Hong Kong Polytechnic University School

of Accounting and Finance

AF1605
INTRODUCTION TO
ECONOMICS

Course Outline

First Semester 2018/2019

Subject Code: AF1605

Subject Title: Introduction to Economics

Lecture 26 hours
Mode of Study: Tutorial 13 hours
Assessment: Coursework 50%
Final Examination 50%
Minimum Pass Grade: Coursework D
Final Examination D

Subject Instructors

Dr. Raymond Li Office: M1051 Phone: 2766-7126 Email: Ray.Li@polyu.edu.hk

Dr. Tak Wai Chau Office: M710 Phone: 2766-7064 Email: tak-wai.chau@polyu.edu.hk
Dr. Baochun Peng Office: M604 Phone: 2766-7068 Email: baochun.peng@polyu.edu.hk
Mr. Alex Wang Office: MN043 Phone: 3400-3371 Email: alex.yi.wang@connect.polyu.hk

Role and Purpose

This subject enables students to analyze business problems by applying conceptual frameworks
drawn from economics; understand better how value is created in goods and services and delivered
to users; and set the parameters of choice from analyzing the business environment within which
business organizations set objectives and take actions.

Learning Outcomes

On successfully completing this subject, students will be able to

 appraise the issues involved in the allocation of resources for individual economic agents and
the economy as a whole.
 conduct economic analysis of the behaviour of firms and markets.
 evaluate the issues relating to the macroeconomy and analyze the effectiveness of government
economic policy.

Textbook

Foundations of Economics (Eighth edition 2018) written by Robin Bade and Michael Parkin,
published by Pearson.

Attendance

Students are required to attend lectures and tutorials and their attendance will be recorded by their
instructors.

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 Assessment Method

1. The assessment consists of coursework (50%) and final examination (50%). Students will
receive a grade for the coursework and a grade for the examination. The overall grade for the
subject is the average of the coursework grade and examination grade.

2. To pass the subject, students are required to obtain grade D or above in both coursework and
final examination. In other words, a student will fail the subject if he/she receives grade F in
coursework and/or examination.

3. The grading of coursework consists of the following four components: (a) Attendance and
participation in tutorial (10%), (b) Presentation of problem set questions (20%), (c) Written
report of problem set questions (30%), and (d) Mid-term test (40%).

4. Students will receive a grade in each coursework component and the component grade will be
translated into the component grade point as follows:

Component Grade Component Grade Point

A+ 4.5
A 4
B+ 3.5
B 3
C+ 2.5
C 2
D+ 1.5
D 1
F 0

The weighted average of the coursework component grade points becomes the coursework
grade point.

Example 1:

If student X receives ‘B’ in attendance, ‘B+’ in presentation, ‘C+’ in report and ‘A’ in mid-term
test, then his/her coursework grade point = 3 × 0.1 + 3.5 × 0.2 + 2.5 × 0.3 + 4 × 0.4 = 3.35.

Example 2:

If student Y receives ‘C’ in attendance, ‘C+’ in presentation, ‘C+’ in report and ‘F’ in mid-term
test, then his/her coursework grade point = 2 × 0.1 + 2.5 × 0.2 + 2.5 × 0.3 + 0 × 0.4 = 1.45.

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5. The coursework grade point will be translated into the coursework grade as follows:

Coursework Grade Point Coursework Grade

> 4.00 A+
3.75 – 4.00 A
3.25 – 3.74 B+
2.75 – 3.24 B
2.25 – 2.74 C+
1.75 – 2.24 C
1.25 – 1.74 D+
1.00 – 1.24 D
< 1.00 F

Guidelines for Presentation

1. Each tutorial class is divided into seven groups and each group is assigned with one problem
set consisting of four questions. The group members have to make presentation and submit
individual written report on their assigned problem set questions. The allocation of problem set
questions is as follows:

Group Presentation Written report

Group 1 Problem Set 1: Q1.1, Q1.2, Q1.3, Q2.1 Q1.1, Q2.1

Group 2 Problem Set 2: Q2.2, Q3.1, Q3.2, Q4.1 Q2.2, Q3.1

Group 3 Problem Set 3: Q4.2, Q4.3, Q5.1, Q5.2 Q4.2, Q5.2

Group 4 Problem Set 4: Q5.3, Q5.4, Q5.5, Q6.1 Q5.4, Q5.5

Group 5 Problem Set 5: Q6.2, Q6.3, Q7.1, Q7.2 Q6.3, Q7.2

Group 6 Problem Set 6: Q7.3, Q8.1, Q8.2, Q8.3 Q7.3, Q8.2

Group 7 Problem Set 7: Q8.4, Q9.1, Q9.2, Q9.3 Q8.4, Q9.3

2. The group has to present the answers to the problem set questions on the assigned date.
Please note that each presentation is a teamwork. Group members should make an effort to
help each other in the preparation as well as during the presentation in class.

