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Welcome To
Avia 3040
Aviation Economics
Faculty: Dr. Munir Mahmud
Office: Hazy 342
Phone: (435)652-7626
E-mail: [email protected]
Office Hours:
MWF 11–12:45 pm.
& By Appointments
Text Book:
Principles of Economics, 6th Edition, 2010 –
South Western Cengage Learning.
ISBN: 978-1-426-64835-9
Prerequisites:
None
Grading:
 4 Take Home Assignments.
 4 In-Class Exams.
 Final Take Home Exam.
Make-UP Policy: Unless there is a
compelling reason, no “Make-up” exam will
be given. Late assignments will be subject to
a 30% point deduction.
Distribution of Points:
Take Home Assignments (4)
10% each
In-Class Exams (4)
10% each
Final Take home Assignment
20%
----------------------------------------------------------Total
100%
How would the point grade be
converted into a letter grade?
General Rule:
100-90 = A
89-87 = A86-83 = B+
82-80 = B
79-77 = B76-73 = C+
72-70 = C
69-67 = C66-64 = D+
63-60 = D
59-57 = DBelow 57 = F
Academic Integrity:
All students are expected to act with civility,
personal integrity; respect other students' dignity,
rights and property; and help create and maintain
an environment in which all can succeed through
the fruits of their own efforts. An environment
of academic integrity is requisite to respect for
self and others and a civil community.
Academic integrity includes a commitment to not
engage in or tolerate acts of falsification,
misrepresentation or deception. Such acts of
dishonesty include cheating or copying,
plagiarizing, submitting another persons' work
as one's own, using Internet sources without
citation, fabricating field data or citations,
"ghosting" (taking or having another student take
an exam), stealing examinations, tampering with
the academic work of another student, facilitating
other students' acts of academic dishonesty, etc.
Academic dishonesty violates the fundamental
ethical principles of the University community and
compromises the worth of work completed by others.
A student should avoid academic dishonesty when
preparing work for any class.
Sanctions for breaches of academic integrity may
range (depending on the severity of the offense) from
F for the assignment to F for the course. In
severe cases of academic dishonesty, including,
but not limited to, stealing exams or "ghosting"
an exam, students may be expelled from the
college.
Disability:
"If you are a student with a medical, psychological, or
learning disability or think you might have a disability and
would like accommodations, contact the Disability
Resource Center (652-7516) in the Student Services
Center. The Disability Resource Center will determine
eligibility of the student requesting special service and
determine the appropriate accommodations related to their
disability.
It is encouraged that students requesting
accommodation do so within the first two weeks of
classes, so that, once identified, a reasonable
accommodation can be implemented in a timely manner.
Your Rebel Mail Account:
Important class and college information will be sent to
your Rebel mail email account. This information
includes your DSC bill, financial aid/scholarship notices,
notification of dropped classes, reminders of important
dates and events, and other information critical to your
success in this class and at DSC. All DSC students are
automatically assigned a Rebelmail email account. If
you don’t know your user name and password, go to
www.dixie.edu and select “Rebelmail,” for complete
instructions. You will be held responsible for
information sent to your Rebelmail email, so please
check it often.
Lecture: 1
Chapter 1: Introduction
Natural Resources:
The land, water, metals, minerals, animals,
and other gifts of nature that are available
for producing goods and services.
Renewable Natural Resources:
 Our supply of forests.
 Sea and land animals.
 Water and Grasses.
Question: Are renewable natural resources
inexhaustible?
Nonrenewable Natural Resources:
 Metal and Mineral Resources.
Insatiable Wants:
Want
Things we
desire.
Need
Things we
require.
Demand
Wants that are
backed by
purchasing power.
Scarcity and Economics
What is Economics?
Economics is the study of how we work
together to transform scarce resources
into goods and services to satisfy the
most pressing of our unlimited wants,
and how we distribute these goods and
services among ourselves.
Economics as a part of Social Science:
Sociology, Anthropology, Political
Science and Psychology
Consumer Sovereignty:
The ability of consumers to exercise
complete control over what goods and
services the economy produces (or does not
produce) by choosing what goods and
services to buy (or not buy).
Economics Focuses on 4 Central Issues:
1. Who produces what?
2. How it is produced?
3. Who consumes?
4. Who decides?
Economic Model:
It is a simplified representation of complex
economic relationships. Sometimes to
untangle the complexities of the relationship,
economists have to abstract from reality.
The Assumption of Ceteris Paribus:
It means, “Everything else is remaining
the same”.
The Circular Flow Model:
Wages, Rent, Interest & Profit
Resource Market
Labor, Land, Capital &
Entrepreneurship.
Goods and Services.
Product Market
Consumer spending for goods & services
Micro and Macro Economics
Microeconomics: It studies the behavior
of an individual household, firm or even
industry.
