Unit 1

Module
Principles of Microeconomics
Unit 1
Introduction to Economics
Phạm Xuân Nam

nampx@neu.edu.vn
Content
1 2 3
Course
Introduction Economics Methodology
4 5
Economic The Gains from
Choices Trade
Chapter 1: Introduction to Economics Slide 2
1
COURSE
INTRODUCTION
Textbook
N. Gregory Mankiw
Principles of Economics (9th Edition)
Cengage

Addtional Materials
Hồ Đình Bảo – Hoàng Thị Thuý Nga
Study Guide for Microeconomics
Nhà xuất bản Đại học Kinh tế quốc dân
Sales Contact
Ms. Yến: 0916978877
Room 803, Building A1

Addtional Materials
Syllabus for Principles of Microeconomics
Powerpoint slide for the lectures
Seminar files for revisions
Youtube videos of similar lectures in Vietnamese

https://www.youtube.com/user/saiyogo
Good students subscribe to their teacher’s channel!

Assessment
Attendance 10% Mid-term 20%
Go to class on time In-class, using LMS System
Class Participation 40 Multiple Choice Questions
60 minutes
Study Guide Work
20%
Closed book
Finals 50%
40 Multiple Choice Questions
60 minutes
Closed book

Rules
Go to class on-time
Put your phone in silent mode
Take notes

Content
Unit 1 Principles of Economics
Unit 2 Supply and Demand
Unit 3 Elasticity
Unit 4 Government Policies
Unit 5 International Trade
Unit 6 The Theory of Consumer Choice
Unit 7 The Costs of Production
Unit 8 Market Structures
Unit 9 Market Failures

2
ECONOMICS
“You can’t
always get
what you
want”
Mick Jagger
Wants
A want is something that is desired or wished.
People’s wants are unlimited.

Consumption
To satisfy wants, people consumes products,
including things (goods) and actions (services)

Production
Production is the process of combining factors of production
(inputs) in order to create goods and services (outputs).

Factors of Production
Factors of production are the productive resources used to produce
goods and services.

Factors of Production
Land Natural resources.
The work time and work effort that people devote to producing goods
Labor and services.
Tools, instruments, machines, buildings, and other items that do not

Capital come directly from nature.
The human resource that organizes labor, land and capital. Entrepreneurs
Entrepreneurship come up with new ideas about what and how to produce, make business
decisions, and bear the risks that arise from these decisions

Scarcity
Scarcity is the condition that arises because wants exceed the ability of
resources to satisfy them.
Unlimited Limited
wants Resources

Scarcity
By the end of 2023, how many percentages of the world’s nation are
facing scarcity?
a. 20%
b. 45%
c. 69%
d. 100%

Scarcity
The most fundamental economic problem is how to best use
a. Unlimited resources to satisfy unlimited wants.
b. Limited resources to satisfy unlimited wants.
c. Unlimited resources to satisfy limited wants.
d. Limited resources to satisfy limited wants.

People Face Trade-Offs
To get something that we like, we usually have to give up something else
that we also like.

The Three Big Economic Questions
1. 2. 3.
What to
produce?
How to
produce?
For whom
to produce?

1.
What to
produce?

2.
Dubai
How to
produce? London

2.How to
produce?

3.
For whom
to produce?

What is Economics?
Economics is the social science that studies the choices

that individuals, businesses, governments, and entire
societies make as they cope with scarcity and the
incentives that inﬂuence and reconcile those choices.

The Circular-flow Diagram
Households Firms Government

The Circular-flow Diagram
Goods and Services
Product Goods and Services
Expenditure Markets Revenue
Tax Tax
Subsidy Subsidy
Households Government Firms
Income Factor Cost
Factors of production Markets Factors of production

Sub-fields of Economics
Microeconomics Macroeconomics
The study of how households and The study of economywide
firms make decisions and how phenomena.
they interact in specific markets.
A microeconomist might study the A macroeconomist might study the

effects of rent control on housing in effects of borrowing by the federal
New York City, the impact of foreign government, the changes over time in
competition on the U.S. auto the economy’s unemployment rate, or
industry, or the effects of education alternative policies to promote growth
on workers’ earnings. in national living standards.

