discussion we had and I hope this is the result of me getting hired. One thing I need to understand is that I have to start at the bottom and work my way up, which is just the way it works in the world today. Many people think it is easy to obtain a job after university in the sense that you have a degree and have many opportunities but this is completely incorrect. Not all areas in the world offer specific job opportunities for example, if I became a lawyer and there was a LOW demand for lawyers in Vancouver I would be forced to move away (this is a major problem in todays society). If I am being offered higher pay in a different area of Canada or even the world, I am going to take the opportunity to make more money and move away for this reason as well. All in all, obtaining a degree or job experience does not guarantee work in the long run. You have to work hard, apply yourself and stay motivated throughout your entire life to sustain a living wage.
