I ndividual assignment 1-2-3

Name: NGUYỄN THỊ THI

Chapter 1:
1. How many groups of principle are there? What priciples in each group?
Your answers: There are 10 principles of microeconomics: divided into 3 main groups
- Group 1: How people make decisions.
 1. People face tradeoffs.
 2. The cost of something is what you give up to get it.
 3. Rational people think at the margin
 4. People respond to incentives.
- Group 2: How to people interact.
 5. Trade can make everyone better off.
 6. Markets are usually a good way to organize economic activity
 7. Governments can sometimes improve market outcomes
- Group 3: How the economy as a whole works.
 8. A country's standard of living depends on its ability to produce goods and
services.
 9. Prices rise when the government prints too much money.
 10. Society faces a short-run trade-off between inflation and unemployment.
Chapter 2:
1. What is the role of economists? Give a sort example.
2. Why economists sometimes disagree with each other?
Your answers:
- Economists are professionals who have expertise in applying economic theories and
models to allocate limited resources in the best possible way for the welfare of the
economy. The role of economists primarily involves analyzing the cost of production,
employment levels, general price level (P), inflation rate (IR), taxes, formulating
economic policies, creating financial budgets, and identifying opportunities for
economic development. Regardless of the specifics, an economist's job is to analyze
and interpret data to make useful predictions about economic conditions, providing
guidance to advise the government on an optimal policy framework that optimizes
social welfare.

- For example, economists working as data analysts in a firm will analyze various data
related to the firm's operations and economic conditions that affect its earnings. They
will then summarize this data to obtain useful results that can be used to make future
predictions of economic variables. This helps them provide advice on the policies and
 actions that the firm must take to earn higher profits or prepare for any unexpected
economic shocks to reduce possible losses.

- Economics is a combination of both empirical and psychological sciences. There are two
major schools of thought: the Keynesian school of thought (KST) affirms that the
economy works efficiently when there is a combination of the private and public
sectors formulating policies. The second school of thought supports a free economy
that emphasizes the independent adjustment of the market to any disturbances, with no
government intervention. Due to these differing schools of thought, economists often
form beliefs that justify the logic behind their theories, making agreements difficult to
come by. Moreover, economists work in different fields, including academia, research,
and the government sector, and these different fields may demand varying agendas
from the economist depending on their self-benefit. An economist working for a private
firm, for example, may focus on maximizing profits, while an economist working with
the government will formulate policies and budgets according to theories that maximize
the welfare of society. This is another major reason for disagreements among
economists.
Chapter 4:
1. What will make the demand curve shift? What will make a movement along the
demand curve? Give example for all of them.
2. What will make the supply curve shift? What will make a movement along the
supply curve? Give example for all of them.
Your answers:
1. The demand (DD) curve has a change in demand (DD) or a shift in demand (DD) when
the purchased quantity of any commodity in the market increases or declines because of
the change (rise or decline) in various factors of determinants of the demand (DD)
curve other than the own market price of the commodity. These factors are the income
of the buyers, the price value of the substitute and complement of the commodity, the
preferences and tastes of the buyers, and future price expectations.
- For instance, a rise in the income of the buyer of the commodity will cause the demand
(DD) curve to shift outwards or rightwards causing an increase in demand. But when
the preferences and tastes of the buyers go in the opposite direction of the commodity,
that is the potential buyers start to dislike the commodity, and the demand (DD) curve
shifts inwards or leftwards causing a decrease in demand.

- When there is a change (rise or decline) in the quantity demanded of a commodity or

service as a consequence of the change (rise or decline) in the market price of the
commodity or service, given there is no change (rise or decline) in other factors
affecting demand (DD) (such as income, price of related commodities) then there is a
movement (upwards or downwards) along the same demand (DD) curve known as the
change in quantity demanded.

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- For instance, given every other factor is constant that affects demand (DD) and the price
of the commodity falls, then the consumer can buy more of the commodity, and the
quantity demanded rises. The demand curve (DD) shifts when the quantity of a
commodity purchased in the market increases or decreases due to various factors other
than the market price of the commodity. These factors include the buyer's income, the
price of substitute and complementary commodities, the buyer's preferences and tastes,
and future price expectations. For example, if the buyer's income increases, the demand
curve shifts outward or to the right, causing an increase in demand. However, if the
buyer's preferences and tastes go against the commodity, the demand curve shifts
inward or to the left, causing a decrease in demand.

- When the quantity demanded of a commodity changes due to a change in its market
price, and there is no change in any other demand factor such as income or the price of
related commodities, it results in a movement along the same demand curve known as
the change in quantity demanded. For instance, if the price of a commodity falls and all
other factors remain constant, the consumer can afford to buy more of the commodity,
and the quantity demanded increases.

