Economics and Society Lecture notes PDF

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BUSS504- Economics and SocietyWeek 1Introduction to Economics and SocietyTwo main lenses in economics, the two lenses are called”macro economics (Macro for short)- “large -”Micro economics (Micro for short)- “small -Four groups of the Economy House holds: as consumers 1. Firms: as producers 2. NZ Go...

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BUSS504- Economics and Society

Week 1 Introduction to Economics and Society Two main lenses in economics, the two lenses are called ” macro economics (Macro for short)- “large ” Micro economics (Micro for short)- “small Four groups of the Economy House holds: as consumers .1 Firms: as producers .2 NZ Government .3 ( Reserve bank of New Zealand (RBNZ

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.Macro Economics Is the study of whole economies or countries e.g

Economic growth unemployment price levels interest rates exchange rates -

Micro Economics Is the study of consumers, households and firms House hold- should I parent stay home and look after kids Should a firm compete with lower prices Should I spend the money I get from my job or save it -

Introduction to Law in Economics and Society There are two main branches of Law, namely Public Law and Civil Law Civil Law is known as Private law, e.g. criminal law and constitution law The Civil Law affects disputes between people amongst themselves

Constitution of New Zealand The Constitution of New Zealand is unwritten It is based on a number of different sources which include Legislation, Case Law and the Treaty of Waitangi

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2 The voting system in New Zealand is based on MMP Members of Parliament belong to different parties, the main parties being Labour, National, ( Greens. New Zealand First, ACT Party and Maori Party ( currently not in parliament ( Members of Parliament are either voted in by the people ( electorate members of parliament ( Members of Parliament are also chosen from the Party List ( List Members Week 2

Overview of the Economy

(What do households do? (Consumers

Buy and consumer outputs produced by firms

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. Provide “factors of production that firms use to produce outputs E.g

Households can be workers, who provide labour . Households can be landlords, who provide land/property

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Households can be shareholders, who provide capital

( Markets where households and firms meet and transact (buy and sell

Markets for final goods and services Supermarkets Shopping malls Restaurants Markets for factors of production The job market Property markets

(What do firms do? (Producers ( Produce and sell outputs goods and services (G&S

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Firms pay households for the ‘factors of production’, they provide Pay wages to workers Pay rent to landlords Pay dividends to shareholders

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( Households and firms have to make decision because of limited resources (time, imputes, money

Scarcity= we have limited resources, but unlimited wants. So, having more of one thing means have .less of another Scarcity leads to trade off: one must give up something in order to obtain something else

?What does the government do

Create legal environment in which transactions can take place Decide what public services to provide -

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3 ( E.g. education, medical, police, cour system. (Govt also faces scarcity

sources of funds of the treasury Taxes paid by households and firms Borrow: by issuing govt, bond -

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?Any trade offs ( taxes(up)= private consumptions, savings(down

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. Borrowing now create liabilities for the future, which requires higher taxes in the future

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Fiscal policy: decision on the govt: budget including amount and composition of expenditure and revenues

(Reserve bank of New Zealand (RBNZ

Commercial bank issues credit cards (ASB) while the Reserve bank doesn’t NOT part of the elected govt Functions of RBNZ issues currency: notes and coins Supervises the whole NZ banking system Conducts monetary policy to maintain prices stability: low inflation rate of 2%

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Monetary policy+ controls the total amount of money in the economy ( One Tool: OCR (offical cash rate

Week 3

Thinking like an Economist The “cost-Benefit principle”: An action should be taken if and only if the extra/ marginal benefits . (mb) is greater than or equal to (>) the extra/ marginal cost (mc) “rational” decision making E.g. Buying pizza by the slice slice of pizza= 1 unit of activity 1 MC= price per slice- $5.50 MB= your enjoyment

Slice MC

1st

2nd $5.5

3rd 5.5 5.5.

