Online - Uwin.ac - Id: Bachelor in Economics (S.E) : Manajemen

Course : Pengantar Ilmu Ekonomi (1506PIE01)
online.uwin.ac.id
Bachelor in Economics (S.E): Manajemen
UWIN eLearning Program
Session Topic : Principles of Economics

Course: Pengantar Ilmu Ekonomi
By Tovan Krisdianto, S.E., M.M.
Lecturer Profile
Tovan Krisdianto, S.E., M.M.

Co-Founder CFO
PT. Haruka Edukasi Utama
Education :
S1
S2
Parahyangan Catholic Univ., Bandung

Prasetiya Mulya Business School, Jakarta
SE, Major in Accounting

MM, Major in Finance
Experience:
2015 - Present
2012 - Present
2013 - 2014
2012 - 2012
2009 - 2011
2007 - 2009
1999 - 2007
1996 - 1999
UWIN Lecturer, Univ. Wiraswasta Indonesia

Chief Financial Controller (CFO), PT. Haruka Edukasi Utama
BINUS Lecturer, Univ. Bina Nusantara
Financial Controller, PT. Microsoft Indonesia
Chief Financial Controller (CFO), PT. Trouw Nutrition Indonesia (Nutreco Asia Pacific)
Global Commercial and Transition Director, Schlumberger Dubai
Controller, Schlumberger Indonesia
Auditor, KPMG
Content
Part 1
Understanding of Economics Science
Part 2
10 Principles of Economics
Part 3
Economics as Social Science
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Part1: Understanding of Economics Science
Economy: Definition
Economy
Defn: The word economy comes from a Greek word for one
who manages a household.
A household & an economy face many decisions:
Who will work?
What goods and how many of them should be produced?
What resources should be used in production?
At what price should the goods be sold?
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Economy: Society, Scarcity, Choices & Opportunity
Society & Scarce Resources:

a. The management of societys resources is important because
resources are scarce.
b. Scarcity means that,
society has limited resources & therefore
cannot produce all the goods and services people wish to
have.
>Choices
Due to limited sources you need to make choices.
>Opportunity Cost
For every choices there is an opportunity.
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Economics: Definition
Economics
Defn: The study of how society manages its scarce resources.
Economists Study
How people,
a. make decisions.
b. interact with each other.
c. The forces & trends that affect the economy as a whole.
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Part2: 10 Principles of Economics
10 Principles of Economics: Group
10 Principles of Economics grouped in 3 categories
How,
a. People Make
Decisions
b. People Interact
c. The Economy as
a Whole Works
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10 Principles of Economics: Decisions, Interact & Works
>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
5. Trade can make everyone better off.
6. Markets are usually a good way to organize economic activity.
7. Governments can sometimes improve economic outcomes.
>How the Economy as a Whole Works

8. The standard of living depends on a countrys production.
9. Prices rise when the government prints too much money.
10. Society faces a short-run tradeoff between inflation & unemployment.
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10 Principles of Economics: How People Make Decisions
1. People face tradeoffs
There is no such
thing as a free
lunch!
To get one thing, we usually have to give up another thing.
Guns v. butter
Food v. clothing
Leisure time v. work
Efficiency v. equity
Making decisions requires trading off one goal against another.

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10 Principles of Economics: How People Make Decisions (Cont.)
Efficiency v. Equity
Efficiency means,
Society gets the most that it can from its scarce resources.
Equity means,
The benefits of those resources are distributed fairly among the members of
society.
2. The cost of something is what you give up to get it
Decisions require comparing costs & benefits of alternatives.
Whether to,
a. go to college or to work?
b. study or go out on a date?
c. go to class or sleep in?
The opportunity cost of an item is what you give up to obtain that item.
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10 Principles of Economics: How People Make Decisions (Cont.)
3. Rational people think at the margin

Marginal changes are small, incremental adjustments to an existing plan of
action.
People make decisions by comparing costs & benefits at the margin
4. People respond to incentives
Marginal changes in costs or benefits motivate
people to respond.
The decision to choose one alternative over
another occurs when that alternatives marginal
benefits exceed its marginal costs!
Example: LA Laker basketball star Kobe Bryant
chose to skip college & go straight to
the NBA from high school when offered
a $10 million contract.
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10 Principles of Economics: How People Interact
5. Trade can make everyone better of