2. A supply (SS) curve will shift when all factors affecting the supply (SS) except the
market price of the commodity change (rise or decline). These factors are costs
involved in production, the number of firms in the industry, technology, future price
expectations of sellers, and the tax and subsidy availability in production.
- For instance, suppose at the same market price, more firms enter the industry, so the
supply (SS) will increase and the supply (SS) curve will shift to the left. Another
instance is that due to low rain, wheat production falls, and wheat becomes expensive.
So, the price of an input (wheat flour) in the production of cakes rises. This causes the
supply (SS) of cakes to fall and the supply (SS) curve of cakes to shift to the left at the
same price.

- When the quantity supplied of any commodity in the market changes because of a change
(rise or decline) in the market price of the commodity, given other factors affecting
supply (SS) (such as cost of production, technology change) is constant, then there is a
movement (upwards or downwards) along the same supply (SS) curve.

- For instance, suppose all other factors or determinants that affect the supply (SS) of cars
in the market or cars are the same, but the price of cars rises, this will induce the
producers of cars to raise their supply (SS) of cars, as the higher price will increase the
profit from the sale. So, there will be an upward movement on the car supply (SS)
curve. A supply curve (SS) shifts when all factors affecting the supply, except for the
market price of the commodity itself, change. These factors include the cost of
production, the number of firms in the industry, technology, future price expectations
of sellers, and the availability of tax and subsidies in production.

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- For example, if more firms enter an industry at the same market price, the supply (SS)
will increase, causing the supply curve to shift to the right. On the other hand, if there is
a decline in wheat production due to low rainfall, wheat becomes more expensive, and
the price of an input (wheat flour) in the production of cakes rises. This causes the
supply of cakes to decrease and the supply curve to shift to the left at the same price.

- If the change in supply is due to a change (rise or decline) in the market price of the
commodity, given that other factors affecting supply (SS) remain constant, then there is
a movement (upwards or downwards) along the same supply (SS) curve.
- For instance, if all other determinants that affect the supply (SS) of cars in the market
remain the same, and the price of cars rises, this will prompt the producers of cars to
increase the supply (SS) of cars, as the higher price will increase the profit from sales.
This will cause an upward movement on the car supply (SS) curve.
Chapter 5:
1. What will influence the price elasticity of demand? Give example for each pair.
Your answers:

- Demand elasticity measures the responsiveness of demand for a commodity when there is
a change in an economic factor. Mostly this economic factor is the price. However,
other than price, a product’s demand can react to a consumer’s income level, product
substitute, level of necessity, and more.
What are the Factors Influencing Price Elasticity of Demand?
- The price elasticity of demand is not as linear as it may sound. To succeed in the market,
a company has to consider ample different variables to determine if its product is

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 elastic or not. Understanding this helps in establishing a long-term pricing strategy. It's
important to answer, "What are the determinants of price elasticity of demand" to
develop a sustainable pricing process that will help you scale up in the long term.
- Hence, now that we've briefly discussed its impact on pricing, let’s take a look at the 7
different factors affecting the price elasticity of demand.

1. The Availability of Substitutes.

- Example: The demand for gasoline is more elastic than the demand for milk because
there are more readily available substitutes for gasoline, such as electric cars and public
transportation.

2. The Proportion of Income Spent on Commodities.

- Example: The demand for housing is more elastic than the demand for toothpaste because
people spend a higher proportion of their income on housing.

3. The Time Frame.

- Example: The demand for long-term vacations is more elastic than the demand for
weekend getaways because people have more time to adjust their vacation plans in
response to a change in price.

4. The Degree of Necessity.

- Example: The demand for food is less elastic than the demand for diamonds because food
is a necessity good, while diamonds are a luxury good.

5. Brand Loyalty.
- Example: The demand for brand-name products is less elastic than the demand for
generic products because consumers are more brand-loyal to brand-name products.

6. The Level of Competition.

- Example: The demand for products in competitive markets is more elastic than the
demand for products in monopolistic markets because consumers have more choices in
competitive markets.

7. The Availability of Information.

- Example: The demand for products for which there is a lot of information available is
more elastic than the demand for products for which there is less information available
because consumers are better able to compare prices and find substitutes when there is
more information available.

Chapter 6:

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 1. When will price floor is binding? When will price ceiling is binding? Give a short
answer.
Your answers:
- In an economy, the price floor (PF) refers to the lowest price (P) that can be charged for a
product. When the government sets a value (P) above the market-clearing price (P), it
creates a price floor (PF) that aims to support firms by increasing their earnings from
the product. However, this also leads to an excess supply (Qs) in the economy, as the
price is now over the equilibrium, resulting in an oversupply of products. This is what
we call a binding price floor (PF).

- A price ceiling is the maximum price limit that firms can charge for a product, as
imposed by the government. This restriction is in place to protect customers from being
overcharged. If the market value falls below the equilibrium price after the price ceiling
is imposed, it creates excess demand for the product. This situation is called a binding
price ceiling.

