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Microeconomics 1
Quan Hong Nguyen
Lecturer in Microeconomics
Faculty of International Economics
Hanoi Foreign Trade University
Email:
Tel: 0983 060 987
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Copyright © 2014 by Quan Hong NGUYEN
SYLLABUS
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:
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Class attendance (90%)
Actively participate in-class activity
Complete all homework and other tasks
Don’t have private conversation or arrive at class late, which
can disrupt the learning environment of the class
Copyright © 2014 by Quan Hong NGUYEN
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
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TOPICS IN MICROECONOMICS
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Introduction to Microeconomics
Demand and Supply
Consumer Behavior
Producer Behavior
Market Structures
Labor Market
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LECTURE 1
Introduction to
microeconomics
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Research Question
Why research
Microeconomics?
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SCARCITY
. . means that society has limited resources and therefore
cannot produce all the goods and services people wish to
have.
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I. MICROECONOMICS
1. WHAT IS ECONOMICS?
1.1. The economy
Economy – “oikonomos” (Greek): “One
who manages a household”
Household - many decisions of allocate
limited resources
Society - many decisions
Allocate resources
Allocate outputs
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Our first model: The circular-flow
diagram
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
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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
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The economy
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The economy
There are at least 3 members in any
economy, which interacting with each
other in a certain regime.
- Households
- Firms
- Governments
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1.2. ECONOMICS
1.2.1. FOUNDATIONS OF MODERN ECONOMICS
CLASSICAL
ADAM SMITH: The Wealth of
Nations (1776)
“Invisible hand”
ALFRED MARSHALL: Principles
of Economics (1890).
NEOCLASSICAL
During the 1940s - 1950s
Modern classical school of
economics with some key ideas.
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KEY IDEAS OF NEOCLASSICAL ECONOMICS
Scarcity
Opportunity cost
Thinking at the margin
Incentives in individual decision making
The role of the markets
Market failure.
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1.2.2. DEFINITION
Economics is to study of how society
manages its scarce resources for
competitive goals
Economists study:
How people make decisions
How people interact with one another
Analyze forces and trends that affect the
economy as a whole
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2. Microeconomics
2.1. Microeconomics & Macroeconomics
Microeconomics
The study of the behavior of each member in the
economy
How households and firms make decisions and
how they interact in markets
Macroeconomics
The study of economy as a whole: economywide phenomena, including inflation,
unemployment, and economic growth
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2.1. Microeconomics & Macroeconomics
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2.1. Microeconomics & Macroeconomics
Download:
/>re/Principle.of.Economics.By.Mankiw.pdf
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2.2. The scientific methods
Observation, theory, and more observation
Observation
Theory
Conducting experiments
Observation
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2.3. ECONOMIC MODELS
Economic model: an explanation of how the
economy or part of the economy works.
Assumption: judgements about features that
can be ignored to make the world easier to
understand.
Ceteris paribus assumption (latin): all other
things being equal. The term refers to holding
all other variables constant when one variable
is changed.
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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
=> Profit (П)
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II. Basic economic issues
Three Questions
What?
How?
How can resources be used efficiently?
For
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whom?
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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?
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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
o Mixed economy: A market economy where the
Government plays a large role. Ex: US, UK,
Japan…
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III. The optimum economic choice
1. Choice’s principles
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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
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