Transcript ภาพนิ่ง 1

SSC 260 : Introduction to Social
Sciences : Economic section
Jaruwan Chontanawat
Topic 1: Economic force in Daily life (I)
03/02/2009
Text books
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Samuelson, P. & Nordhaus, W. Economics
(16nd Edition)
Sloman, J. Economics (3rd Edition
Begg, D.(2006). Foundations of
Economics. (3rd Edition), McGraw-Hill,
London. (Begg)
Outlines
I. Basic concepts
- Introduction
- The three problems economics
organization
- Society’s technological possibilities
II. Market VS Demand, Supply
Introduction
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Are humans rational ?
Needs
Scarcity
Make decision between choices, ‘trade off’
Opportunity cost
Maximise net benefit
What is Economics?
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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 decision (choices) must be made, either by
society or by individuals, on three central economic
questions.
Choices : Three problems of
Economic Organisation
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What?
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How?
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What goods and services are to be produced and in what
quantities?
How are things going to be produced, what technique will be applied?
For whom?
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For whom are things going to be produced, Who will be the final user?
Solutions: Market, Command,
Mixed Economies
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A market economy (A laissez-faire)
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Command economy
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Use ‘price mechanism’ (An invisible hand)
Use ‘central planning’
Mixed economy
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Use mixed element of market and command
What do economists study? (1)
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The production of goods and
services. (Supply side)
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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)
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The consumption of goods and
services. (Demand side)
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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
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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.
Statement about economic issues:
Positive &Normative
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Positive: explain how part of the economy
operates. Offer objective analysis
Normative: go beyond objective analysis, offer
prescriptive advices e.g policy, related to
‘value judgement’
Society’s Technological
Possibilities
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Input and Output
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The production-possibility frontier
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Opportunity cost
Factors of Production (Input)
Input = commodities and services that are used to
produce goods and services.
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Labor (human resources)
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Land and raw materials (natural resources)
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Capital (manufacturing resources)
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Entrepreneurs
Output
Output are various useful goods or services that
results from the production process.
Production possibility
Frontier (PPF)
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Given scared resources (input) and existing technological
knowledge, What are things to be produced ?
PPF shows the maximum amounts of production that can be
obtained by an economy, given its technological knowledge and
quantity of inputs available.
PPF represents the menu of goods and services available to
society.
Assume economy produces two goods, a curve showing all the
possible combination of two goods within a specified time period
with all resources fully an efficiently employed.
PPF shows the crucial economic notion of ‘trade-offs’.
Production possibility curve:
Gun
Butter
0
1
2
3
4
5
15
14
12
9
5
0
‘trade off ’
Guns (thou. Bt)
15
14
1
5
Butter (mil. Bt)
Example
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Assume that you have 500
baht
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T-Shirt 200 baht
CD 100 baht
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2 Shirts 1 CD
1 Shirt 3 CDs
0 Shirt 5 CDs
Opportunity cost
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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
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Assume that you only have capital to invest in 1 project
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Invest in Project A
 Possibility to gain 1 million baht
Invest in Project B
 Possibility to gain 1.5 million baht
What is the opportunity cost of investment in project A ?
II. Market VS Demand and Supply
Market and government in modern
economy
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19th century become the age of ‘laissez-faire: leave
us alone, believe in ‘an invisible hand’.
The end of century : new system called ‘welfare
state’: market direct day-to-day economic life while
gov regulates social conditions and provides
pensions, health care, and other necessities for poor
families.
Around 1980 turn to market economy e.g. ‘Regan
revolution’ deregulate gov control over the economy.
The era of big government control is over.
There are most dramatic turn such as Russia,
socialist countries of Eastern Europe, China,
Taiwan, Singapore and Chile.
What exactly is a market economy
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Who solve the three fundamental questionswhat, how and for whom in the market
economy?
A market economy is an elaborate
mechanism for coordinating people, activities,
and businesses through a system of price
and market.
In a market economy, no single individual or
organisation is responsible for production,
consumption, distribution, and pricing.
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How do markets determine prices, wages
and outputs?
A market is a mechanism through which
buyers and sellers interact to set prices and
exchange goods and services.
There are market for almost everything;
goods and services, labour, input, finance,
currency.
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Prices coordinate the decisions of producers and
consumers in a market.
Higher prices tend to reduce consumer purchases
and encourage production.
Lower prices encourage consumption and
discourage production.
A market equilibrium represents a balance among all
the different buyers and sellers.
Those prices for which buyers desire to buy exactly
the quantity that sellers desire to sell yield an
equilibrium of supply and demand.
