Ekonomi Bisnis dan
Manajerial
1.Mengetahui ruang lingkup mata kuliah ini
What is MICROECONOMICS?
MICRO:
– study of economic behavior of (relatively) "small" units, e.g., workers, firms
Versus MACRO:
– study of economy as a whole, – aggregate actor behavior
• Remarkable consensus on micro's underlying principles
– "laws" and tools of analysis, but vast differences in terms of what to do with the analysis.
Role of Theory
Microeconomic theory evolved gradually
– 1700s & late 1800s.
– Marshall’s famous "scissors" – Few changes to core of micro
theory in many decades.
"Theory provides means or framework for explaining complex reality”
– Simplifies/abstracts from reality
– Need not fully or precisely describe reality
Basic Supply and Demand Curves Price
Quanti ty
Role of Theory
• Best test of 'good' theory?
– Whether it explains/predicts what it's designed to, NOT whether its assumptions are correct or reflect reality
• CAVEAT:
– Many controversies & issues here
– Can have seemingly good theory, but as result of non-modeled events or other
Positive v. Normative Analysis
Economists & others often called on to assess best policy approach.
– Positive analysis — "WHAT IS“
– Normative analysis — "WHAT SHOULD BE"
Important Distinction
– Much of micro in realm of positive analysis, dealing w/ propositions that can be tested in terms of underlying logic (qualitative analysis) & empirical evidence
Positive v. Normative Analysis
• Qualitatively determining expected effects of particular policy, based on micro theory
– Likely effects on employment, production, prices
• Quantitatively determining size of actual effects of particular policy.
– Stats./econometrics & statistical significance
• Then, go further (Steps 1 & 2). Use value
judgments to decide whether or not such effects are desired — realm of normative analysis.
Value Judgments
"When analysis comes in conflict with
[strongly held] values, values trump
analysis every time."
• Theda Skocpol (1997 Harvard) on 'welfare devolution’
Continuing debate on the ‘success’ of
welfare reform in U.S. CEA, Bill Clinton,
Al From, Bush, others:
• Was it policy or the economy & how much of each? J. Bishop’s 1998 & R. Blank’s 2002 analysis of
Welfare Reform’s ‘Success’?
Labor Force Participation Rates for Women by Marital Status and Presence of Children, 1989-2001
0.600 0.620 0.640 0.660 0.680 0.700 0.720 0.740 0.760 0.780 0.800
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Single w/ kids under 18
Married w/ no kids Single w/ no kids
Married w/ kids under 18
Figure 3-1
Source: Authors' tabulations of March Current Population Survey data, for
Why POLITICAL ECONOMY?
Why not just microeconomics taught by UT’s econ tribe?
– Cheaper, easier? Why not?
– For starters, check out stark contrast in treatments by B&Z, Kuttner, Blank & McGurn …
QUESTIONS
– Do “free markets” exist? Yes & No. So what?
Considerations
• Influence of laws, institutions & “rules of
the game”
• Effects of power & influence on market
outcomes
• Issues surrounding “one-man/one vote,”
“one-dollar/one-vote”
– The Endowment Issue
Considerations
• Question:
How deterministic is market
analysis?
• Question:
Is there ‘play’ in markets? If so,
how much?
– 2001 Austin Equity Comm. & “living wage” issue; see J. Siedlecki piece, LBJ Journal
(Spring/Summer 2005 – Link to article)
• Question:
Do markets sometimes fail and,
The Imperial Market
Considerable “market worship”
• Not just among economists, but policymakers of almost all stripes (Kuttner, ch. 2)
Theory of Second Best
• i.e., where markets have multiple ‘distortions,’ removing one to create purer market won’t necessarily
Market Analysis: Terms &
Concepts
Market defined as —
" Area” where potential buyers & sellers of a good/service interact
"interplay of all potential buyers & sellers involved in”
Prices (to economists)
Relative (or real) prices, i.e., price relative to prices of all other goods/services at point in time.
Market Analysis: Key Actors
Buyers/consumers
– Theoretical abstraction largely ignores important market intermediaries, e.g., unions, trade associations.
‘Lost’ tribe of economists who
emphasize institutions & their effects within a market economy.
– Pure market analysis insufficient, per se
Galbrait h
Market Analysis: Time
Time
• One of more important dimensions of market analysis
Behavioral Assumptions
Critical foundation for what follows:
1. Self-interested behavior
• actors pursue own goals & objectives
2. Rational behavior
• actors weigh choices & actions and act deliberately
3. Scarce resources
• or, as a famous (non-practicing) economist put it, "you can't always get what you want!”
Behavioral Assumptions
THUS,
• Actors must choose among available
options, pursuing desires rationally with
limited resources
or
Production Possibilities Frontier
• All possible combinations of
goods/services a rational actor can attain with fixed resources
• Technology
• [What does this mean?]
