Economics
Definition of economics- economics is concerned with the study of how scarce resources are
allocated among unlimited wants.
→ in other words, economics is the study of how society manages its resources.
microeconomics - is concerned with the economy at the individual level, the actions of firms
and households. Up to industry level.
Macroeconomics - analyses the operation of the whole economy. Growth; Unemployment;
Inflation; Exchange Rates.
Positive & normative
Positive statement: Donald Trump was president of the USA (statement of fact). Normative
statement: Donald Trump was the best president the USA has ever had (statement of
opinion).
The economic problem: scarcity, choice and opportunity cost
→ the earth’s resources - & our own! Are limited in supply, i.e. they are scarce relative to our
collective wants
→ Lecture or Goof off (can’t do both)
→ we have wants in terms of our desire for food, clothing, consumer goods and so on.
→ the problem is that our wants exceed our resources. Same for firms & governments.
→ Profits: save; invest; bonus; dividend
→ Govt: roads; hospitals; highways; education; guns
→ this forces us to make choices
→ choices are measured in terms of Opportunity Cost.
→ OC measures the cost of something in terms of the next best choice that you decide to
forego.
Microeconomic issues
→ decisions involve Trade Offs , e.g. pollution controls and income; job or college;
higher wages or profits.
→ assume individuals are ‘optimising’.
→ assumes rational economic decision making??
- Marginal costs and marginal benefits.
- MC = the additional cost as a result of producing one more unit/serving one
more guest/ buying one more product
- MB = the additional benefits as result of selling one more unit/buying one more etc.
- MC < MB → do more
- MC > MB → do less
, - I.e. assume people take action only if MB > MC, we respond to economic incentives.
→ behavioral economics
Uses of resources: Factors of Production (FoP) →
firms use FoP to produce g. & s.
→ Land (and natural resources) for which they pay rent
→ Labour for which they pay wages
→ Capitol for which they pay interest
→ Enterprise for which they pay profit
→ i.e. FoP are inputs into the production process
→ they are also scarce (good business owners, jeff bezos, bill gates, mark zuckerberg)
Lecture 2
Demand
The law of demand
Cateris paribus (all other things staying the same, so only changing the price or only the
quantity), the higher price of a good or service, the less we want to buy it and the lower the
price of a good or service the more we want to buy it.
The relationship between demand and price
Why does the line go from left above to the right bottom?
- Income effect: When your income does not change but the price of the
products rises, you can afford less quantity of the product.
- Substitution effect: you buy something else that is less expensive. For
instance, when the scotch is €15 and vodka €10 you will buy the vodka.
Only when the price changes, there is a movement in the curve.
Other determinants of demand
- Number and price of substitute goods (apples, pears, Bavaria, Heineken)
- Complementary goods (gin and tonic) goods that are consumed together.
- Tastes and fashion (when something is popular the demand will change)
- Income Normal goods; inferior goods; luxury goods
Normal: we buy more as the incomes rise, and less as our incomes fall.
Inferior: we buy more as our inomes fall, and we buy less when our incomes rise.
(Aldi, Lidl)
Luxury: we buy a lot more when our incomes rise, and a lot less when our incomes
fall.
- Expectations
Substitute goods: Pepsi and coca cola
Pepsi rises their price, so less Pepsi is bought. Therefore, the coco cola demand curve
changes. For the same price you will now get more products of coca cola. Beneficial for
coca cola.
Definition of economics- economics is concerned with the study of how scarce resources are
allocated among unlimited wants.
→ in other words, economics is the study of how society manages its resources.
microeconomics - is concerned with the economy at the individual level, the actions of firms
and households. Up to industry level.
Macroeconomics - analyses the operation of the whole economy. Growth; Unemployment;
Inflation; Exchange Rates.
Positive & normative
Positive statement: Donald Trump was president of the USA (statement of fact). Normative
statement: Donald Trump was the best president the USA has ever had (statement of
opinion).
The economic problem: scarcity, choice and opportunity cost
→ the earth’s resources - & our own! Are limited in supply, i.e. they are scarce relative to our
collective wants
→ Lecture or Goof off (can’t do both)
→ we have wants in terms of our desire for food, clothing, consumer goods and so on.
→ the problem is that our wants exceed our resources. Same for firms & governments.
→ Profits: save; invest; bonus; dividend
→ Govt: roads; hospitals; highways; education; guns
→ this forces us to make choices
→ choices are measured in terms of Opportunity Cost.
→ OC measures the cost of something in terms of the next best choice that you decide to
forego.
Microeconomic issues
→ decisions involve Trade Offs , e.g. pollution controls and income; job or college;
higher wages or profits.
→ assume individuals are ‘optimising’.
→ assumes rational economic decision making??
- Marginal costs and marginal benefits.
- MC = the additional cost as a result of producing one more unit/serving one
more guest/ buying one more product
- MB = the additional benefits as result of selling one more unit/buying one more etc.
- MC < MB → do more
- MC > MB → do less
, - I.e. assume people take action only if MB > MC, we respond to economic incentives.
→ behavioral economics
Uses of resources: Factors of Production (FoP) →
firms use FoP to produce g. & s.
→ Land (and natural resources) for which they pay rent
→ Labour for which they pay wages
→ Capitol for which they pay interest
→ Enterprise for which they pay profit
→ i.e. FoP are inputs into the production process
→ they are also scarce (good business owners, jeff bezos, bill gates, mark zuckerberg)
Lecture 2
Demand
The law of demand
Cateris paribus (all other things staying the same, so only changing the price or only the
quantity), the higher price of a good or service, the less we want to buy it and the lower the
price of a good or service the more we want to buy it.
The relationship between demand and price
Why does the line go from left above to the right bottom?
- Income effect: When your income does not change but the price of the
products rises, you can afford less quantity of the product.
- Substitution effect: you buy something else that is less expensive. For
instance, when the scotch is €15 and vodka €10 you will buy the vodka.
Only when the price changes, there is a movement in the curve.
Other determinants of demand
- Number and price of substitute goods (apples, pears, Bavaria, Heineken)
- Complementary goods (gin and tonic) goods that are consumed together.
- Tastes and fashion (when something is popular the demand will change)
- Income Normal goods; inferior goods; luxury goods
Normal: we buy more as the incomes rise, and less as our incomes fall.
Inferior: we buy more as our inomes fall, and we buy less when our incomes rise.
(Aldi, Lidl)
Luxury: we buy a lot more when our incomes rise, and a lot less when our incomes
fall.
- Expectations
Substitute goods: Pepsi and coca cola
Pepsi rises their price, so less Pepsi is bought. Therefore, the coco cola demand curve
changes. For the same price you will now get more products of coca cola. Beneficial for
coca cola.
