Lecture Notes
Thursday, 6 October, 2022 3:27 PM
Week 1
What do Economists Study?
- "SCARCITY"
○ Unlimited wants, limited resources
○ Labour
- Two areas:
○ Microeconomics
Looking at individual economics (personal level, businesses level)
What, how, for whom to product?
Choice and opportunity costs (making choices)
□ Rational choices, marginal costs, marginal benefits
Choices and the firm
□ The firm's objectives
□ Market structure of the firm
○ Macroeconomics
Looking at a bigger picture, nation, countries, politics (international level)
Aggregate demand and supply
Policy and business
□ Demand side policy (encourage spending)
□ Supply side policy (cut taxes to encourage production)
Week 2
Control power
Competition (Are you the only supplier of this product/service)
To decide the price and quantity:
Looking at the goal of the firm: maximise profit, stock value
Internal vs external factors
External factors:
- Political factors: consumer purchase index (cpi), inflation
- Sociocultural factors
- Technology factors: advanced tech
- Environmental factors
- Ethical: sustainability, CSR
- Legal
Industrial Revolution 5.0
- Integrating AI and manufacturing process to create sustainability and production efficiency (HCPS), intelligent
manufacturing
The nature of firms: Production & Management
"The principal-agent relationship"
- There shouldn't be any conflict in interest when the agent makes decisions on behalf of the principal
- Conflict in interests happened when there is imperfect information
Firm as a legal entity - "company"
Types of business organisation
Organisational chart
U-form business organisation
○ Flat
○ Miscommunications between departments
M-form business organisation
○ Multi-divisions operating independently and autonomous
Week 3
BUSINESS AND MARKETS - WORKING OF COMPETITIVE MARKETS
Market price often subject to great fluctuations - supply and demand
Price Maker - able to decide the price (depends on the market power you hold)
Price Taker - a person or a firm has no control over price
Perfectly competitive market - the groups of producers and consumers are too numerous to decide on the price,
everyone is a price taker. Market without any intervention of external factors/parties.
Free market - everyone is free to make demand decisions. Firms are free to decide what to sell and the price,
consumers are free to decide what to buy with their income
price mechanism - price fluctuations due to shortages and surpluses. Shortages --> price increase, surpluses --> price
lowers [supply and demand]
Factor market vs good market
- Factor market
The market where the transactions between resources used to create goods and services happens
Economics for Management (LUBS 1940) Page 1
, ○ The market where the transactions between resources used to create goods and services happens
○ Demand in the good market rises, causes shortage in the factor market, prise rises, suppliers of inputs
supply more
- Good market
○ Transactions between the products of goods and markets
○ Demand for goods rises, shortage, price rise, encourage firms to produce more
Demand curve
- Relationship between quantity of the good demanded and the price of the good (x-axis = Quantity of demand,
y-axis = price)
- Only include market demand, not individual demand
- Only quantity demanded changes, not the actual stuff demanded
Determinants of demand
- Tastes of consumers
- Number and price of alternative (substitute) goods
- Number and price of complementary goods (goods that were to be consumed tgt)
- Income
- Distribution of income (micro-level)
- Expectations of future price changes
Market clearing - a market clears when there is no shortage or surplus (supply = demand)
Supply Curve
- Upward slope (positive relationship), relationship between supply quantity and price (x-axis = supply, y-axis =
price)
- Supply increases when price increase (eg. If more ppl willing to buy at a higher price, supply for that good will
increase)
Determinants of supply
- Costs of production
- Profitability of alternative products
- Profitability of goods in joint supply
- Nature and other random shocks (unexpected factors, eg. weathers)
- Aim of producers
- Expectations of producers
Lecture
Example: House rent increases as the demand increases
How to set the price in a perfectly competitive market - go to the market and look at the prices offered
The price mechanism
Price of a good too low --> no suppliers want to sell --> more demand --> price rises --> supply increases --> demand
decreases and reached an equilibrium
Law of demand --> demand curve
- Income effect
- Substitution effect
Controls in the market (factors that affect the price mechanism, some controls make the mechanism doesn’t work
anymore)
- Minimum prices (price being controlled, eg. By government), price is binding, and market cannot reach an
equilibrium
Scenario 1 (price control):
Economics for Management (LUBS 1940) Page 2
