Subject: Economics for a

sustainable world (LB5229)

Topic(s): Introduction & review

of key economic concepts
(Ch. 1-4)
 Big Ideas you will take away
from this subject
• Real world understanding of issues and
application of economic tools for sustainable
resource management
• Different ATC curves for different market
structures
• International trade and fiscal & monetary
policy

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 Suggested textbook

• The suggested prescribed textbook is Economics for today by

Allan Layton, Tim Robinson & Irvin Tucker. It is now in its 6th
Edition and available as an etextbook online or as an overseas
paperback. The Co-op Bookshop had planned to provide this
textbook in 2020.
• For example, it is available at:
https://www.vitalsource.com/en-au/products/economics-for-
today-allan-layton-tim-robinson-v9780170282710

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 Learning outcomes & Big Ideas
• Welcome!
• Learning outcomes
1. Students to understand the benefits and expectations of
the subject
2. Students to consider the key economic concepts that
underpin economics (LO1,2,3)
• Big Ideas
1. Subject Expectations
2. Opportunity cost & Economic profit
3. Review of economic concepts: trade, supply, demand
curves
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 Subject expectations 1
1. Learning outcomes summarized (see outline
for greater detail)
1. LO1: Critically evaluate different economic
models and policy/management in different
contexts
2. LO2: Apply a range of different economic models
to identify & evaluate natural resource
management problems and solutions
3. LO3: Synthesize economic models to evaluate the
sustainable management of natural resources
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 Subject expectations 2
1. Assessment
1. Quiz (weekly) = 20%
2. Business report = 30%
3. Exam = 50%

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 Subject expectations 3
1. Administrative matters
1. Lecturer and Tutor contact: is by appointment
2. Textbook: Economics for today 6th Ed.
3. Let your lecturer/tutor know if you cannot attend
their lecture or tutorial

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 Subject expectations 4
1. What you will take away from this course
1. Real world understanding of how to apply
modern economic tools to enact sustainable
resource management
2. Curves and analysis that assists in management
of the firm
3. Curves and analysis that assists in management
of international trade, fiscal and monetary policy

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 Write down all you know about

• Opportunity cost
• Economic profit

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 Opportunity Cost and Economic Profit 1
1. Opportunity cost = opportunity forgone upon
making a choice
2. Economic profit = Revenue – opportunity
cost

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 Opportunity Cost and Economic Profit 2
1. YOUR TURN: What is the difference between
economic profit and accounting profit?
1. Hint: Economic profit = revenue – (explicit +
implicit costs)

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 Opportunity Cost and Economic Profit 2
1. YOUR TURN: What is the difference between
economic profit and accounting profit?
1. Accounting profit = revenue – explicit costs
2. Economic profit = revenue – explicit costs -
implicit costs
3. Economic profit = Accounting profit – implicit
costs

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 Write down all you know about

• The economic problem

• Sustainability

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 Opportunity Cost and Economic Profit 1
1. Resources are scarce so we need to make
(individual/social) choices (what, how, for
whom?) – this is the economic problem
2. How do we avoid the Malthusian trap (and make
sustainable choices)?
3. How do we balance markets and government to
sustainably manage our resources (the answer
to this economic question has changed over
time Smith, Keynes, Friedman)?
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 Opportunity Cost and Economic Profit 3
1. Opportunity cost, marginalist, Production
possibility curve.

Diminishing marginal returns

Water

Write down your definition of “thinking at the margin”

Diamonds
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 Write down all you know about

• Absolute advantage
• Comparative advantage
• Adam Smith and David Riccardo

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• Absolute advantage = produce more things
per hour
• Comparative advantage = when producing one
thing, sacrifice less of the other than someone
else
• Adam Smith = moral economic philosophy and
David Riccardo = trade using comparative
advantage ideas
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 Opportunity Cost and Economic Profit 4
1. Opportunity cost & Comparative advantage

Goods (per hour of production)

1 litre milk Bread Loaf
Town

100 50
A

10 20
B

Which town is absolutely better at making bread?

Which town is comparatively better at making bread?
What is the price range of bread in terms of milk?

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 Opportunity Cost and Economic Profit 5
1. Opportunity cost & Comparative advantage
Solution
Goods (per y hours of production)
1 litre milk Bread Loaf
Town

100/50 = 2 50/50 = 1
A

10/20 = 0.5 20/20 = 1

B

Which town is absolutely better at making bread? = Town A is absolutely better at

producing milk and bread
Which town is comparatively better at making bread? = Town B is comparatively better at
making bread (for a unit of bread produced it need only sacrifice 0.5 of 1L milk)
What is the price range of bread in terms of milk? = bread is priced at 0.5 to 2 milk (1 litre)

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Your turn

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 Opportunity Cost and Economic Profit 6
1. Opportunity cost & Comparative advantage
Your turn
Goods (per hour of production)
Orange boxes Apple boxes
Town

8 2
A

3 1
B

Which town is absolutely better at producing oranges?

