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INTRODUCTION TO BUSINESS ECONOMICS (X10FC7)

LECTURE ONE

Module Convenor: Dr Nana Kufuor

About me
Office: AB 145

Office hours: Tuesday 23pm & Wednesday 11am-12pm


nana.kufuor@nottingham.edu.cn

Module Details
All module materials are available in Moodle. Ten lectures plus one revision lecture. We have a two hour time slot for the content lectures but

will not necessarily use two full hours.


There are 5 Seminars.

Assessment:100% by examination.
You must pass the exam!

Learning and Teaching Styles


Different learning methods and styles are used in western

universities.
This presents us with both challenges and opportunities. For you the challenge is to try to manage the transition to

new ways of learning and teaching.

What to expect?
This is essentially a British style university. Faculty are not here to simply give you answers to your

questions.
You can consult with them but they will provoke you to

think for yourself.

Learning and Teaching


In this university students are not expected to be passive

and reliant on the teachers/instructors.


Interaction/participation is expected from you. The goal is for you to become an independent learner.

Independent Learning
Students assume responsibility and do not rely

solely on the teacher for their learning.


There are around 700 students taking this module

and only five staff teaching on it.


It is not practical or realistic to expect a paternalistic

approach from the instructors.


Being an independent learner can maximise your

skill development and your future employability.

Expectations of you
Seminars will be student-centred activities. They are not

mini lectures!
You will work in small groups and answer questions

based on the lecture materials and your textbook.


You must prepare for your seminars!

You must participate in your seminars!

Expectations of you
How to prepare for your seminars? Print out and review the seminar guides. Review the lecture slides. Read the relevant sections of your textbook. Check your understanding by attempting the review questions from the textbook. Work together in small study groups.

Our Expectations of you


How to behave in your seminars?

Get involved. It can be fun and youll learn more. Do not expect the tutor to just give you answers!

Share your ideas and questions within the seminar.

Our Expectations of you


Do not ask questions after the seminar is over. The

point is to raise questions in the seminar so that everyone can have equal access to learning.
Model answers will NOT be available beyond what is

discussed in the seminar.


Sometimes due to the nature of a topic or question a

model answer is not appropriate or even possible!

Textbook
We are following a programme of study and we are NOT

teaching the textbook.


You only need to read the relevant sections of the

textbook.

Lecture Topics
1.Introduction to Fundamental Concepts of Economics 2. Economic Method, Assumptions and Models

3.& 4. Price, Supply and Demand


5. The Elasticity of Demand 6. Consumer and Producer Surplus

Lecture Topics
7. The Costs of Production 8. Types of firms and market structures

9. Monopolistic Competition and Oligopoly


10. Perfect Competition and Monopoly compared 11. Revision

Seminar Topics
Seminar One: Introductory Concepts Seminar Two: Production Possibilities Frontiers and Positive

versus Normative Economics


Seminar Three: Supply and Demand/Elasticity Seminar Four: Consumer and Producer Surplus/Costs of

Production
Seminar Five: Market Structures and Exam Practice

Seminar Details
Seminar Details are in the Module Outline and the

seminar materials are available in Moodle.


You must bring the seminar materials with you to

each seminar class!


You are required to plan for your seminars by at least

reading the seminar materials.

An Introduction to basic Economic Concepts

Think about
Why cant we have everything we want? There are limited or scarce resources in a society. Scarcity refers to the limited nature of societys resources. Scarcity means we all have to make choices. Governments, businesses and people face a situation of

scarce resources and unlimited wants. How should we solve this fundamental economic question?

There never seems to be enough time in the day!


This means we cant always do everything we need to do

or want to do because time is fixed i.e., 24 hours in a day!


So we have to make choices as to how to spend our time

effectively.
We consider options and alternatives and make choices.

Sometimes those choices mean we have to lose

something to gain something!

What Economics is all about


Economics is the study of how society

manages/allocates its scarce resources, including


how people make decisions (e.g. people decide how much to work, buy, save; firms decide how much to produce and how many workers to hire) how people interact with one another (e.g. how buyers and sellers of goods together determine the price and quantity at which something is sold)

how the economy as a whole works (e.g. a society decides how to divide its resources between national defense, consumer goods, protecting the environment, and other needs)

People Face Tradeoffs


Making decisions requires trading off one goal against

another.
e.g. Playing computer games or chatting online

vs. less time for study. You cant do both at the same time

The Cost of Something Is What You Give Up to Get It


The cost benefit principle: Making decisions requires

comparing the costs and benefits of alternative choices. The opportunity cost of any item is whatever must be given up to obtain it. It can guide your decision making.
e.g. the opportunity cost of time spent at KTV= the

relevant time for study

Opportunity Cost
There is a well-known saying in economics that there is

no such thing as a free lunch! This means that, even if we are not asked to pay money for something, scarce resources are used up in the production of it and there is an opportunity cost involved. Opportunity cost measures the cost of any choice in terms of the next best alternative foregone. For example: Making use of scarce farming land: The opportunity cost of using farmland to grow wheat for bio-fuel means that there is less land for food production.

