1. Principles of Economics
Session 1

2. Topics To Be Covered Introduction Definition of Economics
Market Definition
Demand Schedule, Curve, and Functions
Supply Schedule, Curve, and Functions

3. Topics To Be Covered
Change in Quantity Demanded versus Change in Demand
Change in Quantity Supplied versus Change in Supply
Equilibrium of Supply and Demand
Price Ceiling
Price Floor

4. Objectives Objectives of bilingual education：
To learn useful and practical knowledge of economics.
To improve English proficiency
Advantages of Samuelson and Nordhaus’ Economics

5. Arrangement Revision of the previous session Weekly quiz
Students’ presentation on the knowledge learned in the previous session
New contents
Summary
Assignment

6. Requirements
Attendance
Participation
Curiosity and Practice

7. Grading Attendance (20%) Class performance (10%) Quiz (20%）
Final Examination (50%)

8. Definition of Economics
Economics is the study of how societies choose to use scarce productive resources that have alternative uses, to produce commodities of various kinds, and to distribute them among different groups.
Ekonomi adalah studi tentang bagaimana masyarakat memilih untuk menggunakan sumber daya yang langka produktif yang memiliki kegunaan alternatif, untuk menghasilkan komoditas dari berbagai jenis, dan untuk mendistribusikan mereka di antara kelompok yang berbeda.

9. Scarcity vs. Efficiency
Economic goods are scarce or limited in supply.
Free goods like air exist in such large quantities. Thus, their market price is zero.
Scarcity means that an economic good is not freely available for the taking.
Efficiency refers to the use of economic resources to maximize satisfaction with the given inputs and technology.
barang ekonomi yang langka atau terbatas dalam pasokan.
barang gratis seperti udara yang ada dalam jumlah besar tersebut. Dengan demikian, harga pasar mereka adalah nol.
Kelangkaan berarti bahwa baik ekonomi tidak tersedia secara bebas untuk mengambil.
Efisiensi mengacu pada penggunaan sumber daya ekonomi untuk memaksimalkan kepuasan dengan input dan teknologi yang diberikan.

10. Microeconomics vs. Macroeconomics
Microeconomics is the study of how individual households and firms make decisions and how they interact with one another in markets.
Macroeconomics is the study of the economy as a whole with respect to output, price level, employment, and other aggregate economic variables.
Mikroekonomi adalah studi tentang bagaimana rumah tangga dan perusahaan membuat keputusan dan bagaimana mereka berinteraksi satu sama lain di pasar.
Makroekonomi adalah studi tentang ekonomi secara keseluruhan sehubungan dengan output, tingkat harga, kerja, dan variabel ekonomi agregat lainnya.

11. Adam Smith & John Maynard Keynes
Smith authored The Wealth of Nations in 1776.
Founder of modern economics.
Research into pricing of land, labor, and capital.
Invisible hand.
Keynes authored General Theory of Employment, Interest and Money in 1936.
Smith menulis The Wealth of Nations pada tahun 1776.
Pendiri ekonomi modern.
Penelitian harga lahan, tenaga kerja, dan modal.
tangan tak terlihat.
Keynes menulis General Theory of Employment, Interest and Money pada tahun 1936.

12. What, How, and For Whom
What is the problem of decision to produce possible goods or services.
How is the choice of the particular technique by which each good of the what shall be produced.
For whom refers to the distribution of consumption goods among the members of that society.
Apa masalah keputusan untuk menghasilkan kemungkinan barang atau jasa.
Bagaimana adalah pilihan teknik tertentu dimana masing-masing baik dari apa yang akan diproduksi.
Untuk siapa mengacu pada distribusi barang konsumsi di antara anggota masyarakat itu.

13. Normative vs. Positive Economics
Normative economics considers “what ought to be”—value judgments, or goals, of public policy.
Positive economics, by contrast, is the analysis of facts and behavior in an economy, or “the way things are.”

