BIO-ECONOMICS
PART I: INTRODUCTION TO (BIO-)ECONOMICS
Prof. dr. ir. M. Maertens
Division of Bio-economics
KU Leuven, 2020-2021
Lecture 1: The Economic Problem
Scope & Methods of Economics
Introduction to Economics – Lecture 1
1. Why economics?
Bio-economics 2020-2021 (M. Maertens)
Part I: Introduction to (Bio-)Economics - Lecture 1
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Why economics?
• To understand everyday life
• To understand society / be an informed citizen
• To learn a way of thinking
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Part I: Introduction to (Bio-)Economics - Lecture 1
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Introduction to Economics – Lecture 1
1. Why economics?
2. The economic problem
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The economic problem of scarcity & choice
‘human wants are unlimited but resources are not’
• Resources are scarce …
› Natural resources such as land, minerals, timber, biodiversity, climate, …
› Capital resources such as machinery, buildings, roads, software, …
› Human resources such as labor time, skills & talents, workers’ health, …
• … and therefore we need to choose
› People forced to choose among competing uses of resources
› Fundamental concern of economics: how to allocate scarce resources
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The economic problem of scarcity & choice
• Scarcity and choice
› Resources are limited and we need to choose among competing uses of these
resources: we make constrained choices
› These choices determine 1) what gets produced
2) how it is produced
3) who gets what is produced
• Opportunity cost
› If you make a choice, you forego other uses of resources
› The best alternative that we forgo, or give up, when we make a choice or
decision is the opportunity cost of our choice
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The economic problem of scarcity & choice
Consider a very simply 1-person small island economy
• Resources (land, time, skills, …) are
limited
• Choose to allocate time to hunting,
collecting berries, collecting wood,
fishing, building shelter, …
• Preferences: water, food, shelter, …
› Trade-offs and opportunity costs
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The economic problem of scarcity & choice
What is your opportunity cost?
Bio-economics 2020-2021 (M. Maertens)
And his?
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The economic problem of scarcity & choice
Consider 1 extra person in the small island economy
• Resources (land, time, skills, …) are
still limited
• Choice becomes more complex
› Skills & talents may differ; and
preferences may differ
› They can cooperate, take the lead or
split up
› Opportunities arise through
specialization and exchange
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Specialization and exchange
Theory of comparative advantage
› Specialization and trade will benefit all trading parties
› David Ricardo (1772-1823)
Absolute advantage
• A producer has an absolute advantage
over another in the production of a
good or service if he or she can
produce that product using fewer
resources (a lower absolute cost per
unit).
Bio-economics 2020-2021 (M. Maertens)
Comparative advantage
• A producer has a comparative
advantage over another in the
production of a good or service if he
or she can produce that product at a
lower opportunity cost.
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Specialization and exchange
The simple 2-person small island economy
• Production possibilities in 1 year on
the island:
› Person A can produce 600 kg of food /
year or 200 kg logs of wood / year
› Person B can produce 200 kg of food /
year or 600 logs of wood / year
• Can be depicted in production
possibility frontiers
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Specialization and exchange
Production possibility frontier
•
The combination of all goods and services that can be produced if
resources are used efficiently
Production possibility curve for B
350
300
250
200
150
100
50
0
WOOD (logs)
WOODl (ogs)
Production possibility curve for A
0
100
200
300
400
500
600
700
700
600
500
400
300
200
100
0
0
200
300
FOOD (kg)
FOOD (kg)
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100
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Specialization and exchange
The simple 2-person small island economy
• Production possibilities:
› Person A can produce 600 kg of food /
year or 200 logs of wood / year
› Person B can produce 200 kg of food /
year or 600 logs of wood / year
• A has an absolute advantage in the
production of food
• B has an absolute advantage in the
collection of wood
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Specialization and exchange
If A & B do not exchange with each other, they will each produce and
consume 150 kg of food and 150 logs of wood
Food
Wood
A
25% of the time * 600 kg /
year = 150 kg
B
75% of the time * 200 kg /
year = 150 kg
75% of the time * 200 logs /
year = 150 logs
25% of the time * 600 logs /
year = 150 logs