4th

5th 5.5

6th 5.5

5.5

4 MB MB > MC?

$9 Yes

8 Yes

7 Yes

2 No

0 No

-4 No

So should I buy and eat 3 slices of pizza

. If MC or MB changes, your decision will change too E.g. what if price of pizza per slice increases to $7.50 E.g. what if you are at an all-you-can-eat pizza buffet, So MC=0

Sunk cost . Sunk cost+ costs that cannot be recovers when you make decisions . Entry fee to buffet restaurant is a sunk cost . If you are rational, you should not let sunk cost affect your marginal decisions Eat the moneys worth” Vs MB/MC decision “

MB and MC could also apply to your time E.g. each semester at Uni E.g. going shopping: dairy downstairs: more expensive vs supermarket: cheaper but further away . Opportunity cost= cable of what must be given up in order to do an activity . E.g. driving 20min to supermarket . What would you have done with 20mim, TV, Sleep, Work, Homework

That is your opportunity cost Demand and supply : Every society has to answer these 3 basic questions on production ? what: which goods to produce, how much of each * ? How: what combination of inputs, what technology to use * ? For whom: who gets to consume these outputs *

Two main approaches to solve these questions Central planning

Markets

Decisions are made high- up by a few individuals

Buyers and sellers signed wants and costs. Demand and supply answer 3 questions

e.g. former soviet union. North Korea

Most markets economies, e.g. NZ

Market: consists of buyers and sellers Demand: Comes from buyers Supply: Comes from sellers

5 : They have differs (opposing) motives from the transaction buyers want “good vale”: high enjoyment, low price * sellers want “good profit”: high price, low cost *

. The market price/Demand-Supply forces will balance these Z

Demand curve:shows the quantity that buyers would purchase at each possible price Price (up)- Consumer buy less Price (down)- Consumer buy more . Buyers reservation price= Highest price the person is willing to pay for a good . People value things differently. So buyers can gave different reservation prices

When price (down); exisiting consumers buy more, and it brings new buyers into market. So, ( quantity demanded (up

Sellers reservation price= lowest price a person is willing to sell a good for Sellers have different reservation prices because they face different costs, use different inputs, and different technologies with higher prices: existing sellers will offer more, new sellers come into market —> quartet supplied goes up

-LAWConsumer Guarantees Act Law/Theory The consumer Guarantees Act 1993 This act applies to both goods and services * The consumer guarantees act 1993 now also includes online transactions * Section 2 of the consumer guarantees act (“The Act”) defines a consumer as any person who * acquires goods or services from a suppliers e.g. a seller of goods por provider of services. The goods or services in question will be acquired for personal or domestic consumption

Consumer/goods/supplier : The section 2 of the act does not apply if

The acquisition is for resale * Consumption in the course of production or manufacture * Repair * Consumer Guarantees Act : Section 2- supplying goods or services to a consumer can be sale * Exchange * Lease * Hire *

6 Hire purchase * Gift * Grant * Goods Section 2- goods means personal property of every kind (whether tangible or intangible) other than money and choses in action and includes goods attached to or incorporated in any real or personal property * Ships, aircraft, vehicles * Animal * Minerals, trees and crops * Electrify and gas * Water and computer software * Guarantee on Acceptable quality Section 6 provides a guarantee of acceptable quality on goods supplied to a consumer * Section 7 defines acceptable quality. The supplier (supplier of goods) guarantees (promise) that their goods are of acceptable quality

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Definition of Acceptable quality : According to section 7 this means they are

Fit for all purposes for which goods of the type in questions are commonly supplied * Acceptable in appearance and finish * Free for minor defects * Safe * Durable * The standard that is used to ascertain the acceptability of goods is bases on the reasonable consumer

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Reasonable consumer Factors which the reasonable consumer would have regards to in deciding whether the goods are of : acceptable quality are as follows nature of goods and price * Statements on packaging or label * Representations made by supplier or manufacture * Other relevant circumstances *

(Exceptions- Defects drawn to consumers attention- S7(2) and S7(3

if detects are drawn to consumers attention before the supply, the consumer is presumer to have * ( taken the goods, inclusive of their defects- S7(2 If defects are outliner on notice displayed with goods, supplier is presumer to aware of those * (defects- S7(3 (Exception- inappropriate use of goods- S7(4 : No failure to comply with the guarantee of acceptable quality if

with reference to a reasonable consumer, if the manner or extent of use of the goods was inappropriate The goods would otherwise have complied with the guarantee of acceptable quality *