14. Market Definition
A market is an arrangement whereby buyers and sellers interact to determine the prices and quantities of a commodity. 4

15. Demand and Supply Cycle
Market for
Goods
and Services
Supply
Demand
Goods & Services sold
Goods & Services bought
Firms
Households
Labor, land, and capital
Inputs for production
Market for
Factors
of Production
Demand
Supply 7

16. Demand
Quantity demanded is the amount of a good that buyers are willing and able to purchase. 8

17. The Law of Diminishing Demand
The law of demand states that there is an inverse relationship between price and quantity demanded. 12

18. Demand Schedule 17

19. Demand Curve P Qd=12 – 4P Qd $3.00 2.50 2.00 1.50 1.00 0.50 1 2 3 4 51 2 3 4 5 6 7 8 9 10 11 12 17

20. Determinants of Demand
Market price (P)
Consumer income (M)
Prices of related goods (Pr)
Tastes (T)
Expectations (Pe)
Number of consumers (N) 11

21. Demand Functions Qd = f (P, M, Pr, T, Pe, N)
Qd = a + bP + cM + dPr+ eT + fPe + gN
Qd = f (P, M’, Pr’, T’, Pe’, N’)
Qd = f (P)
Qd = a + bP

22. Ceteris Paribus
Ceteris paribus is a Latin phrase that means all variables other than the ones being studied are assumed to be constant. Literally, ceteris paribus means “other things being equal.”
The demand curve slopes downward because, ceteris paribus, lower prices imply a greater quantity demanded! 18

23. Market Demand
Market demand refers to the sum of all individual demands for a particular good or service.
Graphically, individual demand curves are summed horizontally to obtain the market demand curve.

24. Change in Quantity Demanded versus Change in Demand
Movement along the demand curve.
Caused by a change in the price of the product. 19

25. Changes in Quantity DemandedP C
$4.00 A
2.00 D1 Qd 12 20

26. Change in Quantity Demanded versus Change in Demand
A shift in the demand curve, either to the left or right.
Caused by a change in a determinant other than the price. 19

27. Changes in Demand D2 D1 D3 P B A 20 Qd 30 Increase in demand
Decrease in demand A 20 30 B
2.00 D2 D1 D3 Qd

28. Consumer Income
As income increases the demand for a normal good will increase.
As income increases the demand for an inferior good will decrease. 13

29. Consumer Income Normal Good
Price
$3.00
An increase in income...
2.50
Increase
in demand
2.00
1.50
1.00
0.50 D2 D1
Quantity 1 2 3 4 5 6 7 8 9 10 11 12

30. Consumer Income Inferior Good
Price
$3.00
2.50
An increase in income...
2.00
Decrease
in demand
1.50
1.00
0.50 D2 D1
Quantity 1 2 3 4 5 6 7 8 9 10 11 12

31. Prices of Related Goods
When a fall in the price of one good reduces the demand for another good, the two goods are called substitutes.
When a fall in the price of one good increases the demand for another good, the two goods are called complements. 15

32. Change in Quantity Demanded versus Change in Demand
Variables that Affect Quantity Demanded
A Change in
This Variable . . .
Price
Represents a movement
along the demand curve
Income
Shifts the demand curve
Prices of related
goods
Tastes
Expectations
Number of
buyers 19

33. Supply Quantity supplied is the amount of a good
that sellers are willing and able to sell. 25

34. Law of Supply
The law of supply states that there is a direct (positive) relationship between price and quantity supplied. 28

35. Supply Schedule 29

36. Supply Curve P Qs = - 1 + 2P Qs $3.00 2.50 2.00 1.50 1.00 0.50 1 2 3 41 2 3 4 5 6 7 8 9 10 11 12 29

37. Determinants of Supply
Market price (P)
Input prices (PI)
Related goods prices (Pr)
Technology (T)
Expectations (Pe)
Number of firms (F) 27

38. Supply Functions Qs = g (P, PI, Pr, T, Pe, F)
Qs = h + kP + l PI + mPr+ nT + rPe + sF
Qs = g (P, PI’, Pr’, T’, Pe’, F’)
Qs = g (P)
Qs = h + kP

39. Market Supply
Market supply refers to the sum of all individual supplies for all sellers of a particular good or service.
Graphically, individual supply curves are summed horizontally to obtain the market supply curve.

40. Change in Quantity Supplied versus Change in Supply
Movement along the supply curve.
Caused by a change in the market price of the product. 30

41. Change in Quantity Supplied
$3.00
A rise in the price results in a movement along the supply curve. A
1.00 Qs 1 5 30

42. Change in Quantity Supplied versus Change in Supply
A shift in the supply curve, either to the left or right.
Caused by a change in a determinant other than price. 30

43. Change in Supply S3 S1 S2 P Qs Decrease in Supply Increase in Supply30

44. Change in Quantity Supplied versus Change in Supply30

45. Supply and Demand Together
Equilibrium Price
The price that balances supply and demand. On a graph, it is the price at which the supply and demand curves intersect.
Equilibrium Quantity
The quantity that balances supply and demand. On a graph it is the quantity at which the supply and demand curves intersect. 36