Demand and Supply (1)
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Demand involves consumption : consumers want to
maximise ‘utility’
Supply involves production : producers want to maximise
‘profit’
Demand and Supply (2)
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Demand
= Wants (Unlimited)
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Supply
= Resources (Limited)
Demand Side
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Morning Activities
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Afternoon
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Breakfast
Transportation costs
Buy newspaper
Lunch
Go shopping
Karaoke
Evening
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Dinner
Buy Stuffs
Movie Tickets
Demand :
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The relationship between price and demand
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Law of demand
Price of A  = Demand of A
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Demand
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The demand curve
Demand Determinant
Price of goods
 Taste
 Income
 Price of related goods (substituted,
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complimentary)
Seasonal goods
 Price expectation
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Shifts in the Demand Curve
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Indirect factors
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Personal income  or 
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Taste
Related goods
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Normal goods
Inferior goods
Substitution goods
Complementary goods
Price expectation
Demand
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The demand curve
Personal income 
Supply
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Relationship between
price and quantity
Supply
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Price  Supply 
Price  Supply 
Producer wants to maximise
“Profit”
Supply
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The supply curve
Supply Determinant
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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
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Indirect factors
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Taste
Technology
Price of production factors
Number of producer in the market
Government policy
Other determinants (war, disaster, etc.)
Price Determination-Market
Equilibrium
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Market Equilibrium
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Price Equilibrium
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Demand = Supply
Price at Demand = Supply
A market equilibrium represents a balance among all the
different buyers and sellers.
Those prices for which buyers desire to buy exactly the
quantity that sellers desire to sell yield an equilibrium of
supply and demand.
Price Mechanism
P
A
P1
Pe
P2
0
C
E
S
B
Excess Supply
F
Excess Demand
D
Qc Qa Qe Qb Qf
Q
The circle flow of goods and incomes : how consumers
and producers interact to determine prices and
quantities for both inputs and outputs
Goods and services
Expenditure
Household
Firms
Wages, rent, Dividends, etc.
Land ,labour, capital goods
How market solve the three economics
problems
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What goods and services will be produced is
determined by the demand and supply side.
How things are produced in determined by the
competition among different producers. To maximise
profit is to keep cost at a minimum by adopting the
most efficient methods of production.
For whom things are produced; who is consuming
and how much depend on supply and demand in the
market of factors of production.
The invisible hand
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First recognised by Adam Smith (1723-1790), father of economics.
Quoted from The Wealth of Nations, he saw the harmony between
private profit and public interest. He argued that even though every
individual “intends only his own security, only his own gain,…he is led
by an invisible hand to promote an end which was no part of his
intension. By pursuing his own interest he frequently promotes that of
society more effectually than when he really intends to promote it.”
Smith introduce the idea of economic growth by pointing to the great
strides in productivity brought about by specialization and the division of
labor. In a famous example, he describe the specialised manufacturing
of pin factory in which “one man draws out the wire, another straightens
it, a third cuts it.” and so it goes. This allow 10 people to make 48000
pins in a day.
Smith discovered a remarkable property of competitive market
economy. Under perfect competition and with no market failures, market
will squeeze as many useful goods and services out of the available
resources as is possible.
But where market failure (monopolies or pollution etc) become
pervasive, the remarkable efficiency properties of the invisible hand
may be destroyed.
Terminology and Type of
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“Market” in economics refer to “Activities” of transferring of
products and services (including production factor).
Type of Market
(1)
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By Geographic
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By Product Category
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Local Market
Domestic Market
Foreign Market and World Market
Final Product Market (output)
Production Factor Market (input)
By Type of Transferring
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Central Market
Retail and Wholesale Market
Type of Market (2)
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Other Types of Market (Financial Market)
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Money Market (less than 12 months)
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Capital Market (more than 12 months)
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Foreign Exchange Market
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Future Market
Structure of Market
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Perfectly Competitive Market
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Pure Monopoly
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Oligopoly
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Monopolistic Competition
Perfectly Competitive Market
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Large number of consumers and
producers
Free entry
Homogeneous product
Price taker
Pure Monopoly
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One producer
Patent, operated by government
No substitution product
Price are depended on producer, sometime
controlled by government
Oligopoly
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Small number of producer, most of them have
high market share
Product contain high and unique expertise
Price depended on the industry
Monopolistic Competition
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In between monopoly and perfectly competitive level
Heterogeneous product, differentiate quality, feature,
or services
Price depend upon the ability to create differentiation
Conclusion
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What economics is? Why we wish to study?
Due to the existence of scarcity, so decision must be made in order
to answer 3 economic questions: what how, for whom
What is to produced depend on existing resources and technology –
PPF show the maximum amount of the other goods that can be
produced.
PPF also show the crucial economic notion of ‘trade offs’ and
Opportunity cost,
3 economies: market, command, mixed
Economic branches: Microeconomics & Macroeconomics
Statement of economics: Positive & Normative
Market VS Demand and Supply
How market economy work?
Acknowledgement
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Aj. Panalert Siriwong
Thank you