Ekonomi Bisnis dan Manajerial

1. Ekonomi Bisnis dan Manajerial 1.Mengetahui ruang lingkup mata kuliah ini 2. Mengetahui lingkungan ekonomi di dalam mana bisnis dilakukan

2. What is MICROECONOMICS? MICRO: • study of economic behavior of (relatively) "small" units, e.g., workers, firms Versus MACRO: • study of economy as a whole, • aggregate actor behavior • Remarkable consensus on micro's underlying principles • "laws" and tools of analysis, but vast differences in terms of what to do with the analysis. • Micro inherently conservative (?!).

3. Price S D Quantity Role of Theory Microeconomic theory evolved gradually • 1700s & late 1800s. • Marshall’s famous "scissors" • Few changes to core of micro theory in many decades. "Theory provides means or framework for explaining complex reality” • Simplifies/abstracts from reality • Need not fully or precisely describe reality Basic Supply and Demand Curves

4. Role of Theory • Best test of 'good' theory? • Whether it explains/predicts what it's designed to, NOT whether its assumptions are correct or reflect reality • CAVEAT: • Many controversies & issues here • Can have seemingly good theory, but as result of non-modeled events or other supporting circumstances, lousy results

5. Positive v. Normative Analysis Economists & others often called on to assess best policy approach. • Positive analysis — "WHAT IS“ • Normative analysis — "WHAT SHOULD BE" Important Distinction • Much of micro in realm of positive analysis, dealing w/propositions that can be tested in terms of underlying logic (qualitative analysis) & empirical evidence (quantitative analysis)

6. Positive v. Normative Analysis • Qualitatively determining expected effects of particular policy, based on micro theory • Likely effects on employment, production, prices • Quantitatively determining size of actual effects of particular policy. • Stats./econometrics & statistical significance • Then, go further (Steps 1 & 2). Use value judgments to decide whether or not such effects are desired — realm of normative analysis. • Economists no better than anyone else at making these …

7. Value Judgments "When analysis comes in conflict with [strongly held] values, values trump analysis every time." • Theda Skocpol (1997 Harvard) on 'welfare devolution’ Continuing debate on the ‘success’ of welfare reform in U.S. CEA, Bill Clinton, Al From, Bush, others: • Was it policy or the economy & how much of each? J. Bishop’s 1998 & R. Blank’s 2002 analysis of impacts v. CEA’s

8. Welfare Reform’s ‘Success’? Consider Blank (2002)—

9. Why POLITICAL ECONOMY? Why not just microeconomics taught by UT’s econ tribe? • Cheaper, easier? Why not? • For starters, check out stark contrast in treatments by B&Z, Kuttner, Blank & McGurn … QUESTIONS • Do “free markets” exist? Yes & No. So what? • What share of GDP produced & sold in “free markets”?

10. Considerations • Influence of laws, institutions & “rules of the game” • Effects of power & influence on market outcomes • Issues surrounding “one-man/one vote,” “one-dollar/one-vote” • The Endowment Issue • Effects of policies & policy shifts on markets & on market outcomes

11. Considerations • Question: How deterministic is market analysis? • Question: Is there ‘play’ in markets? If so, how much? • 2001 Austin Equity Comm. & “living wage” issue; see J. Siedlecki piece, LBJ Journal (Spring/Summer 2005 – Link to article) • Question: Do markets sometimes fail and, if so, whats’ to be done about it?

12. The Imperial Market Considerable “market worship” • Not just among economists, but policymakers of almost all stripes (Kuttner, ch. 2) Theory of Second Best • i.e., where markets have multiple ‘distortions,’ removing one to create purer market won’t necessarily improve overall outcomes.

13. Market Analysis: Terms & Concepts Market defined as — " Area” where potential buyers & sellers of a good/service interact "interplay of all potential buyers & sellers involved in” Prices (to economists) Relative (or real) prices, i.e., price relative to prices of all other goods/services at point in time. Issue more one of dynamics, change over time...

14. Market Analysis: Key Actors Buyers/consumers • Theoretical abstraction largely ignores important market intermediaries, e.g., unions, trade associations. ‘Lost’ tribe of economists who emphasize institutions & their effects within a market economy. • Pure market analysis insufficient, per se Galbraith Marshall

15. Market Analysis: Time Time • One of more important dimensions of market analysis • S & D responses can & do vary enormously over the short- and longer-term!

16. Behavioral Assumptions Critical foundation for what follows: • Self-interested behavior • actors pursue own goals & objectives • Rational behavior • actors weigh choices & actions and act deliberately • Scarce resources • or, as a famous (non-practicing) economist put it, "you can't always get what you want!” Note: 1 + 2 => generally prefer more to less

17. Behavioral Assumptions THUS, • Actors must choose among available options, pursuing desires rationally with limited resources or • "Actors make choices subject to a resource constraint"

18. Production Possibilities Frontier • All possible combinations of goods/services a rational actor can attain with fixed resources • Technology • [What does this mean?] Illustrate with 2 choices • Say... research reports, R, and research proposals, P • Might also view as Present v. Future

19. Research Reports (present) Research Proposals (future) PPF Production Possibilities Curve

20. Research Reports (present) A Research Proposals (future) PPF Production Possibilities Curve

21. Research Reports (present) A B Research Proposals (future) PPF Production Possibilities Curve

22. Research Reports (present) A C B Research Proposals (future) PPF Production Possibilities Curve

23. Research Reports (present) A C D B Research Proposals (future) PPF Production Possibilities Curve

24. PPF Opportunity Cost: • Amount of one good that must be foregone to produce added unit of another • PPF slope • Marginal Rate of Transformation, MRT • Defined as: ∆R / ∆P • Think "rise over run”

25. PPF Questions Q1: Why is PPF concave? A1: Efficiency of resource use dictates that as shift resources to producing more of one, less of another, become less efficient in doing so. Q2: Which goods combination = BEST? A2: Don't know (yet)! Depends on "preferences"which we'll get to shortly.

