Economic Management #1: Introduction

[samvara]

Introduction was scary, presenter is quietly spoken and detail oriented. She swears this will be the most boring seminar of the trimester. I hope so, Friday night is a bad time for classes. I can feel my entire body trying to gear down for the weekend :p This was enhanced by seminar presenter's attitude which said she didn't think we wanted to be there either - or her assumption that we'd all rather be home watching TV.

N., who was studying in the foyer and did Economic Management last trimester said his only advice was to master the early concepts fast - apparently you need them ;p

Text is Managerial Economics: Applications, Strategy, and Tactics and we have been instructed to ignore most of the maths. This was a moment of brief sadness for me as I went in early on Tuesday to get my books (bookshop is closed during my class times and it turns out that while the 'we come to you!' session timetables did not mention Tue/Fri, they came anyway. Darn.) and asked for 'the text for Economic Management.' It turns out they gave me the Finance text so I came back on Saturday to trade - my new book is prettier though!

• Economics: the study of how society manages its resources (land, labour and capital), and is important because such resources are scarce.
• Managerial Economics: the use of economic analysis to make business decisions involving the best use (allocation) of an organisation's scarce resources.

New term for me 'Game Theory' which is where the way we bounce off each other is modelled. Oh social sciences, I love you so.

Basic Principles

• People face trade-offs (leisure time versus work)
• Cost of decisions include what you give up (opportunity cost)

Rational people think at the margin: the decision to chose one alternative over another occurs when that alternative's marginal benefits exceed the marginal costs. *snerk* I would argue that all people make decisions based on cost/benefit and that being rational has nothing to do with it - your reasons may not be my reasons.

People respond to incentives because they act on their own best interests: supply and demand, profit, utility, other rewards, altruism.

Gains from trade

• Competition results in gains from trading
• Trade allows people to specialise (Yay for Chinese sweatshops :p)

Markets are a proven way to organise economic activity

• Households decide what to buy and who to work for
• Firms decide who to hire and what to produce

Markets are not always perfect

• Government intervention distorts the market (taxing goods like cigarettes, providing services like education)
• An externality is the impact of one person or firm's actions on the welbeing of a bystander
• Market Power, is the ability of a person of firm to have a substantial influence on market prices

Supply and Demand analysis

• Most fundamental tool/model used in economics

Types of Markets

• Competitive, in which there are many buyers and sellers and each can have only negligible effect on each other. e.g. wheat farming
• Perfect Competition, in which all products are the same and buyers and sellers are price takers
• Monopoly, in which there is one seller who controls the price
• Ogliopoly, in which there are few sellers and unaggressive competition e.g. oil & gas, domestic airlines, car markets
• Monopolistic competition, in winch there are many sellers and slightly differentiated produces with varied prices e.g. dandruff shampoo

Demand Curve: If there's lots, it's cheap, will shift under pressures:

• Income e.g. earn more, want more
• Price of related goods e.g. coke goes up, switch to pepsi
• Consumer Tastes
• Advertising
• Population e.g. aging population require different goods
• Expectations e.g. expect prices to rise, buy now

Heh, she didn't talk about the way people buy toilet paper and milk in storm season as if it's going to be the new currency after the apocalypse

Supply Curve: If the price goes up, willingness to supply does too (except for leisure time), also shifts under pressure

• Input prices e.g. as price goes up, producers are willing to produce less per unit price
• Technology e.g. Bigger! Better! Faster!
• Government regulations
• Number of Firms
• Substitutes in production
• Taxes
• Producer expectations

Determination of Market Price

• Equilibrium price, the price that balances quantity supplied and quantity demanded
• Equilibrium quantity, the quantity supplied and the quantity demanded at the equilibrium price

Diagrams! Complex ones!

Surplus
Shortage

Using Demand-Supply in Analysis

• Decide whether the event shifts the supply or demand curve (or both)
• Decide whether the curve(s) shift(s) to the left or to the right
• Use the supply-and-demand diagram to see how the shift affects equilibrium price and quantity
• compare equilibrium positions - comparative statistics

Graphs! Complex ones!

'inelastic supply curve' = situation where supply cannot be increased e.g. theater seats 300 people
'completely elastic supply curve' = initially lecturer said no examples but someone suggested Google Search and I am thinking 'love'

...and then we ran away

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