3. Students should use PowerPoint (or other appropriate software) in presentation and include
only the main points or key words rather than long sentences on the presentation slides. The
presenting group should also provide hardcopies of their presentation slides to other students
attending the tutorial.

4. Each group member will be graded based on his/her own performance as well as the overall
group performance, where performance refers to the accuracy, contents, PowerPoint design,
oral presentation and timing and appropriate work allocation of the presentation. The maximum
total mark of presentation is 20. The mark to grade conversion of presentation is as follows:

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 Mark Grade
18.0 – 20.0 A+
16.0 – <18.0 A
14.0 – <16.0 B+
12.0 – <14.0 B
10.0 – <12.0 C+
9.0 – <10.0 C
8.0 – <9.0 D+
7.0 – <8.0 D
0 – <7.0 F

5. All other class members are required to participate actively in the tutorial meeting. They are
encouraged to raise questions to the presenting group as well as to the instructor regarding the
subject matter. Students should ensure that they are clear about the answers of the problem
set questions during the tutorials and there will not be distribution of written answers from the
instructor.

Guidelines for Written Report

1. The presenting group is assigned with TWO questions from their problem set (see the table on
page 3) and each group member has to prepare an individual written report on these two
assigned questions. Students should take into account the comments from the instructor during
the presentation when writing the report. The length of the answer in the individual written report
should be between 600 – 1,000 words (not including diagrams, if any). The report has to be
submitted to the instructor within one week after the presentation.

2. Students should use the template from the subject website at Learn@PolyU as the cover and
end page of the written report. The answers should be written on a new page following the
cover page.

3. Students have to use their own words in writing the report and should not make direct copy
from their presentation slides. Plagiarism is strictly prohibited and will result in serious
punishment. Students are required to submit their report to Turnitin, a plagiarism prevention
software built in Learn@PolyU, and to generate an Originality Report. They are required to
attach a copy of the Originality Report to their written report.

4. The grading of the report will be based on the accuracy, contents and elaboration of arguments,
structure, correct English and economics expressions. Each question has a maximum of 10
marks and the maximum total mark of the report is 20. The mark to grade conversion of the
report is as follows:

Mark Grade
18.0 – 20.0 A+
16.0 – <18.0 A
14.0 – <16.0 B+
12.0 – <14.0 B
10.0 – <12.0 C+
9.0 – <10.0 C
8.0 – <9.0 D+
7.0 – <8.0 D
0 – <7.0 F

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 Criteria for Grading of Problem Set Questions

Grade Description Criteria

A+, A Excellent (a) Present arguments that have an element of originality

wherever appropriate.
(b) Demonstrate a strong understanding of all relevant
knowledge.
(c) Handling questions professionally.

(d) Excellent PowerPoint slides and excellent written report.

B+, B Good (a) Accurately address the questions as set.

(b) Demonstrate a good understanding of all relevant knowledge.

(c) Handling questions in a logical way.

(d) Good PowerPoint slides and good written report.

C+, C Satisfactory (a) Fairly address the questions as set.

(b) Display a basic understanding of the concepts involved.
(c) Handling some questions.

(d) Acceptable PowerPoint slides and acceptable written report.

D+, D Marginal (a) Barely address the questions as set.

(b) Display a minimum understanding of the concepts involved.

(c) Unable to handle questions.

(d) Marginally acceptable PowerPoint slides and marginally

acceptable written report.

F Fail (a) Fail to address the questions as set.

(b) Display a poor understanding of the concepts involved.

(c) Unable and unwilling to handle questions.

(d) Poor PowerPoint slides and poor written report.

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 Criteria for Grading of Test and Examination

Grade Description Criteria

Achieve a standard of excellent performance with extended

A+, A Excellent ideas such as elements of own voice and opinion wherever
appropriate.

