Week 1 Lecture

• Course Description
• Introduction to Economics (Ch 1, pp 1-11)
 Subject Coordinator: 

Chris Bajada
chris.bajada@uts.edu.au
9514 9746
Office: Building 8, Level 10

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 ABOUT ECONOMICS FOR BUSINESS
23115
 Introductory course to Economics
 No prior knowledge of economics is assumed

 Divided into two parts:

 First half Microeconomics (lectures 1-6)

 Second half Macroeconomics (lectures 7-11)

 Please refer to the subject outline for a detailed list of topics and corresponding

textbook chapters

 Learning objectives:
 Become familiar with the basic principles and tools of economic analysis and learn

how to apply them to analyse real-world problems

 Understand the behavior of various agents in the economy (individuals, firms, and

governments) and the impact of government policies on them

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 RESOURCES: TEXTBOOK

 Required textbook: Joshua GANS, Stephen KING, Robin STONECASH,

Martin BYFORD, Jan LIBICH and N. Gregory MANKIW, Principles of
Economics: Asia-Pacific Edition, Cengage, 7e.

 eBook version available as well.

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 Note that this text will also be used for 23566 Economics for Business 2
 RESOURCES: UTSOnline

 https://online.uts.edu.au/

 From the UTSOnline page of 23115 Economics for Business (EFB) you can:

 See/download the Subject Outline;

 Download the course material: lecture slides and tutorial material;

 Check “Announcements” to keep you up-to-date with the course;

 Access Online Problem Sets for practice and assessment purposes.

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 ADDITIONAL RESOURCES

 HELPS: Higher Education Language and Presentation Support (HELPS)

provides non-credited English language and academic literacy support to
UTS undergraduate and postgraduate coursework students. 
 Visit the following website for more information:

http://www.uts.edu.au/current-students/support/helps/about-helps

 U:Pass: a student learning program designed to assist students who are

studying subjects that are perceived as difficult or that historically have a
high failure rate.
 Visit the following website for more information:

http://www.uts.edu.au/current-students/support/upass/upass

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 ASSESSMENT: 3 ITEMS

 Portfolio 40%:
 Online Problem Sets (individual, 20%);
 News Analysis (individual, 20%).

 Final exam 60%.

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 ASSESSMENT – ONLINE PROBLEM SETS
(20%)
 Online problem sets (Individual): 20%
 The aim of the Online Problem Sets is to help students develop study
habits and understand key concepts and theories by answering a set of
questions on a regular basis. 6 problem sets will be assessed.
 Grade is calculated from the best 4 (5% each).
 The release dates and deadlines of problem sets are listed in the subject
outline.

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 ASSESSMENT – NEWS ANALYSIS (20%)

 News Analysis (Individual): 20%

 You will be required to analyse news articles.
 One News Analysis focuses on Micro-economics issue and one on Macro-
economics issues.
 Each News Analysis will count 10%
 The release dates and deadlines of the two News Analysis are listed in the
subject outline.
 If you miss any News Analysis there is no re-weighting and no second-
attempt (i.e. you lose 10 marks).

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 ASSESSMENT – FINAL EXAM (60%)

 Final Exam: 60%

 It will cover all lectures and tutorials’ material.
 Closed book.
 Multiple Choice questions and short answer questions.
 Scheduled during UTS Exam Period.

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Introduction to Economics

Principles of Economics, Chapter 1, pp1-11

 What is economics?
 The word ‘economy’ comes from the Greek word meaning ‘one who
manages a household’.
 Households and economies have much in common;
 Both face the same fundamental problem: Available resources cannot
produce all the goods and services people desire (scarcity).
 Economics is the study of how society manages its scarce resources.
 A more detailed definition: Economics is the social science that studies
the choices that individuals, businesses, governments make as they cope
with scarcity and the incentives that influence those choices.
 Economics as a social science dates back to the end of 18th century (Adam
Smith’s publication of The Wealth of Nations in 1776)
 It is traditionally divided into Microeconomics and Macroeconomics

