Essentials of Economics for Business & Markets

A Review of the Cost Benefit Analysis Framework, which is the foundation for the Demand Curve in the Supply & Demand Model.

This video reviews the idea of marginal cost and marginal benefit and explores the intuition underlying the optimal point of consumption for a consumer: At the point where the Marginal Benefit from an additional unit of consumption is equal to the Marginal Cost.

A Review of the Demand Curve for an Individual Consumer, which indicates the quantity of a product that a consumer will buy at each possible price.

We also extend this idea to discuss the total demand for a product by aggregating the demand curves of each individual consumer, to reach the Market Demand Curve for a product. This informs a company of how many units of their product they would be able to sell depending on the price.

The amount of a product that a firm will be willing and able to supply to the market (i.e. to buyers) will depend on the price.

The analogue of the demand curve for the company is the Supply Curve: It describes how many units of a product a company willing to supply at any possible price.

Combining the analysis of Demand & Supply to study the interaction between buyers and sellers, and introduce the concept of a Market Equilibrium.

What do we mean by equilibrium? How is an equilibrium reached?

If petrol or sugar prices increase by 50%, we will probably all continue to buy petrol and sugar.

If the price of one brand of crisps increases by 50%, we will probably switch to a different brand.

This video reviews Elasticity of Demand, which measures how sensitive demand for a product is to changes in its price.

What are the effects of government imposing Minimum Prices on Alcohol? or Maximum Prices on Pharmacutical Drugs or Student Accommodation?

This video reviews how we can introduce a simple form of government intervention into the Supply & Demand Model.

When a company decides how much of a product to produce, they need to take into account both the costs that vary with their output (ingredients for a baker) and the fixed costs that they must pay regardless of their output (the rent on the bakery). In the short run, the fixed costs are "fixed" - The baker cannot move to a different bakery each day. Therefore, he only has control of the variable costs.

Therefore, to increase output, the baker will hire more workers and buy more ingredients, but at some point the productivity of an extra worker will be negligible because there is no room for him to work. This is the idea of "Diminishing marginal returns."

This video explores the relationship between fixed and variable costs, and marginal costs. It also explores how a firm should decide its optimal output based on these costs and formalises the idea of diminishing marginal returns.

This video explores the relationship between average cost and variable cost, and the most efficient (lowest cost) level of output that the firm can produce at.

This video explores the importance of fixed costs (costs that don't vary with the output of the firm) and connects fixed costs with average fixed costs.

In the long run, all of the inputs for a firm are variable; A baker can even move to a larger bakery if he desires to. Therefore, how much output should a firm choose to produce when they have control of all of their inputs?

If a major oil company decides to increase the amout of oil it supplies to the market, this is likely to have an effect on the market price for oil. However, if a local independent baker decides to produce more bread, this is unlikely to have an impact on the overall market price for bread at all of the other bakeries. Therefore, whether a firm is small or large relative to the total market, will determine whether their output decisions have an impact on the market price.

This video explores how prices are determined in a competitive market and discusses the optimal output of a small firm.

This video explores the optimal output decisions for a large firm and contrasts it with that of a small firm.

Game Theory is a formal tool used primarily by economists to model the interaction between individual decision makers; These could be individual consumers, firms or governments. It helps us formally answer questions such as; What will be the likely outcome of competition between two firms who compete in prices?

This video reviews how we frame individual incentives in a payoff matrix and solve the payoff matrix to yield the Nash Equilibrium.

When Country 1 is able to produce a product more efficently (i.e. at a lower cost) than another Country 2, and the Country 2 is able to produce a different product more efficiently than Country 1, the it makes sense for them to specialise in the products that they are most efficient at producing and trade with each other. This is the main idea of firms trading on the basis of an Absolute Advantage.

However, two countries (or more) can still benefit from specialisation and trade, even where one country is able to produce every product more efficiently than every other country. The explanation is based on Comparative Advantage, which is explored in this video. The main idea is that each country should specialise in the product that they are relatively most efficient at producing, compared to other countries.

For example, if a country can produce clothes at half the cost of the other country, or produce dairy products at a third of the cost of the other country, this country should specialise in dairy production.