EKONOMI PENGANTAR I

UJIAN TENGAN SEMESTER

DIFDA DELSIONA
19/444789/EK/22607
11/09/2019

CENTRAL CONCEPTS OF
1 ECONOMICS
SAMUELSON

1. Define each of the following terms carefully and give examples:

PPF, scarcity, productive efficiency, inputs, outputs.

PRODUCTION POSSIBILITY FRONTIER shows the maximum

quantity of goods that can be efficiently produced by an
economy, given its technological knowledge and the quantity of
available inputs.

SCARCITY a condition in which our recourses are limited

relative to desires.

PRODUCTIVE EFFECIENCY producing the maximum quantity

of goods and services given our scarce resource and technology
resulting in the highest benefit.

INPUTS commodities and services that are used to produce

goods and services. In other names, factors of production such
as labor and capitals.

OUTPUTS the various useful goods and services that result

from the production process and are either consumed or
employed in further production.

2. Say that Diligent has 10 hours to study for upcoming tests in

economics and history. Draw a PPF for grades, given Diligents
limited time resouces. If Diligent studies inefficiently by listening
to loud musics and chatting with friends, where will Diligent’s
grade “output” be relative to the PPF? What will happen if
Diligent increases study inputs from 10 hours to 15 hours?
 Y

.
If Diligent increases from 10 hours to 15 hours
10 .

If Diligent studies efficiently with his 10 hours of study

.
If Diligent studies inefficiently by listening to loud music
instead of studying

X 10

The black line in the PPF is the efficient line. The curve would
go along this line if Diligent studies efficiently. And the red line is
inside the PPF so it shows that Diligent does not use all the resource,
in this case time, that he has. So we can say that he studies
inefficiently. The blue line is outside the PPF so Diligent must increase
his resource. And in this case he increases his study time from 10
hours to 15 hours.

2 MODERN MIXED ECONOMY

SAMUELSON

1. The circular flow of goods and inputs illustrated in figure 2-1 has
a corresponding flow of dollar incomes and spending. Draw a
circular-flow diagram for the dollar flow of the economy and
compare it with the circular flow of goods and inputs. What is the
role of money in the dollar circular flow?

CIRCULAR FLOW OF GOODS AND INPUTS

 Factors
Market

Goods and Factors of

Services Production

Production
Market

CIRCULAR FLOW OF DOLLARS

Factors
Market

Factors of Goods and

Production Services

Production
Market
1 TEN PRINCIPLES OF ECONOMICS
GREGORY MANKIW

1. Because, as stated in the book, an incentive is something (such

as a prospect of a punishment or reward) that induces a person
to act. People respond to incentives. That is why it is important
for policymakers to think about it. For example, a government
charge a higher tax on food (chilly, ext. ) to raise government
income. While it is profitable for the government, it is not for the
people. Especially the ones with low income. It induces people
to steal and therefore raises country’s criminality.

2. Households and firms interacting with markets act as if they are

guided by an “invisible hand”. A market economy must seem
uncertain at first because the decision makers are millions of
households and firms interacting with each other. A planned
economy must seem more certain because there is a specific
person making the decisions and controlling the economy. But, it
turns out, a market economy is way more successful than a
planned economy which have been proven unsuccessful seeing
that a lot of countries that implemented it, had fallen. What
makes it so successful? It is the so called invisible hand that
directs economic activity. The result of the decisions that sellers
and buyers make, market prices are formed. Smith’s insight is
that these prices direct the buyers and sellers to reach
outcomes that maximize the well being of society as a whole.
 INTERDEPENDENCE AND THE GAINS

3 FROM TRADE
GREGORY MANKIW

1. Absolute advantage is the ability to produce a good using

fewer inputs than another producer. A requires less time to
produce meat than B because, lets say, A has more skills. That
means A has the absolute advantage.

Comparative advantage is the ability to produce a good at a

lower opportunity cost than another producers. The producers
who give up less of other goods to produce another good is said
to have less opportunity cost and therefore have a comparative
advantage.

1.