Microeconomics and Macroeconomics
Classify each of the following topics as relating to microeconomics or
macroeconomics.
1. a family’s decision about how much income to save

2. the effect of government regulations on auto emissions
3. the impact of higher national saving on economic growth
4. a firm’s decision about how many workers to hire
5. the relationship between the inflation rate and changes in the quantity of money

3
METHODOLOGY
Phương pháp nghiên cứu kinh tế học
1 Phương pháp nghiên cứu khoa học
2 Giả thuyết kinh tế
3 Mô hình hóa
4 Ceteris Paribus
5 Kinh tế học thực chứng và kinh tế học chuẩn tắc

The Scientific Method
The Steps of
the Scientific
Method

Economic Hypotheses
A hypothesis is an idea or proposition that can be tested by
observations or experiments, about the natural world.
𝑦 = 𝑓 ( 𝑥 , 𝑧 ,𝑡 ,…)
Dependent Variables Independent Variables
Effects Causes

Economic Hypotheses
In scientific research, it is important to understand the differences
between correlation and causation.

Economic Hypotheses
1. Using mosquito nets reduces the risk of catching malaria.
2. Motorcycle helmet requirements by law help reduce the
number of traffic related casualty.
3. Electrification caused an increase in fertility rate in remote
regions.

Economic Hypotheses
Electrification caused an increase in fertility rate in remote regions.
Akpandjar, G., Puozaa, C., & Quartey, P. (2018). Explaining Fertility Variation in Rural Communities: The Role of
Electricity in Ghana. Economies, 6(3), 40. https://doi.org/10.3390/economies6030040

Economic Models
An economic model is a stripped-down, simplified description of an
economy or of a component of an economy such as a business or a
household. Economists make assumptions when building models.

Assumptions
An assumption is a statement or condition that is presumed or
assumed to be true and from which a conclusion can be drawn.
Assumptions can simplify the complex world and make it easier to
understand.

Ceteris Paribus
Ceteris paribus means “if all other relevant things remain the
same.”

Positive vs. Normative Analysis
Positive Statements Normative Statements
claims that attempt to describe the world claims that attempt to prescribe how the
as it is world should be
Can not be confirmed or refuted by

Can be confirmed or refute by examining
examining evidence. Involve values as
evidence
well as facts.
Minimum-wage laws cause The government should raise the

unemployment. minimum wage.

Positive vs. Normative Analysis
Classify each of the following statements as positive or normative. Explain.
1. Society faces a short-run trade-off between inflation and unemployment.

2. A reduction in the growth rate of the money supply will reduce the rate of inflation.
3. The Federal Reserve should reduce the growth rate of the money supply.
4. Society ought to require welfare recipients to look for jobs.
5. Lower tax rates encourage more work and more saving.

4
ECONOMIC CHOICES
Opportunity Cost
Scarcity means that all people face

trade-offs, which lead to opportunity
cost.

Opportunity Cost
Opportunity cost is the best thing that you must give up to get something—
the highest-valued alternative forgone.
• Almost all choices involve

opportunity cost.

Opportunity Cost
You consider attending a course on Economics

this summer. If you choose to study, you can not
go to your summer job, which has an income of
6000 USD. The tuition is 2000 USD, the textbook
is 200 USD, the living cost is 1400 USD (which
stay the same whether you study or work). Ignore
all non-monetary costs.
Calculate your opportunity cost of attending the
summer course.

Sunk Cost
Sunk cost is a previously

incurred and irreversible
cost. A sunk cost is not part
of the opportunity cost of
a current choice.

Opportunity Cost
You are choosing between the two

following jobs:
• Job A: Gives you 100 USD but
also costs you 30 USD.
• Job B: Gives you 120 USD but
also costs you 40 USD.
Calculate the opportunity cost of

each choice? Which job will you
choose?

