CHAPTER 1

GENERAL
INTRODUCTION

TRẦN MAI PHƯƠNG

Tranmaiphuong.cs2@ftu.edu.vn
 Content
1. Definition of Economics, macroeconomics,
microeconomics
2. Subject and research methods of Microeconomics
3. Fundamental economic issues
4. Optimal economic choice

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 1. Definition
• Economics is the study of how society manages
its scarce resources.
• Scarcity: the limited nature of society’s
resources → produce all the goods and services
people wish to have.
land, labour, capital goods, entrepreneurship
 2. Classification
- Microeconomics is the study of how households and firms
make decisions and how they interact in markets.
Households Firms

Specific Market
- Macroeconomics is the study of economy-wide
phenomena, including inflation, unemployment, and
economic growth.
 The link between
microeconomics and macroeconomics?
ktvi mô là nền tảng của kt vĩ mô —> lấy vd mua nhà —> mua nhà nhiều ảnh hưởng đến ‘inflation’ —> gánh nặng lên
niền kinh tế

=> những vde vi mô ảnh hưỡng những vde vĩ mô

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 2. Subject and research methods
of Microeconomics
2.1. Subject
Microeconomics is the study of how households and
firms make decisions and how they interact in markets.

2.2. Research methods

- Ceteris paribus assumption: All other things being
equal.
- Economic model: An explanation of how the
economy or part of the economy works.
The circular-flow
diagram

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4. Fundamental economic issues
What is to be produced?
Enterprises must determine the goods and services that
they will produce or provide by do market researches
and making specific plans.

How are the goods to be produced?

How can resources be used efficiently?

For whom?
For whom are the goods to be produced?
 4. Optimal economic choice
4.1. Choice’s principles
- Need to choose because of scarce resources. If resource is
already spent on A, it can not be spent on B → People face
trade-offs: Make decisions:
Compare cost with benefits of alternatives
4.2. Choice’s target
- Household: Optimize utility
- Firm: Optimize profit
- Government: Optimize social welfare
 4. Optimal economic choice
4.3. 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
 Production Possibilities Frontier - PPF
PPF is a graph that shows the combinations of output that
the economy can possibly produce given the available
factors of production and the available production
technology.

Assumptions:
- An economy produces only two goods;
- All of the economy’s factors of production are used.
 Production Possibilities Frontier - PPF
Production Possibilities Frontier - PPF
Combination Computer Car
A 500 0
B 450 50
C 375 100
D 275 150
E 150 200
F 0 250

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 Production Possibilities Frontier - PPF

500 A B A→ F: Efficient
450 C I: Inefficient
375 U: Cannot produce
D U
275
I
150 E

F
0
50 100 150 200 250
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Production Possibilities Frontier - PPF

Good Y

Technology advanced

0
Good X
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