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8/4/2019 Emg 102-3 Ecn Lecture-1
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Economics: EMG 102 3
Thusitha Kumara
thusitha@uwu.ac.lk, kumaratph@yahoo.com
Recommended Texts:
Begg, D., S. Fischer and R. Dornbusch, Economics(2003), McGraw Hill
Salvatore, D. and E. Diulio, (2003), Principles of
Economics, Schaums easy outlines, McGraw Hill
ECN
mailto:thusitha@uwu.ac.lkmailto:kumaratph@yahoo.commailto:kumaratph@yahoo.commailto:thusitha@uwu.ac.lk8/4/2019 Emg 102-3 Ecn Lecture-1
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What is Economics
Concepts: Scarcity, Choice, incentives,
opportunity cost, ceteris paribus, Utility,
goods, production factors
Production Possibility Frontiers
Market Systems
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Demand & Supply
Demand and Supply laws, functions,
schedules
Demand & Supply curves and
movements of curves (changes of
demand and supply quantities and
prices)
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Equilibrium
Demand and Supply together
Marginal benefits and marginal costs
Consumer surplus and producer surplus Effects of the changes of demand and
supply
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Elasticity & Efficiency
Response of the demand and supply to
the change of own price, prices of
substitutes and income
Effects of price ceilings/ floor prices,
taxation and externalities
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Production
Production and cost of production
Functions of production, cost and profit
TP,AP and MP TC,AC and MC
TR, AR and MR
Short run and long run profit maximization
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Market Structures
Perfect Competition
Monopoly
Introduction to monopolistic competitionand oligopoly
Optimum level of output & welfare
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Introduction to National Accounting
National output and measurements
Approaches of output, income andexpenditure
Components of GDP, GNP
Per capita GDP and its importance
GDP deflator
Business Cycles
Shortcomings of national accounting
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Aggregate Demand, Supply &
External Trade
Aggregate Demand
Budget deficit and fiscal policy
National debt External trade, balance of payments
Exchange rates
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Money, Banking & inflation
Money, functions of money, money
multiplier
Money market
Banking institutions
Inflation
Interest rates Employment and unemployment
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Introduction to Sri Lankan
Economics
Composition of national economy
Structural changes
Major policy changes
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Assessment
End Semester Exam 40 %
Written assignments 20 % for each
Quizzes of 20 %
Workshops/presentations 20 %
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Introduction to Economics
Definitions on what is Economics?
Some concepts
Production Possibility Frontiers (PPFs) Market Systems
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What is Economics?
The science of dealing with the problemof scarcity
Studies on how people make choices
A formal definition Is the study of how society decides what,
how and for whom to produce (fundamentaleconomic problems)
A social science, which deals with theeconomic behavior of the human beings
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Scarcity
Unlimited wants and needs, limitedresources Wants: all the things that individual would
consume if they had unlimited income andno time constraint
Needs: things that are needed just tosurvive; food, shelter, medicine and cloth
This leads to scarcity and choices ofbasic economic problems
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Resources
Land, Labour, Capital, Entrepreneurship
Land: any natural resource
Labour: in terms of quality and quantity
Capital: physical and financial
Entrepreneurship: special type of skilled
labour
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Some Concepts
Opportunity cost The opportunity cost of any action is the next best alternative
forgone because of choosing the given action
Not all the alternative, only the value of next best alternative
Comparative advantage This is related with opportunity cost
One has comparative advantage if (s)he has the lowestopportunity cost
This is a relative concept
Production Possibility Frontiers (PPFs) Shows the maximum number of alternative combinations of
goods and services that the society can produce in a giventime
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PPFs
Shows the maximum number of alternativecombinations of goods and services that thesociety can produce in a given time
Three main assumptions1. Quantity of available productive resources is fixed2. Factors of production are fully employed
3. Technology is fixed
Moreover Time is given
Only two goods and services are produced
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PPF
* G
* H
D
Tea (kgs)
Garment (nos)0
5000
10000
15000
20000
25000
1000 2000 3000 4000 5000
A BC
E
F
PPF
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PPF & Opportunity Cost
D
Tea (kgs)
Garment (nos)0
5000
10000
15000
20000
25000
1000 2000 3000 4000 5000
A BC
E
F
PPF
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Economic Systems
A set of scarce resources, a population
and a social mechanism for resource
allocation among competing end users
Market based system
Centrally planned system
Mixed
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Market Based System
How the appropriate good is distributedat the right place in the correct quantity
Price
Price Transmits Information among consumers
and producers
Gives incentives Determines who gets how much
Market fails in some occasions
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Market Failures
When there is no competition People of the same trade seldom meet together but the
conversation ends in a conspiracy against the public or insome diversion to raise prices, Wealth of Nations (1776),
Adams Smith
Gas market in Sri Lanka
To supply public goods and services
ExternalitiesMissing markets
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Centrally Planned System
Central planner decides what, how and
for whom to produce
Former Soviet Union countries
But in Reality..mixed
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Non Market Institutions
State with market failures
Property rights
Consumer societies (force groups)etc.
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We Discussed
What is Economics?
Concepts of scarcity, opportunity cost,
comparative advantage
PPFs
Market systems
Recommended