Introduction to Economics: Ten Principles of Economics - Course Syllabus, Slides of Economics

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Introduction to Economics

Ten Principles of Economics

Chapter 1

Course Description

• Prerequisite: -
• Credits: 3sks
• This course is an introductory level of economics, especially microeconomics, that will teach students how economists see the world. Students will be introduced to priciples, terms, and illustrative examples how an economy works and how economists think.
• This course covers main themes in microeconomics at introductory level: rationality—how an economic decision made, trade, public good, firm behavior, markets and welfare.
• This course shows to the students on how economists analyze producer’s behavior, market structure, and welfare.
• The main goal is to train students to be able to understand basic concepts of economics and start thinking like an economist.

Teaching Methods: Blended Learning

1. Lecture: Synchronous and Asynchronous

2. Class discussion

3. Quizzes (individual assignment):

• Elok 7.00am – 7.30 am weekly quiz
• We will start our class at. 7.35 am

4. Assignment (group assignment)

• Mid Exam 30 %
• Final Exam 40 %
• Quizzes 20%
• Assignments (group) 10 %

Grading Faculty Policies

• Absence from class meetings

shall not exceed 25%

• Students may not record

classroom lectures, discussion

and/or activities without the

advance written permission of

the instructor and any such

recording properly approved

in advance can be used solely

for the students own private

use.

• There is no tolerance for

plagiarism or academic

dishonesty in any form,

including cheating during

exam.

Grade %

Range

Cumulative

Weighted Grade

A ≥90 4,

A- 85 3,

A/B 80 3,

B+ 75 3,

B 70 3

B- 65 2,

B/C 60 2,

• Room S
• Consultancy by email

diyah.putriani@ugm.ac.id

Wa 0817611150

Economics is the study of how society manages its scarce resources

MICROECONOMICS

Microeconomics deals with the functioning of individual industries and the behavior of individual economic decision-making units : firms and households. ▪ Firms’ choices about what to produce and how much to charge ▪ Households’ choices about what and how much to buy help to explain why the economy produces the goods and services it does. Macroeconomics looks at the economy as a whole. Instead of trying to understand what determines the output of a single firm or industry or what the consumption patterns are of a single household or group of households, macroeconomics examines the factors that determine national output, or national product.

MACROECONOMICS

Microeconomics: the branch of economics which today is concerned with the behavior of individual entities such as markets, firms, and households. The Wealth of Nations (Adam Smith, 1776) Macroeconomics: the branch of economics which is concerned with the overall performance of the economy. General Theory of Employment, Interest and Money (John M. Keynes 1936) The Scope of Economics

The essence of economics is to acknowledge the reality of scarcity and then figure out how to organize society in a way which produces the most efficient use of resources. Macroeconomics looks at the whole, the aggregate. It sees and analyzes the “forest.” Microeconomics looks at the individual unit—the household, the firm, the industry. It sees and examines the “trees.”

MICROECONOMICS MACROECONOMICS

The Scope of Economics

What is Economics? Definition Economics is the science of making decisions in the presence of scarce resources.

• scarcity the limited nature of society’s resources
• Resources are anything used to produce a good or service, or achieve a goal. The word economy comes from the Greek word oikonomos , which means “one who manages a household.” Coverage of the economics
• Economists study how people make decisions : how much they work, what they buy, how much they save, and how they invest their savings → marginal analysis
• Economists also study how people interact with one another. For instance, they examine how the multitude of buyers and sellers of a good together determine the price at which the good is sold and the quantity that is sold → nature of industry (market)
• Finally, economists analyze the forces and trends that affect the economy as a whole , including the growth in average income, the fraction of the population that cannot find work, and the rate at which prices are rising. To understand what is economics, first we need to understand: ❑ Ten Principles of Economics

Ten Principles of Economics

How people make decision?

Principle 1: People face trade-offs

Principle 2: The cost of something is what you give up to get it

Principle 3: Rational people think at the margin

Principle 4: People respond to incentives

Principle 1: People Face Trade-offs

People always make decisions which requires them to trading off one goal against another → To get something that we like, we have to give up something else that we also like Individual faces trade off:

• Going to a party the night before an exam Trade off: Less time for studying
• Having more money to buy stuff Trade off: Working longer hours, less time for leisure

BOTH individual and society face trade-off!

What is Economics? Ten Principles of Economics Society faces trade-offs:

• National defense vs. consumer goods The more it spends on national defense (guns) to protect its shores Trade off: the less it can spend on consumer goods (butter) to raise the standard of living at home
• Clean environment vs. high level of income Pollution regulations: cleaner environment Trade off: reducing the incomes of the firms’ owners, workers, and customers
• Efficiency vs. equality Efficiency means society gets maximum benefits form its scarce resource. Equality means those benefits are distributed uniformly among society’s members. Tradeoff: To achieve greater equality, gov’t could redistribute income from wealthy to poor But this reduces incentive to work and produce, shrinks the size of economic “pie”

Principle 3: Rational People Think at the Margin

• Economist normally assume that people are rational when they have to make decisions.
• Rational people
  • Systematically & purposefully do the best they can achieve their objectives
• Rational people take action only if Marginal benefits > Marginal costs
• Marginal changes
  • Incremental changes to a plan of action Examples: - Cell phone users with unlimited minutes (the minutes are free at the margin) Are often prone to making long calls Marginal benefit of the call > 0 - A manager considers whether to increase output Compares the cost of the needed labor and materials to the extra revenue

Principle 4: People Respond to Incentives

• Incentive : Something (such as the prospect of a punishment or reward) that induces a person to act.
• Rational people make decision by comparing costs and benefits, hence they responds to incentive. Example : When cigarette taxes increase, teen smoking falls Public policymakers must consider the role of incentives, because policy needs to
• Change costs or benefits that people face and as a result, change people’s behavior
• Example: A tax on gasoline encourages

people to drive smaller, more fuel-

efficient cars → take public transport

Principle 5: Trade Can Make Everyone Better Off

People benefit from trade:

People can buy a greater variety of goods and services at lower cost

Countries benefit from trade and specialization

Get a better price abroad for goods they produce

Buy other goods more cheaply from abroad than could be produced

at home

It’s far more efficient for each person to specialize in producing a good or service,

and then exchanging it with other people for the things they produce

What is Economics? Ten Principles of Economics

Principle 6: Markets Are Usually a Good Way to Organize Economic Activity

Market A group of buyers and sellers (need not be in a single location) “Organize economic activity” means determining What goods and services to produce How much of each to produce Who produced and consumed these A market economy an economy that allocates resources through decentralized decisions of many firms and households – as they interact in markets Prices:

• Determined: interaction of buyers and sellers
• Reflect the good’s value to buyers
• Reflect the cost of producing the good Invisible hand:
• Prices guide self-interested households and firms to make decisions that maximize society’s economic well-being What is Economics? Ten Principles of Economics