Transcript ภาพนิ่ง 1
Introduction to social sciences Section 1 : A. Jaruwan Chontanawat Acknowledgement : A. Pom Economic forces in daily life Economics (3rd Edition); John Sloman Economics (16nd Edition); Paul Samuelson & William Nordhaus Section I I. Basic concepts - Introduction - The three problems economics organization - Society’s technological possibilities II. Supply, Demand and Market III.Macroeconomic problems I. Basic concept “Why study Economics?” Make more money? Choosing your life’s occupation? Understanding the role of the government and challenges of global market place? Improving environment ? Inequality in the distribution of income ? What is Economics? (1) Studies how the prices of labor, capital and land are set to allocate resources. Explore the behaviour of the financial market. Examine the distribution of income. Look at the impact of government spending, taxes on growth. Studies the swing in unemployment and production that make up the business cycle. Examine the patterns of trade among nations. Look at growth of LDCs and propose way to encourage the efficiency use of resources. What is Economics? (2) Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people (Samuelson and Nordhaus,1998). ‘Scarcity & Efficiency’ : twin themes of economics. Goods are limited, while wants are unlimited. So choices need to be made. Choices : Three problems of Economic Organisation What? How? What goods and services are going to be produced and in what quantities? How are things going to be produced, what technique will be applied? For whom? For whom are things going to be produced, Who will be the final user? The circle flow of goods and incomes Goods and services Expenditure Household Firms Wages, rent, Dividends, etc. Land ,labour, capital goods Solutions: Market, Command, Mixed Economies A market economy (A laissez-faire) Command economy Use ‘price mechanism’ (Invisible hand) Use ‘central planning’ Mixed economy Use mixed element of market and command What do economists study? (1) The production of goods and services. (Supply side) How much the economy produces in total. What particular combination of goods and services. How much each firm produces. What techniques of production they use. How many people they employ. What do economists study? (2) The consumption of goods and services. (Demand side) How much the whole population spends. What pattern of consumption is in the economy. How much people buy of particular items. What particular individuals buy. How people’s consumption is affected by prices, advertising, fashion, and other factors. Microeconomics VS Macroeconomics Microeconomics is concerned with the behavior of individual entities eg. markets, firms, households. It is concerned with the demand and supply of particular goods, services and resources. Macroeconomics is concerned with the overall performances of the economy. It is thus concerned with aggregate demand and aggregate supply. Society’s Technological Possibilities Input and Output The production-possibility frontier Opportunity cost Factors of Production (Input) Input = commodities and services that are use produce goods and services. Labor (human resources) Land and raw materials (natural resources) Capital (manufacturing resources) Entrepreneurship Output Output are various useful goods or services that results from the production process. Production possibility Frontier Scared resource and technology A curve showing all the possible combination of two goods within a specified time period with all resources fully an efficiently employed. Production possibility curve: ‘trade off ’ Gun Butter 0 1 2 3 4 5 15 14 12 9 5 0 Guns (thou. Bt) 15 14 1 5 Butter (mil. Bt) Example Assume that you have 500 baht T-Shirt 200 baht CD 100 baht 2 Shirts 1 CD 1 Shirt 3 CDs 0 Shirt 5 CDs Opportunity cost Given scarcity, choosing one thing means give up something else. Choice involves sacrifice. The more food you choose to buy, the less money you will have to spend on other goods. The production or consumption of one thing involves the sacrifice of alternatives. The opportunity cost of a decision is the value of the good and service forgone. Example Assume that you only have capital to invest in 1 project Invest in Project A Possibility to gain 1 million baht Invest in Project B Possibility to gain 1.5 million baht II. Demand and Supply VS Market (1) Demand involves consumption : consumers want to maximise ‘utility’ Supply involves production : producers want to maximise ‘profit’ Demand and Supply VS Market (2) Demand = Wants (Unlimited) Supply = Resources (Limited) Demand Side Morning Activities Afternoon Breakfast Transportation costs Buy newspaper Lunch Go shopping Karaoke Evening Dinner Buy Stuffs Movie Tickets Demand : The relationship between price and demand Law of demand Price of A = Demand of A Demand The demand curve Demand Determinant Price of goods Taste Income Price of related goods (substituted, complimentary) Seasonal goods Price expectation Shifts in the Demand Curve Indirect factors Personal income or Taste Related goods Normal goods Inferior goods Substitution goods Complementary goods Price expectation Demand The demand curve Personal income Supply Relationship between price and quantity Supply Price Supply Price Supply Producer wants to maximise “Profit” Supply The supply curve Supply Determinant Its own price Technology Price of production factors Number of producer in