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Specialization and exchange
If A & B do not exchange with each other, they will each produce and
consume 150 kg of food and 150 logs of wood
350
300
250
200
150
100
50
0
Production possibility curve for B
WOOD (logs)
WOOD (logs)
Production possibility curve for A
c
0
100
200
300
400
500
600
700
700
600
500
400
300
200
100
0
c
0
200
300
FOOD (kg)
FOOD (kg)
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100
Part I: Introduction to (Bio-)Economics - Lecture 1
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Specialization and exchange
If A & B do exchange with each other:
› Person A will specialize in the production of food and produce 600 kg
› Person B will specialize in the collection of wood and produce 600 logs
Production
Food
A
100% of the time * 600 kg /
year = 600 kg
B
0% of the time
Wood
0% of the time
100% of the time * 600 logs /
year = 600 logs
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Specialization and exchange
If A & B do exchange with each other:
› Person A will specialize in the production of food and produce 600 kg
› Person B will specialize in the collection of wood and produce 600 logs
› A & B will exchange 300 kg of food for 300 logs of wood
Exchange
Food
Wood
A
‘Sell’ 300 kg
‘Buy’ 300 logs
Bio-economics 2020-2021 (M. Maertens)
B
‘Buy’ 300 kg
‘Sell’ 300 logs
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Specialization and exchange
If A & B do exchange with each other:
›
›
›
›
Person A will specialize in the production of food and produce 600 kg
Person B will specialize in the collection of wood and produce 600 logs
A & B will exchange 300 kg of food for 300 logs of wood
A & B both double their consumption of food and wood
Consumption A
Food
300 kg
Wood
300 logs
Bio-economics 2020-2021 (M. Maertens)
B
300 kg
300 logs
Part I: Introduction to (Bio-)Economics - Lecture 1
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Specialization and exchange
If A & B specialize (in the product for which they have an absolute
advantage) and trade, they both have higher levels of consumption
350
300
250
200
150
100
50
0
Production possibility curve for B
c’
WOOD (logs)
WOOD (logs)
Production possibility curve for A
c
0
100
200
300
400
500
600
700
700
600
500
400
300
200
100
0
c'
c
0
200
300
FOOD (kg)
FOOD (kg)
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100
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Specialization and exchange
The simple 2-person small island economy
• Production possibilities in 1 year on
the island:
› Person A can produce 600 kg of food /
year or 600 logs of wood / year
› Person B can produce 100 kg of food /
year or 300 logs of wood / year
• Can be depicted in production
possibility frontiers
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Specialization and exchange
Production possibility frontiers
• Assume A can produce 600 kg food / year or 600 logs of wood / year
Assume B can produce 100 kg food / year or 300 logs of wood / year
Production possibility curve for B
700
600
500
400
300
200
100
0
WOOD (logs)
WOOD (logs)
Production possibility curve for A
0
100
200
300
400
500
600
700
350
300
250
200
150
100
50
0
0
FOOD (kg)
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50
100
150
FOOD (kg)
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Specialization and exchange
The simple 2-person small island economy
• Production possibilities:
› Person A can produce 600 kg of food /
year or 600 logs of wood / year
› Person B can produce 100 kg of food /
year or 300 logs of wood / year
• A has an absolute advantage in the
production of food and wood
• B has no absolute advantage
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Specialization and exchange
Absolute versus comparative advantage
• Person A has an absolute advantage in the production of both food and
wood because he/she can produce food and wood at a lower absolute cost
than person B
› A’s cost of producing 1 kg of food is 365 days / 600 kg = 0.6 days
› A’s cost of collecting 1 log of wood is 365 days / 600 logs = 0.6 days
• Person B has no absolute advantage because he/she can not produce food
nor wood at a lower absolute cost than person A
› B’s cost of producing 1 kg of food is 365 days / 100 kg = 3.65 days
› B’s cost of collecting 1 log of wood is 365 days / 300 logs = 1.21 days
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Specialization and exchange
Absolute versus comparative advantage
• Person A has a comparative advantage in the production of food because
he/she can produce food at a lower opportunity cost than person B
› A’s opportunity cost of producing 1 kg of food is 1 log of wood
› A’s opportunity cost of collecting 1 log of wood is 1 kg of food
• Person B has a comparative advantage in the collection of wood because
he/she can produce wood at a lower opportunity cost than person A
› B’s opportunity cost of producing 1 kg of food is 3 logs of wood
› B’s opportunity cost of collecting 1 log of wood is 1/3 kg of food
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Specialization and exchange