26. PPF Questions … Q3: Why not either devote more resources to production or improve technology to attain greater amounts of BOTH goods? A3: Can't! In the short run, resources & technology are both FIXED.

27. Opportunity Cost • Economic or opportunity cost of given action or choice comprised of both: • EXPLICIT (or accounting) Cost • defined typically in terms of monetary costs; • IMPLICIT (or non-monetary) Cost • imputed value of alternative use of resources • “Value of resource in its best alternative use", includes both explicit (monetary) and implicit (or non-monetary) costs • Key concept in micro & policy analysis • Numerous applications, e.g., benefit/cost analysis

28. Discussion Significance of accounting v. economic costs, in terms of: • Education & career choices? • The environment? • Welfare reform and related interventions? What of "sunk costs"? • Already incurred, can't recoup. So, forget them.

29. Demand Schedules & Curves Demand • Schedule of prices & associated quantities of goods/services consumers willing & able to purchase. Demand Schedule, for example: • Functionally Q1 = a + bP1

30. Demand Schedules & Curves Law of Demand • The lower the price of a good or service, the larger the quantity consumers wish to purchase (demand), ceteris paribus. • Law of D —> negative slope for D curve! • NOTE TERMS! Distinguish carefully between: • ∆Qd (movement along) versus • ∆ in D, a shift in D Curve • Ceteris paribus — tastes, incomes, prices of other goods. E.g. iPods...

31. Demand for iPods Price D1 Quantity Demand Schedules & Curves

32. Demand Schedules & Curves Demand for iPods Price D2 D1 Quantity

33. Demand Depends On... Incomes: Response depends very much on TYPE of good/service! • If “normal” good, increase in average household income, Y • With P unchanged, leads to increased consumption of iPods • That is, demand shifts from D1 to D2 • If "inferior" good, increase in Y • With P unchanged, leads to decreased iPod consumption, again a demand shift.

34. Inferior Goods? Inferior goods: • Spam • Texas wines • Hamburger • Others? *Most goods = Normal*

35. Demand Depends On... Prices of Other Goods • Depends very much on WHICH other goods! Examples... • CD Prices? Sharp drop in P of CDs leads to increased consumption of CD players • A shift out in demand, from D1 to D2. • Complements in consumption, I.e., their consumption "goes together"...

36. Demand Depends On... Prices of Other Goods • another example • VCRs? Sharp drop in P of DVD players leads to decreased consumption of VCRs • a shift in demand from D2 to D1. • Substitutes in consumption, alternatives for meeting same needs... • “Either/or” goods.

37. Demand Depends On... Tastes & Preferences • Can deal with these any number of ways: Consider introduction of new alternatives • growth of live music venues, DATs & DAT players, iPods, "retro" (vinyl) movement • E.g., the Wine Industry

38. Supply Schedules & Curves SUPPLY, the producer side of the market: • schedule of prices & associated quantities producers willing & able to produce & sell at point in time. LAW of SUPPLY: • Higher the price, the larger the quantity producers will want to produce (supply) at any point in time, cet. par. So, positive slope! P as "reward for production": • As more produced, per-unit opportunity cost of production tends to increase. Higher Ps needed to elicit greater Qs. Ceteris paribus: • Technology/production techniques, input factor prices/availability generally. Try same e.g., iPods...

39. Supply of iPods Price S1 Quantity Supply Schedules & Curves

40. Supply Schedules Consider: • Technology of Production • Intro of new, more efficient production techniques (e.g. HPWO) allows producers to produce more at every P. So, supply shifts out from S1 to S2 • Input Supply Conditions • Increase in labor costs—one NOT offset by productivity increases—leads to reduced supply, a shift from S2 to S1.

41. Supply of iPods Price S1 S2 Quantity Supply Schedules & Curves

42. Market Equilibrium, Disequilibrium Equilibrium P & Q —> no forces acting to make them different! • Static, not really dynamic. Example? • Try the market for Applied Microeconomics textbooks...

43. Price S D Quantity Market Equilibrium Applied Microeconomics Textbook Market

44. Price Pe$125 S D Qe Quantity Market Equilibrium Applied Microeconomics Textbook Market

45. Price Surplus P1$200 Pe$125 S D Q2 Qe Q1 Quantity Market Equilibrium Applied Microeconomics Textbook Market

46. Price Surplus P1$200 Pe$125 P2$75 Shortage S D Qe Quantity Market Equilibrium Applied Microeconomics Textbook Market Q1 Q2

47. Government Interventions... • NYC rent controls, minimum wage hikes (1977-81, 1989, 1995) • classic illustrations of impact of market interventions • wage/price controls (1971-74) Q: Are such interventions “bad”? • Maybe, if you're a market worshiper • Otherwise, depends upon your values & other non-market considerations ... • Some adverse market & non-market responses— • Non-price rationing • Quality deterioration • Black markets