8 2

6
6
11 14
4

6 9 12
STUDIES IN 10 HOURS

Carrot potatoes

A 8 oz 12 oz

B 9 oz 14 oz

Absolute advantage  with the lowest inputs.

Here, the input is time. And B clearly has less inputs because in 10
hours he can produce 9oz of carrot or 14oz of meat whereas A can
only produce 8oz of carrot and 12oz of potatoes.

Comparative advantage  with the lowest opportunity cost.

By producing 1oz of carrots, the opportunity cost for A is 3/2oz of
potatoes.
By producing 1oz of carrots, the opportunity cost B has to give up is
6/5oz of potatoes.

Therefore B have the comparative advantage for producing carrots

and A has the comparative advantage of producing potatoes. One
can’t have the comparative advantage of producing both goods.
 THE MARKET FORCES OF SUPPLY
4 AND DEMAND
GREGORY MANKIW

1. Popeye’s income declines and as a result he buys more spinach

that means spinach is an inferior good. Because if a person’s
income declines, they would choose to buy a good that is
cheaper in price. Popeye’s demand curve for spinach would
move to the right (or upwards).
SUPPLY

DEMAND2 The demand curve

DEMAND1 moves upward

2. A change in producer’s technology lead to a shift in the supply

curve.
A change in price lead to a movement in the supply curve.
3 BASIC ELEMENTS OF SUPPLY AND
DEMAND
SAMUELSON

1. A. Define carefully what is meant by a demand schedule or

curve. State the law of downward sloping demand. Illustrate the
law of downward sloping demand with two cases from your own
experience.

B. Define the concept of a supply schedule or curve. Show that

an increase in supply means a rightward and downward shift
of the supply curve. Contrast this with the rightward and
upward shift of the demand curve implied by an increase in
demand.

Demand schedule there exists a definite relationship between

the market price of a good and the quantity demanded. When a
price rise, the quantity demanded will fall and vice versa. This
relationship is called the demand schedule or the demand curve.

The law of downward sloping demand when the price of a

commodity is raised (and other things held constant), buyers
tend to buy less of a commodity. Similarly, when the price is
lowered, other things being constant, quantity demanded
increases.

When the price of starbucks coffee is normal, (which is very

Price of Starbucks

expensive) Rp55.000,00, the quantity I demand is very

Coffee

small. Usually only one sup a month and in the small size.
D But when there is a discount like 50% off or buy 1 get 1
where I can pay only Rp25.000,00, the quantity I demand is
a lot more.
 Price of Gojek

The red line on the curve shows the price of gojek when
high fare is due. Because the price is high, the quantity I
demand is smaller. Sometimes I rather ask a friend to give
me a ride home or just walk home. But the blue line on the
curve shows the normal price of gojek and the quantity I
demand is more because I can save a lot energy by not
walking home.

Quantity of Gojek
rides demanded

B. supply schedule shows the relationship between the market

price of a good and quantity that producers are willing to produce
and sell.
PRICE
S The shift to the right shows that, when supply
S’ increases, producers produce and sell a larger quantity
E
at each price. The downward shift shows that an
increase in supply is often caused by a decrease in the
E’
cost-production. So that producers can sell output in a
D lower price.
QUANTITY

PRICE The shift to the right shows an increase in demand. It

S can due to a higher income or tastes, etc (the price held
constant). The shift upward shows that because the
E’ quantity demanded is raised while the supply remains
E unchanged (maybe because the cost does not change),
it is necessary for producers to sell their goods on a
D’
higher price.
D
QUANTITY
2. What might increase the demand for hamburgers? What would
increase the supply? What would inexpensive frozen pizzas do
to the market equilibrium for hamburgers? To the wages of
teenagers who work at McDonalds?

– anincrease of consumers tastes on hamburgers or maybe it

can be increased because of a new innovation line a low
calorie and healthy hamburger.

- The lower cost production of hamburger like a lower pickle

price or lower beef price. And it can also be caused by a new
technology that can lower the salaries and wages expense.

