• Economic problem? Scarcity?
Economic agents, types of markets, three basic
questions?
-Economic problem: product, production and buyers
The economic problem arises because resources are limited (scarcity) while human wants
are unlimited.
Because of scarcity, society must make choices.
-Scarcity: the condition in which our wants are greater than the resources available to satisfy
those wants unlimited wants).
-Three economic agents: Households – consumers, owners of labor.
Firms – producers of goods/services.
Government – regulates, taxes, spends.
-Three types of markets: Markets for goods and services
Markets for factors of production
Financial markets
-Three basic questions: What should be produced?
How should goods and services be produced?
For whom should goods and services be produced?
• Economics? Economics is the study of how society manages its scarce resources. It
explains choices made by individuals, firms, and governments.
• Macroeconomics? Macroeconomics is the study of economy-wide phenomena, including
inflation, unemployment, and economic growth.
Examples:
Inflation in Vietnam
Unemployment rate of a country
GDP growth
National budget deficit
Monetary policy (interest rates)
• Microeconomics? Microeconomics is the study of how buyers and sellers make decisions
and how they interact in markets.
Examples:
How Samsung decides its smartphone price
How consumers choose between Pepsi and Coca-Cola
The supply and demand of coffee
The wage of workers in a company
• Positive analysis, normative analysis?
- • Positive analysis: (Kinh tế học thực chứng)
+Factual analysis, the analysis of “What is”.
+There is no personal judgement involved.
+Positive statement can be tested, can be proven or disproven.
-• Normative analysis: (Kinh tế học chuẩn tắc)
+Opinion-based analysis, the analysis of “What should be”.
+Involves personal judgements or ideals.
+Normative statement cannot be proven or disproven.
• Three economic systems? Adam Smith’s Invisible Hand?
-Three economic systems:
Market Economy
Decisions made by firms & households
Prices determined by supply & demand
Example: USA
Command Economy
Government decides everything
Example: North Korea, former Soviet Union
Mixed Economy
Combination of market + government
Example: Vietnam, UK, Singapore
-The invisible hand works through the price system:
The idea that individuals pursuing their own self-interest lead to efficient market
outcomes as if guided by an invisible hand.
→ Markets coordinate decisions without central planning.
The interaction of buyers and sellers determines prices.
Each price reflects the good’s value to buyers and the cost of producing the good.
Prices guide self-interested households and firms to make decisions that, in many cases,
maximize society’s economic well-being.
• Economic model? Components of an economic model?
-An economic model is a simplified version of reality that allows us to observe, understand,
and make predictions about economic behavior.
-Components of an Economic Model
1. Assumptions (simplifications)
2. Variables (ex: price, quantity)
3. Relationships (equations, graphs)
4. Predictions (what will happen if X changes?)
• Why do economists disagree?
Differences in Scientific Judgments
Differences in Values
Perception versus Reality
• When do economists play the role as scientists? As policy advisers?
- As scientists, they develop and test theories to explain the world around them.
-As policy advisers, they use their theories to help change the world for the better.
• Ten principles of Economics? How people make decisions? How people interact? How
the economy as a whole works?
-Ten principles of Economics:
Principle 1: People Face Trade-offs
Principle 2: The Cost of Something Is What You Give Up to Get It
Principle 3: Rational People Think at the Margin
Principle 4: People Respond to Incentives
Principle 5: Trade Can Make Everyone Better Off
Principle 6: Markets Are Usually a Good Way to Organize Economic Activity
Principle 7: Governments Can Sometimes Improve Market Outcomes
Principle 8: A Country’s Standard of Living Depends on Its Ability to Produce Goods and
Services
Principle 9: Prices Rise When the Government Prints Too Much Money
Principle 10: Society Faces a Short-Run Trade-off between Inflation and Unemployment