3. Course Description
This course will cover:
Basic economic principles that are
applied to current social issues and
problems.
4. Learning outcomes
Upon completion of this course the
student should:
Have a good background about the
theory of demand and supply.
Analysis of costs.
Theory of production.
5. The role of the government intervention
in the individual markets(Smith &
Keynes)
* Role of fiscal and monetary policy in
macroeconomic management.
6. Be able to solve and manipulate a
variety of simple diagrammatic and
algebraic models in micro-and
macroeconomics.
8. Definition of 'Economics'
A social science that studies how
individuals,
governments,
firms and nations
make choices on allocating scarce
resources to satisfy their
unlimited wants.
9. Approaches in economics
Two major approaches: classical and
Keynesian.
Classical economists believe that markets:
function very well;
will quickly react to any changes in
equilibrium and that a "laissez faire"
government policy works best.
10. Approaches in economics
Whereas, Keynesian economists believe
that:
Markets react very slowly to changes in
equilibrium (especial to changes in prices)
and that active government intervention is
important to get the economy back into
equilibrium.
11. The Economic Problem
How to allocate scarce
given unlimited wants
This forces choices to be made:
(1) what to produce?
(2) How to produce ?
(3) For whom to produce?
resources
Capital
Enterprise
Land
Labour
13. Scarcity means:
There are only a limited amount of
resources available;
To produce the unlimited amount of
goods and services we desire.
14. EXAMPLES OF SOME DECISIONS
ECONOMISTS HAVE ANALYZED
Whether to buy a car this week!
Whether to buy a home or to rent a
home!
Whether to marry your sweetheart!
Introduction
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15. Factors in decision making
1. People face tradeoffs
2. Opportunity cost
3. Making decisions at the margin
4. People respond to incentives
Introduction
16. Microeconomics, which deals with
individual agents such as households and
business.
Macroeconomics, which consider the
economy. (GDP, Inflation….)
17. Aspects receiving attention in
economics are:
1. resources allocation;
2. production;
3. distribution;
4.trade;
5. and competition.
19. Methodology: Positive v. Normative
Economics
Positive economic:
Studies the way the world is
Examples:
How much will a new gasoline tax raise the
price of gasoline?
Will an increase in the minimum wage
increase unemployment?
Introduction
21. Introduction
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Models and theories
A model is a hypothesis about the
relationships among variables.
theory is a plausible or scientifically
acceptable general principle or body of
principles offered to explain phenomena
22. Contents of models
List of variables:
Dependent v. independent variables
Hypothesized relationships among the
variables. (Income/Consumption)
Using tables of values, graphs, or
equations.
Introduction
23. A model of Consumption
Income
Consumption
TC = a + b(Y)
a
C
Y
b = C/Y
25. MODEL SUMMARY
Three ways to describe models
Graphs
Tables of values
Mathematical functions (equations)
Important concepts
Dependent and independent variables
Linear function, intercept and slope
26. AN ECONOMIC MODEL
The Production Possibility Curve
Purposes of model
Show scarcity constraint
Illustrate economic efficiency
Introduce opportunity cost concept
Variables
Quantities of goods that may be produced
Givens
Total amounts of inputs available
Technology of production
27. PPF DEFINED
The Production Possibility Curve (or
frontier) shows the maximum amount of a
good you can produce.
given the total amounts of inputs
available and given the technology of
production.
28. PPC EXAMPLE
Assumptions:
There are only two goods, pizza and
spaghetti.
There are limited inputs and given
technology of production.
Definition:
The PPC shows the maximum amount of
pizza you can produce, given the amount of
spaghetti to be produced.
Introduction
32. Introduction
Points “inside” the PPC are inefficient.
Note that while points on the PPC are
efficient, we cannot say at this time
whether some are better for society than
others.
33. The PPC can show
opportunity cost
Suppose you are at some point on a
PPC.
Then suppose you want to consume
one more pizza.
Introduction
35. OPPORTUNITY COST INCREASES
AS MORE OF A GOOD IS
PRODUCED
Not only does more pizza mean less
spaghetti, but each additional pizza costs
more than the one before it.
This idea shows up as the PPC being
concave to the origin. (The curve bows
out.)
Introduction
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37. Introduction
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We will use Production Possibilities
Curves that are straight lines (i.e., that
have constant opportunity cost) to
illustrate some important economic
principles.
40. How to calculate the opportunity cost
Point Chairs TVs
A 10
5
0
10
B 5
5
10
10
C 0 20
41. 1/ calculate the difference
2/ write the sentence
3/ divide
The O.C of 10TVs is 5 chairs
Divide: the O.C of 10/10TVs is 5/10
chairs
the O.C of 1TV is ½ chair
Or the O.C of 1 chair is 2TVs