Which town is comparatively better at producing oranges?
What is the price range of oranges in terms of apples?
Should the towns trade apples for oranges?
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 Opportunity Cost and Economic Profit 7
1. Opportunity cost & Comparative advantage
Solution
Goods (per hour of production)
Orange boxes Apple boxes
Town

8/8=1 2/8=0.25
B

3/3=1 1/3=0.33…

Which town is absolutely better at producing oranges? Town A

Which town is comparatively better at producing oranges? Town A (sacrifices less
apples to produce a 1 unit of orange box)
What is the price range of oranges in terms of apples? 0.25 to 0.33… apple boxes
Should the towns trade apples for oranges? Yes town A should produce and sell oranges
and town B should produce and sell apples GAINS FROM TRADE
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 Your turn

• Create a table where Town A is absolutely

better at producing oranges but Town B is
comparatively better at producing oranges

Solution after 10 minute break

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Lecture break

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 Opportunity Cost and Economic Profit 7
1. Opportunity cost & Comparative advantage
A Solution
Goods (per hour of production)
Orange boxes Apple boxes
Town

4 3
A

2 1
B

Town A sacrifices ¾ of an apple box for 1 orange box

Town B sacrifices ½ of an apple box for 1 orange box
:. Town B is comparatively better at producing orange boxes

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Write down all you know about
1. Macro vs. micro economics
2. Ceteris Paribus + economics models (to make
things easier)
3. Positive vs. normative economics (the expanding
wealth divide)

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 Opportunity Cost and Economic Profit 8
1. Key concepts
1. Macro vs. micro economics – scale e.g., social vs
individual
2. Ceteris Paribus + economics models (to make
things easier) – moving only one thing the rest
unchanged to make analysis easier
3. Positive vs. normative economics – is vs should
e.g., the expanding wealth divide

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Write down all you know about
1. Law of demand
2. Y, C, G, NX

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 Opportunity Cost and Economic Profit 9
1. Law of Demand

Movement ceteris paribus

Price

Expenditure (Y)
Consumer C
Government G
Investment I
Net exports NX = X-M

Output(s)
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Write down all you know about
1. Law of supply
2. K (Das Kapital Marx), T (Terra), L, h

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 Opportunity Cost and Economic Profit 10
Factors of production
1. Law of Supply Physical capital K
Land T
Labour L
Human capital h

Movement ceteris paribus

Diminishing
Price

marginal returns of
quantity = Each
extra unit of
quantity cost more
than the previous
one…WHY?

Output(s)
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 Opportunity Cost and Economic Profit 11
1. Supply & Demand
This is the supply and demand
of a good – what is the
Non- price determinants difference between an
Number of buyers/sellers
Tastes individual good and a social
Expectations good?
Price

Related goods substitutes/complements

When an economist says we

shift demand to the left –
what is really happening? (hint
intercepts & non price
determinants)

Output(s)
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 Opportunity Cost and Economic Profit 12
1. Demand shock – what happens?
Price

Output(s)
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 Opportunity Cost and Economic Profit 13
1. Demand shock – what happens?
Price

Excess production at old price – so there is a surplus

New equilibrium is reached

WHAT IF A PRICE FLOOR EXISTS

JUST ABOVE THE NEW EQUILIBRIUM ?
Output(s)
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 Opportunity Cost and Economic Profit 14
1. supply shock – what happens?
Price

Output(s)
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 Opportunity Cost and Economic Profit 15
1. supply shock – what happens?
Price

Not enough production at old price – so there is a

shortage

New equilibrium is reached

WHAT IF A PRICE CEILING EXISTS

AT THE OLD EQUILIBRIUM ?
Output(s)
WILL EQUILIBRIUM EVERY BE REACHED?
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Your turn

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 Opportunity Cost and Economic Profit 16
1. Supply & Demand – your turn
The government suddenly
reduces taxes on
consumables
Price

What happens?

Output(s)
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 Opportunity Cost and Economic Profit 16
1. Supply & Demand – solution
The government suddenly
reduces taxes on
consumables
Price

Surplus at old price

New equilibrium is reached

Lower price and quantity

Output(s)
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Your turn

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 Opportunity Cost and Economic Profit 17
1. Supply & Demand – your turn
The government suddenly
reduces taxes on all firms
but it is expected
Price

What happens?

Output(s)
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 Opportunity Cost and Economic Profit 18
1. Supply & Demand – solution
The government suddenly
reduces taxes on all firms
but it is expected
The change is (rationally)
expected – so no change in
Price

price
DOES A PRICE CEILING ABOVE EQUILIBRIUM
OR A PRICE FLOOR BELOW THE EQUILIBRIUM
CHANGE ANYTHING? HINT: NON-BINDING

Output(s)
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Your turn

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 Homework for tutorial
1. Work in a group of 2 or 3 students to create
problems for another tute group (you should
also create a solution sheet to check their
work)
1. Comparative advantage problem
2. Supply/demand shock problem

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 Learning outcomes & Big Ideas
• Welcome!
• Learning outcomes
1. Students to understand the benefits and expectations of
the subject
2. Students to consider the key economic concepts that
underpin economics (LO1,2,3)
• Big Ideas
1. Subject Expectations
2. Opportunity cost & Economic profit
3. Review of economic concepts: trade, supply, demand
curves
45
Thank you !
Q&A ?

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