emg 102-3 ecn lecture-1

8/4/2019 Emg 102-3 Ecn Lecture-1

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Economics: EMG 102 3

Thusitha Kumara

[email protected], [email protected]

Recommended Texts:

Begg, D., S. Fischer and R. Dornbusch, Economics(2003), McGraw Hill

Salvatore, D. and E. Diulio, (2003), Principles of

Economics, Schaums easy outlines, McGraw Hill

ECN
mailto:[email protected]:[email protected]:[email protected]:[email protected]


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What is Economics

Concepts: Scarcity, Choice, incentives,

opportunity cost, ceteris paribus, Utility,

goods, production factors

Production Possibility Frontiers

Market Systems


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Demand & Supply

Demand and Supply laws, functions,

schedules

Demand & Supply curves and

movements of curves (changes of

demand and supply quantities and

prices)


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Equilibrium

Demand and Supply together

Marginal benefits and marginal costs

Consumer surplus and producer surplus Effects of the changes of demand and

supply


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Elasticity & Efficiency

Response of the demand and supply to

the change of own price, prices of

substitutes and income

Effects of price ceilings/ floor prices,

taxation and externalities


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Production

Production and cost of production

Functions of production, cost and profit

TP,AP and MP TC,AC and MC

TR, AR and MR

Short run and long run profit maximization


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Market Structures

Perfect Competition

Monopoly

Introduction to monopolistic competitionand oligopoly

Optimum level of output & welfare


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Introduction to National Accounting

National output and measurements

Approaches of output, income andexpenditure

Components of GDP, GNP

Per capita GDP and its importance

GDP deflator

Business Cycles

Shortcomings of national accounting


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Aggregate Demand, Supply &

External Trade

Aggregate Demand

Budget deficit and fiscal policy

National debt External trade, balance of payments

Exchange rates


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Money, Banking & inflation

Money, functions of money, money

multiplier

Money market

Banking institutions

Inflation

Interest rates Employment and unemployment


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Introduction to Sri Lankan

Economics

Composition of national economy

Structural changes

Major policy changes


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Assessment

End Semester Exam 40 %

Written assignments 20 % for each

Quizzes of 20 %

Workshops/presentations 20 %


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Introduction to Economics

Definitions on what is Economics?

Some concepts

Production Possibility Frontiers (PPFs) Market Systems


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What is Economics?

The science of dealing with the problemof scarcity

Studies on how people make choices

A formal definition Is the study of how society decides what,

how and for whom to produce (fundamentaleconomic problems)

A social science, which deals with theeconomic behavior of the human beings


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Scarcity

Unlimited wants and needs, limitedresources Wants: all the things that individual would

consume if they had unlimited income andno time constraint

Needs: things that are needed just tosurvive; food, shelter, medicine and cloth

This leads to scarcity and choices ofbasic economic problems


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Resources

Land, Labour, Capital, Entrepreneurship

Land: any natural resource

Labour: in terms of quality and quantity

Capital: physical and financial

Entrepreneurship: special type of skilled

labour


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Some Concepts

Opportunity cost The opportunity cost of any action is the next best alternative

forgone because of choosing the given action

Not all the alternative, only the value of next best alternative

Comparative advantage This is related with opportunity cost

One has comparative advantage if (s)he has the lowestopportunity cost

This is a relative concept

Production Possibility Frontiers (PPFs) Shows the maximum number of alternative combinations of

goods and services that the society can produce in a giventime


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PPFs

Shows the maximum number of alternativecombinations of goods and services that thesociety can produce in a given time

Three main assumptions1. Quantity of available productive resources is fixed2. Factors of production are fully employed

3. Technology is fixed

Moreover Time is given

Only two goods and services are produced


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PPF

* G

* H

D

Tea (kgs)

Garment (nos)0

5000

10000

15000

20000

25000

1000 2000 3000 4000 5000

A BC

E

F

PPF


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PPF & Opportunity Cost

D

Tea (kgs)

Garment (nos)0

5000

10000

15000

20000

25000

1000 2000 3000 4000 5000

A BC

E

F

PPF


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Economic Systems

A set of scarce resources, a population

and a social mechanism for resource

allocation among competing end users

Market based system

Centrally planned system

Mixed


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Market Based System

How the appropriate good is distributedat the right place in the correct quantity

Price

Price Transmits Information among consumers

and producers

Gives incentives Determines who gets how much

Market fails in some occasions


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Market Failures

When there is no competition People of the same trade seldom meet together but the

conversation ends in a conspiracy against the public or insome diversion to raise prices, Wealth of Nations (1776),

Adams Smith

Gas market in Sri Lanka

To supply public goods and services

ExternalitiesMissing markets


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Centrally Planned System

Central planner decides what, how and

for whom to produce

Former Soviet Union countries

But in Reality..mixed


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Non Market Institutions

State with market failures

Property rights

Consumer societies (force groups)etc.


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We Discussed

What is Economics?

Concepts of scarcity, opportunity cost,

comparative advantage

PPFs

Market systems

emg 102-3 ecn lecture-1

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