The simple 2-person small island economy
• Production possibilities:
› Person A can produce 600 kg of food /
year or 600 logs of wood / year
› Person B can produce 100 kg of food /
year or 300 logs of wood / year
• A has a comparative advantage in
the production of food
• B has a comparative advantage in
the collection of wood
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Specialization and exchange
If A & B do not exchange with each other:
› A will produce and consume 300 kg of food and 300 logs of wood
› B will produce and consume 75 kg of food and 75 logs of wood
Food
Wood
A
50% of the time * 600 kg /
year = 300 kg
B
75% of the time * 100 kg /
year = 75 kg
50% of the time * 600 logs /
year = 300 logs
25% of the time * 300 logs /
year = 75 logs
Bio-economics 2020-2021 (M. Maertens)
Part I: Introduction to (Bio-)Economics - Lecture 1
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Specialization and exchange
If A & B do not exchange with each other:
› A will produce and consume 300 kg of food and 300 logs of wood
› B will produce and consume 75 kg of food and 75 logs of wood
700
600
500
400
300
200
100
0
Production possibility curve for B
WOOD (logs)
WOOD (logs)
Production possibility curve for A
c
0
100
200
300
400
500
600
700
350
300
250
200
150
100
50
0
c
0
FOOD (kg)
Bio-economics 2020-2021 (M. Maertens)
50
100
150
FOOD (kg)
Part I: Introduction to (Bio-)Economics - Lecture 1
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Specialization and exchange
If A & B do exchange with each other:
› A will specialize in the production of food and produce 450 kg of food and 150
logs of wood
› B will specialize in the collection of wood and produce 300 logs
Production
A
B
Food
75% of the time * 600 kg /
year = 450 kg
25% of the time * 600 logs /
year = 150 logs
0
Wood
Bio-economics 2020-2021 (M. Maertens)
100% of the time * 300 logs /
year = 300 logs
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Specialization and exchange
If A & B do exchange with each other:
› A will produce 450 kg of food and 150 logs of wood
› B will specialize in the collection of wood and produce 300 logs
› A & B will trade 100 kg food for 200 logs of wood
Exchange
Food
Wood
A
‘Sell’ 100 kg
‘Buy’ 200 logs
Bio-economics 2020-2021 (M. Maertens)
B
‘Buy’ 100 kg
‘Sell’ 200 logs
Part I: Introduction to (Bio-)Economics - Lecture 1
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Specialization and exchange
If A & B do exchange with each other:
›
›
›
›
A will produce 450 kg of food and 150 logs of wood
B will specialize in the collection of wood and produce 300 logs
A & B will trade 100 kg food for 200 logs of wood
A & B both increase their consumption of wood and food
Consumption A
Food
350 kg
Wood
350 logs
Bio-economics 2020-2021 (M. Maertens)
B
100 kg
100 logs
Part I: Introduction to (Bio-)Economics - Lecture 1
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Specialization and exchange
If A & B specialize (in the product for which they have a comparative
advantage) and trade, they both have higher levels of consumption
700
600
500
400
300
200
100
0
Production possibility curve for B
WOOD (logs)
WOOD (logs)
Production possibility curve for A
c’
c
0
100
200
300
400
500
600
700
350
300
250
200
150
100
50
0
c’
c
0
FOOD (kg)
Bio-economics 2020-2021 (M. Maertens)
50
100
150
FOOD (kg)
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Specialization and exchange
• Summary
› Moving from a 1-person to a 2-person simple small island economy, expands
production (and consumption) possibilities because of the possibility to
specialize and exchange
› Individuals or societies benefit from specializing in the production for which
they have a comparative advantage, and trade with other individuals and
societies
› Specialization and exchange according to comparative advantages allows to
overcome some of the limitation of constrained resources
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The economic problem of scarcity & choice
• How do we decide 1) what to produce
2) how to produce
3) who gets what is produced
› Weighting costs and benefits of a choice
› Important to only weigh costs and benefits of the actual choice
› Taking into account marginal costs and marginal benefits
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Marginal costs and benefits
• Marginalism
› Economics is a ‘marginal science’
› Economists analyze decisions at the margin
› Marginalism is the process of analyzing the additional or incremental costs
and benefits arising from a choice or decision
• Marginal cost and marginal benefit
› Marginal cost is the increase in cost of an additional unit produced or
consumed
› Marginal benefit is the increase in benefit from an additional unit produced
or consumed
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The economic problem of scarcity & choice
‘There ain’t no such thing as a free lunch’
• ‘Tanstaafl: A Plan for a New World
Order’, Pierre Dos Utt (1949)
• ‘The Moon is a Harsh Mistress’, Robert
A. Heinlein (1966)
• Milton Friedman (1975)
› Everything has a cost and
markets are efficient !