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7 Guarantee on Delivery Section 5A provides for a guarantee on delivery. Goods must be delivered at the agreed place at . the agreed time. If no time is agreed on then goods must be delivered within a reasonable time Breach of the guarantee on delivery if is substantial, entitles the consumer to reject the goods in ( accordance with section 18(3

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Remedies If the goods fail to comply with statutory guarantees, the consumer is entitled to the following : remedies .( repair or replacement at the expense of the supplier- section 18(2)(a), s19(1)(a) and s19(1)(b * : Where the failure cannot be remedied or is of a substantial character consumer may (Reject the goods- s18(3)(1 * ( Or obtain from supplier damage in compensation for any reduction in vault-section 18(3)(b Failure of substantial character defined in section 21 *

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the right to recur goods must be exercised within a reasonable period, otherwise it may be lost- * (S20(1 ( Consumer who rejects goods must notify supplier- S22(1 * ( Where possible, a consumer who exercises the right to reject goods must return the goods- S22(2 * If there are goods reasons for failure to return the goods, consumer will not lose his/her remedies- * (S22(2 A Consumer who rejects the goods may choose either a refund or replacement- S23 * ( Where appropriate consumer may claim additional or consequential damage- S18(4 * Application The Law which is described and explained in the consumer Guarantees Act 1993 is applied to a .given set of facts The case law (Nesbitt V Porter) is also applied to a given set of facts * In the workshops you will be given the facts to which to apply the law *

Week 4 Demand and supply Equilibrium Equilibrium price (P)= the price at which demand and supply intersect Equilibrium quantity (Q)= the quantity at which demand and supply intersect ( Market equilibrium= (P,Q

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=At P, quantity supplied

Quantity demanded

” This is called “market clearing

At P, all buyers and all sellers are satisfied with their quantities. All buyers who want to buy at P, can buy; all sellers who want too sell at P, can sell . A system is in equilibrium when its outcome has no tendency to change . If market is at equilibrium: no tendency for price or quantity to change

What happens when there is a surplus? Sellers want to get rid of products, by lowering price (QD (up) and QS (down * (size of surplus (down *

Market will approach equilibrium *

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What happens when there is a shortage? Sellers want to increase price, to increase profit (QD (down) and QS (up * (Size of shortage (down *

Market will approach equilibrium * ” The invisible hand “

The market itself has tendency to go back to equilibrium

( What if the Govt, controls price artificially? (Punching the price away from P

Price ceiling= maximum allowable price Price floor= minimum allowable price

. Qd>Qs-> shortage of apartments . Some renters are lucky: they can find an apartment, and are now paying cheaper rent

Some renters are unlucky: they cannot find apartments, because land lords are offering fewer apartments E.g. mimic wage . thinking: the ongoing wage is too low -

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.Qs>Qd-> surplus of workers . Some workers are lucky: they can find jobs and are paid a higher wage . But some workers are unlucky they cannot found jobs, because employers are hiring fewer workers

-LAWthey What is a contract?- A valid binding agreement between two or more people where acquire rights and duties and obligations in respect of subject matter When is a contract binding? – When all elements are there Must a contract be in writing? – A contract does not need to be in writing it can be verbal -

Theory/Law Contracts can be verbal or in writing * Based on common law * New Zealand has codified significant aspects of contract law – in the Contract and Commercial Law Act 2017

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Contract law Features of contract law The intention of the parties is paramount – and note the role of the courts * Objective approach – reasonable person test * No general requirements regarding form but some rules in relation to particular types of contract

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Enforceability of contracts : Contracts can be Valid and enforceable * ( Valid but unenforceable (eg minors * ( Voidable (eg misrepresentation * ( Void and of no effect (eg illegal *