Macroeconomics: It focuses on the
behavior of the economy as a whole.
Positive and Normative Economics:
Positive Economics:
A subset of Economics that analyzes the way
economy actually operates (a factual
statement).
Normative Economics:
A subset of Economics founded on value
judgements and leading to assertions of
what ought to be.
Chapter 2
Production Possibilities and
Opportunity Costs
This chapter discusses
principles associated with
Absolute
Technological
and
Change
Division
of
Labor
and
The
Law
of
Production
Opportunity
Possibilities
Costs
Factors
of
Production
Comparative
and
EconomicAdvantage
Growth
Specialization
Increasing
Costs
What are the Factors
of Production?
Labor
Capital
Land
Entrepreneurship
What is Labor?
The physical and intellectual
effort of people engaged in
producing goods and services
What is Capital?
Manufactured goods used
to make and/or market
other goods and services
What is Human Capital?
The knowledge and skills
acquired by labor,
principally through
education and training
What is Land?
A natural-state
resource such as real
estate, grasses and
forests, and metals
and minerals
Who is an Entrepreneur?
A person who alone
assumes the risks and
uncertainties of a business
He is also the person
who takes the initiative and
comes up with the essential idea
of the business.
What is Production
Possibilities?
In order to understand what
is meant by PPF, we
would first consider a
hypothetical economy.
Production Possibilities Frontier
Robinson Crusoe’s Production Possibilities:
Consumption
Goods
6
Capital Goods
5
1
3
2
0
3
0
Consumption
Goods
6
Capital Goods
5
1
3
2
0
3
0
9
8
7
6
5
4
3
2
1
0
1
2
3
4
5
6 7
8
Capital Goods
Production Possibilities?
The combinations of goods
that can be produced when
resources and technology
are used fully & efficiently
9
8
7
6
5
4
3
2
1
0
1
2
3
4
5
6
7
8
Capital Goods
Consumer Goods
Production Possibilities Curve
Unattainable
Inefficient
Capital Goods
34
What is true along the
Production
Possibilities Curve?
available resources are
used fully
 most efficient
combination of resources

What choices are made along
the Production Possibilities
curve?
To have more of one
product, units of the
other product have to be
given up
Opportunity Cost:
The quantity of other goods
that must be given up to
obtain a good
Law of Increasing
Costs:
The
opportunity cost of
producing a good increases
as more of the good is
produced
9
8
7
6
5
4
3
2
1
0
1
2
3
4
5
6
7
8
Capital Goods
How do we have
more of everything?
By increasing our resources
Consumer Goods
Increased Resources
Capital Goods
41
What other ways can we
increase our PPF?
Innovations
- an idea that
takes the form of new
applied technology
Technology - an improvement
in capital
Consumer Goods
Innovations
Capital Goods
43
Once Rich it is Easier to Get Richer
Once Poor it is Easy to Stay Poor
Poor Country
Rich Country
9
8
9
8
7
7
6
6
5
4
3
2
5
4
3
2
1
1
0
1
2
3
4
5
6
7
8
0
1
2
3
4
5
6
7
8
Capital Goods
The Indestructible Nature of Ideas
9
8
7
6
5
4
3
2
1
0
1
2
3
4
5
6
7
8
Capital Goods
Specialization of labor :
The division of labor into
specialized activities.
Does division of labor increase
productivity?
Yes. People become more
proficient in one activity
which results in greater output
per person
Adam Smith:
“One man draws out the wire, another
straightens it, a third cuts it, a fourth
points it, a fifth grinds it at the top for
receiving the head; to make the head
requires two or three distinct operations,
to put it on is a peculiar business, ...........”
The reason for such division of labor, he noted, is that
these 10 people could make as many as 48,000 pins in
a day. If they had each worked separately and
independently, they could not have produced more
than 200.
Example 1:
Production of Fish & Shirts per 8-hour Day
Production of Production of
Fish
Shirts
2
8
Crusoe Island
Yakamaya
Island
8
2
Absolute Advantage:
A country’s
ability to produce a good
using fewer resources than the
country with which it trades
The Theory of Absolute Advantage
states that a country should completely
specialize and produce the good in
which it has absolute advantage.
Example 2:
Production of Fish & Shirts per 8-hour Day
Production of Production of
Fish
Shirts
8 1S
8 1F
Crusoe Island
Yakamaya
Island
8
1/4 S
In Crusoe Island, 1 Fish = 1 Shirt
2
4F
& 1 Shirt = 1 Fish
In Yakamaya, 1 Fish = 2/8 = 1/4 Shirt
& 1 Shirt = 4 Fish
International Exchange Rate, 1 Shirt = 2 Fish
Comparative Advantage:
A country’s
ability to produce a
good at a lower opportunity cost
than the country with which it
trades
The Theory of Comparative Advantage
states that a country should completely
specialize and produce the good in
which it has comparative advantage.
