Introduction to Economics ECON 102
Fatma Taskin
Economics Department
(taskin@bilkent.edu.tr)
Fall 2026
1 / 33
Course includes
• Lectures (4 hrs/week), strongly recommended, no attendance
will be taken
• Recitation hrs (1hr/week) Attendance is compulsory.
• Homeworks (discussed in recitation hrs)
• Quizzes (5 or 6 bi-weekly)
2 / 33
TEXT BOOK
Main Textbook:
1. Macreconomics by Oliver Balanchard, 8th ed.
Suggested as supplementary text books:
2. Economics by R. Glenn Hubbard and Anthony Patrick
OBrien, any edition
3. Macroconomics by Dornbusch, R., S. Fischer and R. Startz,
4. Principles of Economics Gregory Mankiw (relevant pages
will be given)
5. Text on IS-LM
6. Short Essay
3 / 33
Course Requirements
Participation
Quizzes (a total of 5 or 6)
Midterm
Final
10%
20%
30%
40%
4 / 33
FZ condition and other rules
• FZ condition: If you miss 3 or more quizzes, or
your average until the final is less than 20%.
• There will be no make-up for quizzes.
In class:
• You may come in late...
• You CAN NOT LEAVE before the break or the end of a
lecture.
5 / 33
Communication
• You can reach me via my email address (taskin@bilkent.edu.tr)
• All class material will be send via email. Correct your email
address to a bilkent address.
• All slides and HW’s and other material will be included to the
COURSE MOODLE page.
6 / 33
Economics
Microeconomics
Macroeconomics
7 / 33
Macroeconomics
• Study of the economy as whole:
• includes everybody, all consumers and all producers.
• million of decisions and their total outcome is examined.
8 / 33
How is Macroeconomics studied?
• Group agents according to their decision making.
• Consumers
• Producers
• Government
• includes everybody, all consumers and all producers.
What variables are examined?
9 / 33
Variables of Macreconomics
• Total value of Production,
• General Price Level,
• Employment,
• Role of foreign production, Total exports - total imports
10 / 33
Variables of Macroeconomics
• Total value of Production, GDP, its % change, is growth
rate or economic growth
• General Price Level, CPI, its % change, inflation rate
• Employment, unemployment
• Role of foreign production, Total exports- total imports, net
exports.
11 / 33
GDP Growth
GDP Growth Rate
14
12
10
8
6
4
2
0
2016
2017
2018
2019
2020
China (%)
2021
2022
2023
2024
2025
Türkiye (%)
12 / 33
GDP Growth
GDP Growth Rate
14
12
10
8
6
4
2
0
2016
2017
2018
2019
2020
China (%)
2021
2022
2023
2024
2025
2023
2024
2025
Türkiye (%)
Inflation Rate %
80
70
60
50
40
30
20
10
0
2016
2017
2018
2019
2020
China (%)
2021
2022
Türkiye (%)
13 / 33
How is Macroeconomics analyzed?
• Examine the milions of decisions, summarized with a Model.
• Model consists of Equations.
• Equations can be depicted by Diagrams.
• Provide intuitive explanations for the events/
14 / 33
Economics
Relationship between Variables
THEORY
Events
Example
Example: In 2008,
Economic crisis in EU countries
lead to the decline in their
income
→ they buy less Turkish goods
→ exports in Turkey decline,
→ total output produced
decline
→ Turkish GDP declines,
→ economic crisis in Turkey
Stories
15 / 33
No Agreement among Different Schools of Thought
• Classical Economics (18th or 19th century).
• Keynesian Economics (After Great Depression 1936 until 1973)
• Monetarist Economics (Starts with Milton Friedman’s work 1956)
• New Classical Economics (Robert Lucas early 1970’s)
• New Monetarist Economics (Following 1973 oil price crisis)
• New Keynesian Economics (After 2006 )
16 / 33
Why is Economics a field of study or a topic of social
science?
• Scarcity?
• Choice?
• Mechanism?
17 / 33
Definition of Economics
• Use of scare resources in satisfying unlimited wants/needs.
• There are limited amount of resources.
• Labor
• Capital (Physical Capital)
• Human Capital (know how or skills)
• Natural Resources
• There are unlimited needs/wants.
18 / 33
How to depict scarcity in production: Production
Possibility Frontier I
We draw the maximum amount of mix of goods as the PPF.
