WELCOME TO ECONOMICS

ECO2513
 COURSE ASSESMENT
• Individual Assignment = 30 %
• Mid-Term Examination = 20 %
• Quiz/Participation/Tutorial = 10 %
• Final Examination = 40 %

TOTAL = 100 %
 Syllabus
• Chapter 1 = An Introduction to Economics
• Chapter 2 =Economy and economics
system
• Chapter 3 = Microeconomics : Demand
• Chapter 4 = Microeconomics : Supply
• Chapter 5 = Elasticity of supply and
demand Part 1
MID-TERM EXAMINATION
• CHAPTER 5 : Elasticity Supply and
demand Part 2
• CHAPTER 6 : Consumer choice and utility
theory
• CHAPTER 7 : Production and the Firm
• CHAPTER 8 : Market Structure
• CHAPTER 9 : International Trade

FINAL EXAMINATION (Chapter 5 pt2 until 9)

 What is the differences between Economics
and the Economy?

• Economy is the study of the use of scarce

resources to satisfy unlimited human
wants.
• Economics is the social science that
deals with problems such as what, how,
and for whom to produce
Unit 1: Foundations of
Economics
What is the basic
economics problem?
 OBJECTIVES 1.1
• EXPLAIN why scarcity and choice are basic
problems of economics
• IDENTIFY land, labor, and capital as the three
factors of production, and identify the two
types of capital
• EXPLAIN the role of entrepreneurs
• EXPLAIN why economists say all resources are
scarce
 VOCABULARY:
• Need
• Want
• Economics
• Goods
• Services
 Scarcity
• Definition
–A situation in which the amount of
something actually available would
not be sufficient to satisfy the
desire for it, if it were provided
free of charge.
 … MORE VOCABULARY
• Shortage
• Factors of Production
• Land
• Labor
• Capital
• Physical Capital
• Human Capital
 Factors of Production

• There are 4 factors that must all be used

to produce anything
– Natural Resources (also referred to as
“land”)
 Factors of Production

• There are 4 factors that must all be used

to produce anything
– Labor – effort of a person for which
they are paid
 Factors of Production

• There are 4 factors that must all be used

to produce anything
– Capital – human-made resources used
to create other goods
 Factors of Production

– 3 Kinds of Capital
• Physical Capital – Also called Capital
Goods, objects that are used to
produce other goods
 Factors of Production

– 3 Kinds of Capital
• Human Capital – knowledge or skills
workers get from education and
experience
 Factors of Production

• There are 4 factors that must all be used

to produce anything
– Entrepreneurship – person who takes
a risk in combining the other 3 factors
to create a new goods
 Section 1.2 – Opportunity Cost

FIVE appealing VACATION Destinations…

Hawaii Paris

Dunns River Falls,

Jamaica

Volunteer: What is your

Ireland first choice? What is
Alaska your second choice?
 Opportunity Cost
• Definition – the cost expressed in terms of the next
best alternative sacrificed
• Helps us view the true cost of decision making
• Implies valuing different choices
Making Economic Decisions

• The most desirable of the options you

pass up is called the Opportunity Cost
• Sleep, studying, and playing video games
1st, 2nd, and 3rd on a list for what you
value the most
 Making Economic Decisions
• 1st Place is what
you would
choose to do
• 2nd Place is your
opportunity cost
(you give it up to
do option 1)
 Making Economic Decisions
• Imagine you have 2 sets of machinery in
your production facility. One machine
broke, and it costs $100 per hour in
wages and electricity to run. The value of
the production in a single hour is $500.
Calculate the OC.
 Making Economic Decisions
ANSWER
• The opportunity cost is $400 per hour per
machine. You can now evaluate the value of
repairing the machine quickly based on the
opportunity cost of each day it goes without
working
• VALUE – TOTAL COST = Giving Up (OC)
 Making Economic Decisions
• There is a point at which you are paying
the same increase in cost, but seeing
lower benefits
• You must make the decision as to
whether the cost is worth it
• This same process is used by businesses
and consumers to make decisions
 Section 1.3 – Production Possibilities Curves