What should a country
specialize in producing?
In those goods and services
in which it has a
comparative advantage
Should a country produce
that with which it has an
Absolute Advantage?
No! Not unless it also has a
comparative advantage in
those goods and services
Why?
Because
by so doing
its opportunity costs
may be too high
Example 3:
Production of Fish & Shirts per 8-hour Day
Production of Production of
Fish
Shirts
10 .4 S
4 2.5 F
Crusoe Island
Yakamaya
Island
8
.25 S
2
4F
In Crusoe Island, 1 Fish = .4 Shirt & 1 Shirt = 2.5 Fish
In Yakamaya, 1 Fish = 2/8 = 1/4 Shirt
& 1 Shirt = 4 Fish
International Exchange Rate, 1 Shirt = 3 Fish
Chapter 3
Demand and Supply
What is the Law of
Demand?
When price increases the
quantity demanded
decreases
What is a
Demand Schedule?
Shows the specific
quantity of a good or
service that people are
willing and able to buy at
different prices
Price Quantity Demanded
$10
0
$9
1
$8
2
$7
3
$6
4
$5
5
What is a
Demand Curve?
Graphically depicts the
relationship between price
and quantity demanded
Price
P1
P2
Q1
Q2
Quantity
Individual Demand Curves for Fish
Claudia’s Demand
for Fish
Price
10
9
8
7
6
5
4
3
2
1
Quantity
Demanded
0
1
2
3
4
5
6
7
8
9
10
9
8
7
6
5
4
3
2
1
0
1
2
3
4
5
6
7
8
9
10
Individual Demand Curves for Fish
Chris’s Demand
for Fish
Price
10
9
8
7
6
5
4
3
2
1
Quantity
Demanded
1
3
5
7
9
11
13
15
17
19
10
9
8
7
6
5
4
3
2
1
0
1
2
3
4
5
6
7
8
9
10
What is Market Demand?
The horizontal sum of all
individual demands in a market
Market Demand Curve:
Individual 1
P1
Market Demand
Individual 2
P1
P1
P2
Q1
Q2
Q1+Q2
Market Demand Curve
Claudia’s Demand
10
Chris’s Demand
10
9
9
8
8
7
7
6
6
5
4
3
2
5
4
3
2
1
1
0
1
2
3
4
5
6
7
8
9 10
0
1
2
3
4
5
6
7
8
9 10
Quantity
Market Demand Curve
10
9
8
7
6
5
4
3
2
1
0
1
2
3
4
5
6
7
8
9 10
Quantity
Individual Demand Curves for Fish
Gottheil 2e Comprehensive (Exhibit 3.1), Micro (Exhibit 3.1), Macro (Exhibit 3.1)
©2000 South-Western College Publishing
8
The Market Demand Curve
Gottheil 2e Comprehensive (Exhibit 3.2), Micro (Exhibit 3.2), Macro (Exhibit 3.2)
©2000 South-Western College Publishing
9
What is a
Supply Schedule?
Shows the specific quantity of a
good or service that suppliers
are willing and able to provide
at different prices
Price Quantity Supplied
$5
0
$6
1
$7
2
$8
3
$9
4
$10
5
What is a Supply Curve?
Depicts the relationship
between price and quantity
supplied
Price
S
P2
P1
Q1
Q2
Quantity
What is
Market-Day Supply?
A market situation in which the
quantity of a good supplied is
fixed, regardless of price
Market-Day Supply Curve for Fish
Supply Schedule for Fish for the Market-Day
Price
10
9
8
7
6
5
4
3
2
1
Quantity
Supplied
6000
6000
6000
6000
6000
6000
6000
6000
6000
6000
10
9
8
7
6
5
4
3
2
1
0
1
2
3
4
5
6
7
8
9
10
Quantity (1,000)
P2
Supply Curve
P1
S
Q
76
Market Demand Curve for Fish
Demand Schedule & Curve for Fish:
Price
10
9
8
7
6
5
4
3
2
1
Quantity
Demanded
3500
4000
4500
5000
5500
6000
6500
7000
7500
8000
Excess Supply
10
9
8
7
6
Equilibrium
5
4
3
2
1
0
1 2 Demand
3 4 5
Excess
6
7
8
9
10
Quantity (1,000)
What is
Equilibrium Price?
The price that equates the
quantity demanded and
the quantity supplied
Market-Day, Short-Run and Long-Run Supply
10
9
8
7
6
5
Short-Run Supply
Market-Day Supply
Long-Run Supply
4
3
2
1
0
1
2
3
4
5
6
7
8
9 10
Quantity
Short-Run:
The time interval during which suppliers
are able to change the quantity of some
but not all the resources they use to
produce goods and services.
