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Lecture 1
Lecture 1
Chapter 1
Introductory
Motivation
Understand…analyze…visualize
1. Microeconomics
1. Definition of Economics
2. Subjects and research methods of Microeconomics
3. Some basic concepts
• The management of
society’s resources is
important because resources
are scarce.
• Scarcity implies choice and
choice implies cost.
Experts warn Vietnam seriously
lacks water (vietnamnet.vn)
Renewables in Vietnam:
Current Opportunities and Future
Outlook (EVBN)
Microeconomics vs
Macroeconomics
Microeconomics
the study of how households and firms
make decisions and how they interact in
markets.
Macroeconomics
the study of economywide phenomena,
including inflation, unemployment,
economic
and growth
1.1.2. Subject and Method of
Microeconomics
Subjects: study of how households and firms
make decisions and how they interact in markets.
Scientific method:
OBSERVATION,
THEORY, AND MORE OBSERVATION
Role of assumption: Assumptions can simplify the
complex world and make it easier to understand.
Economic model: Economists also use models to
learn about the world. The models are most
often composed of diagrams and equations
Circular-flow diagram:
Factors of Production
Inputs used to produce goods
and services
Land, labor, and capital
The Circular Flow Diagram
MARKETS
Revenue FOR Spending
GOODS AND
SERVICES Goods and
Goods
• Firms sell
and servi ces services
• Household
sold bought
s buy
FIRMS HOUSEHOLDS
• Produce and sell • Buy and consume
goods and services goods and services
• Hire and use factors • Own and sell factors
of production
of production
1. Firms: profit
2. Consumers: benefit
3. Government: welfare
1.3. Optimal economic choices
1.3.1. The nature and objectives of
economic choices
2. Thinking at margin:
Economists use the term marginal changes to
describe small incremental adjustments to an
existing plan of action.
Rational people often decisionsby
make comparing marginal and
benefits costs. marginal
The opportunity cost
Quantity of
Steel (Tons) A&C: OPPORTUNITY COST OF PRODUCTION 100 TONS OF
FISH IN ADDITION? 200 TONS OF STEEL
D: MIGRATION/EDUCATION/TECHNOLOGY =>
NOT FEASIBLE
3,000 D
D
The Production Possibilities Frontier
Quantity of
Steel (Tons)
4,000
3,000
2,100 E
2,000
A