Economics as a Business Environment M aster of B usiness A dministration Welcome to Spring 2015 schmidt-bremen.de -> MBA Economics Peter Schmidt

Environment Business Economics Quantitative Methods

Introductions... u Economics u Lecturer u Students

Economics & Statistics ZEW Zentrum für Europäische Wirtschaftsforschung - Mannheim Peter Schmidt Who am I market. research. culture

You u are highly motivated students u have to carry your individual workload:

(10) Principles of Economics

Every field of study has its own terminology Mathematics axioms integrals vector spaces Psychology ego id cognitive dissonance Law torts venues Promissory estoppel

Every field of study has its own terminology Economics Supply Demand Elasticity Consumer Surplus Comparative advantage Opportunity cost Deadweight loss

Economics trains you to.... uThink in terms of alternatives. uEvaluate the cost of individual and social choices. uExamine and understand how certain events and issues are related.

The Economist as a Scientist The economic way of thinking... uInvolves thinking analytically and objectively. uMakes use of the scientific method.

The Scientific Method uUses abstract models to help explain how a complex, real world operates. uDevelops theories, collects, and analyzes data to prove (or dismiss) the theories. Observation, Theory and More Observation!

Ten Principles of Economics Chapter 1 Copyright © 2001 by Harcourt, Inc. All rights reserved. Requests for permission to make copies of any part of the work should be mailed to: Permissions Department, Harcourt College Publishers, 6277 Sea Harbor Drive, Orlando, Florida

A household and an economy face many decisions: uWho will work? uWhat goods and how many of them should be produced? uWhat resources should be used in production? uAt what price should the goods be sold?

Society and Scarce Resources: The management of society’s resources is important because resources are scarce.

Scarcity means that society has limited resources and therefore cannot produce all the goods and services people wish to have.

Economics Economics is the study of how society manages its scarce resources.

Economists study... uHow people make decisions. uHow people interact with each other. uThe forces and trends that affect the economy as a whole.

Ten Principles of Economics 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. I How People Make Decisions 5.Trade can make everyone better off. 6.Markets are usually a good way to organize economic activity. 7.Governments can sometimes improve market outcomes. 8.The standard of living depends on a country’s production. 9.Prices rise when the government prints too much money. 10.Society faces a short-run tradeoff between inflation and unemployment. II How People Interact III How the Economy as a Whole Works

Ten Principles of Economics 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. I How People Make Decisions

5.Trade can make everyone better off. 6.Markets are usually a good way to organize economic activity. 7.Governments can sometimes improve market outcomes. II How People Interact Ten Principles of Economics

8.The standard of living depends on a country’s production. 9.Prices rise when the government prints too much money. 10.Society faces a short-run tradeoff between inflation and unemployment. III How the Economy as a Whole Works

And always remember … People face tradeoffs ! “There is no such thing as a free lunch!”