People gain from their ability to trade with one another.
Competition results in gains from trading.
Trade allows people to specialize in what they do best.
6. Markets are usually a good way to organize economic activity
In a market economy,
Households decide what to buy & who to work for.
Firms decide who to hire & what to produce.
Adam Smith made the observation that households & firms interacting in
markets act as if guided by an invisible hand.
a. Because households & firms,
look at prices when deciding what to buy & sell,
they unknowingly take into account the social costs of their actions.
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10 Principles of Economics: How People Interact (Cont.)
b. As a result,
prices guide decision makers to reach outcomes that
tend to maximize the welfare of society as a whole.
Adam Smith
Scottish moral philosopher
Pioneer of political economy
Key Scottish Enlightenment
7. Governments can sometimes
improve market outcomes
When the market fails (breaks
down) government can intervene
to promote efficiency & equity.
Market failure occurs when the
market fails to allocate
resources efficiently.
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10 Principles of Economics: How People Interact (Cont.)
Market failure may be caused by,

an externality, which is the impact of one person or
firms actions on the well-being of a bystander.
market power, which is the ability of a single person
or firm to unduly influence market prices.
8. The Standard of Living Depends on a Countrys
Production. Standard of living may be measured in
different ways: By comparing,
a. personal incomes.
b. the total market value of a nations production.
Standard of living in 2015:
US
$ 37,206 p.a
Singapore $ 24,622 p.a
China
$ 1.449 p.a
Indonesia
$ 910 p.a
WHY?
PRODUCTIVITY!
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10 Principles of Economics: How the Economy as a Whole Works (Cont.)
Almost all variations in living standards are explained by differences in

countries productivities.
Productivity is the amount of goods & services produced from each hour of
a workers time.
Higher productivity = Higher standard of living
9. Prices rise when the government prints too much money
Inflation is an increase in the overall level of prices in the economy.
One cause of inflation is the growth in the quantity of money.
When the government creates large quantities of money, the value of the
money falls.
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10 Principles of Economics: How the Economy as a Whole Works (Cont.)
10. Society Faces a Short-run Tradeoff Between Inflation & Unemployment

The Phillips Curve illustrates the tradeoff between inflation & unemployment:
Inflation
Unemployment
Its a short-run tradeoff!
AWH Phillips
LSE Economics Professor
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Part3: Economics as Social Science
Economics: Terminology > Economics as Social Science
Every field of study has its own terminology

axioms
dissonance
Mathematics
vector spaces
integrals
torts
venues
Law
promissory
estoppel
ego
Psychology
id
cognitive
Opportunity
Supply
Cost Elasticity
Economics Deadweight
Comparative Advantage
Loss
Consumer
Demand
Surplus
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Economics: Scientist & Trains you to
Economics trains you to

1. Think in terms of alternatives.
2. Evaluate the cost of individual & social choices.
3. Examine & understand how certain events & issues are
related.
The Economist as a Scientist
The economic way of thinking,
Involves thinking analytically & objectively.
Makes use of the scientific method.
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Economics: Method & The Role
The Scientific Method

Uses abstract models to help explain how a complex, real
world operates.
Develops theories, collects, & analyzes data to prove the
theories.
Observation, Theory & More Observation!
The Role of Assumptions
Economists make assumptions in order to make the world easier
to understand.
The art in scientific thinking is deciding which assumptions to
make.
Economists use different assumptions to answer different questions.
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Economics: Way of Thinking & Model
The Economic Way of Thinking

Includes developing abstract models from theories & the analysis of
the models.
Uses 2 approaches:
a. Descriptive (reporting facts)
b. Analytical (abstract reasoning)
Economic Models
Economists use models to simplify reality in order to improve our
understanding of the world
2 of the most basic economic models include:
a. The Circular Flow Model
b. The Production Possibilities Frontier
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Economics: The Circular Flow Model
The circular flow model

Defn: A simple way to visually show the economic transactions that occur
between households & firms in the economy.
The Circular Flow Diagram

Revenue
Goods &
Services sold
Market for
Goods &
Services
Spending
Goods &
Services bought
Firms
Households
Inputs for
production
Wages, rent
& profit
Market for
Factors of
Production
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Labor, land &

capital
Income
S.25
Economics: The Circular Flow Diagram
1. Firms
Produce & sell goods & services
Hire & use factors of production
2. Households
Buy & consume goods & services
Own & sell factors of production
5. Factors of Production
Input used to produce goods &
service
Land, labor & capital
Markets for,
3. Goods & Services
Firm sell
Households buy
4. Factors of Production
Households sell
Firms buy
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Economics: The Production Possibilities Frontier
The production possibilities frontier. Defn:

A graph showing the various combinations of output that the economy
can possibly produce given the available factors of production &
technology.
Quantity of Computers
Produced
3,000
C
2,200
2,000
A
B
1,000
0
300
600 700
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1,000
Quantity of
Cars Produced
S.27
Economics: The Production Possibilities Frontier (Cont.)
Quantity of
Computers
Produced
D
3,000
C
2,200
2,000
1,000
0
A
Production
possibilities
frontier
300
600 700
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Quantity of
Cars Produced
S.28
Economics: Concepts
Concepts Illustrated by the

Production Possibilities Frontier
1.
2.
3.
4.
Efficiency
Tradeoffs
Opportunity Cost
Economic Growth
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Economics: The Production Possibilities Frontier
Quantity of
Computers
Produced
4,000
An outward shift
in the production
Possibilities frontier
3,000
2,100
2,000
0
E
A
700 750 1,000

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Quantity of
Cars Produced
S.30
Economics: Microeconomics, Macroeconomics & 2 Roles
The production possibilities frontier

Microeconomics focuses on the individual parts of the economy.
How households & firms make decisions & how they interact in
specific markets
Macroeconomics looks at the economy as a whole.
How the markets, as a whole, interact at the national level.
2 Roles of Economists
When they are trying to,
1. explain the world, they are scientists.
2. change the world, they are policymakers.
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Economics: Positive & Normative
>Positive versus Normative Analysis

Positive statements
Defn: Statements that describe the world as it is.
Called descriptive analysis
Normative statements
Defn: Statements about how the world should be.
Called prescriptive analysis
>Positive or Normative Statements
1. An increase in the minimum wage will cause a decrease in employment
among the least-skilled.
2. The income gains from a higher minimum wage are worth more than any
slight reductions in employment.
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Reference
1. Mankiw (2004) The Market Forces of Supply and

Demand. Web: mankiw.swlearning.com.
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Course : Pengantar Ilmu Ekonomi (1506PIE01)
online.uwin.ac.id
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Course : Pengantar Ilmu Ekonomi (1506PIE01)

UWIN eLearning Program

Session Topic : Principles of Economics

Tovan Krisdianto, S.E., M.M.

Parahyangan Catholic Univ., Bandung

SE, Major in Accounting

UWIN Lecturer, Univ. Wiraswasta Indonesia

Understanding of Economics Science

Economics as Social Science

Part1: Understanding of Economics Science

Economy: Society, Scarcity, Choices & Opportunity

Society & Scarce Resources:

Part2: 10 Principles of Economics

10 Principles of Economics: Group

10 Principles of Economics grouped in 3 categories

10 Principles of Economics: Decisions, Interact & Works

>How People Make Decisions

>How the Economy as a Whole Works

10 Principles of Economics: How People Make Decisions

1. People face tradeoffs

Making decisions requires trading off one goal against another.

10 Principles of Economics: How People Make Decisions (Cont.)

10 Principles of Economics: How People Make Decisions (Cont.)

3. Rational people think at the margin

10 Principles of Economics: How People Interact

5. Trade can make everyone better of

10 Principles of Economics: How People Interact (Cont.)

10 Principles of Economics: How People Interact (Cont.)

Market failure may be caused by,

10 Principles of Economics: How the Economy as a Whole Works (Cont.)

Almost all variations in living standards are explained by differences in

10 Principles of Economics: How the Economy as a Whole Works (Cont.)

10. Society Faces a Short-run Tradeoff Between Inflation & Unemployment

Its a short-run tradeoff!

Part3: Economics as Social Science

Economics: Terminology > Economics as Social Science

Every field of study has its own terminology

Economics: Scientist & Trains you to

Economics trains you to

Economics: Method & The Role

The Scientific Method

Economics: Way of Thinking & Model

The Economic Way of Thinking

Economics: The Circular Flow Model

The circular flow model

The Circular Flow Diagram

Labor, land &

Economics: The Circular Flow Diagram

Economics: The Production Possibilities Frontier

The production possibilities frontier. Defn:

Economics: The Production Possibilities Frontier (Cont.)

Concepts Illustrated by the

Economics: The Production Possibilities Frontier

700 750 1,000

Economics: Microeconomics, Macroeconomics & 2 Roles

The production possibilities frontier

Economics: Positive & Normative