Week 1 Lecture Slides S1 2024

Other activities
其他活动
• Asynchronous case study activities
•异步案例研究活动
➢Discussion among students on canvas
➢Application of economic theory to real life examples
学生讨论画布
经济理论在现实生活中的应用
• Practice quizzes
•练习测验
➢Multiple choice questions
➢Similar to final exam questions
选择题
与期末考题类似
Past feedback from students
There is too much content in the unit.
Final exam weighting (50%) is too high.
I have heard the unit is too difficult & is not an introductory unit as the title claims.
I have heard the unit is too mathematical.
I have heard the failure rate is high.
I am a political science major, why should I study economics?
Week 1 Lecture
Explain why the issue of scarcity is fundamental to the study of economics.
Distinguish between microeconomics and macroeconomics.
Understand the use of economic models.
Understand the concept of opportunity cost.
Use the production possibility curve to illustrate opportunity cost and trade-offs in production.
What is Economics?
• Resources are limited - Natural resources, physical capital, labour, time, raw materials.
• Human wants are unlimited - Designer clothing, harborside mansion, fancy cars, top schools for
kids, clean environment, safe streets......etc.
• Unlimited wants + Limited resources = scarcity
• Economics is the study of meeting unlimited wants with scarce resources.
Trade-offs force society to make choices.
• Three fundamental questions:
➢ What goods and services will be produced?
➢ How will the goods and services be produced?
➢ Who will receive the goods and services produced?
Microeconomics vs Macroeconomics
• Microeconomics studies individual units such as: ➢ Households
➢ Firms
➢ Industries
➢ Markets
• Macroeconomics studies the economy as a whole:
➢ Total Output
➢ Unemployment
➢ Economic Growth
➢ Inflation
➢ Balance of Payment
Key Ideas in Economics
• People are rational.
• People respond to incentives.
• Optimal decisions are made at the origin.
• All decisions incur an opportunity cost.
Types of Economies
• Centrally planned economy: An economy in which the government decides how economic
resources will be allocated.
• Market economy: An economy in which the decisions of households and firms interacting in
markets determine the allocation of economic resources.
• Mixed economy: An economy in which most economic decisions result from the interaction of
buyers and sellers in markets, but in which the government plays a significant role in the
allocation of resources.
Efficiency
• Productive efficiency: When a good or service is produced using the least amount of resources.
• Allocative efficiency: When production reflects consumer preferences; in particular, every good
or service is produced up to the point where the last unit provides a marginal benefit to consumers
equal to the marginal cost of producing it.
• Dynamic efficiency: When new technology and innovation are adopted over time.
Economic analysis using models.
• Every science uses models
➢Economic models: simplified versions of reality used to analyse real-world economic situations.
The economist as a scientist
• Economists apply ‘scientific method’
➢ Devise theories
❑eg:- theory of inflation – “High inflation is a result of the government printing too much
money”.
➢Gather data.
➢Test theories against data.
The role of assumptions
• Assumptions help us to simplify complex situations, focusing our attention on the details that are
most relevant to the problem at hand.
• Using assumptions, we can construct economic models to learn about the world.
Positive vs normative analysis
• Positive analysis is concerned with ‘what is’.
➢ Enquiries that can be tested using facts (value- free)
➢ Involves value-free (factual) statements.
➢ Eg: How will tax cut affect consumer spending?
• Normative analysis is concerned with ‘what ought to be’.
➢ Enquiries that cannot be tested using facts.
➢ Involves making value judgements.
➢Eg: Should the government impose tax on alcohol?
Opportunity cost
• Resource are scarce – choices between alternative options must be made.
• Opportunity cost is defined as the next best alternative that is foregone when a choice is made.
• All choices involve opportunity cost.
• In economics, all cost measurements include the opportunity cost.
➢Eg: A firm earns 3% accounting profit on an investment. If 5% could be earned elsewhere (i.e:
the opportunity cost), from an economist’s point of view, a loss of 2% has occurred.
Economic model: Production Possibility Frontier (PPF)
A Production Possibility Frontier (PPF) is a curve which shows all the maximum output levels
possible of two goods that can be produced.
Assumptions: on any one PPF –
➢resources are fixed
➢technology is constant
➢all resources are fully employed
➢most efficient methods are used
Economic model: Production Possibility Frontier (PPF)
Economic model: Production Possibility Frontier (PPF)
• The slope of the curve shows the rate of substitution between outputs.
➢It, therefore, shows the concept of opportunity cost - that is, what must be given up in order to
produce more of another good.
➢The concavity of the PPF reflects the increasing opportunity cost of concentrating production in
a single activity.
❑Increasing opportunity cost is due to resources not being equally productive.
Economic model: Production Possibility Frontier (PPF)
• PPF slope relatively flat between 1 and 2
➢ OC of moving from 1 to 2 is low (ΔW is small Relative to ΔM)
Economic model: Production Possibility Frontier (PPF)
• PPF slope very steep between 1 and 2
➢ OC of moving from 1 to 2 is high (ΔW is large relative to ΔM)

Economic model: Production Possibility Frontier (PPF)

Economic model: Production Possibility Frontier (PPF)

• A PPF will shift inwards when there is a loss of resources or worse technology is used.
Economic model: Production Possibility Frontier (PPF)

• A PPF will shift outwards when there is a gain of resources or better technology.

Lecture Revision Questions

1. By definition, economics is the study of
how to make money in the stock market.
how to make money in a market economy.
the choices people make to attain their goals, given their scarce resources.
supply and demand.
Lecture Revision Questions
2. The branch of economics which studies the behavior of entire economies is called
A. public economics.
B. microeconomics.
C. macroeconomics.
D. normative economics.
Lecture Revision Questions
3. Microeconomics is the study of
A.how households and firms make choices.
B.the economy as a whole.
C. the global economy.
D. topics such as unemployment, inflation and economic growth.
Lecture Revision Questions
4. The decision about what goods and services will be produced in a market economy is made by
A. lawmakers in the government voting on what will be produced.
B. workers deciding to produce only what the boss says must be produced.
C. producers deciding what society wants most.
D. consumers and firms choosing which goods and services to buy or produce.
Lecture Revision Questions
5. In a modern mixed economy, who decides what goods and services will be produced?
A. The producers
B. The consumers
C.The government
D.All of the above
Lecture Revision Questions
6. An economic ________ is a simplified version of some aspect of economic life used to analyse
an economic issue.
A. market B. trade-off C. variable D. model
Lecture Revision Questions
7. Which of the following is a normative economic statement?
A.The price of wheat is too low.
B. The current low price of wheat is the result of increased worldwide supply.
C. When the price of wheat falls, the quantity of wheat purchased rises.
D.When the price of wheat falls, the cost of wheat- based products falls.
Lecture Revision Questions
8. The highest valued alternative that must be given up to engage in an activity is the definition of
A. economic equity. B. marginal benefit. C. opportunity cost. D.marginal cost.
Lecture Revision Questions
9. Peter can produce either a combination of 20 bow ties and 30 neckties or a combination of 35
bow ties and 15 neckties. If he now produces 35 bow ties and 15 neckties, what is the opportunity
cost of producing an additional 15 neckties?
A.2 bow ties
B.15 bow ties
C. 20 bow ties
D.35 bow ties