Chapter 7
1. Natalian wants to buy a Car. His consumer’s surplus is $5,000.
a. If price of an Vinfast Car is $35,000. What is his willingness to pay?
b. If his willingness to pay is 0, what is the actual price for the car?
Your answers:
- The consumer surplus (or, CS) in economics is the difference between the consumer’s
willingness to pay (or, WTP) that the consumer is ready to offer for buying a
commodity and the actual sale price (P) of the commodity.
Or, CS = WTP - P

Here the individual Natalian is thinking of purchasing a car.

The CS of Natalian from buying the car = $5,000

a. The actual price of the Vinfast car = P = $35,000

The WTP of Natalian = CS + P

Or, the WTP of Natalian to buy the car = $5,000 + $35,000 = $40,000

So, Natalian’s WTP for the Vinfast car is $40,000.

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b. Now, it is given that the WTP of Natalian = 0

So, CS = WTP - P

Or, $5,000 = 0 - P

Here we have assumed that Natalian is still getting a CS=$5,000 from buying the car.

Or, P = 0 - $5,000

Or, P = -$5,000

So, for Natalian to gain a CS=$5,000 with the WTP for the car equal to ‘0’, the actual price
of the car would have to be -$5,000.

Actual price in this case = -$5,000.

- This is irrational as the price of a commodity cannot be negative. If an individual has a

WTP = 0, it simply means that if the consumer wants a positive CS, then the actual
price is below or equal to ‘0’.
Chapter 13
1. Suppose you are running a Coffee shop. Propose a situation that you are having account
profit while economic profit is less than 0.
(You can make any number you want)
Your answers:
- I am charging $5 for a cup of coffee. My marginal cost of producing a cup of coffee is
$3. My implicit costs are $2 per cup of coffee, because I could be working as a barista
at another coffee shop for an hourly wage of $20. This means that my total cost per cup
of coffee is $5.
- I am selling 100 cups of coffee per day. This means that I am generating an accounting
profit of $200 per day because my revenue is $500 per day and my costs are $300 per
day.
- However, my economic profit is negative, because my implicit costs are not included in
my accounting costs. My economic profit is -$100 per day because my revenue is $500
per day and my total costs are $600 per day.

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- I could improve my economic profit by reducing my implicit costs, such as by working
fewer hours in my coffee shop or by hiring a barista. I could also improve my economic
profit by increasing my revenue, such as by selling more cups of coffee per day or by
charging a higher price per cup of coffee. However, it is important to note that
increasing my price could reduce the quantity of coffee that I sell, which could offset
the increase in revenue.
Chapter 14
1. Suppose you are running a Sugar manufacturing company. When will you shutdown
your business and when will you exit the industry? Explain in detail.
Your answers:
- Shut down if TR < VC, or P < AVC Because when producing in this situation, the
enterprise will both lose fixed costs and lose material costs.
- Exit if TR < TCBecause when total revenue is less than total cost, there will be a loss. for
example, if my business sells a pack of sugar for 16,000 dong, the business is losing
money, but it also has to spend on upgrading and repairing machinery, then my
business will leave the market because of the loss
Chapter 15
1. Prove that electricity is a market of monopoly? Does price discrimination exist in
electricity market? Explain?
Your answers:
- Proof that electricity is a market of monopoly:

 Monopoly resources: Vietnam Electricity Company is the only supplier and there
are no alternative products
 Natural monopoly: Electricity is a natural monopoly because it is more efficient for
one company to produce and distribute electricity to all consumers than it is for
multiple companies to do so. This is because electricity grids need to be
interconnected in order to ensure that consumers have access to electricity at all
times.
 Government regulation: Governments often regulate the electricity market to
prevent competition and protect consumers. This can create a barrier to entry for
new companies and make it easier for existing monopolies to maintain their market
power.

- The electricity market is not exempt from price discrimination. Many electricity
companies charge customers different prices based on their willingness and ability to
pay. For instance, businesses may pay more for electricity than residential customers

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 and electricity prices may be higher during peak demand hours than during off-peak
demand.

- Here are some specific examples of price discrimination in the electricity market:

 Time-of-use pricing: Electricity companies offer different prices for

electricity depending on the time of day. For example, they may charge
higher prices during peak demand hours (such as the morning and evening)
when more people are using electricity.
 Tiered pricing: Electricity companies charge customers different prices for
their electricity usage depending on the amount of electricity consumed. For
instance, they may charge lower prices for customers who use less
electricity.
 Demand response programs: Electricity companies reward businesses and
other large consumers who reduce their electricity consumption during peak
demand hours.