19 / 33
Production Possibility Frontier II
• Red line is the new PPF with either technological improvement or
resource increase.
20 / 33
How is the allocation decision made? Price mechanism
• For each individual market:
• Supply and Demand determines the amount of each good that will
be produced.
• (For any good or factor such as labor market)
• Supply shows the desires of sellers,
• Demand shows the desires of the buyers
21 / 33
Demand Curve
• For each individual market:
• Quantity demanded (Qid ) of any good that the buyers are willing
and able to buy.
• The most important determinant is the price of the good;
• Law of demand: as price increase quantity demanded decreases.
• That is the Demand Curve.
22 / 33
Demand Curve
• The relationship between Quantity demanded and Price.
Qid = F (Pi ) (holding everything else constant)
(p.68 Mankiw)
68
PART II HOW MARKETS WORK
FIGURE 1
Catherine’s Demand Schedule
and Demand Curve
The demand schedule is a table that shows the quantity demanded at each price.
The demand curve, which graphs the demand schedule, illustrates how the quantity
demanded of the good changes as its price varies. Because a lower price increases
the quantity demanded, the demand curve slopes downward.
Price of
Ice-Cream Cone
Quantity of
Cones Demanded
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
12 cones
10
8
6
4
2
0
Price of
Ice-Cream Cone
$3.00
2.50
1. A decrease in
price . . .
2.00
1.50
1.00
Demand curve
0.50
0
1
2
3
4
5
6
7
8
9 10 11 12
Quantity of
Ice-Cream Cones
2. . . . increases quantity of
cones demanded.
23 / 33
Shifts in the Demand Curve
• Quantity demanded (Qid ) in addition to its own price depends on
• Income
• Other prices
• Tastes
• When any of these variables change, quantity demanded at each
price changes.
• SHIFT of the demand curve: INCREASE in DEMAND.
Qid = F (Pi ; Income, Pother , tastes)
eg. If income increases at each price there will be larger quantity will be demanded.
24 / 33
Shift of the Demand Curve
Qid = F (Pi ; Income, Pother , Tastes)
(p.70 Mankiw)
70
PART II HOW MARKETS WORK
FIGURE 3
Price of
Ice-Cream
Cone
Shifts in the Demand Curve
Any change that raises the quantity that
buyers wish to purchase at any given
price shifts the demand curve to the
right. Any change that lowers the quantity
that buyers wish to purchase at any given
price shifts the demand curve to the left.
Increase
in demand
Decrease
in demand
Demand curve, D3
0
normal good
Demand
curve, D1
Demand
curve, D2
Quantity of
Ice-Cream Cones
less to spend in total, so you would have to spend less on some—and probably
most—goods. If the demand for a good falls when income falls, the good is called
25 / 33
Supply Curve
• For each individual market:
• Quantity supplied (Qis ) of any good that the sellers are willing and
able to sell.
• The most important determinant is the price of the good;
• Due MC of production as production increases MC increases hence
the price of each additional unit increases .
• That is the Supply Curve.
26 / 33
The quantity supplied of any good or service is the amount that sellers are willing and able to sell. There are many determinants of quantity supplied, but once
again, price plays a special role in our analysis. When the price of ice cream is
high, selling ice cream is profitable, and so the quantity supplied is large. Sellers of ice cream work long hours, buy many ice-cream machines, and hire many
workers. By contrast, when the price of ice cream is low, the business is less profitable, so sellers produce less ice cream. At a low price, some sellers may even
choose to shut down, and their quantity supplied falls to zero. This relationship
between price and quantity supplied is called the law of supply: Other things
being equal, when the price of a good rises, the quantity supplied of the good also
rises, and when the price falls, the quantity supplied falls as well.
The table in Figure 5 shows the quantity of ice-cream cones supplied each
month by Ben, an ice-cream seller, at various prices of ice cream. At a price below
$1.00, Ben does not supply any ice cream at all. As the price rises, he supplies a
greater and greater quantity. This is the supply schedule, a table that shows the
relationship between the price of a good and the quantity supplied, holding constant everything else that influences how much of the good producers want to sell.
quantity supplied
the amount of a good
that sellers are willing
and able to sell
Supply Curve
law of supply
the claim that, other
things being equal, the
quantity supplied of a
good rises when the price
of the good rises
• The relationship between Quantity Supplied and Price.
