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Business Economics – MAN 1071

• Contact Details:
• James MacGregor
• J.macgregor@surrey.ac.uk
• Jo Turner
• Joanne.turner@surrey.ac.uk
• How the course is organised
• Lectures: 1 hour; Tutorial: 2 hour
• Office Hours: email us for these – room: 34MS02
• Materials
• SurreyLearn: Lecture slides, tutorial exercises, questions…
• Textbook: BEGG, D., VERNASCA, FISCHER, DORNBUSCH, (2014) Economics, McGrawHill, 11th ed.
• Other: Freakonomics, Financial Times, Guardian, Times, Independent, websites, press articles, youtube….
Value to you
• An economic approach is different….Economics is the language of
business, lateral thinking, questioning

• Exemptions from future accounting qualifications

• Enlightenment about how people and businesses behave

• Better job, higher salary, bigger brain

• We aim to change how you see the world and your role in it!
Your first/ second/ third job/ internship
• Dress smart
• Polite, enthusiastic, work hard

• An understanding of economics will help – we all have free


access to Financial Times, Guardian, Economist, many others
Business economics – what’s in it for me?
Economics is important!
• Economic growth – indicator
• Investment decisions – costs, benefits, supply, demand
• Markets – quality, scarcity, buying/ selling
• Government – intervention, policy, regulation
• Individual behaviour – follow the money….?
Stated price
Price
Economic behaviour at 850am
• Why do I need a coffee?
• Boring lecture – stay awake
• Everyone else has one How much money do I have?
Your time
• Tradition, addicted

Ethical

Trade offs

Environmental Company, competition


Experience
Uncertain economics stalking world
Course outline
• Week 1: Economics as a Discipline • Week 8: Class test
and Opportunity Costs Easter break
• Week 2: Demand and Elasticity • Week 9: Inflation and
• Week 3: Supply, Costs, Equilibrium Unemployment
• Week 4: Perfect Competition vs • Week 10: Exchange Rates and the
Monopoly Balance of Payments
• Week 5: Labour Market • Week 11: Money
• Week 6: Market Failure and the Role • Week 12: Final exam
of Government
• Week 7: Output, Income, Aggregate
Demand
Assessment
• Class Test (25%): Week 8:
• Multiple choice
• Mixture of theory and application
• 45 mins, 20 questions

• Exam (75%):
• Longer questions on theory and exercises
• Includes a short thinking/research question (10% of the
total exam) - check SurreyLearn at the end of Week 3 for a
list of possible questions
Strategy to study and succeed
• Attend lectures and tutorials
• Do the reading/ watching I give you
• Go through the exercise sets before each tutorial and after
• Start working on the research questions from Week 3
• Brush up both your (basic) maths skills and pens/ rulers
• Any course questions: email us
• Any administration questions: email Student Support
Business Economics – MAN1071
Semester 2 2018/19

• Week 1

• Introducing economics

• Scarcity

• Opportunity Costs

• Comparative advantage
Economics as a discipline
• Two perspectives ….in MAN1071 we study both
1. Microeconomics: analysis of how consumers, firms and specific industries make
economic decisions, e.g.
• How to best allocate time between work and leisure
• How to organise production with a given amount of workers and/or machinery
• How an industry sets prices
2. Macroeconomics: interactions in the economy as a whole (typically countries)
• Gross Domestic Product
• Level of unemployment
• Imports and export
Economics and other disciplines
• Psychology – buying everything, wanting everything
• Behavioural economics – drive digital interaction, gamification
• Financial – banking, accounting, insurance, derivatives, lending
• Household/Family – standard of living, poverty, tax
• Late-life care – global ageing population which is super-rich
• Health economics – making cures and prevention affordable
• Environmental – protecting valuable things with no existing
market
How do we learn about economics?
• Theory
• Case studies
• Application to SBS/ UoS students

• Your passions/ hobbies/ concerns: google/ apply the theories to


these
• Football, climate change, chess, social inequality, stockbroking
Business and economics
• Economics is not about money….
• Behaviour – people, firm, governments

