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Summary Introduction to Economics and Business
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Summary Introduction to Economics and BusinessLecture one: introduction…………………………………………………………….Blz.
1
- Opportunity costs
- Sunk costs
- Marginal analysis
Lecture two: trade and exchange…………………………………………………...Blz.
4
- Gross Domestic Product (GDP)
- Productions and Possibilities Frontier (PPF)
- Trade, comparative and absolute advantages
Lecture three: markets……………………………………………………………….Blz. 6
- Perfect markets (neoclassical economists)
- Demand and supply
Lecture four: the firm and global economy…………………………………….....Blz.
9
Lecture five: markets and information…………………………………………....Blz.
11
- Chapter one: Coase
- Chapter two: Neoclassical theory of the firm, paradox of profits
- Chapter four: Paradox of information
Hidden information and hidden action
Decision tree
Lecture six: information and game theory…………………………………….....Blz.
18
- Chapter five: Game theories (prisoner's dilemma, nash equilibrium, game tree, etc...)
Lecture seven: transaction costs economics………………………………….....Blz. 21
- Chapter nine: Transaction costs economics
Critical dimensions of transactions
Hybrid forms
Lecture eight: agency theory and corporate governance……………………...Blz. 27
- Chapter eight: Agency theory (agent and principal, monitoring and bonding)
On-the-job consumption
- Chapter fifteen: Corporate governance
Lecture nine: behavioural theory of the firm…………………………………….Blz.
32
- Chapter six: Behavioural theory of the firm
Prospect theory and expected utility theory
,Lecture ten: competitive and corporate strategy………………………………..Blz.
35
- Chapter ten: The SCP-paradigm
Cost leadership and product differentiation,
Dynamic capabilities
- Chapter eleven: Corporate strategies
Lecture eleven: hybrid forms, evolutionary approaches to organizations…..Blz. 40
Lecture Twelve: mergers, acquisitions and FDI……………………………..…Blz.
44
Introduction to Economics and Business: part one
Lecture 1: introduction
Economics: is about all (economic) interaction between individuals, organizations and
governments
- At its core: the study of how humans make decisions in the face of scarcity
- Scarcity: human wants for goods, services and resources exceed what is
available → there is no unlimited amount of a resource (time and money)
- Standard idea: about money
- In reality: economists think in opportunities, money is only used as a tool
- What happens in economics is affected by how well and how fast
information is spread through a society
- Resource allocation: the decisions people make with scarce resources
Economic problem:
‘What has to be produced?’
‘How should this be produced?’
‘Who will receive the produced goods and services?’
The answer is determined by prices, these show what is interesting to produce
- Our ‘wants’ are unlimited, but our ‘resources’ are not (scarcity)
- Problem is solved using prices: they determine what we do and how we do things
- Salary: price to which you sell yourself to companies
- Societies demand influences prices on the market → based on individual decisions
- Invisible hand: prices influence our opportunity costs and optimal choices
Influence of governments on the economy:
- Incentives influence behaviour through: prices, taxes, subsidies, bonuses (working
hard, but also: your boss thinks you are lazy), nudging
- Unintended consequences: people will find ways around rules
The problem of scarcity: in most cases, not enough money
1
, Choices because of scarcity → because of choices people will compete with each other → because
of competition there will be an optimal allocation of resources which again leads to efficiency
(and inequality)
Economic action: ask someone to do something and give them money for it
- Also: ask a friend to do something for you (for free)
- Assumption economic action: ask someone to do something for you so you can do
something else
Economic growth: interactions between individuals, organizations and governments grow
- Occurs when transactions increase in volume
- People make decisions based on their individual benefits and costs
- Not a very normal but new phenomenon
Changes that caused (the beginning of) economic growth:
- Property rights: when you own something it is yours, no one can take it away from you
- Before: if you had something it could be taken away, so why would you be
productive
for something that is not even yours
- When something is not yours you are not going to put the same effort in as
when something is/will be yours
Economic growth = caused by productivity growth
- Can produce more with less time or materials
- In the short-term: the economy can grow harder than productivity
- Capitalism (private property): reason of productivity growth, people have the right
to do whatever they want with their property
- Also because of: firms, markets, technology, specialization and efficiency
Division of labor: increase of production
- Division of labor: the way a good or service is produced is divided into several tasks
that are performed by different specialized workers
- Division and specialization of labor is a force against scarcity
Three reasons for the increased production:
1. Specialization: allows focus on a specific part of the production process
- Different people will have better skills and talents for specific tasks
- Advantage can be based on educational choices
2. Specialization allows for quicker and higher quality production
- Specialized workers know their jobs well enough to suggest innovative ways
to do their work faster and better
3. Specialization allows businesses to take advantages of economic scales
- When production increases, the cost of products will go down
Economics and choices:
2
, - The economy: the sum of all individual choices of people and organizations
- People make a trade-off between individual costs and benefits
- People will only invest in something if they think they are better of afterwards
- Governments use laws, rules and incentives to influence economic interaction
How do we make choices?
- In traditional economics: people act rational, they make optimizing/maximizing
choices
- Nowadays more attention for bounded rationality: we want to be fully rational, we
are just not able to
- Our brains do not have the capacity to calculate what the best choice is
- Cognitive biases: all biases that affect our thinking
Opportunity costs:
- Opportunity costs: the net value of your second choice (includes implicit costs)
- Net value: willingness to pay - explicit costs
- Explicit costs: what does it cost? → ‘real’ direct expenses, like drinks
- Implicit costs: what do I give up? → same as opportunity costs, benefit of next best
option
- Economic costs: implicit + explicit costs
- Economic rent: net value - economic costs (mirrored)
What would you have been doing otherwise (second choice): you miss out on utility you
would have gotten
- Relative prices: the real price of buying a product
Sunk costs:
- Sunk costs: costs that cannot be recovered (should not be taken into account in
decision making)
- Sunk costs fallacy: taking sunk costs into account in decision making
- Affect our emotions: we experience them as losses
- General rule: if something cannot be recovered, it should not be considered in
decision making (and the other way around)
Marginal analysis: the process of breaking down a decision into a series of ‘yes’ or ‘no’
decisions → examination of the additional benefits compared to the costs of an activity
- Can help us to get the optimal quantity (best number)
- Be able to calculate what amount gives the highest outcome
- In other words: ‘What is the most efficient choice?’
Marginal analyses: MR = MC
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