Lecture Macro economic: Chapter 1 - Lương Mỹ Thùy Dương

Lecture "Macro economic: Chapter 1" provides students with the knowledge: Economic concept and economic systems, the market Forces of Supply and Demand, the theory of consumer choice, the Costs of production, competitive Markets Firms print,... You are invited the same reference.

MicroEconomic

Lecturer: LƯƠNG MỸ THÙY DƯƠNG

© McGraw-Hill Book Company Australia, 1999 PPS t/a Economics for Business 2/e 1-2

MicroEconomic

Topic 1: Economic concept and Economic systems

Topic 2: The Market Forces of Supply and Demand

Topic 3: The Theory of Consumer Choice

Topic 4: The Costs of Production

Topic 5: Firms in Competitive Markets

Topic 6: Monopoly

Topic 7: Monopolistic Competition and Oligopoly

REFERENCE BOOKS

1-Economics for Business – Lan Fraser – John

Glonea – Simon Fraser.

2-Economics – Paul A Samuelson and William D Nordhaus.

3-Kinh tế Vi mô - Trường Đại học Công nghiệp

TP.HCM

4-Kinh tế Vi mô - Trường Đại học Kinh tế TP.HCM 5-Nguyên lý kinh tế học – David Begg.

Economic Concepts

Topic Plan

• Economic concept.

• Basic Economic Problems

• Economic Systems

What is Economics ?

• Resources are scarce in relation to the unlimited needs and wants of consumers

• Also called Factors of Production

• All inputs which are used in the production and distribution of goods and services

Types of Resources

1 LAND :

All natural endowments.

Examples- soils, crops, minerals

2 LABOUR :

Physical and mental work of people Examples- teachers

Types of Resources

3 CAPITAL :

Any good used to produce others.

Examples- Factories, machinery

Characteristics of Resources

• Scarce

• Have alternative uses

• Quantity of a resource varies

• Quality of a resource varies

Needs and Wants

Needs: goods/services essential for survival Wants: goods/services desired by

Satisfying Needs and Wants

Production Distribution Consumption

Production Possibility Theory

• A simplified economic model which portrays scarcity, choice and opportunity cost

The Static Production Possibility Frontier

• Analyses the economy at a fixed point in time

• Is based on the following assumptions:

– There is a fixed quantity of resources

– The economy only produces 2 products

– Resources can be used interchangeably

– All resources within the economy are used – Resources are used at maximum efficiency

An example of the Static PPF model

Production Possibility Schedule

Tractors 0 100 200 300 400 VCRs 800 600 400 200 0

C

Maximum Output Levels

• The PPF shows the maximum output of the economy

• If the economy devoted all of its resources

to the production of VCRs it is able to

Possibility A

• Alternatively, if the economy chooses

Production Possibility C it is able to

produce 200 tractors and 400 VCRs

Opportunity Cost

The sacrifice in choosing to satisfy one need or want rather than another (the alternative forgone).

Opportunity Costs

• The PPF shows that to produce more of one product means producing less of another

• Opportunity costs of production can be

measured eg if the economy moves from

an extra 100 tractors BUT 200 VCR’s must

be sacrificed

Points Outside the Static

PPF

• Points outside the PPF (eg X) are not

possible using existing technology and

Points Inside the Static PPF

• At point Y, the economy

is satisfying fewer needs and wants than is

possible.

• This is due to:

– Resources not being fully employed and/or – Resources not being used in the most

The Dynamic PPF Model

• This model differs from the static PPF in

that it incorporates changes over time.

• It demonstrates the effect of changes in the

quantity and quality of productive

resources eg new resource discoveries,

improvements in technology

• Changes in the quantity and/or quality of

Dynamic PPF

• When the quality/quantity of

(decreases), the economy can

produce more (less)

of both products and the entire curve will

SHIFT outwards

(inwards)

B A

• If the change in resources affects ONLY one product, the PPF will ONLY shift on one axis eg:

Microeconomics :Analysis dealing with the behavior of

individual elements in an economy – such as the

determination of the price of the single product or the behavior of the single consumer or business firm

Macroeconomics : Analysis dealing with the behavior of the economy as a whole with respect to output, income, the price level, foreign trade, unemployment and other aggregate economics variables

• -Positive Economics is descriptive – a

relating of facts and circumstance based upon observation.

-Normative Economics is prescriptive – a relating of solution and action based

upon ethics and value judgment

Basic Economic Questions

Scarcity Choices must be made

1 What To Produce?

2 How To Produce?

3 For Whom To Produce?

Unlimited Needs

and Wants

Scarce Productive Resources

Relative Scarcity

Basic Economic Questions

The Need for an Economic System

Types of Economic Systems

• The Market economy

• The Command economy

• The Mixed economy

• Productive resources are predominantly

owned by the private sector

Features of market economies

(cont.)

• Economic decision making is

decentralised in the level of

government intervention is low

• Economic motivation is self interest (utility or profit)

Features of market economies

(cont.)

• Allocation by price

• Efficiency is valued

Features of command economies

(cont.)

• Economic decision making is

undertaken by a central authority or government

• Collective welfare in goods/services are distributed to benefit the state as

a whole, rather than individuals

Features of command economies

(cont.)

• Allocation by non-price

mechanisms

• Equity is valued

3 The Mixed Economy

(John Maynard Keynes)

• All modern economies are said to be a

mixture of - market forces and

- government intervention

• In the past, major examples of centrally planned economies were the former

USSR and China These now have

allowed levels of market forces to operate

Market Vs Command Systems

• Advantages of market systems

– eg: economic freedom, efficiency etc

.Disadvantages of market systems

– eg: unequal distribution of income and wealth

External diseconomies rise, Monopoly, insufficient public goods, business cycles

• Advantages of command systems

– eg: Equity

• Disadvantages of command systems

– eg: inefficiencies and waste, Slow economic growth

Economies in Transition

The “All-Out” Approach

• Examples: Poland, East Germany,

Russia, Czech republic

• Rapid price and trade liberalisation

– immediate opening of markets

– privatisation of most state owned

enterprises

– reform of tax, legal and financial system

Consumers’car in 1985

Country Russia

United States of America