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The economic problem of scarcity & choice
• Summary
›
›
›
›
›
›
Resources are scarce while human wants are unlimited
Scarcity forces us to make choices
To make choices, we weigh costs and benefits at the margin
Scarcity and choice result in opportunity costs
Differences in opportunity costs drive specialization and exchange (trade)
Specialization and exchange (trade) allow to expand possibilities
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Introduction to Economics – Lecture 1
1. Why economics?
2. The economic problem
3. The scope of economics
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The scope of economics
• Economics
=
=
what economists do
the study of economies
• Economics
=
the study of how individuals and societies choose to use
the scarce resources that nature and previous generations
have provided
 Economist use their tools to a very wide range of topics
 Economist simply want to explain everything in society with their methods
and models
 Economist try to make sense of everyday life
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The scope of economics
Microeconomics
Behavior of individual decision-making
units: firms & households
Macroeconomics
Economic behavior of aggregates on a
national scale
› Production in a sector or a firm
› National production and output
› Prices of individual goods & services
› Aggregate price levels
› Distribution of income & wealth
› National income
› Employment in a sector, by individual
firms and households
› Employment and unemployment in
the economy
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Fields of economics
•
•
•
•
•
•
•
•
•
•
Agricultural economics
Behavioral economics
Business economics
Development economics
Economic history
Environmental economics
Financial economics
Health economics
Industrial organization
Institutional economics
Bio-economics 2020-2021 (M. Maertens)
•
•
•
•
•
•
•
International economics
Labor economics
Monetary economics
Natural resource economics
Rural economics
Urban economics
……
But also: Beeronomics
Choconomics
Economics of gambling
Economics of sports
…..
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Bio-economics: economics of the bio-economy
• The bio-economy = bio-based economy
› EU definition: The bio-economy comprises those parts of the economy that use renewable
biological resources from land and sea – such as crops, forests, fish, animals and microorganisms – to produce food, materials and energy.
› Wikipedia definition: bio-economy refers to economic activity involving the production of
goods, services or energy from biological material or biomass as the primary resource base.
• The bio-economy = biotech-economy
› Wikipedia definition: economic activity related to the use of biotechnology (= the use of living
systems and organisms to develop and produce products)
› Can be interpreted in a narrow or a broad way
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Bio-economics: economics of the bio-economy
• Bio-economics focuses on
› Sustainability: an economy that
serves society and respects
planetary boundaries
Source: Stockholm resilience center
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Bio-economics: economics of the bio-economy
• Focus of the bio-economy
› Sustainability: an economy that serves society and respects planetary
boundaries
› Circular economy: reducing waste
› Sectors: agriculture, forestry, fishery, food, energy, textile, ….
› Production and consumption of bio-based products: food, feed, flowers, fiber,
biofuel, bioplastics, pharmaceuticals, …
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Bio-economics: economics of the bio-economy
• The bio-economy is important in the EU
› Agriculture and forestry cover 85% of EU territory
› Annual turnover of EU bio-economy is about €2 trillion
› EU bio-economy provides 18 million jobs, 6% of GDP (gross domestic
product), and 7% of exports
• But faces many challenges
› EU food systems produce 25% of greenhouse gas emissions and consume 70%
of freshwater consumption
› A third of the EU food is wasted
› Only 10% of material input and 40% of waste is reused or recycled
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Introduction to Economics – Lecture 1
1.
2.
3.
4.
Why economics?
The economic problem
The scope of economics
Methods in economics
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The methods of economics
Positive economics
What is? seeks to understand behavior
and the operation of systems without
making judgments; describes what
exists and how it works
Normative economics
What should be? analyzes outcomes of
economic behavior, evaluates them as
good or bad, and may prescribe courses
of action
› What is the wage rate for MSc degree
holders?
› Should the government subsidize
higher education?
› How high is economic growth in
Africa?