the market Government policy Other determinants (war, disaster, etc.) Shifts in the Supply Curve Indirect factors Taste Technology Price of production factors Number of producer in the market Government policy Other determinants (war, disaster, etc.) Price Determination-Market Equilibrium Market Equilibrium Demand = Supply Price Equilibrium Price at Demand = Supply Price Mechanism P A P1 Pe P2 0 C E S B Excess Supply F Excess Demand D Qc Qa Qe Qb Qf Q Terminology and Type of “Market” in economics refer to “Activities” of transferring of products and services (including production factor). Type of Market (1) By Geographic By Product Category Local Market Domestic Market Foreign Market and World Market Final Product Market (output) Production Factor Market (input) By Type of Transferring Central Market Retail and Wholesale Market Type of Market (2) Other Types of Market (Financial Market) Money Market (less than 12 months) Capital Market (more than 12 months) Foreign Exchange Market Future Market Structure of Market Perfectly Competitive Market Pure Monopoly Oligopoly Monopolistic Competition Perfectly Competitive Market Large number of consumers and producers Free entry Homogeneous product Price taker Pure Monopoly One producer Patent, operated by government No substitution product Price are depended on producer, sometime controlled by government Oligopoly Small number of producer, most of them have high market share Product contain high and unique expertise Price depended on the industry Monopolistic Competition In between monopoly and perfectly competitive level Heterogeneous product, differentiate quality, feature, or services Price depend upon the ability to create differentiation Macroeconomic Problems Inflation Deflation Balance of payments deficits Unemployment Inflation ‘Inflation’ = Rise in the level of prices throughout the economy Inflation Level 1 : Mild inflation Market price increase less than 5% per year (good for economy) More investment -> rate of employment increases Level 2 : Moderate inflation Market price increase 5-20% per year (economy going down) More consumer expenditure-same income Level 3 : Hyper inflation Market price increase more than 20% per year (economic crisis) National currency lose its value; in period of war Causes of Inflation Cost Push Employee strikes for higher wage Producers reduce their production to increase market price Costs of production factor raise (fuel price) Demand Pull When Demand > Supply Product shortage War Natural disaster Increasing of Global demand Result to personal income (1) Income from fixed salary - Lose advantage Expense increase-Fixed income or increase less than inflation rate Government officer Pensioner Company officer Income from profit - Gain advantage Can mark up the increasing costs in price of goods Merchant Business owner Result to personal income (2) Advantage : Debtor Disadvantage : Creditor Borrow today 100 baht, return 1 year later (inflation 5%) 100 baht value have been reduced to 95 baht overtime (1 year) Disadvantage : Cash holder, bond holder, or bank account holder (when interest rate < inflation rate) Advantage : Property owner, or other assets that have uncertain value Results of Inflation Employment Employee received higher income from overtime working. Expenses Full resources usage capability leaded to shortage of production factors. Result in higher prices If cannot control, it will create bubble economic situation. Results of Inflation Deflation Situation when the prices of goods or services are reducing continuously caused by Aggregate demand < Aggregate supply What happens ? Low spending -> production cut ->price cut -> income cut -> (job cut) unemployment Business goes in debt -> Bank has more uncollectable debt (non-performing loan) -> more strict to release new loan -> increase interest -> less investment - > recession Causes of Deflation (1) People don’t save their money in economic system Invest in property Producer stock their product Government policy-Eg. High taxes Money is taken out of the market Causes of Deflation (2) Central bank policy Increase money reservation Inadequate release of bank note Restricted control on personal loan Financial institutions retard releasing their loans Lack of money circulation in the economy Balance of payments are continuously deficits Money have been moved out of the economic system Balance of payments deficits Trade Balance The monetary value of exports minus (-) imports over a certain period of time. Current Account The trade balance + other financial activities from other countries; net factor income (such as interest and dividends), and net transfer payments (such as foreign aid). Recession Created from Economic shocks; economic system lose its balance Period of war Revolution Low level of money flow in economy Unemployment Population in working age but out of job/ non income earning Types of Unemployment Cyclical: Frictional: Demand for job exceed supply A period of changing job Structural: Qualification for job is changed due to the changing of industry circumstances Types of Unemployment Technological: Classical: When business can’t afford high wages Marxian: Labor are replaced by new technology or machinery Lay out to keep company running Seasonal: Ended season of some job ex. agriculture or farming Results of Unemployment Increase of ... Poverty Crime Politic instability Stress and health Economic problem