Economics

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Economics

• Marketing and Business Systems
• MARC001
• Lecturer Robert Mikecz
• Pathway Leader Dr David Bamber
• bamberd_at_hope.ac.u

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What is economics?

• Adam Smith (1723-90) is generally regarded as the
  founder of economics (as a distinct discipline)
• Professor of Moral Philosophy at Edinburgh
  (1748-51) and Glasgow (1751-63)
• Best remembered for his two major books. The
  Theory of Moral Sentiments (1759) and the Wealth
  of Nations (1776)

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What is economics?

• Liverpool Baby Co (LBC)
• LBC has 100 couples as members and that they are
  all willing to baby-sit each others children

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What is economics?

• A coupon would be issued each time a couple
  baby-sat, which they could then use to buy
  another couple in the LBC to baby-sit their
  children. This coupon system would ensure that
  each couple would provide the same number of
  hours baby-sitting as they received
• This system of course could be a basic economic
  model it is transparent, fair and a basic barter
  system (governments of course would issue money
  rather than coupons)

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The LBC

• Coupons would have to be issued originally in
  order to kick start the system (in the same way
  that we have to have money in circulation), so
  each couple were given 2 coupons.
• Some couples with several free evenings in a row,
  and having no immediate plans to go out, would
  try and accumulate coupons for the future when
  they may want to go out more frequently.

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The LBC

• Now as some couples save other couples find their
  stock of coupons running down. This results in
  those couples being reluctant to use their
  coupons.
• So we end up with couples being willing to
  baby-sit but unwilling to go out. This cycle
  makes baby-sitting opportunities even scarcer and
  couples even more unwilling to go out. The LBC is
  in a recession (as is Japan).

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The LBC

• It is important to note here that the
  fundamentals are sound
• All the members were doing a good baby-sitting
  job, but we still have a recession
• So dispel any notion now that it is only
  countries with poor manufacturing/workers/resource
  s that fall into recession
• Can anything be done to help?

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The LBC

• How do we solve our recession?
• (Stimulate the economy?)
• We need only here issue more coupons (print more
  money - the job of the Bank of England is to keep
  the economy on an even keel by controlling the
  amount of cash in circulation). With larger
  reserves of coupons couples are more willing to
  go out.

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The LBC

• The real world of course is more complicated but
  a recession is usually the result of people
  accumulating cash. How we fix it is much more
  complex and it is usually difficult to get
  economists to agree on the solution!

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Back to Adam Smith

• Adam Smith wrote at a time when the industrial
  revolution was just beginning to transform
  European society
• He noted that economic development could bring
  about a widespread prosperity, yet some
  countries, and even some districts of an advanced
  country such as Britain, would lag behind in
  poverty

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Adam Smith

• When the production of goods and services for the
  market grows bigger, this is what we call
  "economic growth." If production grows fast
  enough, then we will have more production per
  person and this is called a "rise in the
  standard of living." When Adam Smith talked about
  "the wealth of nations," modern economists would
  talk about a high and rising standard of living

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Dealing with scarcity

• The key role of economists is of course to deal
  with scarcity
• We all do this, governments and individuals, all
  of the time
• If we give more to the NHS we must build less
  schools, or if I go out tonight and have a meal I
  cannot go out tomorrow for a drink
• Resources of all kinds are scarce and some
  compromise is usually required.

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Rationality and Self Interest

• Data is usually used in economic models of some
  situation that economists are trying to
  understand
• They all need some basic assumptions and a common
  starting point is that all human beings are
  highly rational and self-interested
• This assumption is a typical characteristic of
  neoclassical economists
• Critics of this basic assumption claim that
  economics is an apology for self-interest

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Further Reading

• Begg D., Fischer S., Dornbusch R. (2003)
  Economics 7th ed, McGraw-Hill.
• Sloman J., Sutcliffe M. (2001) Economics for
  Business 2nd ed, Prentice Hall. 
• Sutcliffe, M. (1994) Essential elements of
  business economics London DP Publications,
  (Essential elements series).
• Wallace, I (1990) The global economic system. -
  London Unwin Hyman.
• Amongst the best web sites are
• www.ft.com -Lots of useful statistics and data
  here (look out for economy at a glance each
  Thursday) as well as useful links
• www.statistics.gov.uk -This is the government
  office that produces all the important data on
  economic growth and inflation
• www.economist.com -In addition to the Big Mac
  index (and a guide to how it works!) you will
  find some good individual country data in
  country briefings
• www.bankofengland.co.uk -A very useful
  statistics and information source.

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Economic Reality

• Should Gordon Brown give an extra 10,000,000 to
  the NHS or Education?
• Should he give 5,000,000 each?