› How high should be the official
development assistance of highincome countries
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The methods of economics
• Theories & models
›
›
›
›
Model: a formal statement of a theory
Economist express models in words, graphs or equations
Simplification of reality: assumptions & making abstraction of certain things
Ockham’s razor: the principle to cut away irrelevant detail
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How to get from Leuven train station to this aula?
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The methods of economics
• Theories & models
›
›
›
›
›
Model: a formal statement of a theory
Economist express models in words, graphs or equations
Simplification of reality: assumptions & making abstraction of certain things
Ockham’s razor: the principle to cut away irrelevant detail
Ceteris Paribus: all else equal assumption
• Empirical economics
› Testing theories and models
› Reject or approve theories and models
› Collection and analysis of data
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The methods of economics
• A pitfall: separating causation from correlation
› Economist are interested in cause and effect
• E.g. Does income growth increase or decrease inequality?
• E.g. Does an agricultural subsidy increase agricultural output?
• E.g. Does a cash transfer reduce poverty?
• ….
› Difficult to establish causation in economics
› Caution: if event A happens before event B, it is not necessarily true that A
caused B!
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Do you get sunburned from
eating ice-cream?
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Economic policy
Four important criteria in evaluating economic outcomes
1. Efficiency
› An efficient economy produces what people want at the lowest cost
2. Equity
› Fairness or a more equal distribution of income and wealth
3. Growth
› Increase in the total output of an economy
4. Stability
› A condition of steady output growth, low inflation and full employment
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Introduction to Economics – Lecture 1
1.
2.
3.
4.
5.
Why economics?
The economic problem
The scope of economics
Methods in economics
The efficient economy and growth
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The efficient economy and growth
• An efficient economy is an economy that produces what people want
at the least cost
• An economy produces capital goods and consumer goods
› Capital goods: investment of resources to produce in the future
› Consumer goods: goods produced for present consumption
• We weigh present and expected future costs and benefits
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The efficient economy and growth
• Production possibility frontier
for capital and consumer goods
• Opportunity costs
› The opportunity cost of investing
more (moving from E to F) is fewer
consumer goods
› The opportunity cost of
consuming more (moving from F
to E) is fewer investment in capital
goods
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The efficient economy and growth
• Production possibility frontier
for capital and consumer goods
• Slope of the ppf is negative
› Reflects the fact that resources are
constrained
› Slope of ppf = marginal rate of
transformation
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The efficient economy and growth
Law of increasing opportunity costs
• The opportunity cost of producing
more of one good in terms of another
good increases with the amount
produced
› Moving from A to B and producing 100
bushels of wheat more comes at an
opportunity cost of 50 bushels of corn
› Moving from D to E and producing 50
bushels of wheat more comes at an
opportunity cost of 100 bushels of corn
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The efficient economy and growth
• Production possibility frontier
for capital and consumer goods
• Points on the ppf (E and F) are
points of full resource
employment and production
efficiency
• Output efficiency: that point on
the ppf that gives the efficient
mix of output
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The efficient economy and growth
• Production possibility frontier
for capital and consumer goods
• Point below the ppf (D)
represent unemployment and
inefficiencies
› unemployment of resources:
factories run below capacity, labor
is unemployed, …
› production inefficiencies: waste,
mismanagement, …
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The efficient economy and growth
• Production possibility frontier
for capital and consumer goods
• Point above the ppf (G)
represents a combination of
capital and consumer goods that
is not attainable with current
technology and resources
› Reaching that point requires
economic growth
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The efficient economy and growth
• Economic growth is an increase in the
total output of an economy
• Economic growth occurs when a society
acquires new resources or new
technologies (that allow to produce
more with given resources)
• Economic growth shifts the ppf curve up
and to the right
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Introduction to Economics – Lecture 1
1.
2.
3.
4.
5.
6.
Why economics?
The economic problem
The scope of economics
Methods in economics
The efficient economy and growth
Economic systems
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Economic systems
• Command economics
› An economy in which a central government either directly or indirectly sets
output targets, incomes, and prices
› Coordination mechanism: the government!
• Laissez-fair economies or free market economies
› An economy in which individual people and firms pursue their own selfinterest without any central direction or regulation
› Consumer sovereignty & free enterprise
› Coordination mechanism: the market price!
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Economic systems
• Command economics
• Laissez-fair economies or free market economies
• Mixed systems: the market and the government
› All real economic systems are mixed
› Some include more government (former communist economies, socialist
economies, …)
› Others include more market (capitalist economies)
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Introduction to Economics – Lecture 1
1.
