BASIC TERMS AND CONTEXT OF ECONOMICS LESSON I Dr. Ingrid Majerova Microeconomics/EVS/NAMIB FIRST… BASIC INFORMATIONS Name: Michal Tvrdoň Office: A 403 E-mail: tvrdon@opf.slu.cz Consulting hours: Info: my public Moodle 1. 1. 1. SYLLABUS 1. 1. Introduction into Economics 2. Market, Demand and Supply 3. Consumer´s Behavior Theory – the Introduction 4. Consumer´s Equilibrium, Demand Analysis 5. Firm’s Production Function 6. The Costs Analysis 7. Firm´s Revenues, Profit Maximization Rule 8. Perfect Competition Firm Equilibrium 9. Imperfect Competition, Monopoly´s Equilibrium 10. Oligopoly 11. Monopolistic Competition 12. The Input Market and its Characteristics 13. The Labor Market 14. The Capital Market 15. 15. 1. MARKET OUTLINE OF THE LECTURE 1.What is Economics? 2. 2. Two Branches and Kinds of Economics … 3. 3. Factors of Production … 4. 4. Returns of Scale…. 5. 5. Models in Economics … 6. 6. 1. GENERAL ECONOMIC THEORY WHAT IS ECONOMICS … •Introduction to the study of economic disciplines is a general economic theory • −deals with the regularities of society´s economic life, −describes abstract mechanisms of their functioning that help to understand the logic of real economic processes. − •Economics therefore examines how scarce resources are used to produce commodities • ECONOMICS IS SCIENCE, ECONOMY IS REALITY • MICROECONOMICS Microeconomics deals with behavior of individual units: A) when consuming B) when producing Microeconomics and Optimal Trade-offs 1. Consumer Theory 2. Workers 3. Theory of the Firm Microeconomics and Prices –The role of prices in a market economy –How prices are determined • MICROECONOMIC ANALYSIS Microeconomics deals with behavior of individual units: A) when consuming B) when producing Microeconomics and Optimal Trade-offs 1. Consumer Theory 2. Workers 3. Theory of the Firm Microeconomics and Prices –The role of prices in a market economy –How prices are determined • GENERAL ECONOMIC THEORY TWO BRANCHES OF ECONOMICS •Mathematical branch - asserts that the criterion of truthfulness is the possibility of mathematical proof: PROFIT = ... − •Social branch - rejects mathematics in economics, economics is a science of human behavior and production UNABLE TO WRITE INTO FORMULAS…. • • POSITIVE AND NORMATIVE ECONOMICS TWO ECONOMICS •Positive economics - accepts the economic reality as it is. Its aim is to describe this reality and find in it regularities of the functioning: • AN INFLATION RATE IS 1 %. •Normative economics - exploring of reality is just the starting point. It evaluates the established facts and evaluates them usually critically. The aim of normative economics is to construct a prototype of more perfect economic system, play an active role in the development of human society. • OPTIMAL GROWHT OF REAL GDP SHOUL BE 3% . MICROECONOMICS AND MACROECONOMICS TWO ECONOMICS •Economics is divided into: –Microeconomics - examines the behavior of individual economic entities (households, firms and state) and development of individual markets PRICES ON MOBILE PHONE MARKET • –Macroeconomics - deals with the economy as a whole (aggregate level) CHANGES OF AGGREGATE PRICE LEVEL (INFLATION) SOME IMPORTANT TERMS INPUTS AND OUTPUTS •Inputs - goods or services which are used by companies in manufacturing FLOUR • •Outputs - goods or services that are either consumed or used for further production SOME IMPORTANT TERMS ECONOMIC RARENESS •Economic goods - items that man needs or desires; goods are materials that satisfy human wants and provide utility •A common distinction is made between goods that are tangible property, and services, which are non-physical - Economic goods are characterized by their rarity • •All goods are characterized by two properties –usefulness (satisfies the needs) –availability (scarcity) • •Rare good - a subject that is useful, goods are limited, consumers are willing to pay for them, most of goods are rare • •Free good - a subject that is useful and also freely available (e.g. water, air) TYPES OF GOOD classification of goods according to their exclusivity and competitiveness •rivalrous or rival if its consumption by one consumer prevents simultaneous consumption by other consumers, or if consumption by one party reduces the ability of another party to consume it (TV) •A good is considered non-rivalrous or non-rival if, for any level of production, the cost of providing it to a marginal (additional) individual is zero, or in other words may be consumed by one consumer without preventing simultaneous consumption by others (e.g. Broadcast TV) SOME IMPORTANT TERMS PRODUCTION • Production - the process of transformation of natural resources (through factors of production) to economic goods that satisfy needs • • man must produce most of the goods from natural sources, which can be found in nature in limited or unlimited amount – but these resources by themselves are useless SOME IMPORTANT TERMS FACTORS OF PRODUCTION • In the production of economic goods human uses rare goods - Factors of Production - F: • •Land - A - is a product of nature, but it is not a free good. Land rent is a revenue from the land. Land is a part of natural resources. •PRIMARY PRODUCTION FACTOR • •Labor - L - is a human activity, the holder is human. The result of the use of labor is wage. •PRIMARY PRODUCTION FACTOR • •Capital - K - goods that were made to participate in the production of other goods. SOME IMPORTANT TERMS FACTORS OF PRODUCTION • Capital - is not made for immediate consumption, but to become a production factor. Capital can also be called capital goods. The result of using capital is profit or interest. • SECONDARY PRODUCTION FACTOR • •Technology - a special form of capital, which has no material form (thoughts, ideas, original approach). Can significantly multiply the effects of labor and capital. • •Income from the production factors have motivational character driving force of the economic system. SOME IMPORTANT TERMS RETURNS OF SCALE • High production efficiency is conditioned by high returns of production factors. • • • •The Law of Diminishing Returns - return of one factor, whose volume increases, will decrease. •Valid only assuming that output is increasing due to the growth of a one factor of production when volume of other factors is unchanged. • • SOME IMPORTANT TERMS THREE TYPES OF RETURNS OF SCALE •Increasing Returns of Scale - growth in the volume of used production factors leads to more rapid growth of revenues from them. • •Constant Returns of Scale - income from production factors increases proportionally with the growth of the scale of their involvement in the production. • •Diminishing Returns of Scale - revenue growth in factors of production is lower than the growth of these factors. • SOME IMPORTANT TERMS MODELS IN ECONOMICS •The economic relations are displayed by the models • •The economic model is a (non)formalized displaying of real functioning economy, whose main aim is to simplify the described economic system, keeping its essential characteristics. It can be formulated: –verbally, –graphically, –mathematically. SOME IMPORTANT TERMS ECONOMIC ANALYSIS SOME IMPORTANT TERMS ECONOMIC ANALYSIS •GRAPH •graphical representation of the function •alteration of function is expressed with slope • • • • • • • • • • •The slope of the linear function graph is expressed mathematically by first derivative SOME IMPORTANT TERMS ECONOMIC ANALYSIS •The derivative is changing of the dependent variable related to infinitely small change in the independent variable. • •Economics interprets the first derivative of the total variable function as its (total) marginal variable. • •Marginal value expresses increase in the dependent variable due to changes in the independent variable by one unit. • •We also determine the average value (the share of dependent variable per unit of the independent variable) THE END •THANK YOU FOR YOUR ATTENTION . . .