BEEB 1013 Introduction of Economics （经济学的简介）

 UUM BEEB 1013 Principles of Economics

Chapter 1: What Economics is About

1.2 A Definition of Economics

Goods and Bads

1) Good: Anything from which individuals receive utility or satisfaction

2) Utility (kepuasan / 效用): The satisfaction one receives from a good

3) Bad: Anything from which individuals receive disutility or dissatisfaction

Resources

1) Land (Tanah / 土地) : All natural resources, such as minerals, forests, water, and unimproved land

2) Labor (Buruh / 员工) : The work brought about by the physical and mental talents that people contribute

3) Capital (Modal / 资本) : Produced goods, such as factories, machinery, tools, computers, and buildings, that can be used as inputs for further production

4) Entrepreneurship (Usahawan / 企业家) : The talent that some people have for organizing the resources of land, labor, and capital to produce goods, seek new business opportunities, and develop new ways of doing things

Scarcity and a Definition of Economics

1) Economics (Ekonomi / 经济) : The social science of how individuals and societies deal with the fact that wants (for goods and services) are greater than the limited resources (land, labor, capital and entrepreneurship) available to satisfy those wants

2) Scarcity (Masalah kekurangan / 缺乏) : The condition in which our wants are greater than the limited resources available to satisfy those wants

3) Choice (Pilihan / 选择) : The ability of a consumer or producer to decide which good, service or resource to purchase or provide from a range of possible options

4) Opportunity Cost (Kos lepas / 机会成本) : The most highly valued opportunity or alternative forfeited when a choice is made

Example 1 (Opportunity Cost) Wei Quan has to choose either Amelia or Amy to be his girlfriend. If Wei Quan choose Amelia as his girlfriend due to Amelia is more pretty and smart compare to Amy, then Amy is his opportunity cost to be his girlfriend.

5) Rationing Device (分配机制): A means for deciding who gets what of available resources and goods or it called as price system, such as Ringgit Malaysia price (RM)

6) Competition (Persaingan / 竞争) : It takes the form of people trying to get more of the rationing device

Example 2 (Scarcity, Choice & Opportunity Cost Concept) Jin Xian already received monthly salary, which is RM 5000, but he planned to buy an iPhone 12 with the price RM4000 and the Acer brand laptop with the price RM 3500. By the way, he faced scarcity problem because he not enough money to buy two of goods. As resources are scarce, Jin Xian has to make choice between these two electronic devices. So, he should decide on how best to use his resources (Jin Xian’s salary) to choose a best choice (purchase which electronic devices) in order to maximise his utility. If Jin Xian choose to buy Acer laptop with doing assignment purpose, then iPhone 12 will be forfeited by him. So, iPhone 12 is opportunity cost of Jin Xian to buy laptop because iPhone 12 is the most highly valued opportunity or alternative forfeited when he decides to buy the laptop.

 

1.3  Key Concepts in Economics

Opportunity Cost and Behavior

·         Economists believe that a change in opportunity cost can change a person’s behavior

·         The higher the opportunity cost of doing something, the less likely it is that it will be done

(semakin tinggi kos lepas bagi melakukan pilihan pertama, semakin kurang pilihan untuk melakukan pilihan pertama tersebut)

Benefits and Costs

1.      Benefits rarely come without costs

2.      If we passed a law stating that anyone caught driving a car would go to prison for 40 years, few would drive, and car pollution would be gone

3.      But many would think that the cost was too high

4.      Economists think in terms of both costs and benefits

Decisions Made at the Margin

1) Marginal benefits (MB): Additional benefits; the benefits connected with consuming an additional unit of a good or undertaking one more unit of an activity

Manfaat marginal: Peningkatan progresif / manfaat yang memihak kepada pengguna akibat peningkatan penggunaan oleh unit tambahan produk atau perkhidmatan yang dibeli

2) Marginal costs (MC): Additional costs; the costs connected with consuming an additional unit of a good or undertaking one more unit of an activity

Kos marginal: Peningkatan daripada kos pengeluaran yang dihasilkan akibat peningkatan jumlah keluaran yang dihasilkan dalam satu unit

3) Decisions at the Margin: Decision making characterized by weighing the marginal benefits of a change against the marginal costs of a change with respect to current conditions