- The frozen pizza is a substitute of hamburger. Because it has

a lower price, therefore consumers will choose the pizza
instead and decrease the demand for hamburgers. The
quantity demanded is decreased and therefore, producers will
lower the hamburger price so consumers would want to buy
more again (law of downward sloping demand)

PRICE

E
E’
QUANTITY

D’ D

Due to the high demand for pizzas, the restaurant will earn
more profits. And with more profits, they can pay a higher
salary.
But there is another case, the low price of frozen pizzas can
be caused by a new technology the cuts the cost of
production. If this is the case, the workers is decreased.
 SUPPLY, DEMAND, AND

6 GOVERNMENT POLICIES
GREGORY MANKIW

1. A price ceiling  A legal maximum price of goods and services.

To protect consumers.

Example:
Chilly is one the commodities that has a non-constant
price. It often rise or fall. Lets say that price of chilly nowadays is
constantly rising. To protect consumers from too high of a price,
government will make a price ceiling on chilly and therefore the
price of chilly cannot rise above the price ceiling.

A price floor  A legal minimum price of goods and services.

To protect producers.

Example:
The easiest example of the price floor is the minimum
wage. Government often implies a minimum wage, or should I
say price floor, in firms. So that labors would benefit from it. The
Indonesian UMK (upah minimum Kabupaten) and UMP (Upah
Minimum Provinsi) is the real example applied in this country.

2. A binding price ceiling causes shortage of a good. First, a

binding price ceiling is if the equilibrium is above the price ceiling.
If it is otherwise, then the price ceiling has no effect.

SUPPLY

3$
E

2$
shortage
75 125 DEMAND
 The quantity demanded is 125 while the quantity supplied
is only 75. Therefore, the quantity demanded exceeds the
quantity supplied. This is the result of price ceiling because
the cheap price would attract a lot more buyers but the
production is still the same since there is no cost cutting or
anything.

APPLICATION: INTERNATIONAL

9 TRADE
GREGORY MANKIW

1. A tariff  is a tax on goods produced abroad and sold

domestically.

Effect:
Let’s say that the government imposes a tariff on imported
goods. Suppliers of that good can now sell their production as
much as the world price plus the tariff that government imposes.
Therefore, the price is higher and the quantity demanded will
fall.

 thus, the tariff reduces the quantity of imports and moves the
domestic market closer to its equilibrium without trade.

And also, it would cause a dead-weight loss. What is a dead-

weight loss? A dead-weight loss is a fall of total surplus ( the
sum of consumers surplus, producers surplus, and government
surplus) resulting from the tariff imposed on imports or exports.
2. A country becomes an exporter of a good when domestic
suppliers/producers sell their products in a world market or
outside their country atleast.

EXAMPLE OF EXPORTS
Indonesia sell their oil to America and therefore
Indonesia is an exporter of oil.

A country becomes an importer of a good when they buy

goods or services from outside of their own country. This can
due to the lack of skills or technologies (inputs) resulting in the
country being unable to produce that good itself. So, they have
to buy it from another country.

EXAMPLE OF IMPORTS
Indonesia even though is an agrarian country still buys
rice from Thailand. Therefore, Indonesia is an importer of
rice.
5 ELASTICITY AND ITS APPLICATION
GREGORY MANKIW

1. If a demand is elastic, it means that an increase in price (or

decrease), is less than the decrease (or increase) in the quantity
demanded that follows.
The ED is more than 1 (ED > 1).

Therefore, if a demand is elastic, an increase in price would

make the total revenue (TR) fall. Because, let’s say you increase
the price of your produced goods by 10%, the quantity
demanded will fall by 50%. So increasing the price of your
goods will do you no good. The total revenue will fall.

2. THE FOUR DETERMINANTS OF RPICE ELASTICITY

 Availability of close substitutes goods with close
substitutes will have more elastic demand. Because, it is
easy for consumers to buy another (the substitute of a
good) because the price has increased. For example, if
you usually consume meat and then one day the price of
meat increases, you can just easily change your everyday
meal to chicken. Which is less expensive.