Illustrate with 2 choices
• Say... research reports, R, and research proposals, P
PPF
Researc h Reports (presen
t)
Research Proposals (future)
Production
PPF
Production
Possibilities Curve
Researc h Reports (presen
t)
Research Proposals (future)
PPF
Production
Possibilities Curve
Researc h Reports (presen
t)
Research Proposals (future)
A
PPF
Production
Possibilities Curve
Researc h Reports (presen
t)
Research Proposals (future)
A
B
PPF
Production
Possibilities Curve
Researc h Reports (presen
t)
Research Proposals (future)
A
B
C
PPF
Opportunity Cost:
• Amount of one good that must be
foregone to produce added unit of another
• PPF slope
• Marginal Rate of Transformation, MRT
PPF Questions
Q1: Why is PPF concave?
A1: Efficiency of resource use dictates that as shift resources to producing more of one, less of
another, become less efficient in doing so. Q2: Which goods combination = BEST?
A2: Don't know (yet)! Depends on "preferences"
PPF Questions …
Q3: Why not either devote more resources
to production or improve technology to
attain greater amounts of BOTH goods?
A3: Can't! In the short run, resources &
Opportunity Cost
• Economic or opportunity cost of given action or choice comprised of both:
– EXPLICIT (or accounting) Cost
• defined typically in terms of monetary costs;
– IMPLICIT (or non-monetary) Cost
• imputed value of alternative use of resources
• “Value of resource in its best alternative use", includes both explicit (monetary) and implicit (or non-monetary) costs
– Key concept in micro & policy analysis
Discussion
Significance of accounting v. economic
costs, in terms of:
– Education & career choices? – The environment?
– Welfare reform and related interventions?
What of "sunk costs"?
Demand Schedules & Curves
Demand
– Schedule of prices & associated quantities of goods/services
consumers willing & able to purchase.
Demand Schedule,
for example:
– Functionally Q1 = a + bP1
Prices Quantities
$7 2
$6 3
$5 4
Demand Schedules & Curves
Law of Demand
– The lower the price of a good or service, the larger the quantity consumers wish to
purchase (demand), ceteris paribus.
• Law of D —> negative slope for D curve!
• NOTE TERMS! Distinguish carefully between:
– ∆Qd (movement along)
versus
– ∆ in D, a shift in D Curve
– Ceteris paribus — tastes, incomes, prices of
Demand Schedules & Curves
Price
Quantity D
1
Demand Schedules & Curves
Price
Quantity D
1
Demand for iPods
Demand Depends On...
Incomes:
Response depends very much on
TYPE of good/service!
– If “normal” good, increase in average household income, Y
• With P unchanged, leads to
increased consumption of iPods • That is, demand shifts from D1 to D2
– If "inferior" good, increase in Y
Inferior Goods?
Inferior goods:
– Spam
– Texas wines – Hamburger – Others?
Demand Depends On...
Prices of
Other Goods
– Depends very much on WHICH other goods!
Examples...
– CD Prices? Sharp drop in P of CDs leads to increased consumption of CD players
• A shift out in demand, from D1 to D2.
Demand Depends On...
Prices of
Other Goods
• another example
– VCRs? Sharp drop in P of DVD players leads to decreased consumption of VCRs
• a shift in demand from D2 to D1.
• Substitutes in consumption, alternatives for meeting same needs...
Demand Depends On...
Tastes & Preferences
– Can deal with these any number of ways:
Consider introduction of new alternatives
– growth of live music venues, DATs & DAT players, iPods, "retro" (vinyl) movement
Supply Schedules & Curves
SUPPLY, the producer side of the market:
– schedule of prices & associated quantities producers willing & able to produce & sell at point in time.
LAW of SUPPLY:
– Higher the price, the larger the quantity producers will want to produce (supply) at any point in time, cet. par. So, positive slope!
P as "reward for production":
– As more produced, per-unit opportunity cost of production tends to increase. Higher Ps needed to elicit greater Qs.
Ceteris paribus:
Supply Schedules & Curves
Quantity S1
Supply of iPods
Supply Schedules
Consider:
• Technology of Production
– Intro of new, more efficient production
techniques (e.g. HPWO) allows producers to produce more at every P. So, supply shifts out from S1 to S2
• Input Supply Conditions
Supply Schedules & Curves
Quantity S1
Supply of iPods
Market Equilibrium,
Disequilibrium
Equilibrium P & Q —> no forces acting to
make them different!
– Static, not really dynamic.
Example?
Market Equilibrium
Price
Quantit y
S D
Applied
Market Equilibrium
Applied
Microeconomics Textbook Market
Quanti ty
S D
Pe
$12 5
Market Equilibrium
Applied Microeconomics Textbook Market Quanti ty S D Pe $12 5 Qe Price Surplu s P1 $200Market Equilibrium
Applied Microeconomics Textbook Market Quanti ty S D Pe $12 5 Qe Price P1 $200 Shortag e Surplu s P2 $75Government Interventions...
• NYC rent controls, minimum wage hikes (1977-81, 1989, 1995)
– classic illustrations of impact of market interventions – wage/price controls (1971-74)
Q: Are such interventions “bad”?
– Maybe, if you're a market worshiper
• Otherwise, depends upon your values & other non-market considerations ...
• Some adverse market & non-market responses—