Qis = F (Pi ) (holding everything else constant)
supply schedule
a table that shows the
relationship between the
price of a good and the
quantity supplied
(p.73 Mankiw)
FIGURE 5
The supply schedule is a table that shows the quantity supplied at each price. This
supply curve, which graphs the supply schedule, illustrates how the quantity supplied
of the good changes as its price varies. Because a higher price increases the quantity
supplied, the supply curve slopes upward.
Price of
Ice-Cream Cone
Quantity of
Cones Demanded
$0.00
0.50
1.00
1.50
2.00
2.50
3.00
0 cones
0
1
2
3
4
5
Price of
Ice-Cream
Cone
$3.00
1. An
increase
in price . . .
Ben’s Supply Schedule
and Supply Curve
Supply curve
2.50
2.00
1.50
1.00
0.50
0
1
2
3
4
5
6
7
8
9
10 11 12 Quantity of
Ice-Cream Cones
2. . . . increases quantity of cones supplied.
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
27 / 33
Shifts in the Supply Curve
• Quantity supplied (Qis ) in addition to its own price depends on
• Input prices
• Technology
• When any of these variables change, quantity demanded at each
price changes.
• SHIFT of the demand curve: INCREASE in SUPPLY.
Qis = F (Pi ; Pinputs , technology )
eg. If input prices decreases at each price there will be larger quantity supplied.
28 / 33
There are many variables that can shift the supply curve. Let’s consider the
most important.
Input Prices To produce their output of ice cream, sellers use various inputs:
cream, sugar, flavoring, ice-cream machines, the buildings in which the ice
cream is made, and the labor of workers who mix the ingredients and operate
the machines. When the price of one or more of these inputs rises, producing ice
cream is less profitable, and firms supply less ice cream. If input prices rise substantially, a firm might shut down and supply no ice cream at all. Thus, the supply
of a good is negatively related to the price of the inputs used to make the good.
Shift of the Supply Curve
Qis = F (Pi ; Pinputs , technology )
(p.75 Mankiw)
Technology The technology for turning inputs into ice cream is another determinant of supply. The invention of the mechanized ice-cream machine, for example, reduced the amount of labor necessary to make ice cream. By reducing firms’
costs, the advance in technology raised the supply of ice cream.
Expectations The amount of ice cream a firm supplies today may depend on its
expectations about the future. For example, if a firm expects the price of ice cream
to rise in the future, it will put some of its current production into storage and
supply less to the market today.
Price of
Ice-Cream
Cone
Supply curve, S3
Decrease
in supply
FIGURE 7
Supply
curve, S1
Shifts in the Supply Curve
Supply
curve, S2
Any change that raises the quantity that
sellers wish to produce at any given price
shifts the supply curve to the right. Any
change that lowers the quantity that
sellers wish to produce at any given price
shifts the supply curve to the left.
Increase
in supply
0
Quantity of
Ice-Cream Cones
Copyright 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. WCN 02-200-203
29 / 33
Market Equilibrium
• For each individual market:
• Quantity supplied is equal to quantity demanded (Qis ) = (Qid ) is
the final equilibrium.
• Without intervention the market will reach an equilibrium;
• This determines how much will be produced and how much will be
consumed i.e. the resource allocation
30 / 33
Market equilibrium
Qis = (Qid )
(p.77 Mankiw)
CHAPTER 4 THE MARKET FORCES OF SUPPLY AND DEMAND
FIGURE 8
Price of
Ice-Cream
Cone
Equilibrium
price
77
Supply
Equilibrium
$2.00
Demand
0
1
2
3
4
5
6
7
Equilibrium
quantity
8
9
The Equilibrium of Supply
and Demand
The equilibrium is found
where the supply and
demand curves intersect.
At the equilibrium price, the
quantity supplied equals
the quantity demanded. Here
the equilibrium price is $2.00:
At this price, 7 ice-cream cones
are supplied and 7 ice-cream
cones are demanded.
10 11 12 13
Quantity of Ice-Cream Cones
in the market has been satisfied: Buyers have bought all they want to buy, and
sellers have sold all they want to sell.
31 / 33
Limitations to Price Mechanism
• All markets are perfectly competitive.
• Monopoly, Oligopoly.
• Government Intervention
• These are neoclassical economics, markets are free to adjust.
• There may be command economies where government decides on
the production. (eg.Soviet Union, North Korea)
32 / 33
Next lecture...
Performance Measurements of an Macroeconomy.
33 / 33