Modul Principles of Microeconomics Introduction to Economics.pptx

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1. Unit 1 Introduction to Economics Phạm Xuân Nam [email protected]

2. Content Course Introduction Economics Economic Choices 1 2 4 Methodology 3 The Gains from Trade 5

3. Course introduction 1

4. Textbook N. Gregory Mankiw Principles of Economics (9 th Edition) Cengage

5. 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

6. 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!

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

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

9. 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

10. Economics 2

11. “You can’t always get what you want” Mick Jagger

12. Wants A want is something that is desired or wished. People’s wants are unlimited.

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

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

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

16. Factors of Production Land Natural resources. Labor The work time and work effort that people devote to producing goods and services. Capital Tools, instruments, machines, buildings, and other items that do not come directly from nature. Entrepreneurship The human resource that organizes labor, land and capital. Entrepreneurs come up with new ideas about what and how to produce, make business decisions, and bear the risks that arise from these decisions

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

18. 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%

19. 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.

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

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

22. The Three Big Economic Questions What to produce? 1.

23. The Three Big Economic Questions How to produce? 2. Dubai London

24. The Three Big Economic Questions How to produce? 2.

25. The Three Big Economic Questions For whom to produce? 3.

26. 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.

27. The Circular-flow Diagram Households Firms Government

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

29. Sub-fields of Economics Microeconomics The study of how households and firms make decisions and how they interact in specific markets. Macroeconomics The study of economywide phenomena. A microeconomist might study the effects of rent control on housing in New York City, the impact of foreign competition on the U.S. auto industry, or the effects of education on workers’ earnings. A macroeconomist might study the effects of borrowing by the federal government, the changes over time in the economy’s unemployment rate, or alternative policies to promote growth in national living standards.

30. Microeconomics and Macroeconomics Classify each of the following topics as relating to microeconomics or macroeconomics. a family’s decision about how much income to save the effect of government regulations on auto emissions the impact of higher national saving on economic growth a firm’s decision about how many workers to hire the relationship between the inflation rate and changes in the quantity of money

31. Methodology 3

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

33. The Scientific Method The Steps of the Scientific Method

34. Economic Hypotheses A hypothesis is  an idea or proposition that can be tested by observations or experiments, about the natural world .   Independent Variables Causes Dependent Variables Effects

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

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

37. 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

38. 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.

39. 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.

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

41. Positive vs. Normative Analysis Positive Statements Normative Statements claims that attempt to describe the world as it is claims that attempt to prescribe how the world should be Can be confirmed or refute by examining evidence Can not be confirmed or refuted by examining evidence. Involve values as well as facts. Minimum-wage laws cause unemployment. The government should raise the minimum wage.

42. Positive vs. Normative Analysis Classify each of the following statements as positive or normative. Explain. Society faces a short-run trade-off between inflation and unemployment. A reduction in the growth rate of the money supply will reduce the rate of inflation. The Federal Reserve should reduce the growth rate of the money supply. Society ought to require welfare recipients to look for jobs. Lower tax rates encourage more work and more saving.

43. Economic choices 4

44. Opportunity Cost Scarcity means that all people face trade-offs, which lead to opportunity cost .

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

46. 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.

47. 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.

48. Opportunity Cost Calculate the opportunity cost of each choice? Which job will you choose? 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 .

49. Production Possibilities Frontier Scenario Minutes to produce 1 smoothie Minutes to produce 1 salad Quantity per hour Quantity per hour Joe 10 2 6 30 Liz 2 2 30 30 Opportunity Cost of Producing 1 Smoothie Opportunity Cost of Producing 1 Salad Joe 5 salads 1/5 of a smoothie Liz 1 salads 1 smoothie

50. Production Possibilities Frontier Production Possibilities Possibility Smoothies (per hour) Salads (per hour) A 30 B 5 25 C 10 20 D 15 15 E 20 10 F 25 5 G 30 Joe Liz Possibility Smoothies (per hour) Salads (per hour) A 30 B 1 25 C 2 20 D 3 15 E 4 10 F 5 5 G 6

51. Production Possibilities Frontier

52. Production Possibilities Frontier 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.

53. Đường giới hạn khả năng sản xuất Possibility Pizza ( millions ) Cola ( millions of cans ) A 15 B 1 14 C 2 12 D 3 9 E 4 5 F 5

54. 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 .

55. 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.

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

57. The Economy’s PPF

58. 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.

59. Constant Opportunity Cost Some PPFs are linear, which represents constant opportunity cost.

60. Production Possibilities Frontier 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 b. constant; increasing c. increasing; constant d. increasing; decreasing e. decreasing; increasing

61. Production Possibilities Frontier 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 d. H; G b. E; D e. E; G c. C; D

62. 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.

63. 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 .    

64. 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

65. Maginal Analysis A student plans to spend 5 hours studying for 2 exams this evening. Example Hours on studying Economics Economics Grade 5 100 4 96 3 90 2 82 1 60 Hours on studying History History Grade 1 40 2 60 3 72 4 77 5 80

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

67. Marginal Analysis Benefits Costs Selling Q units bring the total revenue revenue of   Selling 1 extra units increases the total revenue by   Producing Q units has the total cost of   Producing 1 extra units increases the total cost by  

68. Marginal Analysis The goal of the firm is to maximize net benefit (profit) Which is achieved when: That means:        

69. 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.

70. 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.

71. Phân tích cận biên The total benefit and the total cost function of a certain activity are as followed: Determine the quantity that maximizes total benefit. Determine the quantity that maximizes net benefit. Current production is at . Should the quantity be increased or decreased? Current production is at . Should the quantity be increased or decreased?  

72. The gains from trade 5

73. Production Possibilities Frontier Scenario Minutes to produce 1 smoothie Minutes to produce 1 salad Quantity per hour Quantity per hour Joe 10 2 6 30 Liz 2 2 30 30 Opportunity Cost of Producing 1 Smoothie Opportunity Cost of Producing 1 Salad Joe 5 salads 1/5 of a smoothie Liz 1 salads 1 smoothie

74. 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

75. 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 Worker per Hour Pairs of White Socks per 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?

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

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

78. Exchange Before Trade After Trade Joe trades 20 salads to get 10 smoothies Liz trades 10 smoothies to get 20 salads Joe produces and consumes 5 salads 5 smoothies Liz produces and consumes 15 salads 15 smoothies Both produce and consume 20 salads 20 smoothies Joe produces 30 salads 0 smoothie Liz produces 0 salad 30 smoothies Both produce 30 salads 30 smoothies Joe consumes 10 salads 10 smoothies Liz consumes 20 salads 20 smoothies Both consume 30 salads 30 smoothies

79. After Trade

80. 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. Opportunity Cost of Producing 1 Smoothie Opportunity Cost of Producing 1 Salad Joe 5 salads 1/5 of a smoothie Liz 1 salads 1 smoothie

81. Exchange The table describe the amount of meat and vegetable that Vu and Linh can produce in a typical day 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 Meat Vegetable Vu 8 2 Linh 10 5 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

82. 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.)

83. 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.)

84. International Trade Trade between countries a. allows each country to consume at a point outside its production possibilities frontier. d. can best be understood by examining the countries’ absolute advantages. 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.