2.
3.
4.
5.
6.
7.
Why economics?
The economic problem
The scope of economics
Methods in economics
The efficient economy and growth
Economic systems
Economic agents and economic activity
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The circular flow of economic activity
Basic decision-making units
Firms: the producing units in an economy
• Firms transform resources (inputs or factors
of production) into products (outputs)
• Firms include entrepreneurs, persons who
organize, manage, and assume the risks of a
firm, taking a new idea or a new product
and turning it into a successful business.
Households: the consuming units in an
economy
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The circular flow of economic activity
Input and output markets
Product or output markets: the markets in
which goods and services are exchanged.
Input or factor markets: the markets in
which the resources used to produce goods
and services are exchanged.
› Capital, land and labour are the key
factors of production
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The circular flow of economic activity
Input markets
Households supply labour for wages to
firms that demand labour
› Labour market
Households supply savings, for interest or
claims to future profits, to firms that
demand funds to buy capital goods
› Capital market
Households supply land to firms in
exchange for rent
› Land market
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The circular flow of economic activity
Input and output markets
Firms determine the types and quantities
of outputs produced, and the types and
quantities of inputs demanded.
Households determine the types and
quantities of products demanded, and the
quantities and types of inputs supplied
› Input and output markets: behavior
of both firms and households matter
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The circular flow of economic activity
National income & national product
National income is the total amount of
money that factors of production earn
National product is the value of all goods
and services produced
› National income = national product
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Introduction to Economics – Lecture 1
1.
2.
3.
4.
5.
6.
7.
8.
Why economics?
The economic problem
The scope of economics
Methods in economics
The efficient economy and growth
Economic systems
Economic agents and economic activity
Course overview
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Course overview
PART I: INTRODUCTION TO ECONOMICS
• Lecture 1 & 2
• Book chapters 1 to 5
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Course overview
PART II: THE MARKET SYSTEM
• Lecture 3 & 5
• Book chapters 6 to 12
PART III: MARKET IMPERFECTIONS &
THE ROLE OF GOVERNMENT
• Lecture 6 & 8
• Book chapters 13 to 18
• Additional material
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Course overview
IV: CONCEPTS AND PROBLEMS IN
MACRO-ECONOMICS
• Lecture 9 to 11
• Book chapters 20 to 22
• Additional material
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V: THE WORLD ECONOMY
• Lecture 12 & 13
• Book chapters 33 & 35
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Handbook
Principles of Economics (13th edition) by Karl
E. Case; Ray C. Fair & Sharon M. Oster
Edited by Pearson education
For sale at LBK
For rent at Pearson https://www.pearson.com/nl/
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Lecture 1 wrap up – concepts
•
•
•
•
•
•
•
•
•
•
Opportunity cost
Comparative advantage
Production possibility frontier
Marginal cost
Marginal benefit
Micro-economics
Macro-economics
Bio-economics
Production efficiency
Output efficiency
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



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Opportuniteitskost
Comparatief voordeel
Productiemogelijkhedencurve
Marginale kosten
Marginale baten
Micro-economie
Macro-economie
Bio-economie
Productie efficiëntie
Output efficiëntie
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Lecture 1 wrap up – concepts
•
•
•
•
•
•
•
•
Economic growth
Capital goods
Consumer goods
Marginal rate of transformation
Firms
Households
Input (factor) markets
Output (product) markets
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Economische groei
Kapitaalgoederen
Consumptiegoederen
Marginale substitutievoet
Bedrijven
Gezinnen
Input (factor) markten
Output (product) markten
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Lecture 1 wrap up - handbook
• Chapter 1: The scope and methods of economics
• Appendix to Chapter 1: how to read and understand
graphs !
› Self-study material! To apply!
• Chapter 2: The economic problem: Scarcity & choice
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Lecture 1 wrap up - problems
Chapter 1 (p 45-46):
problems 1.2; 1.3; 1.4; 2.2; 3.2
Chapter 1 appendix (p 53-54): problems 1A.2 & 1A.4
Chapter 2 (p 71-74):
problems 1.2; 1.4; 1.6; 1.7; 1.8 *; 1.10
*Carpet looms are resources needed to produce carpets
If you have problems interpreting or drawing graphs, you can consult the appendix
of chapter 1 (p 47-54) for more information on reading and understanding graphs.
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