PIE WEEK 1

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Introductory Economics(week 1)

Roby Syaiful UbedSekolah Tinggi Akuntansi Negara

2014

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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 : [email protected]

Textbooks :

Principles of Economics (Gregory Mankiw)

Pengantar Ilmu Ekonomi (Mikro dan Makro) (LP FE-UI)
mailto:[email protected]:[email protected]

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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

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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 betteroutcomes for himself.

Why do we need to study

economics?

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Is Economics Useful?

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Life expectancy is less than 50 years.

1 out every 10 infants dies before the age of

one.

More than 90% of households have noelectricity, refrigerator, telephone, or car.

Fewer than 10% of adults have completed highschool.

What kind of scarcity ?

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GDP per person has grown by a factor of 15 since

1870

1870=$2,500

2007=$38,500

(notice the Great Depression)

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

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Per capita GDP in Seven Countries

Why is the American of today 50 times richer than the

typical Ethiopian? any ideas ?

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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?

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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 mid-

1990s and in many Asian economies at the end of 1990s?

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How many students are in your introductory

economics class, say basic microeconomics?

If cost were no object, the best size might bea single student.

Why do so many universities continue toschedules economics classes with hundreds

of students?

What is Economics?

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Economicsis the study of

how people make choices under conditions

of scarcity

the results of those choices for society.

What is Economics?

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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

jasa2. Pengeluaran Agregat : tujuan akhir untuk meningkan

3. Mengatasi Pengangguran dan Inflasi

What is Economics?

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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 ProduksiProduction Factor : labor (wages), capital (interest)

What is Economics?

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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 ?

Simple Question

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No-Free Lunch Principle (Scarcity): although we haveboundless needs and wants, the recourses available to us arelimited. So having more of one good thing usually meanshaving less of another.

The Cost-Benefit Principle: An individual should take anaction, if and only if, the extra benefits from taking the actionare at least as great as the extra costs.

Choices: Unlimited wants will be contradictory against limitedsources. Therefore, people should make individual orcollective choices. Individual choice, for instance: what kind ofclothing. Collective choices, for instance: where should we goin the weekdays.

What is Economics?

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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

activity3. Government can sometimes Improve Market Outcomes

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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 andunemployment

10 Principles of Economy

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10 Principles - a brief explanation

People Face Tradeoffs

Personal - No such thing such a free lunch

Society - Guns and butter

Society - Efficiency and Equity

Efficiencyequity

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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

?? ??

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Rational People Think at the Margin

Any examples ?


Decision =

Marginal Benefit > Marginal Cost

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People Respond to Incentives

what will happen if

1. Government enforces seatbelt law ?2. The price of durian increases ?


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Trade can make everyone Better off

Can you make an example ?

Apple - China - Japan Japan and Indonesia


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Markets are usually a Good Way to Organize

Economic Activity

An Inquiry into the Nature and Causes of theWealth 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 - provideresources and buy


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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 ?


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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 ?


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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 ?


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Society Faces a Short-Run Tradeoff beween Inflation

and Unemployment.

Quiz: Why is that ?


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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 begiven ?

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Demand, Supply, BEP Price, Economy

Surplus, Market Failure, Government

Intervention

Next on Week 2

PIE WEEK 1

Documents