Achieve a standard of good performance with good relational

B+, B Good understanding such as wide range and diversity of materials,
proper referencing, necessary analysis and application.

Meet a standard of acceptable performance with application

C+, C Satisfactory of materials and without major errors of understanding.

Demonstrate a standard of marginally acceptable

D+, D Marginal performance with some errors of understanding.

Fail to meet a minimum standard of passing the test or

F Fail examination with major errors of understanding or omission of
explanation.

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 Schedule for Lecture and Mid-term Test

Friday Lecture
Week No. Saturday
(Dr. Raymond Li)

1 Topic 1

2 Topic 2

3 Topic 3

4 Topic 4

5 EoC week (No lecture)

6 Topic 5 (Part I)

7 Topic 5 (Part II)

8 Topic 6

9 3 Nov 2018
Mid-term test
11:30am - 12:30am
Venue: TBA

10 Topic 7

11 Topic 8

12 Topic 9 (Part I)

13 Topic 9 (Part II)

Note: There will be no make-up test if you miss the mid-term test.

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 Schedule for Tutorial Activities

Week No. Monday Tuesday Wednesday Thursday Friday

1 Induction 1 Induction 1 Induction 1 Induction 1 Induction 1

2 Induction 2 Induction 2 Induction 2 Induction 2 Induction 2

3 Induction 3 Induction 3 Induction 3 Induction 3 Induction 3

4 Problem set 1 Public holiday Problem set 1 Problem set 1 Problem set 1

5 Public holiday Problem set 1 Problem set 2 EoC week EoC week
(no tutorial) (no tutorial)

6 Problem set 2 Problem set 2 Problem set 3 Problem set 2 Problem set 2

7 Problem set 3 Problem set 3 Public holiday Problem set 3 Problem set 3

8 Problem set 4 Problem set 4 Problem set 4 Problem set 4 Problem set 4

9 Revision Revision Revision Revision Revision

10 Discussion of Discussion of Discussion of Discussion of Discussion of

mid-term test mid-term test mid-term test mid-term test mid-term test

11 Problem set 5 Problem set 5 Problem set 5 Problem set 5 Problem set 5

12 Problem set 6 Problem set 6 Problem set 6 Problem set 6 Problem set 6

13 Problem set 7 Problem set 7 Problem set 7 Problem set 7 Problem set 7

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 Subject Contents and Textbook Reading

Topic 1 The Scope of Economic Analysis

Indicative contents:

1. Basic concepts in economics.

2. The economic way of thinking.

After studying this topic, you should understand:

1. What is economics and the nature of economic problem.

2. The concept of opportunity cost and production possibility frontier.
3. How to apply the cost-benefit principle in making decisions?

Textbook reading: Chapter 1, Chapter 2, Chapter 3

Topic 2 The Price Mechanism: Demand, Supply and Market

Indicative contents:

1. The law of demand and demand curve.

2. The law of supply and supply curve.
3. Market equilibrium.
4. Price control.

After studying this topic, you should understand:

1. The meaning of demand and the factors that will shift the demand curve.
2. The meaning of supply and the factors that will shift the supply curve.
3. Relationship between individual demand/supply and market demand/supply.
4. The nature of equilibrium in the market and how shifts in demand/supply affect the market
equilibrium.
5. The effects of price control including price ceiling and price floor.

Textbook reading: Chapter 4, Chapter 7

Topic 3 Elasticity of Demand

Indicative contents:

1. Meaning and measurement of various elasticity of demand.

2. Factors affecting elasticity of demand.
3. The role of elasticity of demand.

After studying this topic, you should understand:

1. The meaning of and how to calculate price elasticity of demand.

2. Factors affecting price elasticity of demand.
3. How price elasticity of demand is related with total revenue?
4. How price elasticity of demand affects the tax burden between buyers and sellers?
5. The meaning of income and cross elasticity of demand.

Textbook reading: Chapter 5, Chapter 8

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Topic 4 Production and Cost

Indicative contents:

1. Firm as a production unit.

2. Decision time frames for a firm: Short run and long run.
3. Production function.
4. Nature of production cost.
5. Economic and accounting profit.