46. Supply and Demand Together
Demand Schedule
Supply Schedule
At $2.00, the quantity demanded is equal to the quantity supplied! 36

47. Equilibrium of Supply and Demand
Qd=19 – 6P
Supply
$3.00
Demand
Equilibrium
2.50
Qd= Qs
2.00
1.50
1.00
0.50
Qs = P Q 1 2 3 4 5 6 7 8 9 10 11 12 30

48. Three Steps To Analyzing Changes in Equilibrium
Decide whether the event shifts the supply or demand curve (or both).
Decide whether the curve(s) shift(s) to the left or to the right.
Examine how the shift affects equilibrium price and quantity. 45

49. How an Increase in Demand Affects the Equilibrium
Price
1. Hot weather increases
the demand for ice cream... D2
Supply
$2.50
New equilibrium
2. ...resulting
in a higher
price...
2.00
Initial
equilibrium D1 7 10
Quantity
3. ...and a higher
quantity sold. 46

50. Shifts in Curves versus Movements along Curves
A shift in the supply curve is called a change in supply.
A movement along a fixed supply curve is called a change in quantity supplied.
A shift in the demand curve is called a change in demand.
A movement along a fixed demand curve is called a change in quantity demanded.

51. How a Decrease in Supply Affects the Equilibrium
Price
1. An earthquake reduces
the supply of ice cream... S2 S1
New
equilibrium
$2.50
2. ...resulting
in a higher
price...
2.00
Initial equilibrium
Demand 1 2 3 4 7 8 9 10 11 12 13
Quantity
3. ...and a lower
quantity sold. 46

52. What Happens to Price and Quantity When Supply or Demand Shifts?

53. Excess Supply P Surplus Q Supply $3.00 2.50 2.00 1.50 1.00 0.50 Demand1 2 3 4 5 6 7 8 9 10 11 12 30

54. Surplus
When the price is above the equilibrium price, the quantity supplied exceeds the quantity demanded. There is excess supply or a surplus. Suppliers will lower the price to increase sales, thereby moving toward equilibrium.

55. Excess Demand Shortage Supply Demand Price $2.00 $1.50 1 2 3 4 5 6 7 81 2 3 4 5 6 7 8 9 10 11 12 13
Quantity 37

56. Shortage
When the price is below the equilibrium price, the quantity demanded exceeds the quantity supplied. There is excess demand or a shortage. Suppliers will raise the price due to too many buyers chasing too few goods, thereby moving toward equilibrium.

57. Price Ceilings & Price Floors
A legally established maximum price at which a good can be sold.
Price Floor
A legally established minimum price at which a good can be sold. 4 4

58. A Price Ceiling That Creates Shortages
Supply
Equilibrium
price $3 2
Price
ceiling 75
Quantity
supplied
125
Quantity
demanded
Shortage
Demand Q 7 10

59. Effects of Price Ceilings
Shortages
Non-price rationing
Black market
Corruption 11 14

60. Rent Control
Rent controls are ceilings placed on the rents that landlords may charge their tenants.
The goal of rent control policy is to help the poor by making housing more affordable.
One economist called rent control “the best way to destroy a city, other than bombing.” 2

61. Rent Control in the Short Run
Rental Price of
Apartment
Supply and demand for apartments are relatively inelastic
Supply
Controlled rent
Shortage
Demand
Quantity of
Apartments 7 10

62. Rent Control in the Long Run
Because the supply and demand for apartments are more elastic...
Rental Price of
Apartment
Supply
…rent control causes a large shortage
Controlled rent
Shortage
Demand
Quantity of
Apartments 7 10

63. A Price Floor That Creates Surplus
Supply
Surplus $4
Price floor 80
Quantity
demanded
120
Quantity
supplied $3
Equilibrium
price
Demand Q 8 17

64. The Minimum Wage
An important example of a price floor is the minimum wage. Minimum wage laws dictate the lowest price possible for labor that any employer may pay.

65. The Minimum Wage A Free Labor Market Labor supply Labor demand Wage
Equilibrium
wage
Equilibrium
employment
Labor
demand
Quantity of
Labor

66. A Labor Market with a Minimum Wage
The Minimum Wage
A Labor Market with a Minimum Wage
Wage
Labor
supply
Labor surplus
(unemployment)
Minimum
wage
Quantity
demanded
Quantity
supplied
Labor
demand
Quantity of Labor

67. Assignment Review Part One (P1- 59) Do Exercises on P58-59
Preview Chapter 4 (P62-79)

68. Thanks