Land Economics

Aim of this module is to examine land, property and planning from an economic perspective
Grading is based on i. Attendance 10% ii. Assignment 30% iii. Final exam 60%

What is Economics?
Scarcity a basic human dilemma
Limited resources vs. unlimited wants The human condition requires making choices

Definitions of Economics
Mankiws definition
is the study of how society manages its scarce resources

Hedricks definition
is how society chooses to allocate its scarce resources among competing demands to improve human welfare

Alternative definitions
what economists do. is the study of choice.

 Fundamental Questions of Economics - Scarcity requires all societies to answer the following questions:
What is to be produced? How is to be produced? For whom will it be produced

WHFM Questions

How Do Economists Study Human Behavior?

Economics as a Science
The scientific method
ObservationTheoryDataTesting

Rational Behavior
Weighing benefits and costs and maximizing total net benefits Marginal vs. Total Thinking

Economic Theory and Models

Simplification by assumption Ceteris Paribus Holding other factors constant Prediction vs. realism

Microeconomic versus Macroeconomics

Why do Economists Study Human Behavior?

Scientists versus policy makers Positive Economics
Descriptive - what the world is like. Objective- value judgments need not be made Positive statements can theoretically be tested by appealing to the facts

Normative Economics
Prescriptive - what the world ought to be like Subjective value judgments must be made Normative statements cannot be tested appealing to facts.

Categories of Basic Principles of Economics

How do people make decisions? How do people interact? How does the economy work overall?

How Do People Make Decisions?

Principle #1 - People face tradeoffs
Time allocation an example of tradeoffs Efficiency versus equity Production Possibilities Frontier

 Principle #2 - The cost of something is what you have to give up to get it

The real costs of developing Kampung Baru at Kuala Lumpur Idea of redevelop Collesium Theatre

 Principle #3 - Rational people think at the margin

Rational or irrational decision-making Marginal benefits and costs versus total benefits and costs Weighing marginal costs and benefits leads to maximizing net benefits (total welfare)

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Principle #4 People respond to incentives
Reactions to changes in marginal benefits and costs Increases (decreases) in marginal benefits mean more (less) of an activity Increases (decreases) in marginal costs mean less (more) of an activity

How Do People Interact?

Principle #5 - Trade can make everybody better off

 Principle #6 - Markets are usually a good way of organizing economic activity

feudal times where feudal states were self-supporting, the benefits of trade are so powerful that people began to trade the failure of centrally planned economies and the movement towards markets for the WHFM questions

 Principle #7 Governments can sometimes improve interaction that occurs in markets

there are circumstances when market signals fail to allocate resources efficiently or equitably Public Goods, Externalities and Income Distribution Some goods or services that people desire will not be produced by markets (e.g. lighthouses). Some goods or services will either be underproduced (low cost houses) or overproduced (pollution) because markets fails to register certain benefits or costs.

 markets may also fail to provide an equitable or fair distribution of resources government intervention with its ability to coerce (the opposite of voluntary) can regulate, tax and subsidize to change market outcomes efficiency and equity: the pie analogy if government intervention always the proper solution?

How Does the Economy Work as a Whole?

Principle # 8 A countrys standard of living depends upon its ability to produce goods and services
Adam Smiths An Inquiry into the Nature and the Consequences of the Wealth of Nations Materialism more toys mean more welfare wealth: a necessary or sufficient condition for happiness (are rich people happier, citizen with lots of houses are happy) leisure time and productivity

 Principle #9 The general level of prices rises when the government prints and distributes too much money

 Principle #10 Society faces a short-run tradeoff between inflation and unemployment
Short-run and the long-run demand and supply shocks short-run increases (decreases) in output above (below) long-run potential output lead to adjustments political business cycles