 Necessities versus luxuries necessities have a more

inelastic demand whereas luxuries have more elastic
demand. Why? Because if it is a necessity, you can’t just
stop consuming it when the price increase. For example,
food. When the price of food goes up, that does not mean
you can stop eating.
But if it is a luxury, like branded clothes for example, you
can easily stop buying it and maybe find something
cheaper. Because it is not necessary.
 Definition of the market the elasticity of demand depends
on how we draw boundaries of the market. If it is a
narrowly defined market like ice cream, it tends to be more
elastic. You can easily switch ice cream for other desserts.
But if it is a broadly defined market like food, it tend to be
more inelastic since you can’t just stop consuming it or find
a substitute.

 Time horizon goods tend to have more elastic demand in

a longer time horizon. For example, gasoline. When the
gasoline price first increase, the quantity demanded will
not fall that much. Let’s say for the first 3 years. It is still
inelastic. But, for the other 3 years, people will have
switched to public transportation or maybe find a more fuel
efficient cars. Therefore the longer the time horizon the
more elastic the price elasticity as long as other things held
constant.
 THE COSTS OF PRODUCTION
13 GREGORY MANKIW

1. MARGINAL PRODUCT  the increase in output that arises

from an additional unit of input.

DIMINISHING MARGINAL PRODUCT  the property whereby

the marginal product of an input declines as the quantity of the
input increases.
 as you can see, the marginal product of the second worker is 16
units. The marginal product of the third worker is 12 units and
the marginal product of the fourth worker is 8 units. From this we
can conclude that as the numbers of workers increase, the
marginal product declines. This is the diminishing marginal
product.

2. Total Cost a total cost can be divided into two types.

 Fixed cost  do not vary with the quantity of output
produced. The example for fixed cost is the cost of rent.
 Variable cost  varies with the quantity of output
produced. For example, if you want to open up a
restaurant, the variable cost is milk, sugar, meat, etc.

Average Total Cost total cost divided by the quantity of output.

Average costs is the sum of average fixed cost and average
variable cost.

Marginal Cost the increase in total cost that arises from an

extra unit of production.
21 THE THEORY OF CONSUMER
CHOICE
GREGORY MANKIW

TOTAL POUNDS GLASSES SPENDING SPENDING

SPENDING OF CHEESE OF WINE ON CHEESE ON WINE
$3.000 0 1.000 0 3.000
$3.000 100 800 600 2400
$3.000 250 500 1.500 1.500
$3.000 400 200 2.400 600
$3.000 500 0 3.000 0

Quantity of cheese

500 B

CONSUMER’S BUDGET CONSTRAINT

250 C

A
Quantity of wine
500 1000

1. NORMAL GOOD a good for which an increase in income raises

the quantity demanded.
INFERIOR GOOD a good for which an increase in income
reduces the quantity demanded

 If a person’s income raises from $3000 to $4000, if it is a

normal good the quantity demanded will also increase. Income
and normal good have a positive relationship.

 But, if it is an inferior good, the quantity demanded will

decrease. Because with a raised income people will choose to
buy something better than an inferior good.
An inferior good and incomes have a negative relationship.
4
SUPPLY AND DEMAND: ELASTICITY AND
APPLICATIONS
SAMUELSON

1. “ A good harvest will lower the income of farmers,”. Illustrate this

proposition using a supply and demand diagram.

PRICE

S’
E

E’

D
QUANTITY

As seen in the supply demand curve, the increased supply moves the
equilibrium. The price decrease while the quantity increase. Why?
Because of the good harvest, farmers are able to supply more.
Therefore the quantity supplied exceeds the quantity demanded and
will cause a surplus. So the price falls encouraging consumption and
also discouraging production.

2. “the price drops by 1 percent, causing the quantity demanded to

rise by 2 percent. Demand is therefore elastic, with ED > 1.” If
you change 2 to ½ in the first sentence, what two other changes
will be required in the quotation?

 The quote should be:

“the price drops by 1 percent, causing the

quantity demanded to rise by 2 percent.
Demand is therefore elastic, with ED > 1.”
5
DEMAND AND CONSUMER BEHAVIOUR
SAMUELSON

1. Explain the meaningof utility. What is the difference between total

utility? Explain the law of diminishing marginal utility and give the
numerical example.