Production Possibilities Frontier
Scenario
Minutes to Minutes to Quantity per Quantity per
produce 1 produce 1 hour hour
smoothie salad
Joe 10 2 6 30
Liz 2 2 30 30
Opportunity Cost of Opportunity Cost of

Producing 1 Smoothie Producing 1 Salad
Joe 5 salads 1/5 of a smoothie
Liz 1 salads 1 smoothie

Production Possibilities
Joe Liz
Smoothies (per Smoothies (per

Possibility Salads (per hour) Possibility Salads (per hour)
hour) hour)
A 0 30 A 0 30
B 1 25 B 5 25
C 2 20 C 10 20
D 3 15 D 15 15
E 4 10 E 20 10
F 5 5 F 25 5
G 6 0 G 30 0


The boundary between the

combinations of goods and
services that can be produced
and the combination of those
that cannot be produced,
given the available factors of
production and the state of
technology.

Đường giới hạn khả năng sản xuất
Possibility Pizza (millions) Cola (millions of

cans)
A 0 15
B 1 14
C 2 12
D 3 9
E 4 5
F 5 0

Efficiency
 Production Efficiency is a situation in which we
cannot produce more of one good or service
without producing less of something else.
 Allocative Efficiency is a situation in which
production provide the greatest possible benefit.
 Economic Efficiency involves both Production
Efficiency and Allocative Efficiency.

Opportunity Cost
Opportunity Cost is the price an

economy must pay to produce more
of one goods, measured by the
amount of the other goods forgone.
Opportunity Cost is reflected on the

slope of the PPF.

The table describe some of the points on
the production possibilities frontier of a Possibility X Y
particular economy.
The opportunity cost of increasing the A 1000 0
production of Y from 0 to 200 is: B 990 100
C 980 200
D 970 300
a. 1000 units of X
b. 980 units of X d. 20 units of X
c. 200 units of X e. 5 units of X

The Economy’s PPF

Increasing Opportunity Cost
The opportunity cost of producing

a good or service increases as
more of the good or service are
produced.
Production possibilities frontier

often have bowed-out shape as
the slope of the PPFs increase.

Constant Opportunity Cost
Some PPFs are linear,

which represents constant
opportunity cost.

A bowed-out production possibilities frontier show that
the opportunity cost is _____; while a linear production
possibilities frontier shows that the opportunity cost is
_____.
a. decreasing; constant d. increasing; decreasing
b. constant; increasing e. decreasing; increasing
c. increasing; constant

Assume that there are unemployment
in an economy. The government create
a program to employ all the
unemployed in the production of Good
“B”. One the PPF, the change will be
reflected by a movement from point
_____ to point _____.
a. E; C b. E; D c. C; D
d. H; G e. E; G

Economic Growth
Economic growth is the expansion
of production possibilities, which
shifts the production possibilities
frontier outward.
Economic growth can come from:

• Technological change: the
development of new goods
and of better ways of
producing goods and services.
• Capital accumulation: the
growth of capital resources,
including human capital.

Marginal Analysis
• Economists normally assume that people are rational.
• Rational people systematically and purposefully do the best they
can to achieve their objectives, given the available opportunities.
• Doing the best they can means maximizing their net benefit.
Net Benefit = Total Benefit – Total Cost

NB = TB – TC

Marginal Analysis
• Help answering “How much” questions.
• Marginal change is a small incremental adjustment to a plan of
action.
• Rational people make decisions by comparing marginal benefits
and marginal costs.
MB: marginal benefits
MC: marginal costs

Maginal Analysis
Example
A student plans to spend 5 hours studying for 2 exams this evening.
Hours on studying Economics Grade Hours on studying History Grade

Economics History
5 100 0 0
4 96 1 40
3 90 2 60
2 82 3 72
1 60 4 77
0 0 5 80

Marginal Analysis
Example
A firm try to answer the question: “Should the firm increase their
production by one unit?”

