BSB113 Economics notes from Lect 1-3.docx

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Management and Human Resources
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BSB113 Economics Lecture notes from Week 1 - 3 Week 1 How people make choices? What economists assume: o People are rational o People respond to economic incentives o Optimal decisions are made at the margin o Individuals make choices that maximize their own welfare/utility/happiness o We are selfish o Firms make decision that maximize profit o Governments make decisions that maximize the welfare of society The Economic Problem – How to use our limited resources to satisfy our unlimited wants and needs to the greatest extent. o What goods and services will be produced o How will the goods and services be produced o Who will receive the goods and services produced Opportunity Cost o The cost in terms of the most valuable alternative that is sacrificed o Spending limited resources on a selection of wants and needs Types of Economies: o Centrally planned economy – government decides how economic resources will be allocated o Market economy – an economy in which the decisions of households and firms interacting in markets determine the allocation of economic resources o Mixed economy – mixture of both Market economies and efficiency o Productive efficiency – situation in which a good or services is produced using the least amount of resources o Allocate efficiency – state of the economy in which production reflects consumer preferences o Dynamic efficiency – occurs when new technology and innovation are adopted over time Equity o A fair distribution of economic benefits between individuals and between societies o Policies to achieve equity can be pursued through the tax structure o Progressive tax – high income earners pay the highest marginal tax rate (rich give to poor) o Equity may compromise efficiency Economics is grouped into two areas: o Microeconomics – study of how households and firms make choices, how they interact in markets, and how the government attempts to influence their choices o Macroeconomics – study of the economy as a whole, including inflation, unemployment and economic growth Week 2 Demand Curve Market demand is the demand by all the consumers of a give good or service. The market demand curve is derived by horizontally summing all the individual demand curves for a good or service. The ceteris paribus condition: “All else being equal” - Requirement that when analysing the relationship between two variables, such as price and quantity demanded, other variables must be held constant. Substitution effect, change in the quantity demanded of a good/service that results from a change in price, making the good or service more or less expensive relative to other goods and services that are substitutes. Income effect, change in the quantity demanded of a good or service that results from the effect of a change in price on consumer purchasing power. Income o Normal good, good for which the demand increases as income rises and decreases as income falls o Inferior good, good for which the demand increases as income falls and decreases as income rises Tastes Subjective elements that influence a consumer’s plans to buy a good or service Prices of related goods o Substitutes, goods or service that can be used in place of other goods or services (iPhone and Android) Price of iPhones increases, the demand for Androids will go up. o Complements, goods and services that are consumed together (iPhone and apps) price of iPhone increases, the demand for apps will go down. Population and demographics o Population – as population increases the dema
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