INTRODUCTION TO BUSINESS ECONOMICS – COURSE SUMMARY
IBE – INTRO. BUSINESS ECONOMICS – COURSE SUMMARY
Radboud University 2020
Lecture 1: ECONOMICS IS ALL ABOUT ECONOMIC INTERACTIONS
Higher interaction volume 🡨🡪 higher economic growth
IMPORTANT CONCEPTS:
● OPPORTUNITY COST: what would you be doing if you were not here
● EXPLICIT COST: what does it cost ? (monetary price)
● ECONOMIC COST: What do I give up?
● ECONOMIC COST = EXPLICIT COST + IMPLICIT COST
● ECONOMIC RENT: difference between the value something have for you and the economic cost of it.
Represents money paid or maid in excess of the expected amount.
● SUNK COSTS: costs that cannot be recovered 🡪 should not impact decision making
● TRADE-OFFS: sacrifice resources in order to achieve certain benefit
● WILLINGNESS TO PAY: the max. sacrifice of resources a consumer is willing to pay/loose to achieve certain
benefit
*The real price of buying something (Opportunity Cost) = alternative thing you cannot buy
e.g. If a burger is $4 and a beer is $2
then:
burger = 2x beers
beers = ½ Burgers
Marginal Analysis
- Which choice yields the highest outcome – which one is the most efficient choice.
- Process of breaking down the decision making into a series of yes or no decisions.
● MARGINAL RETURN BENEFITS: the benefit of one extra unit
● MARGINAL COSTS: the cost of one extra unit
● MOST EFFICIENT POINT (CHOICE): Marginal Return = Marginal
Costs 🡪 Profit Maximization Point
o A rational firm will produce its products where the MC
and MR equals to each other
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, INTRODUCTION TO BUSINESS ECONOMICS – COURSE SUMMARY
Prices Determine Behavior:
● Governments can influence people´s behavior to by certain attitudes – but can lead to intended and
unintended consequences
● We have to look at relative prices – when we buy something, the real price are the things you cannot
consume anymore (opportunity costs)
● Sunk costs should not affect your choice
● Marginal analysis – find the optimum amount… (how much should a firm produce)
Lecture 2: THE ECONOMIC PROBLEM
● What has to be produced?
● How it should be produced?
● Who will receive the produced goods and services?
CAPITALISM
● Resources are privately owned
● The economic problem is solved using markets and prices
● Society determines through demand what and how products should be produced (use marginal analysis to
do that)
● Invisible hand (prices) influence the opportunity costs and optimal choices
● Incentives (and unintended consequences):
o Sometimes people don’t take the best choices for economy and for themselves
o Incentives influence behavior
CAPITALIST REVOLUTION:
● ECONOMIC GROWTH:
o GDP: Gross Domestic Product – measure the size of an economy = sum of all income/value added in
a certain economy in a certain period
▪ In the long run supply = income
o GDP per CAPITA: average income per person per year of a certain country
● PRODUCTIVITY GROWTH
o When we are better in producing something
o *things are becoming cheaper and more accessible; thus less money is being added to GDP
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, INTRODUCTION TO BUSINESS ECONOMICS – COURSE SUMMARY
● PRIVATE PROPERTY: protection, tangible and intangible, capital goods
● MARKETS & FIRMS:
o division of labor, specialization, technology, economies of scale 🡪 specialized work, one worker
cannot influence the whole process…
o productivity growth
PRODUCTION POSSSIBILITIY FRONTIER:
● how much can a country (or firm/ city/ person/ etc. can
produce)?
● The higher the specialization, the higher the
Opportunity Cost, because the more you produce one
certain product, the more you need to give up in
producing other types of products.
o Using skills differences
o Economies of scale 🡪 Economies of scale occur
when increased output leads to lower unit costs. (lower average costs)
o (Labor) Laws limit production
o On purpose we chose to don’t reach out possibility
frontier (PPF)
● PPF – PRODUCTION POSSIBILITY FRONTIER: is the point at
which a country’s economy is most efficiently producing its
various goods and services and, therefore, allocating its
resources in the best way possible.