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 What is economics?
 Microeconomics focuses on individual agents in the economy
 How households and firms make decisions and how they interact
 Aims to understand how scarce resources are allocated among
alternative uses, the role of prices and markets and how economic
policy can lead to better outcomes for society
 Macroeconomics looks at the economy as a whole
 Focuses on economy-wide phenomena, including inflation,
unemployment and economic growth
 The study of economics has many facets. Your textbook identifies 10
lessons from economics that can be seen as central/unifying ideas of
economics.
 These 10 lessons serve as an overview of what we will explore during
the course

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 Ten lessons from economics
1. People face trade-offs
2. The cost of something is what you
give up to get it How people make
decisions
3. Rational people think at the margin
4. People respond to incentives
MICRO
5. Trade can make every one better off
6. Markets are a usually a good way to
How people interact
organise economic activity
7. Governments can sometimes
improve market outcomes
8. A country standard of living... How the economy as a
MACR
9. Prices rise when... whole works
O
10. Society faces a trade-off...

Today we will discuss the first four lessons because they are principles that are
14 central to economics and will be used throughout the course.
 Lesson 1. People face trade-offs
 Because of scarce resources, making decisions requires trading off one
goal for another
 Simply, to get one thing that you like, you have to give up something
else (e.g. limited time and money)
 Examples :
 Why is time a scarce resource involving trade-offs?
 Why is government revenue a scarce resource involving trade-offs?

 The message: “to get something we like, we have to give up something

else” brings us to a second lesson

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 Lesson 2. The cost of something is
what you give up to get it
 In economics the cost of something is what you give up to get it, not just
in terms of monetary costs but all opportunity costs.
 The opportunity cost of an item is the value of the next-best alternative
that you give up to obtain that item.
 Example:
 What is the cost of residing in a house you own?

 When making a decisions, individuals should compare costs and benefits

of that decision.
 To make a sound decision, it is necessary to calculate costs correctly.
 This require to include all opportunity costs associated to the decision.

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 Lesson 3. Rational people think at
the margin
 Often decisions are not about “all or nothing”, but about whether to make or not a
(relatively) small change to a given plan or activity.
 Marginal change: a small incremental adjustment to a plan of action.

 The cost associate to a marginal change is called marginal cost (MC) while the benefit is
called marginal benefit (MB).

 When a decisions is about whether to undertake a small change to a plan of action, a

rational person should compare MC to MB.

 Example: Suppose that flying a 200-seat plane from Brisbane to Perth costs the airline
$100,000, an average cost of $500 per seat. The plane is minutes from departure and there
are several vacant seats. A person without a ticket is willing to pay $300 for a seat. Should
the airline sell the seat for $300?
 The MB is the revenue from the additional seat sold, here $300

 The MC is the cost of providing the seat to an additional passenger which close to $0.

 The airline should sell the ticket since MB>MC

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 Lesson 4. People respond to
incentives
 An incentive is a “reward” or “punishment” that induces a person to act
(or not to act) in a certain way.
 Examples:
 Penalties
 Bonus to an employee if she exceeds expectations on her performance
 Rewards and punishments associated with a given decision affect the
benefits and costs of that decision.
 Suppose a new law is introduced whereby anybody who is caught
drink driving receives a life sentence...
 Since rational people make decision considering costs and benefits, they
respond to incentives.
 Government policies consists by large of a set of incentives to encourage
or discourage certain behaviours
 Tax on alcohol or cigarettes
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 Summary of lessons 1 to 4

Scarcity forces people to make decisions/choices about what to get and what
to give up (i.e. we face trade-offs). The true cost of what we choose is what
we give up to get it (opportunity cost). Making the right decision implies
comparing costs and benefits. This comparison is often made at the margin.
Since incentives alter the costs and/or benefits of our choices, we do respond
to incentives.

You can read Lessons 5 to 10 to get a flavour of the material that we will
cover later in this subject as well as in Economics for Business 2.

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End of Lecture