UTILITY denotes satisfaction. It refers to how consumers rank

different goods and services.

MARGINAL UTILITY the expression “marginal” is a key term in

economics and always means “additional” or “extra”. Marginal
utility denotes the additional utility you get from the consumption
of an additional unit of a commodity.

LAW OF DIMINISHING MARGINAL UTILITY states that as the

amount of a good consumed increases, the marginal utility of
that good tends to decline.

NUMERICAL EXAMPLE:

(1) (2) (3)

Quantity of A Good Total Utility Marginal Utility
Consumed U MU
Q
0 0
1 5 5
2 8 3
3 10 2
4 10 0

2. Which pair of the following goods would you classify as

complementary, substitute, or independent goods: beef,
ketchup, lamb, cogarettes, gum, pork, radio, television, bus
travel, air travel, taxis and paperbags? Illustrate the resulting
shift in the demand curve for one good when the price for
another good goes up. How would a change in income affect the
demand curve for air travel? The demand curve for bus travel?
 PRICE
3. Complementary:
 Pork –– ketchup S
 Beef –– ketchup
 Lamb –– ketchup

D’ D
QUANTITY

Substitute: PRICE
 beef –– lamb S
 cigarettes –– gum
 radio –– television
 air travel –– bus travel

D D’
QUANTITY

Independent Goods:
 taxis
 paper-bags

HOW A CHANGE IN INCOME AFFECT THE DEMAND CURVE FOR AIR TRAVEL

If income rises
If income lowers
 Air travel is categorized as a normal goods (or
service), even luxurious. Therefore, when
income rises the quantity versa.demanded for
air travel will shift to the right. And vice

HOW A CHANGE IN INCOME AFFECT THE DEMAND CURVE FOR BUS TRAVEL

If income lowers
If income rises

Bus travel is categorized as an inferior goods (or

services). Therefore, when income rises, the quantity
demanded for bus travel will shift to the left. Because
consumers will choose an alternative with (maybe) a
better quality even though it is more expensive. And
vice versa.
 PRODUCTION AND BUSINESS

6 ORGANIZATIONS
SAMUELSON

1. The relationship between the amount of input required and the

amount of output that can be obtained is called the production
function. It specifies the maximum output that can be produced
with a given quantity of inputs. It is defined for a given state of
engineering and technical knowledge.

 Hamburgers: Inputs  lettuce, bun, meat, ketchup, pickle,

tomatoes.
Outputs  hamburgers produced.

 Computers: Inputs  LCD, computer chips, steel, metal,

labor, etc.
Outputs  computers produced.

 Concerts: Inputs  sound system, stage,

singers/bands.
Outputs  concerts performed.

 Haircuts: Inputs  scissors, labor, hairdryer, water.

Outputs  hairs done.

 College education: Inputs  tuition fee, professors,

knowledge, books.
Outputs  educated people.
2.

PUMPING HORSE TOTAL PRODUCTS MARGINAL PRODUCT AVERAGE PRODUCT

POWER (BARRELS PER DAY) (BARRELS PER HP) (BARRELS PER DAY
PER HP)

10.000 86.000 8,6

28.000

20.000 114.000 5,7

20.000
30.000 134.000 4,467
16.000
40.000 150.000 3,75

14.000
50.000 164.000 3,28
 ANALYSIS OF COSTS
7 SAMUELSON

1.
(1) (2) (3) (4) (5) (6) (7) (8)
Q FC VC TC MC AC AFC AVC
0 145 0 145 infinity infinity infinity
30
1 145 30 175 175 145 30
25
2 145 55 200 100 72,5 27½
20
3 145 75 220 73,3 48,3 25
30
4 145 105 250 62,5 36,25 26¼
50
5 145 155 300 60 29 31
70
6 145 225 370 61,67 24,1 37½

2. The marginal cost curve always intersects the average total cost
curve at its lowest point because the marginal cost of making
the next unit of output will always affect the average total cost.
As a result, so long as marginal cost is less than average total
cost, average total cost will fall. Eventually, the marginal cost of
producing another unit will be greater than the average total cost
and then the average total cost curve will start to rise.