Ilmu Ekonomi

Pertemuan 1

Prodi PIWAR Politeknik APP Jakarta

Today’s content ☀

• housekeeping
• about studying economics
• some main principles

About the content of PIR2317 📚

• This course is based on Krugman and Wells (2016).
• covered are principle of microeconomics:
  • Supply and demand
  • the market and its limitation
• and macroeconomics:
  • GDP, inflation, unemployment, the government
  • What does it mean for business
• books can be useful but are not required.

Your convenors

• The course conveners are I Made Krisna (Imed) & Intan Vierke.

• Contact us anytime but we may have delayed responses. Alternatively just show up to our offices.

Some expectations from student

• No prior knowledge is required.
  • We do expect you to understand Cartesian Plane.
• Please be active and ask questions.
• Do your assignments & be active.
• No cheating! Especially during exams.
• Please enrol to 2024_ilmu_ekonomi at e-learn.

Some rules

• The lectures will be about 1.5 - 2 hours length.
• I expect all students to pay attention.
• Feel free to interrupt my class with questions.
• email me at imade.krisna@poltekapp.ac.id
  
• Typical length of course is $$120 mins

Structure of this course

• week 1: introduction
  • housekeeping
  • some principles
• week 2: supply and demand
  • supply and demand curves
  • perfect market equilibrium
• week 3: Meddling with the market
  • tax and quantity control
  • price elasticity
• week 4: firm problem
  • production function
  • marginal cost and average cost
  • perfect competition

Structure of this course

• week 5: Monopoly & oligopoly
  • price discrimination
  • game theory intro
• week 6: Externalities & public goods
  • deviation from perfect market
  • policies that work
• week 7: Welfare
  • Poverty & inequality
  • firms under different welfare setting

*** MIDTERM EXAM ***

Structure of this course

• week 8: Macro basics
  • accounting and growth
  • inflation and international imbalances
• week 9: GDP, inflation and unemployment
  • Measuring economy and price
  • unemployment
• week 10: Long run growth
  • Dynamics of economic growth
  • Aggregate demand and supply
• week 11: Fiscal policy
  • demand shock
  • the state budget

Structure of this course

• week 12: Financial system
  • Banks and money
  • The central bank
• week 13: Monetary policy
  • interest rate
  • central bank instruments
• week 14: international economies
  • trade policy
  • international capital and exchange rate

Evaluation ✍🏾

evaluation	covers	%
Group assignment	contextual	40
midterm exam	first 7 meetings	30
final exam	all meetings	30

• Slides should be enough to get a good grade.
• However, to get an A, you should master the principle.
  • The more logic you use, the less memory you’re going to need.

Assignment

• You’re divided into 7 groups! (you should already have a group by next week!)
• each group writes a paper (makalah) & a presentation slide.
• During a group’s presentation, others ask questions (at least 1 per group)
• Presentation will begin in week 4.
• I will randomize which groups do what.

Assignments

group	Topic	coverage	meeting
1	Elasticity & tax	demand of cigarettes & the effectiveness of excise	4
2	Oligopoly	Analyzing the market dynamics of matic scooter	7
3	Inflation	what is inflation, how’s it measured, and its dynamics	9
4	Economic growth	Compare Indonesia vs China vs South Korea growth from 1960-recent	10
5	Financial system	Describe what is money, what is digital money, and difference between conventional system vs sharia	11
6	International trade	Analyze beef import quota, the good, the bad	13
7	International finance	1998 financial crisis: how it started & ended	14

About economics

Why economics?

• Contrary to what normal people think, economics is not about (just) money.
• Economics is all about making optimal decision under scarcity.
• We use math principle to optimise our decision making.
• This course is not going to dig too deep into the world of economic principles.
• This course does not provide answers to your question: It teach how to use economic framework to shape your question.

Some questions asked by economists

• Is minimum wage good?
• Should we introduce tax holiday to firms?
• Should the government increase expenditure by more tax or more debt?
• Should we ban mineral export?
• can we sustain economic growth?
• what to do during economic crisis?

More questions can be answered with (partially) economic principles

• lockdown or not lockdown?
• Should we invest in testing and tracing? or should we invest in treatment?
• Who to vaccine first: the elderly and vulnerables, or the working age?
• Should we trust BUMN, or private sector?
• essentially, it’s about tradeoffs, cost and benefit.

Principles of Economics 💰

People make choices

because resources are scarce

• resource can be anything you use to produce.

• Money is the most mainstream limited resource.

  • Buy only one holiday package.
  • Buy only one portion of nasi goreng.

• But there are other resources worth noting.

  • There’s only one holiday season in a year.
  • Two nasi gorengs would be too much for my stomach.

The true cost of something is its opportunity cost

• money is just one type of cost.
• The true cost of taking a holiday to Hong Kong is going somewhere else.
• Your holiday can be spent on learning new stuff.
• What is the cost of doing your degree?
  • Going straight to work and get experiences.
  • Doing other degrees (biology, chemistry, etc).
  • enjoy life.
• essentially, opportunity cost of something is something else you gave up to get it.

Thinking at the margin

• The principle of opportunity cost leads to a marginal thinking.
• Understand your status quo, and think what action you can do to add a little improvement from it.
• If you have two hours to study or play, how will you divide it?
  • what if there’s an exam tommorow?
  • If you are tired of studying, would you study more?

Specialisation and gains from trade

• During your daily time, you make decisions on allocating how much time to study and to cook, among other things.
• Since you will die if you don’t eat, you can’t allocate 0 hour to cook.
• On the other hand, there are those who are very good cook and will cook for you for a little money.
• In this case, it may be better if you spend 0 hour to cook, and order food from these chefs.
• Trade is the reason why I can study economics: I don’t have to study how to be a doctor. I will just go to the hospital if I need a medical service.

Specialisation and gains from trade

• Extending to firm level, many outsource part of their business from a third party.
  • buying office probably better than developing our own softwares.
  • why make our own server if we can use AWS?
  • Use tokopedia instead of making your own e-store.
• We can easily extend this to a country level:
  • Japan makes car because they cannot plant palm oil.

Incentives matter

• People move to cities because there are more opportunities there.
• People will buy cheaper products given the same quality.
• incentives are not always about money:
  • You study more on the subjects you like.

“ada gula ada semut”

Market and intervention

• often times, market incentives are enough.
• However, intervention is often used.
  • education is an example where government intervene heavily.
  • Gojek used subsidy to incentivies drivers and users.
• Intervention may be temporary.
  • The COVID-19 relieve bill (PEN) will likely stop after the pandemic.
  • Gojek’s subsidy is removed once they reach economies of scale.

Things tend to move to equilibrium

• When there is an incentive to do something, there will be more and more people exploit it.
• As more people do it, the incentive decreases to a point where it is not worth it anymore.
• examples:
  • City becomes more crowded (and costly to live in).
  • Stock price stops growing few moments after its IPO.
  • Countries’ economic growth reduced after they get rich.
• Movement towards equilibrium, however, varies.
  • short run vs long run.
  • individual vs aggregate.

Conclusion

• We will see how these principles come up again and again as we delve deeper into the course.
• The principle will be carried over to your overall degree, and life in general.
• I am not trying to make you an economist, but the principles are very useful.

Next week: Supply and demand