Introductory Economics

(week 1)
Roby Syaiful Ubed
Sekolah Tinggi Akuntansi Negara
2014

General Information
Instructor : Roby Syaiful Ubed
Office
: Gd. PHRD, Kompleks STAN, Pusdiklat PSDM
Office hours : 07.30 17.00 WIB
Contact Information :
hp
: 081328710391 (call only)
email : robyubed@iuj.ac.jp
Textbooks :
Principles of Economics (Gregory Mankiw)
Pengantar Ilmu Ekonomi (Mikro dan Makro) (LP FE-UI)

Your Goals Today are

To know the meaning of economy
To comprehensively understand the
principles of economy
To know about problems in economy
To preliminary understand the
microeconomy and macroeconomy terms

Why do we need to study

economics?
The simple answer is a better understanding
of economic activity
It helps an agent in an economic system to
better understand the way markets work.
This, in turn, allows him to achieve better
outcomes for himself.

Is Economics Useful?

What kind of scarcity ?

Life expectancy is less than 50 years.
1 out every 10 infants dies before the age of
one.
More than 90% of households have no
electricity, refrigerator, telephone, or car.
Fewer than 10% of adults have completed high
school.

GDP per person has grown by a factor of 15 since

1870
Why is the typical American today more than 10 richer than
the typical American a century ago?

1870=$2,500
2007=$38,500
(notice the Great Depression)

Per capita GDP in Seven Countries

Why is the American of today 50 times richer than the
typical Ethiopian? any ideas ?

Unemployment in the U.S., Europe, and

Japan
Why has the unemployment rate been nearly twice as
high in Europe as in the U.S in recent years?

Other Important Questions

What determines the rate of inflation?
What is the effect of import tariff?
What causes recessions and booms in the overall economy?
What role does the government, fiscal authority and the
monetary authority, play in recessions and booms?
What prompted the currency crises in Mexico in the mid1990s and in many Asian economies at the end of 1990s?

What is Economics?
How many students are in your introductory
economics class, say basic microeconomics?
If cost were no object, the best size might be
a single student.
Why do so many universities continue to
schedules economics classes with hundreds
of students?

What is Economics?
Economics is the study of
how people make choices under conditions
of scarcity
the results of those choices for society.

What is Economics?
Macroeconomics: the study of collection of
people and firms and how their interactions
through markets determine the overall activity
in a country or region.
Three important aspects in macroeconomics:
1. Penentuan Tingkat Kegiatan Perekonomian Negara :
sejauh mana perekonomian menghasilkan barang dan
jasa
2. Pengeluaran Agregat : tujuan akhir untuk meningkan
3. Mengatasi Pengangguran dan Inflasi

What is Economics?
Microeconomics: focus on the study of
individual people, firms, or markets.
Three important aspects in Microeconomics:
1. Interaksi Pasar
2. Perilaku Penjual dan Pembeli
3. Interaksi di Pasar Faktor Produksi
Production Factor : labor (wages), capital (interest)

Simple Question
Suppose that you are in the advisory board for the
president in the country A.
Country A is a developing country, and recently a
domestic car industry is established.
But, the industry is still weak. To protect the industry
from foreign car companies, you want to impose the
import tariff.
Is it a good policy? If so, why? If not, Why?,micro or
macro ?

What is Economics?
No-Free Lunch Principle (Scarcity): although we have
boundless needs and wants, the recourses available to us are
limited. So having more of one good thing usually means
having less of another.
The Cost-Benefit Principle: An individual should take an
action, if and only if, the extra benefits from taking the action
are at least as great as the extra costs.
Choices: Unlimited wants will be contradictory against limited
sources. Therefore, people should make individual or
collective choices. Individual choice, for instance: what kind of
clothing. Collective choices, for instance: where should we go
in the weekdays.

10 Principles of Economy
How People Make Decisions:
1. People Face Tradeoffs
2. The Cost of Something Is What You Give Up to Get It
3. Rational People Think at the Margin
4. People Respond to Incentives
How People Interact
1. Trade can make everyone better off
2. Markets are usually a good way to organize economic
activity
3. Government can sometimes Improve Market Outcomes

10 Principles of Economy
How the Economy as a Whole Works
1. A countrys standard of living depends on its ability to
produce goods and services
2. Prices rise when the government prints too much money
3. Society faces a short run tradeoff between inflation and
unemployment

10 Principles - a brief explanation

Efficiency

equity

People Face Tradeoffs

Personal - No such thing such a free lunch
Society - Guns and butter
Society - Efficiency and Equity

10 Principles - a brief explanation

The Cost of Something Is What You Give Up to Get It
Making decisions requires comparing cost and
benefits;
Cost of entering STAN

Benefit of entering STAN

??

??

10 Principles - a brief explanation

Rational People Think at the Margin

Decision =
Marginal Benefit > Marginal Cost

Any examples ?

10 Principles - a brief explanation

People Respond to Incentives
what will happen if
1. Government enforces seatbelt law ?
2. The price of durian increases ?

10 Principles - a brief explanation

Trade can make everyone Better off
Can you make an example ?
Apple - China - Japan
Japan and Indonesia

10 Principles - a brief explanation

Markets are usually a Good Way to Organize
Economic Activity
An Inquiry into the Nature and Causes of the
Wealth of Nations - Adam Smith
Households and Firms interacting in markets act
as if they are guided by an invisible hand directs
economy activity
Firms - produce and sell; Households - provide
resources and buy

10 Principles - a brief explanation

Governments can Sometimes Improve Market
Outcomes
Why we need govt ?
To enforce the law
To promote efficiency and equity
To avoid market failure due to externality and
market power
What is externality ? What is market power ?

10 Principles - a brief explanation

A Countrys Standard of Living Depends on Its Ability
to Produce Goods and Services
What is the difference between US and Nigeria ?
What are the affecting variables ?

10 Principles - a brief explanation

Prices rise when the Govt Prints too much money
Why is that ?
What happen with Zimbabwe in 2008 ?
How many inflation did rate they suffer ?

10 Principles - a brief explanation

Society Faces a Short-Run Tradeoff beween Inflation
and Unemployment.

Quiz: Why is that ?

Problems in Economy
a. What kind of goods should be produced and
how many goods should be produced ?
b. How do we produce the goods ?
c. For whom the produced goods should be
given ?

Next on Week 2
Demand, Supply, BEP Price, Economy
Surplus, Market Failure, Government
Intervention