GRAPHS….
• WHY do graphs sometimes show information
more clearly than text or tables?
 Production Possibilities
• Production Possibilities Graph –
shows alternatives to what an
economy can produce
–Let’s say we can produce 2 things:
Guns and Butter
Production Possibilities
 Production Possibilities
• Production Possibilities Graph – shows
alternatives to what an economy can
produce
– The outer red line shows the maximum
possible output with any given
combination
– This is the Production Possibilities
Frontier (or Curve)
Production Possibilities
• To move from
one point to
another, the
economy must
make trade-offs
Keseimbangan
 Production Possibilities
• Any point along the line shows the
economy operating at maximum
efficiency
• Any point below the line is
underutilization – they are not getting all
that they could
• Any point above the line is presently
impossible, until new resources are
available
 Production Possibilities
• Why does the graph curve instead of
making a straight line?
– Law of Increasing Costs – as
production increases for one item,
more and more resources are
necessary to increase production of
the second item! The OPPORTUNITY
COST increases…
 Production Possibilities
• Every resource is best suited for certain
types of goods
– Farmland and cows make butter
– Metals and factories make guns and many
times you hear about butter vs. guns due to
military spending on weaponry using
resources …
– To convert butter production to guns, you
must sell the cows and build new factories
on the land
 OPP COST & PPC/PPF CALCULATION
EXERCISE
POINT Broccoli Pizzas
1 0 100
2 5 80
3 10 60
4 15 40
5 20 20
6 25 0

1) Draw the PPF graph.

2) Calculate the Opportunity cost for Broccoli
3) Calculate the Opportunity cost for Pizzas
4) Calculate the opportunity cost at point 2 if we want
to produce the production point 5
 Answer

80
100 – 80 =20
 Calculate OC for Broccoli
• Different between point axis Y and X
Y 5
= = 0.25
X 20
Calculate the OC for Pizzas

X 20

Y
= 5
= 4

0.25 Broccoli = 4 Pizzas will given up

 Calculate the opportunity cost at point 2 if we
want to produce the production to point 5

i) Broccoli = point 5 (20) – Point 2 (5)

Y = 20 – 5 = 15
ii) Pizzas = Point 5 (20) – Point 2 (80)
X = -60
Broccoli = y/X =
Pizza = X/Y=
 Problem 2
PIZZA BULLDOZERS

200 0

160 20

120 40

80 60

40 80

0 100

1. Draw the production possibilities frontier

curve from the table above
2. Calculate the opportunity cost for one pizza
3. Calculate the opportunity cost for one
Bulldozers
 Problem 3
ROBOTS PIZZAS
(in,000) (in ,000,000)
A 10 0
B 9 1
C 7 2
D 4 3
E 0 4

The table above shows the number of robots that will process the
pizza in a certain time and quantity produced.
1.Draw the production possibilities frontier curve from the table
above
2.Calculate the opportunity cost of producing 3,000,000 pizzas
3.How many pizzas can be produced if the point D increases to
point C and B.
 Problem 4
POINT QUANTITY OUANTITY OPPORTUNITY
OF OF LINEAN COST
PILLOWS SHEET

A 50 0

B 47 1

C 42 2

D 35 3

E 20 4

F 0 5

There are two products are shown in the table above. It shows
the total quantity of production of pillows and how many Linen
Sheet can be produced.
1.Calculate the opportunity point A to point F
2.Draw the PPC based on the products above.
3.What happen if the supplier want to produce from point B to E
 Problem 5
• Assume that you have 16 hours in a day to decide whether
you will work or play. The most amount of time you can
spend working in a day is only 16 hours.
1. Draw the PPC to determine the opportunity cost will giving up
?
2. If you have 12 hours to work how many hours time to play?
3. Calculate the opportunity cost if you work 10 hours until 16
hours. What amount of time to play was given up ?