KINH TẾ VI MÔ Chapter 1 introduction

¢ Mankiw, Principles of Microeconomics 5th edition, South Western CENGAGE Learning.. ¢ Krugman, Wells, Microeconomics 3rd edition, Worth Publishers.. ¢ Pyndick, Rubinfeld, Microeco

PRINCIPLES OF MICROECONOMICS

NGUYEN THI MINH THU

¢ Instructor: Nguyen Thi Minh Thu

¢  Office: Faculty of International

Economics, 2nd floor, Building B

¢   Mankiw, Principles of Microeconomics (5th edition),

South Western CENGAGE Learning

¢   Krugman, Wells, Microeconomics (3rd edition), Worth Publishers

¢   Pyndick, Rubinfeld, Microeconomics (6 th edition),

Pearson Education International

4 DOs

¢   Study Applied Math

¢   Read textbooks before class

¢   Actively participate class activities

QUESTION

¢   Suppose that you and your friends is going to

hold a junior prom

¢   100 students is going to attend for sure

¢   According to your calculation, each will have to

pay 200,000 VND to cover payment for food

(150,000 VND each) and music band as well as

the hall

¢   One hour before the prom, one classmate says he

wants to attend but just has 180,000 VND

¢   What is your decision?

THEMES OF MICROECONOMICS

¢  Two types of markets: Market for

production factor and Market for

THEMES OF MICROECONOMICS

¢   Can firms always produce whatever they want to

produce?

¢   Can consumers always get goods and services

that they desire?

¢   Can Government always satisfy society s needs?

è The problem of scarcity

THEMES OF MICROECONOMICS

¢  Scarcity is the state of being short of

unlimited wants)

deals with scarcity

THEMES OF MICRECONOMICS

economics that deals with the behavior

of these individual economic units as

well as the markets that these units

THEMES OF MICRECONOMICS

On the other hand, macroeconomics is a

branch of economics that deals with

aggregate economic variables, such as the

level and growth rate of national output,

interest rates, unemployment, and

THEMES OF MICROECONOMICS

Microeconomics describes how prices are determined

- In a centrally planned/command economy, prices are set by the government

- In a market economy, prices are determined by the

interactions of consumers and firms These interactions

occur in markets—collections of buyers and sellers that

together determine the price of a good

¢   An economic model is a simplified representation

of reality explaining how the economy works

¢   Basic assumption: Ceteris Paribus

¢   Others: Prefer more to less, perfect information,

etc

¢   Assumed goals

-   Consumers: Utility maximization

-   Producers: Profit maximization

Government: Efficiency vs Equality 19

MARGINAL THINKING

¢   Rational people think at the margin

¢   Cost – Benefit analysis N

EXAMPLE

¢   Suppose you are given a free ticket of Quang

Dung live concert

¢   At the same time, Dam Vinh Hung also holds a

show, for which you are willing to pay 500,000

VND The market price for DVH show ticket is

MARGINAL THINKING

¢ Total cost includes opportunity cost

¢  Opportunity cost is the value of the

second best option that you forgo

MARGINAL THINKING

what you gain

between total benefit and total cost

MARGINAL THINKING

¢   Marginal cost is the change in total cost resulting

from the production of an extra unit of product

¢   If the total cost is continuous

MARGINAL THINKING

¢   Marginal benefit is the change in total benefit

generated by an extra unit of product

¢   If the total benefit is continuous

¢   Real estate agent: 1.5% value of the property

¢   Normally the property can be sold at $300,000

¢   If the agent takes more efforts to advertise the

house, the price can be $310,000

¢   Do you think that he/she will?

POSITIVISM VS NORMATIVISM

questions like what , how , what if

è description and prediction

questions like what should be

done? è prescription &

WHY STUDY MICROECONOMICS

¢  Corporate decision

The Ford Pinto caused deaths and injuries

due to the fact that the fuel tank was

installed near the rear collisions causing the fuel tank explode

Ford could easily improved safety by

installing a shield between the tank and the collision

¢  Cost = $11/car * 12.5 mil = $137 mil

¢  Benefit

-   200 deaths * $200,000/death = $40 mil

-   180 injuries * $67,000/injure = $12 mil

-   The replacement costs to repair two

thousand vehicles that would be destroyed

without the safety device * 700 dollars per

WHY STUDY MICROECONOMICS

¢   Public policy design

Phillip Morris put forward a proposal that the

Czech Republic Government should allow citizens

to smoke

According to their analysis, the net gain is

$147 mil, including tax revenue and the

savings on housing, health care and pension

funds for those who dies prematurely due to

smoking (approximately $1200 each)

HOW CAN MICROECONOMICS TO

YOU AT A PERSONAL LEVEL

¢   Rationalize your behaviors/ decisions

¢   Understand the economic surroundings and