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Ekonomi Bisnis dan Manajerial 1.Mengetahui ruang lingkup mata kuliah ini 2. Mengetahui lingkungan ekonomi di dalam mana bisnis dilakukan.

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Presentation on theme: "Ekonomi Bisnis dan Manajerial 1.Mengetahui ruang lingkup mata kuliah ini 2. Mengetahui lingkungan ekonomi di dalam mana bisnis dilakukan."— Presentation transcript:

1 Ekonomi Bisnis dan Manajerial 1.Mengetahui ruang lingkup mata kuliah ini 2. Mengetahui lingkungan ekonomi di dalam mana bisnis dilakukan

2 What is MICROECONOMICS? MICRO: –study of economic behavior of (relatively) "small" units, e.g., workers, firms Versus MACRO: –study of economy as a whole, –aggregate actor behavior Remarkable consensus on micro's underlying principles –"laws" and tools of analysis, but vast differences in terms of what to do with the analysis. Micro inherently conservative (?!).

3 Role of Theory Microeconomic theory evolved gradually –1700s & late 1800s. –Marshall’s famous "scissors" –Few changes to core of micro theory in many decades. "Theory provides means or framework for explaining complex reality” –Simplifies/abstracts from reality –Need not fully or precisely describe reality Basic Supply and Demand Curves Price Quantity S D

4 Role of Theory Best test of 'good' theory? –Whether it explains/predicts what it's designed to, NOT whether its assumptions are correct or reflect reality CAVEAT: –Many controversies & issues here –Can have seemingly good theory, but as result of non-modeled events or other supporting circumstances, lousy results

5 Positive v. Normative Analysis Economists & others often called on to assess best policy approach. –Positive analysis — "WHAT IS“ –Normative analysis — "WHAT SHOULD BE" Important Distinction –Much of micro in realm of positive analysis, dealing w/propositions that can be tested in terms of underlying logic (qualitative analysis) & empirical evidence (quantitative analysis)

6 Positive v. Normative Analysis Qualitatively determining expected effects of particular policy, based on micro theory –Likely effects on employment, production, prices Quantitatively determining size of actual effects of particular policy. –Stats./econometrics & statistical significance Then, go further (Steps 1 & 2). Use value judgments to decide whether or not such effects are desired — realm of normative analysis. Economists no better than anyone else at making these …

7 Value Judgments "When analysis comes in conflict with [strongly held] values, values trump analysis every time." Theda Skocpol (1997 Harvard) on 'welfare devolution’ Continuing debate on the ‘success’ of welfare reform in U.S. CEA, Bill Clinton, Al From, Bush, others: Was it policy or the economy & how much of each? J. Bishop’s 1998 & R. Blank’s 2002 analysis of impacts v. CEA’s

8 Welfare Reform’s ‘Success’? Consider Blank (2002)—

9 Why POLITICAL ECONOMY? Why not just microeconomics taught by UT’s econ tribe? –Cheaper, easier? Why not? –For starters, check out stark contrast in treatments by B&Z, Kuttner, Blank & McGurn … QUESTIONS –Do “free markets” exist? Yes & No. So what? –What share of GDP produced & sold in “free markets”?

10 Considerations Influence of laws, institutions & “rules of the game” Effects of power & influence on market outcomes Issues surrounding “one-man/one vote,” “one-dollar/one-vote” –The Endowment Issue Effects of policies & policy shifts on markets & on market outcomes

11 Considerations Question: How deterministic is market analysis? Question: Is there ‘play’ in markets? If so, how much? –2001 Austin Equity Comm. & “living wage” issue; see J. Siedlecki piece, LBJ Journal (Spring/Summer 2005 – Link to article)Link to article Question: Do markets sometimes fail and, if so, whats’ to be done about it?

12 The Imperial Market Considerable “market worship” Not just among economists, but policymakers of almost all stripes (Kuttner, ch. 2) Theory of Second Best i.e., where markets have multiple ‘distortions,’ removing one to create purer market won’t necessarily improve overall outcomes.

13 Market Analysis: Terms & Concepts Market defined as — " Area” where potential buyers & sellers of a good/service interact "interplay of all potential buyers & sellers involved in” Prices (to economists) Relative (or real) prices, i.e., price relative to prices of all other goods/services at point in time. Issue more one of dynamics, change over time...

14 Market Analysis: Key Actors Buyers/consumers –Theoretical abstraction largely ignores important market intermediaries, e.g., unions, trade associations. ‘Lost’ tribe of economists who emphasize institutions & their effects within a market economy. –Pure market analysis insufficient, per se Galbraith Marshall

15 Market Analysis: Time Time One of more important dimensions of market analysis S & D responses can & do vary enormously over the short- and longer-term!

16 Behavioral Assumptions Critical foundation for what follows: 1.Self-interested behavior actors pursue own goals & objectives 2.Rational behavior actors weigh choices & actions and act deliberately 3.Scarce resources or, as a famous (non-practicing) economist put it, "you can't always get what you want!” Note: 1 + 2 => generally prefer more to less

17 Behavioral Assumptions THUS, Actors must choose among available options, pursuing desires rationally with limited resources or "Actors make choices subject to a resource constraint"

18 Production Possibilities Frontier All possible combinations of goods/services a rational actor can attain with fixed resources Technology [What does this mean?] Illustrate with 2 choices Say... research reports, R, and research proposals, P Might also view as Present v. Future

19 PPF Research Reports (present) Research Proposals (future) Production Possibilities Curve

20 PPF Production Possibilities Curve Research Reports (present) Research Proposals (future) A

21 PPF Production Possibilities Curve Research Reports (present) Research Proposals (future) A B

22 PPF Production Possibilities Curve Research Reports (present) Research Proposals (future) A B C

23 PPF Production Possibilities Curve Research Reports (present) Research Proposals (future) A B C D

24 PPF Opportunity Cost: Amount of one good that must be foregone to produce added unit of another PPF slope Marginal Rate of Transformation, MRT Defined as: ∆R / ∆P Think "rise over run”

25 PPF Questions Q1: Why is PPF concave? A1: Efficiency of resource use dictates that as shift resources to producing more of one, less of another, become less efficient in doing so. Q2: Which goods combination = BEST? A2: Don't know (yet)! Depends on "preferences" which we'll get to shortly.