Long-Run:
The time interval during which suppliers
are able to change the quantity of all the
resources they use to produce goods and
services.
Or Excess
Supply
P1
Surplus
Or Excess
Demand
P3
P2
S
Shortage
Q3
D
81
Fish Market with change in Demand:
Price
Quantity
Supplied
10
9
8
7
6
5
4
3
2
1
8500
8000
7500
7000
6500
6000
5500
5000
4500
4000
Initial
Quantity
Demanded
3500
4000
4500
5000
5500
6000
6500
7000
7500
8000
Market Demand Curve
S
10
9
8
7
6
5
4
3
2
1
0
D
1
2
3
4
5
6
7
8
9 10
Quantity
Fish Market with change in Demand:
Price
Quantity
Supplied
10
9
8
7
6
5
4
3
2
1
8500
8000
7500
7000
6500
6000
5500
5000
4500
4000
Initial
Increase in
Quantity
Quantity
Demanded Demanded
3500
5500
4000
6000
4500
6500
5000
7000
5500
7500
6000
8000
6500
8500
7000
9000
7500
9500
8000
10000
Increase in Demand:
S
10
9
8
7
6
5
4
3
2
D'
1
0
D
1
2
3
4
5
6
7
8
9 10
Quantity (1,000s)
Fish Market with change in Demand:
Price
Quantity
Supplied
10
9
8
7
6
5
4
3
2
1
8500
8000
7500
7000
6500
6000
5500
5000
4500
4000
Initial
Increase in Decrease in
Quantity
Quantity
Quantity
Demanded Demanded Demanded
3500
5500
1500
4000
6000
2000
4500
6500
2500
5000
7000
3000
5500
7500
3500
6000
8000
4000
6500
8500
4500
7000
9000
5000
7500
9500
5500
8000
10000
6000
Decrease in Demand:
S
10
9
8
7
6
5
4
3
2
D" D
1
0
1
2
3
4
5
6
7
8
9 10
Quantity (1,000s)
Change in Quantity Demanded:
A change in quantity demanded of a good
that is caused solely by a change in the
price of that good.
Change in Demand:
A change in quantity demanded of a good that
is caused by factors other than the price of that
good.
Factors that cause changes in Demand:
 Changes in Income.
 Changes in Taste.
 Changes in the Prices of Other Goods.
Substitute Goods:
Goods that can replace each other.
When the price of one increases
(decreases), the demand for the other
increases (decreases).
Complementary Goods:
Goods that are generally used together.
When the price of one increases
(decreases), the demand for the other
decreases (increases)
Factors that cause changes in Demand:
 Changes in Income.
 Changes in Taste.
 Changes in the Prices of Other Goods.
 Changes in the expectations about future prices.
 Changes in the population size.
Price
Change in Quantity Demanded
P1
P2
0
Q1
Q2
Quantity
Price
Change in Demand
P1
D
0
Q1
Q2
D1
Quantity
Fish Market with change in Supply:
Price
Quantity
Demanded
10
9
8
7
6
5
4
3
2
1
3500
4000
4500
5000
5500
6000
6500
7000
7500
8000
Initial
Quantity
Supplied
8500
8000
7500
7000
6500
6000
5500
5000
4500
4000
Increase in
Quantity
Supplied
9500
9000
8500
8000
7500
7000
6500
6000
5500
5000
Increase in Supply:
S S'
10
9
8
7
6
5
4
3
2
1
0
D
1
2
3
4
5
6
7
8
9 10
Quantity (1,000s)
Factors that cause changes in Supply:
 Changes in Technology.
 Changes in Resource Price.
 Changes in the Prices of Other Goods.
 Changes in the Number of Suppliers.
Increase in Demand & Supply:
S
S'
10
9
8
7
6
5
4
3
2
D'
1
0
D
1
2
3
4
5
6
7
8
9 10
Quantity (1,000s)
Increase in Demand & Supply:
S
S'
10
9
8
7
6
5
4
3
2
1
0
D
1
2
3
4
5
6
7
8
D'
9 10
Quantity (1,000s)
Increase in Demand & Supply:
S'
S
10
9
8
7
6
5
4
3
2
1
0
D
1
2
3
4
5
6
7
8
D'
9 10
Quantity (1,000s)
Increase in Demand & Decrease in Supply:
S'
S
10
9
8
7
6
5
4
3
2
1
0
D
1
2
3
4
5
6
7
8
D'
9 10
Quantity (1,000s)
Increase in Demand & Decrease in Supply:
S' S
10
9
8
7
6
5
4
3
2
D'
1
0
D
1
2
3
4
5
6
7
8
9 10
Quantity (1,000s)
Increase in Demand & Decrease in Supply:
S' S
10
9
8
7
6
5
4
3
2
1
0
D
1
2
3
4
5
6
7
8
D'
9 10
Quantity (1,000s)