Rationality

Economic theory states that rational decision-makers

weigh the marginal benefit one receives from an option with its marginal cost, including the opportunity cost. That is, rational people think at the margin. Marginal changes means small incremental changes/adjustments of an action. Rational people often make decisions by comparing the benefits and costs of marginal changes. Rational people systematically and purposefully do the best they can to achieve their objectives.

Rational People Respond to Incentives


Incentive: something that induces a person to act,

i.e. the prospect of a reward or punishment.


Rational people respond to incentives because they

make decisions by comparing costs and benefits.


e.g. In response to lower prices of apple, sales

of apples increase.
e.g. In response to higher prices of petrol,

sales of hybrid cars rise (e.g., Toyota Prius).

We are not always Rational


Behavioural economics uses insights from psychology to

explain why people make apparently irrational decisions such as why people do things that do not appear to be in a persons self-interest. The mainstream economic view is that people are infinitely rational and emotionless beings who can do cost-benefit analyses at will. The reality is often very different. Most of us are not infinitely rational, but rather face bounded rationality, with people using intuition instead of calculating optimal solutions to every decision.

Trade Can Make Everyone Better Off


Why dont you grow your own food? Why dont you make your own clothes? What would happen if you did? Rather than being self-sufficient, people can specialize in

producing what we do best and exchange it for other goods. Countries can benefit from trade & specialization:
Sell the goods they produce at a better price

abroad. Buy other goods more cheaply from abroad than could be produced at home.

Markets Are Usually A Good Way to Organize Economic Activity


In a market economy, decisions result from the

interactions of many households and firms.


The interaction of buyers and sellers determines prices and

quantities of goods and services.


Each price reflects the goods value to buyers and the cost of

producing the good.


Prices guide self-interested households and firms to make

decisions that, in many cases, maximize societys economic wellbeing.

If water is scarce, what should we do?

Water Scarcity
It is easy to take this basic building block of life for granted.

However, water is a surprisingly limited commodity.


Over the next 30 years, the global water supply is in danger of

drying up.
The world population is projected to reach nine billion by 2050.

Not only will these people need water to drink and bathe with also a massive amount of water must be used to grow additional food.

Water Scarcity
The most rapid growth will be in developing nations,

whose water supplies are already under stress.


By 2030, the number of people living under severe water

stress is expected to rise to 3.9 billion, nearly half of the world population.

Water Scarcity
How Does Your Country Utilize Water?

Because of water-saving farming techniques and better

infrastructure, western countries use less water to grow more food.


If the developing world can receive assistance

modernizing their agriculture techniques, they can produce more food and have more water left over to meet other needs.

Water Scarcity
China uses about 60% of its water on agriculture, about

30 % of its water on industry and about 10 % on domestic uses.


India uses about 70 % of its water on agriculture, about

10 % of its water on industry and about 20 % on domestic uses.


In the U.K., about 5 % of the water is used on agriculture,

about 65 % of the water is used on industry and about 30 % of the water is used on domestic uses.

Water Scarcity in the UK: Water Imports


Video Segment Review

http://news.bbc.co.uk/2/hi/uk_news/8628887.stm
The amount of water used in making goods imported to

the UK is worsening water shortages in the developing world, according to a report from three engineering institutions.
They say the government has a duty to make water use

more efficient, at home and abroad.

Water Scarcity and choice


The Worldwide Fund for Nature has estimates that

One litre of beer consumes less water (300 litres) than

one litre of orange juice (850 litres) A meat and dairy-based diet consumes about 5,000 litres of virtual water a day while a vegetarian diet uses about 2,000 litres

Our Water Footprint


Technology Footprint: The shiny new iPhone in your

pocket requires half a litre of water to charge. That may not seem like much, but with over 80 million active iPhones in the world, thats 40 million litres to charge those alone.

Our Water Footprint


Fashion Footprint: That cotton t-shirt youre wearing right

now took 1,514 litres of water to produce, and your jeans required an extra 6,813 litres. Bottled Water Footprint: The US, Mexico and China lead the world in bottled water consumption, with people in the US drinking an average of 200 bottles of water per person each year. Over 17 million barrels of oil are needed to manufacture those water bottles, 86% of which will never be recycled.

How does Scarcity affect you?


What for you are scarce resources? How will you manage them? What trade-offs will you make? What will be the opportunity costs?

Sleeping in the lectures has an opportunity cost!

Summary
Economics is the study of how society manages its

scarce resources. The principles of individual decision making are:


People face trade-offs.

The cost of something is what you give up to get it.


Rational people think at the margin. Rational People respond to incentives.

Summary
The principles of economic interaction are:
Trade can make everyone better off. Markets are usually a good way to organize economic activity.

Using your textbook effectively


Print out and review the lecture material.

What aspects do you understand or not understand?


Chapter 1 is the relevant chapter for this lecture. Turn to page 15 and read the chapter summary first If

any of the material in the summary is not clear to you then find it in the main text. Turn to page 16 and review the Key Concepts relevant to the lecture. Attempt Questions for Review where you need to improve your understanding.

Seminar Preparation Check List


1. Print out the seminar materials. 2. Relate the seminar materials to the lecture slides. 3. Discuss the materials in study groups 4.Use your textbook to help you with your preparation. 5. Bring your seminar guide and textbook to the seminar class. 6. If you do not bring your seminar guide to class the seminar tutors will ask to go and get it.