Marginal Analysis
Benefits Costs
Selling Q units bring the total Producing Q units has the total
revenue revenue of cost of
𝑇𝐵= 𝑓 (𝑄) 𝑇 𝐶=𝑔 (𝑄)

Selling 1 extra units increases Producing 1 extra units
the total revenue by increases the total cost by
𝑀𝐵= 𝑓 ′ ( 𝑄) 𝑀𝐶=𝑔 ′ (𝑄)

Marginal Analysis
The goal of the firm is to maximize net benefit (profit)
𝑁𝐵=(𝑇𝐵−𝑇𝐶 )→ 𝑚𝑎𝑥
Which is achieved when:
𝑁𝐵 ′ ( 𝑄) =0
That means:
(𝑇𝐵 )′ (𝑄 ) −( 𝑇𝐶)′ (𝑄 )=0

𝑀𝐵(𝑄) =𝑀𝐶(𝑄)

Marginal Analysis
A marginal change is a
a. change that involves little, if anything, that is

important.
b. large, significant adjustment.
c. change for the worse, and so it is usually a short-term

change.
d. small, incremental adjustment.

Phân tích cận biên
The average cost per seat on the 50-passenger Floating-On-Air Bus company's
trip from Kansas City to St. Louis, on which no refreshments are served, is $45. In
advance of a particular trip, three seats remain unsold. The bus company could
increase its profit only if it
a. charged any ticket price above $0 for the three remaining seats.
b. charged at least $15 for each of the three remaining seats.
c. charged at least $45 for each of the three remaining seats.
d. paid three people to occupy the three remaining seats.

Phân tích cận biên
The total benefit and the total cost function of a certain
activity are as followed:
a. Determine the quantity that maximizes total benefit.

b. Determine the quantity that maximizes net benefit.
c. Current production is at . Should the quantity be
increased or decreased?
d. Current production is at . Should the quantity be
increased or decreased?

5
THE GAINS FROM TRADE
Scenario
Minutes to Minutes to Quantity per Quantity per
produce 1 produce 1 hour hour
smoothie salad
Joe 10 2 6 30
Liz 2 2 30 30


Exchange
Absolute advantage
The ability to produce a good using fewer inputs than
another producer
Comparative advantage
The ability to produce a good at a lower opportunity cost
than another producer

Absolute Advantage and Comparative Advantage
The following table describes the production possibilities of two cities in the
country of Baseballia:
Pairs of Red Socks per Pairs of White Socks per

Worker per Hour Worker per Hour
Boston 3 3
Chicago 2 1
Which city has an absolute advantage in the production of each color sock?
Which city has a comparative advantage in the production of each color sock?

Exchange
Trade can benefit everyone in society because it allows people to specialize in
the activities in which they have a comparative advantage.

Before Trade
Joe produces and consumes Liz produces and consumes Both produce and consume
• 5 salads • 15 salads • 20 salads
• 5 smoothies • 15 smoothies • 20 smoothies

Exchange
Before Trade
Joe produces and consumes Liz produces and consumes Both produce and consume
After Trade
Joe produces Liz produces Both produce
• 30 salads • 0 salad • 30 salads
• 0 smoothie • 30 smoothies • 30 smoothies
Joe trades 20 salads to get Liz trades 10 smoothies to

10 smoothies get 20 salads
Joe consumes Liz consumes Both consume


After Trade

The Price of the Trade
For both parties to gain from trade, the price at which they
trade must lie between their opportunity costs

The exchange happened at the price of 2 salads per smoothie.

Exchange
The table describe the amount of meat and vegetable that Vu and Linh can
produce in a typical day
Meat Vegetable
Vu 8 2
Linh 10 5
a. Vu has comparative advantage in producing vegetable
b. Linh has absolute advantage in producing meat
c. Vu and Linh can both benefits from trade if they exchange 1 units of vegetable for 1 unit of meat
d. Vu and Linh can both benefits from trade if they exchange 1 units of vegetable for 3 unit of meat
e. Vu and Linh can both benefits from trade if they exchange 1 units of vegetable for 5 unit of meat
International Trade
Exports
Goods produced abroad and sold domestically
A country exports a good if it has comparative

advantage in producing that good over the rest of the
world (if the domestic opportunity cost is lower than the
opportunity cost for the rest of the world.)