- Price discrimination can benefit both electricity companies and consumers. Companies
can increase their profits by charging higher prices to customers who can afford to pay
more. Consumers can enjoy lower prices during off-peak demand hours or receive
rewards for reducing their electricity consumption during peak demand hours.

- However, price discrimination can be harmful to consumers as well. For example, if low-
income customers are charged very high prices by electricity companies, they may
struggle to afford electricity. Additionally, price discrimination can cause inefficiencies
in the electricity market, as customers may not be able to choose the electricity plan
that best suits their needs.

- In conclusion, price discrimination is a complicated matter with both advantages and

disadvantages. It is crucial to evaluate the pros and cons of price discrimination before
implementing it in the electricity market.
Chapter 16
Suppose you are running a firm which is producing shampoo. Which kind of market for
your firm? Prove it?!
Your answer:
- The shampoo market is a monopolistically competitive market. This is a type of market
structure in which there are many sellers offering differentiated products. The
differentiation between products can be based on factors such as brand, quality,
features, and packaging.

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- Here is some evidence that the shampoo market is a monopolistically competitive
market:

 There are many sellers of shampoo. Some of the major shampoo brands include
Dove, Head & Shoulders, Pantene, L'Oréal, and Tresemme.
 Shampoo products are differentiated. Different shampoos are marketed to different
consumers based on their hair type, hair concerns, and desired results. For example,
some shampoos are marketed to people with dry hair, while others are marketed to
people with oily hair.
 Sellers have some market power. Shampoo sellers can set their own prices and
differentiate their products from the competition. However, their market power is
limited by the availability of substitutes and the entry of new sellers into the market.

- Here are some examples of how shampoo companies differentiate their products:

 Dove: Dove shampoos are marketed as being gentle on hair and scalp.
 Head & Shoulders: Head & Shoulders shampoos are marketed as being effective at
treating dandruff.
 Pantene: Pantene shampoos are marketed as being effective at strengthening hair
and preventing breakage.
 L'Oréal: L'Oréal shampoos are marketed as being luxurious and providing salon-
quality results at home.
 Tresemme: Tresemme shampoos are marketed as being affordable and providing
professional-quality results at home.

The monopolistically competitive market structure has some advantages and

disadvantages.

 Advantages:

Consumers have a wide range of choices. Shampoo consumers have a wide range of
shampoos to choose from, each with its own unique features and benefits.
Sellers have incentives to innovate. Shampoo sellers have incentives to innovate and
develop new products in order to differentiate themselves from the competition.

 Disadvantages:

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Consumers may pay higher prices. Shampoo consumers may pay higher prices for
shampoos than they would in a more competitive market.
Sellers may produce less output. Shampoo sellers may produce less output than they would
in a more competitive market in order to maintain their market power.

- Overall, the monopolistically competitive market structure is a mixed bag. It has some
advantages, such as providing consumers with a wide range of choices and
incentivizing sellers to innovate. However, it also has some disadvantages, such as
higher prices for consumers and less output from sellers.

Chapter 10
 Give 2 examples in real life that you have seen or experienced about Positive and
negative externality. (1 positive and 1 negative)
Your answer:
- Here is a specific example of a positive externality that I have experienced: I was born
and raised in a rural area with lots of trees. The trees provide a number of benefits to
the community, such as cleaner air, cooler temperatures, and reduced noise levels. Even
though I don't directly plant any trees, I still benefit from them every day.

- Here is a specific example of a negative externality that I have experienced: Later when I
went to the city to study at university I lived near a busy highway. The noise from the
highway can be very disruptive, especially at night. The air pollution from the highway
is also a concern. I have had to install soundproofing in my home and I avoid spending
time outdoors on days when the air quality is poor.

- Both positive and negative externalities can have a significant impact on society. It is
important to be aware of these externalities and to take steps to mitigate their negative
effects and enhance their positive effects.

Chapter 11
1. Give an example for each kind of goods and explain in term of Excludability and
Rivalry in consumption.
 Private goods
 Club goods
 Common resources
 Public goods
Your answer:

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- Private goods: A movie ticket

 Excludable: The movie theater can prevent people from watching the movie by
checking their tickets.
 Rival in consumption: One person's consumption of the movie ticket prevents
another person from watching the movie at the same time.

- Club goods: A gym membership

 Excludable: The gym can prevent people from using the gym by checking their
membership cards.
 Not rival in consumption: One person's use of the gym equipment does not prevent
another person from using the same equipment.

- Common resources: Fish in the ocean

 Non-excludable: It is impossible to prevent people from fishing in the ocean.

 Rival in consumption: One person's catch of fish reduces the number of fish that are
available for other people to catch
- Public goods: National defense

 Non-excludable: It is impossible to prevent people from benefiting from national

defense.
 Non-rival in consumption: One person's enjoyment of national defense does not
reduce the amount of national defense that is available for other people to enjoy.

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