1. Economic Environment Workshop One

2. Basic Economic Notions  Can you define macroeconomics in your own words?  Can you define microeconomics in your own words?

3. Economic Systems In North Korea firms are run by the government, which sets production targets and fixes wages and prices. The country’s foreign trade for a year is equivalent to the amount of goods services exchanged between Canada and the USA in only 36 hours. Source : Grant, AS Economics, 2004. Question: Does the economy of North Korea come closest to a planned or market economy? Why? Image : Kim Il-sung - former president of North Korea

4. Economic Systems In South Korea individuals and groups of individuals own most firms. Most prices and wages are determined by demand and supply and South Korea exported $170 worth of goods and services in 2001. Source : Grant, AS Economics, 2004. Question: Does the economy of South Korea come closest to a planned or market economy? Image : U.S. President George W. Bush and South Korean President Roh Moo-hyun in 2005 at the 17th APEC meeting. (source : Wikipedia)George W. BushRoh Moo-hyunAPEC

5. Choice? Constraint? Yesterday I bought a DVD as a present for my sister. I had thought about buying her a book but decided she would prefer a DVD. A choice or a constraint? There are only 24 hours in a day. If I teach an Economics class between 2pm and 3.30pm on a Wednesday afternoon, I cannot spend the same time writing. A choice or a constraint? I was invited out by one friend to a party and by another to a concert. I chose to go to the party. A choice or a constraint? Can you think of other constraints? Is choice ever really a choice?

6. Scarcity Every good is limited. The more limited the good, the more expensive it becomes. Example: gold. 29/01/08 Gold price at an all- time high at $929.40 an ounce Why? Reasons include: –With fears of a recession in the US gold has become an attractive asset –Weak dollar = gold ‘cheap’ for holders of other currency –Diminishing supply (production stopping in some of South Africa’s mines) Source: BBC Business

7. Scarcity : A problem? The limited number of resources in an economy creates fundamental economic problems. -What should these resources be used to produce? -How should they be combined for efficient production? -And once produced, who should decide who gets what?

8. More questions… In 2007, the number of IT internship vacancies increased by over 70% in France (source: APEC 2008). What does this figure illustrate about the concept of scarcity? In what way is education scare in Mali? (+ needs and wants) In what sense can luxury cars be regarded as scare in the France? Imagine that you won the Euro millions lottery. Would your economic problem be solved? (eased but not solved, money can’t buy everything – health & time = constraints) In what way does specialization reduce the problem of scarcity?

9. Economic Behaviour There are two main principles underlying economic behaviour: - Profit Signalling Mechanism - Minimising resources used to reach a given goal Resources needed – Factors of Production: –Land: natural resources, e.g. land itself –Labour: human resources; this depends on the population size, the working age, people’s skills and the level of training –Capital: man-made aids to production, e.g. factories and equipment –Entrepreneurship: this is the ability to combine factors of production and take risks in establishing new (Source : AS & A Level Economics through Diagrams Andrew Gillespie. Oxon: OUP, 2002: 1)

10. Factors of Production John and Pierre LeBrown run the largest private taxi company in Paris. It is currently growing at 27% per year, and the company put a large, distinctive yellow sign on the side of each of its taxis. –Why are the taxis capital goods? Which are capital and which are capital and consumer goods: –A new sofa bought by a couple moving into a new home –A car bought by a company to use by one of its sales people –A television used by a television critic –A bookcase bought by a library –Shampoo used by a hair salon –A MP3 player bought by a woman as a present for her partner

11. Opportunity Cost Example : “Recently I bought a new flat-screen television. Fist, I considered spending more money on a variety of items including a foreign holiday, a new iPod and opening a savings account. Finally the decision came down to a television or going on holiday. So the opportunity cost of my buying the television was the foreign holiday.” Question: What is the opportunity cost of you coming to this class? What is the opportunity cost for Polish engineers moving to London to find jobs: –For the Polish engineers? –For the country of Poland?