• Scarcity – everything except wants


• Trade-offs, decisions
• Rational individual, firm, society

• Competition
• Efficiency, choice
• Organisational health
• Price-value-cost

• All around us, economic decisions everyday, common sense


Economics as a discipline
What is economics
• Definition in textbook: “Economics is the study of how society makes
choices in conditions of scarcity”
• A resource is scarce when, if it were given for free, demand > supply
• A key economic problem is to reconcile the virtually limitless desires
for goods and services and the limited resources to produce them
• Scarcity faced by producers: inputs are limited (labour, raw materials,
machinery, land…)
• Scarcity faced by consumers: time and income are limited
Economics as a discipline
• Economics is called the dismal science, partly because
economists like to point out that we can’t have everything at
once
• A central concept in economics is that our productive resources
(labour, capital, natural resources, entrepreneurship) are scarce
• We live in a world with finite resources, and this sets limits to
what we can do in economic terms. We face trade-offs.
• Economics explains everything, explains nothing: delusional
sense of understanding
• Simplifies society’s collective behaviour - £$¥€
Opportunity cost
• Definition – ‘the value of the next-best alternative’
• Opportunity cost measures the sacrifice we make when we are forced to
make choices due to scarcity
• The potential benefit that is given up when one alternative is selected over
another
• Opportunity cost is a principle defining how people and businesses make
economic decisions, and why people trade with each other

• Example: if you were not attending Surrey University, you would be earning
£25,000 per year. The opportunity cost of attending Surrey University for
one year is £25,000.
Scarcity. Production Possibility Frontier (1)
• Scarcity means that we make choices on how to use resources: what to
produce, how to produce and for whom to produce:
• To understand these decisions we need a framework that helps us
understand what we sacrifice when we choose a particular production
plan
• The Production Possibility Frontier (PPF) illustrates the competing
use of resources
• PPF illustrate the sacrifices, trade-offs, opportunity costs of options
• An economy that has a given amount of workers (limited resource) can
allocate them to several productive activities.
• For example: imagine a country that produces cars and phones: the amount
of each good that it is able to produce depends on how workers are
allocated
• If all workers are allocated to produce cars: Point A
• If all workers are allocated to produce phones: Point B
Scarcity. Production Possibility Frontier (2)
The Production Possibility Frontier shows for each quantity of
cars, the quantity of phones that can be produced and vice
versa
• Given the finite amount of workers, the combinations of
output that are possible and those that are not possible
(points inside the frontier, such as point F, and areas outside
the frontier, such as point C, respectively)
• The most efficient combinations of output: those that lie on
the frontier (for example, points A, D, E, B):
• The PPF shows these trade offs - increasing output of one
good, means sacrificing output of the other good
• Law of diminishing marginal returns: each extra worker
added to produce cars, for example, adds less to output than
the previous extra worker added
Comparative and Absolute Advantage
• Comparative Advantage: an individual or country has comparative
advantage compared to another in the production of a good if she/he/it
has a lower opportunity cost in producing it
• Absolute Advantage: the individual or country is she/he/it one with the
lowest cost (smaller quantity of inputs), the most efficient
• Based on comparative advantage, we can identify those producers
(individuals, countries, …) with the lowest opportunity costs
• An individual or country will specialise in those goods or services in which
he/she/it has comparative advantage
• Comparative advantage and specialisation are the foundations of trade
Price £48 NEW

Economic behaviour at 950am £30 USED

Environmental
Ethical
Company
How much money do I have?

Your time

Trade offs
Minimum wage UK - £7.38 per hour

Cost of buying book (£48) versus its opportunity cost: value of £48 of partying – search for information

Book is roughly equivalent to 6.5 hours of work (BUT … resale value is £30)….
Actual cost is £18

Will I spend more than 2.5 hours (18/7.38 ~ 2.5) searching for information?
Tutorial – Week 1
• This ppt is on SurreyLearn later now
• Bring ruler, pens, paper

• This week:
• Read – Begg chps 1 and 2
• Read Freakonomics chp 3
• Read as widely as possible…Financial Times, Economist, Wall St
Journal
• Personalise these learnings…

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