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Course Materials
TEXTBOOK
Business Economics, by N. Mankiw, M. Taylor and A.
Ashwin, Cengage, 2013
Module description
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Program
1. Economic principles
2. Supply and demand
3. Elasticities
4. Firm behaviour
5. Production, pricing and market structures
6. Macroeconomic aggregates
7. Aggregate demand and aggregate supply
8. Unemployment
9. Inflation
10.Fiscal, monetary and supply-side policies
11.Revision
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Principle 1
Decision making involves trade-offs
Principle 2
The cost of something is what you give up to get it
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Principle 3
Rational people and businesses think at the margin
an extra hours, spend a little bit of time with the family, etc..
Marginal changes = small incremental adjustments to an
existing plan of action
Marginal Costs (MC) versus Marginal Benefits (MB)
Firms are interested in the marginal costs => Ex: airplane
company need to decide the cost of a flight ticket
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Principle 4
People and businesses respond to incentives
People compare the costs (C) and benefits (B) when making
decisions
Take an action if and only if the marginal benefits are at least
as great as the marginal costs
Their behavior can change is C and B change = > people
respond to incentives
Many public policies aim at altering behaviors through
incentives
Ex: tax on petrol => Take a bus versus driving the car? => tax
on petrol increases the cost of using the car and incentivize
people to take public transports
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Principle 5
Trade can make everyone better off
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Principle 6
Markets are usually a good way to organize
economic activity
Principle 7
Governments can improve market outcomes
1. CAN PROMOTE EFFICIENCY
Market failure is when the market on its own fails to produce an
efficient allocation of resources
Externalities are the uncompensated impact of a person or
firms action on the well-being of a third party (i.e. pollution,
noise)
Market power is when an economic agent is able to influence
market prices
Governments can intervene to improve markets (ex: by taxing
pollution, or increasing competition in case of market power)
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Principle 8
An economys standard of living depends on its
ability to produce goods and services
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Principle 9
Prices rise when the government prints too much
money
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Principle 10
Society faces a short-run trade-off between
inflation and unemployment
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