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economics
Nguyn Vit Hng
pf_viethung@yahoo.com
Cell phone: 0913.326.631
What is economics?
Society and Scarce Resources:
The management of societys resources is
important because resources are scarce.
Scarcity. . . means that society has limited
resources and therefore cannot produce all the
goods and services people wish to have.
factors of production
Natural resources
Labor
Physical capital
Human capital
Technology
Entrepreneurship
Efforts to coordinate factors of production to produce
and sell products
4
Macroeconomics vs.
microeconomics
Macroeconomics is the
Microeconomics is the
economy as a whole;
made by households,
it focuses on the
issues of inflation,
unemployment, and
economic growth
Macroeconomics
Microeconomics
5
Positive analysis
predicts the
consequences of
Normative
alternative actions
analysis answers
by answering the
ought to be?
If the government
increases the minimum
wages, how many workers
will lose their jobs?
How does a college
education affect a
persons productivity and
earnings?
How do consumers
respond to a cut in
income taxes?
Positive questions
Should the
government increase
the minimum wage?
Should the
government subsidize
a college education?
Should the
government cut taxes
to stimulate the
economy?
Normative questions
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Economic models
Supply
Consumer
surplus
Equilibrium
price
E
Producer
surplus
Demand
C
0
Equilibrium
Quantity
MARKETS
FOR
GOODS AND SERVICES
Firms sell
Goods
Households buy
and services
sold
Revenue
Wages, rent,
and profit
Goods and
services
bought
HOUSEHOLDS
Buy and consume
goods and services
Own and sell factors
of production
FIRMS
Produce and sell
goods and services
Hire and use factors
of production
Factors of
production
Spending
Labor, land,
MARKETS
and capital
FOR
FACTORS OF PRODUCTION
Households sell
Firms buy
Income
= Flow of inputs
and outputs
= Flow of dollars
10
11
Key principles of
economics
1.
2.
3.
4.
5.
6.
12
Opportunity cost
13
3,000
D
C
2,200
2,000
A
Production
possibilities
frontier
1,000
300
600 700
1,000
Quantity of
Cars Produced
14
Real-nominal principle
15
Marginal principle
Marginal principle
Total
costs
Total
benefits
Marginal
cost
Marginal
benefit
10
20
10
20
22
36
12
16
36
50
14
14
52
62
16
12
17
Marginal principle
. Marginal
18
Diminishing
marginal benefit
E
Marginal benefit
B
increasing
marginal cost
C
0
Quantity
19
20
Bushels of
Marginal
corn per acre returns
85
85
120
35
135
15
144
147
21
People respond to
incentives
22
24
Externalities
The effects of a decision on a third party that are not
taken into account by the decision maker
They can be classified into either positive or negative
one.
Government can use direct regulation, incentive
policies such as tax or subsidy, or voluntary solutions
to achieve the socially desirable outcomes.
25
Public goods
A good that is nonexclusive (no one can be excluded
from its benefits) and nonrival (consumption by one
does not preclude consumption by others).
Public goods could not be provided by the private
business which only pays attention to its self-interest
Government generally provides goods with significant
public aspects to them.
26
Imperfect information
People could not gather enough information to
make informed decisions about how much to
produce or consume most efficiently.
Government can disseminate information and
promote informed choices.
27
Imperfect competition
Some markets are dominated by a few large
firms, and the lack of competition leads to high
prices and small quantities, which can be
considered as social inefficiency.
Government can foster competition to achieve
socially optimal output.
28