Transcript Economic Environment

Economic Environment
Workshop One
Basic Economic Notions
Can you define macroeconomics in your
own words?
Can you define microeconomics in your
own words?
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
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)
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?
Scarcity
•
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Every good is limited. The more
limited the good, the more
expensive it becomes.
Example: gold.
29/01/08 Gold price at an alltime 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
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?
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?
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)
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
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?