ECON2010 Business Economics Chapter 1 Introduction to Business Economics PDF

ECON2010 – Business Economics Chapter 1 Introduction to Business Economics ECON 2010 BUSINESS ECONOMICS Topic-1 Introduction to Business Economics 1 After studying this chapter, you will be able to: 1. Define, compare and contrast Microeconomics and Macroeconomics 2. Explain the ‘two big questions o...

ECON2010 – Business Economics Chapter 1 Introduction to Business Economics ECON 2010 BUSINESS ECONOMICS Topic-1 Introduction to Business Economics 1 After studying this chapter, you will be able to: 1. Define, compare and contrast Microeconomics and Macroeconomics 2. Explain the ‘two big questions of economics’ 3. Draw and Interpret graphs in economics © 2019 Pearson Education Ltd. 2 1 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics An Overview of Economics © 2019 Pearson Education Ltd. 3 Economics arises because... … we want more than we can get. … we can’t satisfy all our wants because of 'scarcity'. Scarcity means that all resources are limited (or scarce) For example: money, time, natural resources such as oil. © 2019 Pearson Education Ltd. 4 2 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Economics requires... That due to scarcity, we must make CHOICES. Our choices depend on incentives these choices give. An incentive is a reward that encourages an action or a penalty that discourages an action. © 2019 Pearson Education Ltd. 5 Can you give an example of “scarcity” that you face? © 2019 Pearson Education Ltd. 6 3 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics October 14, 2018 In an exclusive interview with Qatar Tribune, Katara Hospitality CEO Hamad Abdulla al Mulla said,"Qatar will have almost 60,000 hotel rooms ready much before the start of 2022 FIFA tournament. Besides this, up to 20,000 rooms in cruise ships will be available throughout the tournament. It will cover the minimum requirement of 80,000 rooms for the mega sporting event. All the hotel rooms will be delivered between 2019 and 2021." See next slide © 2019 Pearson Education Ltd. 7 November 10, 2022 The first of the three floating hotels has arrived in Qatar this morning. The cruise ship MSC World Europa docked at Old Doha Port. The 22-deck ship which is bespoke for the 22nd edition of tournament, will officially be inaugurated on Sunday, November 13. The Executive Director of the Housing Department at the Supreme Committee for Delivery & Legacy (SC), Omar Al Jaber stated: "This is the first voyage of the cruise ship as it was built for the World Cup, and it is considered the largest ship in MSC Company. The MSC World Europa can house 6,700 World Cup fans and is the first of three hotels to anchor in the country. It span is 47 metres wide with 2, 626 cabins and 40,000 square metres of public space. List the advantages and disadvantages of this “economic solution" to Qatar's “Scarcity” of Rooms for FIFA 2022. © 2019 Pearson Education Ltd. 8 4 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Definition of Economics Economics is the social science that studies the choices that individuals, businesses, governments, and entire societies make as they deal with scarcity, and the incentives that influence those choices. Economics divides in two main parts: § Microeconomics § Macroeconomics © 2019 Pearson Education Ltd. 9 Micro and Macro Economics Microeconomics - the study of choices that individuals and businesses make, the way those choices interact in markets, and the influence of governments. Example: Why are people buying more e-books and fewer hard copy books? Macroeconomics - the study of the performance of the national and global economies. Example: Why is inflation so low in Qatar? © 2019 Pearson Education Ltd. 10 5 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics The Two Big Questions of Economics © 2019 Pearson Education Ltd. 11 Two Big Economic Questions Two big questions summarize the scope of economics: 1. How do choices end up determining what, how, and for whom goods and services get produced? 2. When do choices made in the pursuit of self-interest also promote the social interest? © 2019 Pearson Education Ltd. 12 6 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Big Question 1 What, How, and For Whom? Let’s watch a short video explaining these basic questions. © 2019 Pearson Education Ltd. 13 © 2019 Pearson Education Ltd. 14 7 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Two Big Economic Questions: 1. What, How, and For Whom? What? Goods and services are the objects that people value and produce to satisfy human wants. Goods and services people want can change over time. As wants change, the goods and services produced also change 1. Should we produce electric cars or petrol cars? 2. Over the last 10 years has there been a change in goods produced by companies in Qatar? © 2019 Pearson Education Ltd. 15 Two Big Economic Questions: 1. What, How, and For Whom? How? Goods and services are produced by using productive resources that economists call factors of production. Factors of production are grouped into four categories: 1. Land 2. Labor 3. Capital 4. Entrepreneurship © 2019 Pearson Education Ltd. 16 8 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics A. Land (Factors of Production) In economics, the gifts of nature or natural resources that we use to produce goods and services are considered as land. Example: oil and gas, water, plants, animals © 2019 Pearson Education Ltd. 17 B. Labor (Factors of Production) The work time and work effort (physical and mental) that people use to produce goods and services is labor. © 2019 Pearson Education Ltd. 18 9 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics B. Labor (Factors of Production) The quality of labor depends on human capital – knowledge and skill that people get from education and experience. The Fig below is of the educational