26 PPF Questions … Q3: Why not either devote more resources to production or improve technology to attain greater amounts of BOTH goods? A3: Can't! In the short run, resources & technology are both FIXED.

27 Opportunity Cost Economic or opportunity cost of given action or choice comprised of both: –EXPLICIT (or accounting) Cost defined typically in terms of monetary costs; –IMPLICIT (or non-monetary) Cost imputed value of alternative use of resources “Value of resource in its best alternative use", includes both explicit (monetary) and implicit (or non-monetary) costs –Key concept in micro & policy analysis –Numerous applications, e.g., benefit/cost analysis

28 Discussion Significance of accounting v. economic costs, in terms of: –Education & career choices? –The environment? –Welfare reform and related interventions? What of "sunk costs"? –Already incurred, can't recoup. So, forget them.

29 Demand Schedules & Curves Demand –Schedule of prices & associated quantities of goods/services consumers willing & able to purchase. Demand Schedule, for example: –Functionally Q 1 = a + bP 1 PricesQuantities $72 $63 $54 Etc...

30 Demand Schedules & Curves Law of Demand –The lower the price of a good or service, the larger the quantity consumers wish to purchase (demand), ceteris paribus. Law of D —> negative slope for D curve! NOTE TERMS! Distinguish carefully between: –∆Qd (movement along) versus –∆ in D, a shift in D Curve –Ceteris paribus — tastes, incomes, prices of other goods. E.g. iPods...

31 Demand Schedules & Curves Price Quantity D1D1 Demand for iPods

32 Demand Schedules & Curves Price Quantity D1D1 Demand for iPods D2D2

33 Demand Depends On... Incomes: Response depends very much on TYPE of good/service! –If “normal” good, increase in average household income, Y With P unchanged, leads to increased consumption of iPods That is, demand shifts from D 1 to D 2 –If "inferior" good, increase in Y With P unchanged, leads to decreased iPod consumption, again a demand shift.

34 Inferior Goods? Inferior goods: –Spam –Texas wines –Hamburger –Others? *Most goods = Normal*

35 Demand Depends On... Prices of Other Goods –Depends very much on WHICH other goods! Examples... –CD Prices? Sharp drop in P of CDs leads to increased consumption of CD players A shift out in demand, from D 1 to D 2. Complements in consumption, I.e., their consumption "goes together"...

36 Demand Depends On... Prices of Other Goods another example –VCRs? Sharp drop in P of DVD players leads to decreased consumption of VCRs a shift in demand from D 2 to D 1. Substitutes in consumption, alternatives for meeting same needs... “Either/or” goods.

37 Demand Depends On... Tastes & Preferences –Can deal with these any number of ways: Consider introduction of new alternatives –growth of live music venues, DATs & DAT players, iPods, "retro" (vinyl) movement –E.g., the Wine Industry

38 Supply Schedules & Curves SUPPLY, the producer side of the market: –schedule of prices & associated quantities producers willing & able to produce & sell at point in time. LAW of SUPPLY: –Higher the price, the larger the quantity producers will want to produce (supply) at any point in time, cet. par. So, positive slope! P as "reward for production": –As more produced, per-unit opportunity cost of production tends to increase. Higher Ps needed to elicit greater Qs. Ceteris paribus: –Technology/production techniques, input factor prices/availability generally. Try same e.g., iPods...

39 Supply Schedules & Curves Quantity S1S1 Supply of iPods Price

40 Supply Schedules Consider: Technology of Production –Intro of new, more efficient production techniques (e.g. HPWO) allows producers to produce more at every P. So, supply shifts out from S 1 to S 2 Input Supply Conditions –Increase in labor costs—one NOT offset by productivity increases—leads to reduced supply, a shift from S 2 to S 1.

41 Supply Schedules & Curves Quantity S1S1 Supply of iPods S2S2 Price

42 Market Equilibrium, Disequilibrium Equilibrium P & Q —> no forces acting to make them different! –Static, not really dynamic. Example? –Try the market for Applied Microeconomics textbooks...

43 Market Equilibrium Price Quantity S D Applied Microeconomics Textbook Market

44 Market Equilibrium Applied Microeconomics Textbook Market Quantity S D P e $125 QeQe Price

45 Market Equilibrium Applied Microeconomics Textbook Market Quantity S D P e $125 QeQe Price Surplus P 1 $200 Q1Q1 Q2Q2

46 Market Equilibrium Applied Microeconomics Textbook Market Quantity S D P e $125 QeQe Price P 1 $200 Shortage Surplus P 2 $75 Q1Q1 Q2Q2

47 Government Interventions... NYC rent controls, minimum wage hikes (1977-81, 1989, 1995) –classic illustrations of impact of market interventions –wage/price controls (1971-74) Q: Are such interventions “bad”? –Maybe, if you're a market worshiper Otherwise, depends upon your values & other non-market considerations... Some adverse market & non-market responses— –Non-price rationing –Quality deterioration –Black markets


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