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 ✍🏾

evaluation covers %
quiz everyday, best of 10 20
midterm exam first 7 meetings 40
final exam last 7 meetings 40
  • 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.

  • 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

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