TRADE AND EXCHANGE
● some are better than other, for this reason people/countries/organizations specialize in certain activities and
other in others.
● Everyone should specialize in what they have the lowest opportunity cost!! (so the product in cheaper)
o People are mutually interdependent
o Productivity increases with specialization - specialize in what they are BEST in comparison with
others (OPPORTUNITY COSTS! + ABSOLUTE ADVANTAGE/COMPARATIVE ADVANTAGE)
o SURPLUS is sold on markets
o The more trade is possible/available, the more speacilization is possible
● ABSOLUTE ADVANTAGE:
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, INTRODUCTION TO BUSINESS ECONOMICS – COURSE SUMMARY
o An entity with an absolute advantage can produce a product or service at a lower absolute cost per
unit using a smaller number of inputs or a more efficient process than another entity producing the
same good or service.
● ADVANTAGES OF TRADE:
o Countries/ people speacialize in what they are better at producing
o Countries can come with the best “TERMS OF TRADE” (TOT) 🡪 ratio between a country's export
prices and its import prices. How many units of exports are required to purchase a single unit of
imports? The ratio is calculated by dividing the price of the exports by the price of the imports and
multiplying the result by 100.
▪ Germany: 1 car = ¼ Bike
▪ France: 1 car – 3 bikes
▪ E.G. Potential price = 1 Car = ¾ Bikes (They decide to trade 300 bikes for 400 cars)
o Countries can produce in a higher level after the trade
● COMPARATIVE ADVANTAGE:
o Even if you are bad in everything, in
some things you are less bad 🡪 it
shows who should produce what
o refers to an economy's ability to
produce goods and services at a lower opportunity cost than that of trade partners.
o A comparative advantage gives a company the ability to sell goods and services at a lower price
than its competitors and realize stronger sales margins.
o The company with the lower opportunity cost, and thus the smallest potential benefit which was
lost, holds this type of advantage.
● TERMS OF TRADE (PRICE):
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IBE – INTRO. BUSINESS ECONOMICS – COURSE SUMMARY
Radboud University 2020
Lecture 1: ECONOMICS IS ALL ABOUT ECONOMIC INTERACTIONS
Higher interaction volume 🡨🡪 higher economic growth
IMPORTANT CONCEPTS:
● OPPORTUNITY COST: what would you be doing if you were not here
● EXPLICIT COST: what does it cost ? (monetary price)
● ECONOMIC COST: What do I give up?
● ECONOMIC COST = EXPLICIT COST + IMPLICIT COST
● ECONOMIC RENT: difference between the value something have for you and the economic cost of it.
Represents money paid or maid in excess of the expected amount.
● SUNK COSTS: costs that cannot be recovered 🡪 should not impact decision making
● TRADE-OFFS: sacrifice resources in order to achieve certain benefit
● WILLINGNESS TO PAY: the max. sacrifice of resources a consumer is willing to pay/loose to achieve certain
benefit
*The real price of buying something (Opportunity Cost) = alternative thing you cannot buy
e.g. If a burger is $4 and a beer is $2
then:
burger = 2x beers
beers = ½ Burgers
Marginal Analysis
- Which choice yields the highest outcome – which one is the most efficient choice.
- Process of breaking down the decision making into a series of yes or no decisions.
● MARGINAL RETURN BENEFITS: the benefit of one extra unit
● MARGINAL COSTS: the cost of one extra unit
● MOST EFFICIENT POINT (CHOICE): Marginal Return = Marginal
Costs 🡪 Profit Maximization Point
o A rational firm will produce its products where the MC
and MR equals to each other
Página | 1
, INTRODUCTION TO BUSINESS ECONOMICS – COURSE SUMMARY
Prices Determine Behavior:
● Governments can influence people´s behavior to by certain attitudes – but can lead to intended and
unintended consequences
● We have to look at relative prices – when we buy something, the real price are the things you cannot
consume anymore (opportunity costs)
● Sunk costs should not affect your choice
● Marginal analysis – find the optimum amount… (how much should a firm produce)
Lecture 2: THE ECONOMIC PROBLEM
● What has to be produced?
