KINH TẾ VI MÔ Chapter i quan nguyen

means that society has limited resources and therefore cannot produce all the goods and services people wish to have...  Visual model of the economy Shows how dollars flow through mark

Microeconomics 1

Quan Hong Nguyen

Lecturer in Microeconomics

Faculty of International Economics

Hanoi Foreign Trade University

Tel: 0983 060 987

 Objectives : to improve economic literacy as well as critical thinking and problem solving skills to explain and predict economic issues.

 Pre-requisites : Math

 Student task :

 Class attendance (90%)

 Actively participate in-class activity

 Complete all homework and other tasks

BOOKS AND READING

 Mankiw, N Gregory Principles of Economics

– 5th edition, South Western CENGAGE

Learning

 Pyndick, Robert Microeconomics – 6th

edition, Pearson Education International.

 Begg, David Economics , 8th edition, Mc Graw Hill Education

 Lecture’s slides

LECTURE 1

Introduction to microeconomics

Research Question

Why research Microeconomics?

means that society has limited resources and therefore cannot produce all the goods and services people wish to have.

 Visual model of the economy

 Shows how dollars flow through markets

among households and firms

 Decision makers

 Firms & Households

 Markets

 For goods and services

 For factors of production

Our first model: The circular-flow diagram

Our first model: The circular-flow diagram

 Firms

 Produce goods and services

 Use factors of production / inputs

 Households

 Own factors of production

 Consume goods and services

The economy

The economy

There are at least 3 members in any economy, which interacting with each other in a certain regime.

- Households

- Firms

- Governments

 Modern classical school of

economics with some key ideas

 Scarcity

 Opportunity cost

 Thinking at the margin

 Incentives in individual decision making

 The role of the markets

 Market failure.

KEY IDEAS OF NEOCLASSICAL ECONOMICS

 How people make decisions

 How people interact with one another

 Analyze forces and trends that affect the economy as a whole

2.1 Microeconomics & Macroeconomics

2.1 Microeconomics & Macroeconomics

2.2 The scientific methods

Observation, theory, and more observation

 Observation

 Theory

 Conducting experiments

 Observation

 Ceteris paribus assumption (latin) : all other things being equal The term refers to holding

3 Some definitions

 Scarcity: when the needs are greater than the

supplying ability

 Commodities: tools to satisfy people’s needs

 Resources: inputs used to produce commodities to satisfy people’s needs, including:

 Land: Nature resources => Land tax (r)

 Labor: human activity (L) => Wage (w)

 Capital: Physical capital (K) => Interests (i)

 Entrepreneurship: The capacity and willingness to develop, organize and manage a business venture

II Basic economic issues

A household and an economy face

many decisions

o Who will work?

o What goods and how many of them should be produced?

o What resources should be used in production?

o At what price should the goods be sold?

Economics and Policies

o Market economy (Invisible hand – Adam Smith): freely determined prices, free exchange of goods and services in markets Ex: Hongkong

o Command economy – Centrally planned

economy (Visible hand – Keynes): Government determines prices and production Ex: North

Korea, Cuba

1 Choice’s principles

- Need to choose because of scarce resources If resource

is already spent on A, it can not be spent on B

- Many ways to spend resources => easy to choose

- However, people face trade-offs: Make decisions:

Compare cost with benefits of alternatives

2 Choice’s target

- Household: Optimize utility

- Firm: Optimize profit

- Government: Optimize social welfare

III The optimum economic choice

3 Choosing tool

 Opportunity cost (OC): the value of the best missed

chance when making a choice

 Marginal thinking

 Marginal cost (MC): the chance in total cost resulting from a change from quantity

 Marginal benefit (MB): the change in total benefit resulting from

a change from quantity

III The optimum economic choice

 Production possibilities frontier

The production possibilities frontier

D F

1,000

2,200

2,000

Production Possibilities Frontier

The production possibilities frontier shows the combinations of output - in this case, cars and computers - that the economy can possibly produce.

The economy can produce any combination on or inside the frontier.

Points outside the frontier

 Efficient levels of production

 Technological advance

 Outward shift of the production possibilities frontier

 Economic growth

 Produce more of both goods

Second model: The production

possibilities frontier

A shift in the production

4,000

G

MATHEMATICS REVISION

 Slope of the curve

Y

5 1

10

15

Slope = (15-10)/(2-1) = 5

Revision (cont.)

 Six types of relationship

Increasing positive slope Decreasing Positive

slope

Increasing negative slope

Decreasing negative slope

Math revision (Cont.)

 Constant slope

Facts and impacts

 Movement along the curve vs shift of the curve

 Movement along the curve: When x and y changes.

 Shift of the curve: When another variable other than x and y change => A third variable shift the curve.

 Scarcity exists when

a the price of a good rises

b society can meet the wants of every individual

 Bob spends an hour studying instead of going for a bike ride The opportunity cost to him of studying is

a the improvement in his grades from studying for the hour

b the enjoyment and exercise he would have received had he

gone for a bike ride

c the difference between the improvement in his grades from

studying minus the enjoyment of a bike ride

d zero Since Ryan chose to study rather than to ride his bike,

the value of studying must have been greater than the value

of the bike ride

 The opportunity cost of an item is

a what you give up to get that item

b always equal to the dollar value of the item

c always less than the dollar value of the item

d the number of hours needed to earn the money to buy it

 A rational decision maker takes an action only if the

a marginal benefit is greater than the marginal cost

b average benefit is greater than the average cost