WEEK 1

• Economics is the study of how people allocate their limited resources to satisfy their
unlimited wants
• Economics is the study of how people allocate their limited resources to satisfy their
unlimited wants
• Microeconomics is the study of the individual units that make up the economy
• Macroeconomics is the study of the overall aspects and working an economy, such as
inflation, growth, employment, interest rates
Microeconomics or Macroeconomics?
• Rupiah has depreciated 15% against US Dollar since the beginning of 2018.
• The increase of eggs price by 5%
• BCA increases lending rate by 0,5% next year
• Indofood increases capital expenditure by 10%
• Debts owned Mr. Adi are not sustainable.
• Bank of Indonesia has increased interest rate 3 times for the last two months.
• Government of Indonesia will increase tax by 2% next year
The Five Foundations of Economics
• Incentives
• Trade-Offs
• Opportunity Cost
• Marginal Thinking
• Trade
How do Economists Study Economy?
• They use scientific method:
• Observe phenomenon
• Develop hypothesis
• Construct a model to test hypothesis
• Design experiments
Positive and normative statement
• A positive statement can be tested and validated
• A normative statement is a opinion that cannot be tested or validated
• Examples:
• Winters in Scotland are too cold
• Everyone should have insurance policy
• Indonesia’s GDP grew 5.4% last year
• On average, people spend 2 hours every day in social media
Economic Model
Economic model is theoretical construct that involves a set of variables to illustrates complex
economics phenomenon.
• Assumptions: cateris paribus
• Endogenous factors Vs exogenous factors
A Production Possibilities Frontier
• A curves that illustrates the combination of output can produce if of all its resources are
being used efficiently.

The Law of Increasing Relative Cost

What are the benefits of specialization and trade?

No Trade
The trade-off between having more now and having more later?

• Consumer goods

• Produced for present consumption

• Capital goods

• Help produce other valuable goods and services in the future

• Investment

• The process of using resources to create or buy new capital

The trade-off between having more now and having more later?