Example 3 (Decisions Made at the Margin) 1.      Bryan just finished eating a piece of fry chicken and drinking a soda at KFC but he is still a bit hungry, and considering whether to order another piece of fry chicken 2.      If the marginal benefits are greater than the marginal costs, he expects a net benefit, and he order another; But if the marginal benefits are less than marginal costs, he expect a net cost 3.      What he doesn’t consider are the total benefits and total costs; the benefits and costs associated with the first piece of fry chicken are no longer relevant to your decision 4.      The question is whether to eat another fry chicken after already having eaten one

 

Efficiency

1.      Efficiency: Exists when marginal benefits equal marginal costs

2.      Suppose you are studying for an economic quiz, and for the first hour of studying, the marginal benefits (MB) are greater than the marginal costs (MC):

MB studying first hour > MC studying first hour

3.      So, you will certainly study for the first hour; suppose for the 2^nd hour, MB is still greater than MC

MB studying 2^nd hour > MC studying 2^nd hour

4.      You will continue to study as long as the MB is greater than the MC

5.      Maximizing Net Benefits: If you had stopped studying after the 1^st hour, you would have given up the net benefits of studying longer

6.      Efficiency is consistent with MB = MC, and also consistent with maximizing net benefits

Economics is About Incentives

1) Incentive (Insentif / 激励) : Something that encourages or motivates a person to undertake an action such as giving some allowances to hardworking employees

2) Unintended Effects

Economists think in terms of unintended effects

·         If a minimum wage law is passed, might some lose their jobs?

·         Do mandatory seat belt laws cause more accidents because people feel safer?

3) Exchange

Exchange (Trade): The giving up of one thing for something else

·         People enter into exchanges to make themselves better off

·         Think of the trade in terms of utility or satisfaction

·         After a trade, you expect that your utility rate has risen

1.4 Ceteris Paribus

Ceteris Paribus Thinking

1.      Ceteris Paribus: A Latin term meaning all other things constant or nothing else changes

 

什么是Ceteris Paribus ??? ·         Ceteris paribus的字面意思是“保持其他事物不变”，是一个拉丁语短语，通常翻译为英文，表示“其他条件都相同”。 如果所有其他变量保持不变，它是主流经济思想中的主要假设，它是一种经济变量对另一种经济变量的影响的简写形式。   ·         在经济和金融领域，当对因果论据进行辩论时，经常会使用“ ceteris paribus”。 经济学家 可能会说提高最低工资会增加失业，增加货币供应会导致通货膨胀，降低边际成本会提高公司的经济利润，或者在城市建立租金控制法会导致供应 可用房屋减少。

 

2.      Economists specify ceteris paribus because they want to clearly define what they believe to be the real-world relationship between two variables

What is a Theory?

1.      Theory: An abstract representation of the real world designed with the intent to better understand it

2.      Abstract: The process (used in building a theory) of focusing on a limited number of variables to explain or predict an event

1.5 Economic Categories

Positive Economics and Normative Economics

1) Positive Economics: The study of what is in economics

2) Normative Economics: The study of what should be in economics

Microeconomics and Macroeconomics

1) Microeconomics: The branch of economics that deals with human behavior and choices as they relate to relatively small units: an individual, a firm, an industry, a single market

微观经济学（Mikroekonomi），有时称为价格理论，是现代经济学的一个分支，研究微观经济体系中最基本单元（个体、企业）的经济行为。微观经济学重视需求与供给，如何影响个人，达成交易，并形成市场中的均衡价格。微观经济学关注人们的决定和行为影响商品和服务的供给和需求、谁负责决定价格、或者反过来，价格怎样决定商品和服务的供给量和需求量。

Example of microeconomics questions:

·         How does a market work?

·         What level of output does a firm produce?

·         What price does a firm charge for the good it produces?

·         How customer maximize their utility?

·         How firm maximize their profit?

2) Macroeconomics: The branch of economics that deals with human behavior and choices as they relate to highly aggregate markets (e.g., the market for goods and services) or the entire economy

宏观经济学（Makroekonomi），是指用国民收入、经济整体的投资和消费等总体性的统计概念来分析宏观经济运行规律的一个经济学领域。

Example of microeconomics questions:

·         How does the economy work?

·         Why is the unemployment rate sometimes high and sometimes low?

·         What causes inflation?

·         How about GDP and GNP country?