CHAPTER 1
THE
FUNDAMENTALS OF
ECONOMICS
BY: YENNY SULASTRI, S.E.,M.M
WHY STUDY
ECONOMICS?
With a study of economics, we can be
fully informed about international
trade etc.
Choosing your life’s occupation is the
most important economic decision you
will make, because your future
depends not only on your own abilities
but also on how economic forces
beyond your control affect your wages.
DEFINITION OF
ECONOMICS
The study of how society chooses to
allocate its
scarce resources
to the
production of goods and services in
order to satisfy
unlimited wants.
The study of how societies use
scarce
resources
to
produce
valuable
commodities and distribute them
among different people.
2 KEY IDEAS IN
ECONOMICS:
That goods are
scarce
That society must use its
resources
efficiently
EFEKTIF VS EFISIEN
Efektif: pencapaian tujuan/target dalam batas waktu
yang sudah ditetapkan tanpa sama sekali memperdulikan biaya yang sudah dikeluarkan.
Efisien: pencapaian target dengan menggunakan input
(biaya) yang sama untuk menghasilkan output (hasil) yang lebih besar.
Efektivitas adalah tingkatan sejauh mana tujuan
tercapai dan sejauh mana sasaran masalah dapat diselesaikan. Berbeda dengan efisiensi, efektivitas ditentukan tanpa mengacu pada biaya. Efektivitas = “Doing the right thing” sedangkan Efisiensi = “Doing
BASIC CONCEPTS:
Scarcity
the fundamental
economic problem that human
wants exceed the availability of
time, goods, and resources.
•
Choice
– Because individuals
and society can never have
everything they desire, they
therefore are forced to make
MICROECONOMICS VS.
MACROECONOMICS
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Microeconomics
The branch of
economics that
Macroeconomics
The branch of
MICROECONOMICS VS.
MACROECONOMICS
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Microeconomics: How individual prices are set,
studied the determination of prices of land, labor
and capital and inquired into the strengths and
weaknesses of the market mechanism.
Macroeconomics: How total investment and
3 FUNDAMENTAL QUESTIONS OF
ECONOMIC ORGANIZATION
What: What commodities are produced and in what
quantities?
How: How are goods produced? A society must
determine who will do the production, with what resources, and what production techniques they will use. Will factories be run by people or robots? The HOW question requires society to decide the resource mix used to produce goods.
Whom: For whom are goods produced? It concerns
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POSITIVE ECONOMICS VS NORMATIVE
ECONOMICS
Positive economics: describes the
facts
of an
economy. Ex: why do doctors earn more than
janitors? Does free trade raise or lower the wages of
most Americans? What is the impact of computers
on productivity?
analysis & empirical evidence
.
Normative economics: Involves
ethical
precepts and
norms
of
fairness
. Should poor people be required
to work if they are to get government assistance?
Should the US break up Microsoft because it has
violated the antitrust laws? There are no right or
wrong answers to these questions because they
involve ethics and values rather than facts
.
They can be resolved only by political debate and
decisions, not by economic analysis alone.
MARKET, COMMAND AND MIXED
ECONOMIES
A Market Economy is one in which individuals and
private firms make the major decisions about production and consumption. A system of prices, of markets, of profits and losses, of incentives and rewards determines what, how and for whom. Ex: USA
Firm: produce the commodities that yield the highest profits (the what) by the techniques of production that are least costly (the how).
Consumption: determined by individuals’ decisions about how to spend the wages and property incomes generated by their labor and property ownership (the
for whom).
MARKET, COMMAND AND MIXED
ECONOMIES
A Command Economy
is one in which the
government makes all important decisions
about production and distribution : Uni
soviet where the government owns most of
the means of production (land and capital)
and it also owns and directs the operations of
enterprises in most industries; it decides how
the output of the society is to be divided
among different goods and services.
Mixed Economy
with elements of market
VIDEO SISTEM EKONOMI
INPUTS & OUTPUTS
Inputs: commodities or services that
are used to produce goods and services.
Ex: eggs, flour, heat, pizza oven, chef’s
skilled labor.
Outputs: the various useful goods or
services
that
result
from
the
production process and are either
consumed or employed in further
production. Ex: Pizza.
FACTORS OF PRODUCTION
Land: natural resources – represents the gift of
nature to our productive processes. It consists of the land used for farming or for underpinning houses, factories and roads; the energy resources that fuel our cars and heat our homes; and the nonenergy resources like copper and iron ore and sand.
clean air and drinkable water
Labour: The mental and physical capacity of workers
to produce goods and services
Capital: The physical plants, machinery, and
equipment used to produce other goods (Financial capital The money used to purchase capital)
Entrepreneurs: The creative ability of individuals to
seek profits by combining resources to produce innovative products
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Land
Land
Labor
Labor
Capital
Capital
Entrepreneurship organizes
resources to produce goods
and services
Entrepreneurship organizes
resources to produce goods
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PRODUCTION
POSSIBILITIES CURVE:
A curve that shows the
maximum combinations
of two outputs that an
economy can produce,
given
its
available
resources and technology
PRODUCTION
POSSIBILITIES CURVE:
Ex: Defense Spending.
Countries must decide how much
of their limited resources goes to
their military and how much
goes into other activities (such
as new factories or education).
The more output that goes for
defense, the less there is
available for consumption and
investment.
ALTERNATIVE PRODUCTION
POSSIBILITIES
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Possibilities Butter
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Consumer Goods
Unattainable
Inefficient
Production Possibilities Curve
PROBLEMS
As a student , you might have 10 hours to study
for upcoming tests in both economics and history.
If you study only history, you will get a high grade
there and do poorly in economics, and vice versa.
Treating the grades on the two tests as the
“output” of your studying, sketch out the PPF for
grades, given your limited time resources.
Alternatively, if the two student commodities are
“grades” and “fun”, how would you draw this PPF?
Where are you on this frontier? Where are your
lazy friends?
OPPORTUNITY COSTS
Life is full of choices: Resources are
scarce, we must always consider how
to spend our limited incomes or time.
In a world of scarcity, choosing one
thing means giving up something
else. The opportunity cost of a
decision is the value of the good or
VIDEO OPPORTUNITY COSTS
EFFICIENCY