After studying this topic, you should understand:

1. The nature of firm as a production unit.

2. The meaning of short run and long run in a firm’s production process.
3. How inputs and outputs are related through the production function and the behavior of total
product, average product and marginal product?
4. The behavior of short run and long run production cost.
5. Concepts of implicit cost, explicit cost and economic profit.

Textbook reading: Chapter 14

Topic 5 Market Structure

Indicative contents:

1. Market behavior under perfect competition.

2. Market behavior under monopoly.
3. Market behavior under oligopoly.

After studying this topic, you should understand:

1. The conditions for a perfectly competitive market.

2. The determination of price, output and profit for a perfectly competitive market in the short run
and in the long run.
3. Meaning of efficiency and how a perfectly competitive market achieves efficiency.
4. The sources of monopoly power.
5. The determination of price, output and profit for a monopolistic market.
6. How a monopoly adopts price discrimination?
7. The conditions for an oligopolistic market.
8. How to apply game theory to predict the behavior of oligopolistic firms?

Textbook reading: Chapter 15, Chapter 16, Chapter 18

Topic 6 Market Failure

Indicative contents:

1. Meaning of market failure.

2. Positive externality and negative externality.
3. Public good and the free rider problem.

After studying this topic, you should understand:

1. The meaning and the conditions of market failure.

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2. The concept of positive and negative externality.
3. Why externalities cause market failure and the remedial actions taken by the government.
4. The nature of public good.
5. The demand for public good and the free rider problem.

Textbook reading: Chapter 10, Chapter 11

Topic 7 Nature of Macroeconomics and Measurement of Macroeconomic Performance

Indicative contents:

1. Macroeconomic issues.
2. The concept of Gross Domestic Product (GDP).
3. Approaches to measure GDP.
4. Interpretation of GDP figures.

After studying this topic, you should understand:

1. What are the major concerns in macroeconomics?

2. The basic ideas about unemployment and inflation.
3. The concept of circular flow of economic activities.
4. The meaning of and difference between real and nominal GDP.
5. The expenditure, income and output approaches to measure GDP.
6. The limitations and uses of GDP figures.

Textbook reading: Chapter 21, Chapter 22

Topic 8 Spending and Output in the Short Run

Indicative contents:

1. Aggregate expenditure and aggregate output determination.

2. Components of aggregate expenditure.
3. Expenditure multipliers.
4. Theory of investment spending.
5. Fiscal policy.

After studying this topic, you should understand:

1. The basic assumptions of the Keynesian model for aggregate output determination.
2. The consumption function.
3. How equilibrium aggregate output is determined under the Keynesian framework?
4. The derivation and mechanism of the expenditure multiplier.
5. The concept of net present value.
6. How investment decision is affected by interest rate?
7. The effects of government purchase and taxation on aggregate output.
8. The effects of government budget deficit.

Textbook reading: Chapter 30, Chapter 32

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Topic 9 Money and Banking

Indicative contents:

1. Nature of money.
2. Commercial banks and money creation.
3. Central bank and monetary policy.
4. Demand for money.
5. Money market equilibrium and determination of interest rate.
6. Quantity theory of money.

After studying this topic, you should understand:

1. The meaning and functions of money.

2. How commercial banks can expand money supply through credit creation?
3. The derivation of money multiplier.
4. The functions carried out by the central bank.
5. The tools and mechanism used by central bank to implement monetary policy.
6. The factors affecting demand for money.
7. The relationship between bond price and interest rate.
8. How to determine equilibrium interest rate using the concept of demand and supply of money?
9. Why there are changes in interest rate?
10. The long run effects of money supply on real GDP and price level through the quantity theory
of money.

Textbook reading: Chapter 27, Chapter 28, Chapter 33

Topic 10 Aggregate Demand, Aggregate Supply, Macroeconomic Equilibrium and Inflation

Indicative contents:

1. Aggregate demand and aggregate supply.

2. Macroeconomic equilibrium.
3. Causes and effects of inflation.

After studying this topic, you should understand:

1. The shape of the aggregate demand curve and the factors that will shift the curve.
2. The shape of the aggregate supply curve and the factors that will shift the curve.
3. How the interaction of aggregate demand and aggregate supply determines the
macroeconomic equilibrium?
4. How the economy can be self-correcting?
5. The sources of inflation.
6. The effects of inflation.

Textbook reading: Chapter 29

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