● How it should be produced?
● Who will receive the produced goods and services?
CAPITALISM
● Resources are privately owned
● The economic problem is solved using markets and prices
● Society determines through demand what and how products should be produced (use marginal analysis to
do that)
● Invisible hand (prices) influence the opportunity costs and optimal choices
● Incentives (and unintended consequences):
o Sometimes people don’t take the best choices for economy and for themselves
o Incentives influence behavior
CAPITALIST REVOLUTION:
● ECONOMIC GROWTH:
o GDP: Gross Domestic Product – measure the size of an economy = sum of all income/value added in
a certain economy in a certain period
▪ In the long run supply = income
o GDP per CAPITA: average income per person per year of a certain country
● PRODUCTIVITY GROWTH
o When we are better in producing something
o *things are becoming cheaper and more accessible; thus less money is being added to GDP
Página | 2
, INTRODUCTION TO BUSINESS ECONOMICS – COURSE SUMMARY
● PRIVATE PROPERTY: protection, tangible and intangible, capital goods
● MARKETS & FIRMS:
o division of labor, specialization, technology, economies of scale 🡪 specialized work, one worker
cannot influence the whole process…
o productivity growth
PRODUCTION POSSSIBILITIY FRONTIER:
● how much can a country (or firm/ city/ person/ etc. can
produce)?
● The higher the specialization, the higher the
Opportunity Cost, because the more you produce one
certain product, the more you need to give up in
producing other types of products.
o Using skills differences
o Economies of scale 🡪 Economies of scale occur
when increased output leads to lower unit costs. (lower average costs)
o (Labor) Laws limit production
o On purpose we chose to don’t reach out possibility
frontier (PPF)
● PPF – PRODUCTION POSSIBILITY FRONTIER: is the point at
which a country’s economy is most efficiently producing its
various goods and services and, therefore, allocating its
resources in the best way possible.
TRADE AND EXCHANGE
● some are better than other, for this reason people/countries/organizations specialize in certain activities and
other in others.
● Everyone should specialize in what they have the lowest opportunity cost!! (so the product in cheaper)
o People are mutually interdependent
o Productivity increases with specialization - specialize in what they are BEST in comparison with
others (OPPORTUNITY COSTS! + ABSOLUTE ADVANTAGE/COMPARATIVE ADVANTAGE)
o SURPLUS is sold on markets
o The more trade is possible/available, the more speacilization is possible
● ABSOLUTE ADVANTAGE:
Página | 3
, INTRODUCTION TO BUSINESS ECONOMICS – COURSE SUMMARY
o An entity with an absolute advantage can produce a product or service at a lower absolute cost per
unit using a smaller number of inputs or a more efficient process than another entity producing the
same good or service.
● ADVANTAGES OF TRADE:
o Countries/ people speacialize in what they are better at producing
o Countries can come with the best “TERMS OF TRADE” (TOT) 🡪 ratio between a country's export
prices and its import prices. How many units of exports are required to purchase a single unit of
imports? The ratio is calculated by dividing the price of the exports by the price of the imports and
multiplying the result by 100.
▪ Germany: 1 car = ¼ Bike
▪ France: 1 car – 3 bikes
▪ E.G. Potential price = 1 Car = ¾ Bikes (They decide to trade 300 bikes for 400 cars)
o Countries can produce in a higher level after the trade
● COMPARATIVE ADVANTAGE:
o Even if you are bad in everything, in
some things you are less bad 🡪 it
shows who should produce what
o refers to an economy's ability to
produce goods and services at a lower opportunity cost than that of trade partners.
o A comparative advantage gives a company the ability to sell goods and services at a lower price
than its competitors and realize stronger sales margins.
o The company with the lower opportunity cost, and thus the smallest potential benefit which was
lost, holds this type of advantage.
● TERMS OF TRADE (PRICE):
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