attainment of adults 25 years or older in the US. (Source: United States Census) © 2019 Pearson Education Ltd. 19 C. Capital (Factors of Production) The tools, instruments, machines, buildings, and other equipment that businesses use to produce goods and services are called capital. © 2019 Pearson Education Ltd. 20 10 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics D. Entrepreneurship (Factors of Production) The human resource that organizes land, labor, and capital is entrepreneurship. This is the resource that takes the risk of success or failure. © 2019 Pearson Education Ltd. 21 Two Big Economic Questions: 1. What, How, and For Whom? For Whom? Who gets the goods and services depends on the incomes that people earn. If you own: § § § § Land it earns rent Labor it earns wages Capital it earns interest Entrepreneurship it earns profit The people who earn income and have the ability to buy, are for whom goods are produced. © 2019 Pearson Education Ltd. 22 11 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Big Question 2 Can choices made in the pursuit of self-interest also promote the social interest? © 2019 Pearson Education Ltd. 23 2. Can choices made when pursuing your self-interest also promote social interest? Self-Interest is when people make choices based on what is best for them. Social Interest is when people make choices that are best for society. Social interest has two dimensions – efficiency and equity. These dimensions are important because resources are limited in every society. Economists ask, "Do all individual choices result in the best outcome for the entire society (social interest)?" There is no clear answer! © 2019 Pearson Education Ltd. 24 12 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Two Big Economic Questions: 2. Can choices made when pursuing your self-interest also promote social interest? Compare the self-interest and social interest for these: 1. Globalization: an iPad made in China lowers the cost and makes wages available to the workers who made it. 2. Information-Age Monopolies: Microsoft and Intel dominate the computer chip industry. Are they providing the best quality and price to consumers? 3. Climate Change: Increased production makes goods available but can harm the environment 4. Economic Instability: Personal loans allow people to buy homes, but high risk mortgages caused a global economic crisis of 2008. © 2019 Pearson Education Ltd. 25 Class Discussion The Problem of Plenty © 2019 Pearson Education Ltd. 26 13 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Class Discussion Scarcity is a problem but what about having plenty? The Problem of Plenty © 2019 Pearson Education Ltd. 27 Worksheet Activity Let’s complete In your worksheet complete questions: Page 38 – Questions 1 - 3 Page 43 – Questions 1 Page 47 – Questions 1 Theory Questions 1 & 2 © 2019 Pearson Education Ltd. 28 14 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Draw & Interpret Graphs in Economics © 2019 Pearson Education Ltd. 29 Graphing Data A graph reveals a relationship. A two-variable graph uses two perpendicular scale lines. The vertical line is the y-axis. The horizontal line is the xaxis. The zero point in common to both axes is the origin. © 2019 Pearson Education Ltd. 30 15 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Graphs used in Economic Models Graphs are used in economic models to show the relationship between variables. There are four patterns to look for in graphs: 1. Variables move in the same direction. 2. Variables move in opposite directions. 3. Variables have a maximum or a minimum. 4. Variables are unrelated. © 2019 Pearson Education Ltd. 31 Graphs used in Economic Models 1. Variables That Move in the Same Direction A relationship between two variables that move in the same direction is called a positive relationship or a direct relationship. A line that slopes upward shows a positive relationship. A relationship shown by a straight line is called a linear relationship. The three graphs on the next slide show positive relationships. © 2019 Pearson Education Ltd. 32 16 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Graphs used in Economic Models © 2019 Pearson Education Ltd. 33 Graphs used in Economic Models 2. Variables That Move in Opposite Directions A relationship between two variables that move in opposite directions is called a negative relationship or an inverse relationship. A line that slopes downward shows a negative relationship. The three graphs on the next slide show negative relationships. © 2019 Pearson Education Ltd. 34 17 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Graphs used in Economic Models © 2019 Pearson Education Ltd. 35 Graphs used in Economic Models 3. Variables That Have a Maximum or a Minimum The two graphs on the next slide show relationships that have a maximum and a minimum. These relationships are positive over part of their range and negative over the other part. © 2019 Pearson Education Ltd. 36 18 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Graphs used in Economic Models: Maximum & Minimum Relationships © 2019 Pearson Education Ltd. 37 Graphs used in Economic Models 4. Variables That are Unrelated Sometimes, we want to emphasize that two variables are unrelated (no relationship). The two graphs on the next slide show examples of variables that are unrelated. © 2019 Pearson Education Ltd. 38 19 ECON2010 – Business Economics Chapter 1 Introduction to Business Economics Graphs used in Economic Models © 2019 Pearson Education Ltd. 39 Graphing Relationships Between More Than Two Variables Ceteris Paribus Assumption – “All Else Being Equal” We plot the relationship between two variables, assuming all other variables are held at a constant value. Your Turn to Practice! Download and complete the document titled: ECON2010 - Graphing Practice Exercise © 2019 Pearson Education Ltd. 40 20