Economics

BE4158

First meeting

IBE at Petra

Krisna Gupta
Monday, February $8^{th}$ 2021

Today’s content ☀

• housekeeping
• about studying economics
• some main principles

Who am I? 👀

• A PhD student of Economics at Crawford School of Public Policy, Australian National University (ANU).

• Research about trade and industry, in particular how trade and investment policy shape Indonesian manufacturing industry.

• Ocassionally writes in online portals and personal blog

• An ocassional gamer, campsite musician and sometimes tweet.

About the content of BE4158 📚

• This course is based on Krugman and Wells (2016).
• covered are principle of microeconomics:
  • Supply and demand
  • the market and its limitation
  • strategic thinking
• and macroeconomics:
  • GDP, inflation, unemployment, the government
  • What does it mean for business
• The content is very similar with Mankiw (2009) available at your library.
• books can be useful but are not required.

Some expectations from student

• No prior knowledge is required.
• Please be active and ask questions.
• Good internet connection is assumed.
• Good english is assumed and expected to be used thoroughly.
• No cheating! Especially during exams.

Some rules

• The lectures will be about 1.5 - 2 hours length.
• I expect all students to pay attention.
  • I would greatly appreciate you turning on your cams.
• There will be a small quizzes in the middle of each class.
  • make sure you pay attention.
• You are welcome to go off cam and AFK at any time you like.
• Feel free to interrupt my class with questions.
  • alternatively, you can use chat if you are shy, or ask me later thru e-mail.

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 12: 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

Exams etc ✍🏾

• Only your best 10 will be used for graded quiz out of 14 meetings.
  • the quiz will be given by the end of every lecture.
• A bit of an intern quiz in the middle of each meeting, ungraded.
• Slides should be enough to get a good grade.
• However, to get an A, you should master the principle.

Some tools

• All course materials are accessible through lentera and google classroom in pdf.
• All announcement will be posted on lentera and google classroom.
  • I believe it will patch through your Petra e-mail as well.
  • Feel free to let me know what’s best for your learning.
• The course is also available at my website, s.id/econ101.
  • It is in html format so you don’t have to download.
  • Also can be viewed on your phone.
• I will update the course on a weekly basis.

Some tools

• The mid-lecture pop quiz (ungraded) will be conducted via poll everywhere.

  • Please prepare a tab in your browser to pollev.com/imedkrisna007
  • You can also use your smartphone’s browser.

• The tool for the end-lecture quiz (graded) is still being explored.

  • we will test quizizz by the end of today’s lecture.
  • We can also use google form.
  • You are free to let me know your preference.

Questions?

A bit about you

A bit about you

Now let’s appoint a class rep!

• for now, class rep’s responsibility is to just administering attendance.
• any student is allowed to contact me directly.

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

• How to best tackle climate change?
• Is minimum wage good?
• Should we introduce tax holiday to firms?
• Should the government increase expenditure by more tax or more debt?
• Should we introduce Universal Basic Income?
• How to evaluate government program?
• 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.

About your learning

• To get a glimpse of what economists usually do, you can take a look at my blog. examples:

  • Consumption-saving decision
  • how to set the price on toll road
  • FDI, trade and industry policy (in Indonesian)

• Questions you might be interested in:

  • should I expand to other market or continue serving my niche?
  • Should I outsource or make our own?
  • Recruit fresh grads or train high school graduates?
  • Update current system or adapt new system?

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.

Pop quiz

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 ?
  • 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 price.
• 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.

Testing Graded quiz

Housekeeping!

• Joy is the class rep.
• We’ll use Zoom over Google Meet.
• Quizizz is used for everyday lecture.
• what else?

Next week: Supply and demand