International Trade
Imports
Goods produced abroad and sold domestically.
A country imports a good if the rest of the world has

comparative advantage in producing that good over the
country (if the domestic opportunity cost is higher than
the opportunity cost for the rest of the world.)

International Trade
Trade between countries
a. allows each country to consume at a point outside its production

possibilities frontier.
b. limits a country’s ability to produce goods and services on its own.

c. must benefit both countries equally; otherwise, trade is not mutually
beneficial.
d. can best be understood by examining the countries’ absolute

advantages.

Unit 1

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Unit 1

Uploaded by

Copyright:

Available Formats

Module

Phạm Xuân Nam

Chapter 1: Introduction to Economics Slide 4

Chapter 1: Introduction to Economics Slide 5

Syllabus for Principles of Microeconomics

Powerpoint slide for the lectures

Seminar files for revisions

Youtube videos of similar lectures in Vietnamese

Chapter 1: Introduction to Economics Slide 6

Chapter 1: Introduction to Economics Slide 7

Put your phone in silent mode

Chapter 1: Introduction to Economics Slide 8

Chapter 1: Introduction to Economics Slide 9

Chapter 1: Introduction to Economics Slide 12

Chapter 1: Introduction to Economics Slide 13

Chapter 1: Introduction to Economics Slide 14

Chapter 1: Introduction to Economics Slide 15

Land Natural resources.

Tools, instruments, machines, buildings, and other items that do not

Chapter 1: Introduction to Economics Slide 16

Chapter 1: Introduction to Economics Slide 17

Chapter 1: Introduction to Economics Slide 18

The most fundamental economic problem is how to best use

a. Unlimited resources to satisfy unlimited wants.

b. Limited resources to satisfy unlimited wants.

c. Unlimited resources to satisfy limited wants.

d. Limited resources to satisfy limited wants.

Chapter 1: Introduction to Economics Slide 19

Chapter 1: Introduction to Economics Slide 20

Chapter 1: Introduction to Economics Slide 21

Chapter 1: Introduction to Economics Slide 22

Chapter 1: Introduction to Economics Slide 23

Chapter 1: Introduction to Economics Slide 24

Chapter 1: Introduction to Economics Slide 25

Economics is the social science that studies the choices

Chapter 1: Introduction to Economics Slide 26

Households Firms Government

Chapter 1: Introduction to Economics Slide 27

Expenditure Markets Revenue

Income Factor Cost

Factors of production Markets Factors of production

Chapter 1: Introduction to Economics Slide 28

A microeconomist might study the A macroeconomist might study the

Chapter 1: Introduction to Economics Slide 29

1. a family’s decision about how much income to save

Chapter 1: Introduction to Economics Slide 30

1 Phương pháp nghiên cứu khoa học

2 Giả thuyết kinh tế

5 Kinh tế học thực chứng và kinh tế học chuẩn tắc

Chapter 1: Introduction to Economics Slide 32

Chapter 1: Introduction to Economics Slide 33

Chapter 1: Introduction to Economics Slide 34

Chapter 1: Introduction to Economics Slide 35

Chapter 1: Introduction to Economics Slide 36

Chapter 1: Introduction to Economics Slide 37

Chapter 1: Introduction to Economics Slide 38

Chapter 1: Introduction to Economics Slide 39

Chapter 1: Introduction to Economics Slide 40

Positive Statements Normative Statements

Can not be confirmed or refuted by

Minimum-wage laws cause The government should raise the

Chapter 1: Introduction to Economics Slide 41

1. Society faces a short-run trade-off between inflation and unemployment.