Summary - Economics year 1 Hotelmanagmant

Economic
Table of Content
Lecture 1 Introduction..................................................................................2
Lecture 2 Demand........................................................................................5
Lecture 3 Supply & Market Mechanism........................................................8
Lecture 4 Elasticity.....................................................................................13
Lecture 5 Quiz questions............................................................................21
Lecture 6 Short-run Costs..........................................................................22
Lecture 7 Long-run Costs...........................................................................27
Lecture 8 Profit Maximisation.....................................................................32
Lecture 9 Perfect Competition & Monopolistic Competition.......................34
Lecture 10 Oligopoly..................................................................................40
Lecture 11 Monopoly..................................................................................46
Lecture 12 Govt policy towards business...................................................51
Extra...........................................................................................................58




1

,Lecture 1 Introduction
Microeconomics
 Individual & industry level
 The actions of firms and households
 Demand, Supply, Prices, Costs, Level of Competition -> how a family
budgets or how a company sets prices.

Macroeconomics
 Country level
 The operation of the whole economy
 Growth, Unemployment, Inflation, Exchange Rates -> government
policies that affect the economy as a whole.

Economics = is the study of how society manages its resources. In most
societies, resources are allocated by the combined actions of millions of
households and firms.

Scarcity: Firms perspective
Factors of production
 Land -> all the earth's natural resources (the sea, minerals,
trees, fields, rivers, raw materials)
 Labour -> to both physical and mental work (sewage worker to
accountant)
 Capital -> to all man-made means of producing the final goods and
services which we consume (factories, offices, plant, machinery,
equipment)
 Enterprise -> entrepreneurs organize the other three factors of
production in a firm and take the risk for the venture (project).

Scarcity: Consumers’ Perspective -> Consumers have unlimited wants
but there are limited resources.

Scarcity: Government’s Perspective




The economic problem: scarcity, choice and opportunity costs

2

,Opportunity Cost = the cost of your choice, measured in terms of the next
best alternative which you have to forego.




Microeconomic issues
Decisions involve Tradeoffs = every decision requires choosing between
alternatives, meaning you give up one thing to get another (job or college,
higher wages, or profits)
 Assume individuals are ‘optimizing.’
- Individuals: aim to maximize their utility: A consumer chooses to
spend their limited income in a way that gives them the greatest
satisfaction.
- Firms: aim maximize profits: A firm allocates resources in a way
that maximizes its profit, considering costs and revenues.
 Assume rational economic decision making.
- The assumption here is that individuals and firms use logic and
available information to make decisions that align with their
goals. "Rational" doesn’t mean perfect, it just means that people
generally make decisions based on consistent preferences and
weighing costs versus benefits -> For example: A consumer
choosing between two goods will compare their prices, benefits,
and utility to decide which to purchase, however also think about
emotions.

Utility = the satisfaction or benefit an individual derives from consuming
goods, services, or engaging in an activity.

Marginal costs (MC) and marginal benefits (MB)
 MC < MB  do more of that activity
 MC > MB  do less of that activity
Assume people act only if MB > MC, we respond to economic incentives =
opportunities to maximize their net benefit or utility.
 A company might expand production only if the additional revenue
(MB) is greater than the cost of producing the extra units (MC).
 A person will only buy something if the satisfaction they derive (MB)
is greater than its price (MC).

Behavioral Economics = shows how people’s emotions, habits, and biases
affect their economic decisions.

The production possibility curve -> shows all the possible amounts of
two goods an economy can produce with its resources.

Microeconomics and the PPC:

3

,  Choices and Opportunity Cost:
The curve shows that to produce more of one good; you have to give
up some of another good. This is the opportunity cost.
- If you spend more time making cars, you have less time to make
computers. The opportunity cost is the number of computers you
can’t make.
 Increasing Opportunity Cost:
The more you make of one good,
the more you give up of the other.
This happens because resources
aren’t perfect for making both
goods.
- Making 10 cars might only cost a
little in computer production, but
making 100 cars may cost a lot
more in terms of computers.

Macroeconomics and the PPC:
 Production Inside the Curve:
If you're inside the curve, it means the economy isn’t using all its
resources well (like unemployment or unused machines). The
economie could produce more of both goods.
 Shifts in the Curve:
- Outward Shift: If the economy grows
(more resources, better technology),
the curve moves out, showing that
more of both goods can be made.
- Inward Shift: If the economy shrinks
(less resources, damage), the curve
moves in, showing that less can be
made.




4