The Acceptance . The final expression of assent, buy words or conduct, to the offer or proposal Acceptance by conduct * Communication of acceptance *

Offer

The Offer A proposal or promise by one party (the offeror) to enter into a contract, on a particular set of * terms, with the intention of being bound as soon as the party to whom the promise is made (the . offeree) signifies his/her acceptance An offer contains clearly defined terms * ” Example of an offer – “ I offer to sell you my car for $5 000 * Acceptance of that offer would be “ I accept to buy your car for * ” 000 $5

Principles of Offer and Acceptance To constitute a contract an offer must be communicated and accepted by the person or persons to whom it is addressed Display of goods is not an offer * Where an offer is made to the world at large, the contract is made with the first person who * responds to the offer. If an advertisement is accompanied by a reward it becomes an offer. This ( was established in the case of Carlill v Carbolic Smoke Ball Company (mere puff An offer can be withdrawn at any time before it is accepted * Termination of offers

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12 Revocation (or withdrawal)- an offer can be withdrawn at any time before it is accepted * Rejection * Lapse of time * Where the offer is conditional * Death *

Genuine consent Genuine consent : What happens if one of the parties enters the agreement on the basis of Mistake * Misrepresentation * ( Duress or undue influence (dealt with later *

Genuine consent - misrepresentation Misrepresentation is concerned with pre-contractual statements which turn out to be incorrect A false statement of fact * Made by one party to the other party * Before or at the time the contract is made * Which is not a term of the contract but which * Induces that party to enter into the contract *

Remedies Contract and Commercial Law Act 2017 Damages is the general remedy for misrepresentation BUT If the truth was essential OR * Made the contract substantially different to what it would have been * THEN the innocent person may cancel the contract and seek relief and damages *

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Week 5

Equilibrium

when a market is in an Equilibrium, there is no shortage and no surplus at the equilibrium price ((market clearing

Some buyers

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-LAWSole trader Sole Trader A Sole Trader is the simplest form of business * For example, people who run market stalls are usually Sole Traders * A Sole Trader is an individual person who starts a business * All the profits and liabilities are borne by the Sole Trader * All the legal liabilities are borne by the Sole Trader * A Sole Trader is not registered * However, a Sole Trader is required to comply with all the statutory laws, eg, Consumer Guarantees Act, Fair Trading Act etc

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Partnership Partnership The Partnership Act 1908 section 4(1) defines a partnership as a * “relation which subsites between persons carrying on a business in common with a view to profit * Briefly, two or more people can get together an act in common in business with a view to making profit * When they do so, that is a partnership

Agency * Each partner is both a principal and agent of the partnership

15 * The acts of each partner, which are carried out in the course of partnership business are binding on all partners * In a partnership there is direct liability for each of the partners in the business * A partnership is not a separate legal person Joint and several liability * Each partner is jointly liable together with the other partners for the debts of the partnership * This means that the partners are liable together for the debts of the partnership * Partners are jointly and severally liable for the torts ( civil wrongs) of the partnership - this means that they are liable together and liable individually for the torts of the partnership Duration of partnership * When one of the partners resigns or dies , the partnership is dissolved * A new partnership must then be formed

Companies

Companies * A company is a separate legal person * This is established by section 15 of the Companies Act 1993 * Section 16 of the Companies Act 1993 provides that a company has full powers and capacity * The leading case in Company Law is the case of Salomon v Salomon * The case of Salomon v Salomon established the principle that once a company is formed it is a separate person in its own right , with full powers and capacity * Though a company is a separate legal person, it is an artificial person and must act through human beings- it is the directors who act for the company * Directors may delegate their powers to the company’s employees

Consequences of the Company’s Separate Legal Personality * A company may sue or be sued in own name * A company may employ people * A company may be employed by people * A company may enter into contracts * A company may commit crimes * A company may commit torts * A company enjoys perpetual succession- this means that the shareholders of the company may come and go, but the company will continue in existence

Limited Liability * The liability of the shareholders of the company is limited to their shareholding * A shareholder is a person who has bought and therefore owns shares in a company * Once a shareholder has fu...