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Principles of Microeconomics - Comprehensive Overview | Microeconomics | Trường Đại học Quốc tế, Đại học Quốc gia Thành phố Hồ Chí Minh

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Tác giả:

Mai Nguyệt

4 ngày trước

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Danh sách Quiz

PRINCIPLES OF MICROECONOMICS

Chapter 1: Thinking Like an Economist

Economics:thestudyofhowpeoplemakechoicesunderconditionsof

scarcityandtheresultsofthosechoicesforsociety.

Economicanalysisofhumanbehaviourbeginswiththeassumptionthat

peoplearerational.

Rational person:someonewithwell-definedgoalsandwillfulfilthose

goalsasbestashecan.

Peoplenormallyfacetrade-offswhentheywanttoachievetheirgoals,this

isaresultofscarcity.

The Scarcity Principle (No-Free-Lunch Priciple): although  we  have

boundlessneedsandwants,resourcesavailabletousarelimited,sohaving

moreofongoodthingusuallymeanshavinglessofanother.

The Cost-Benefit Priciple: anactionshouldonlybetakenifitsbenefits

exceeditscosts.

Economic surplus:thebenefitoftakinganaction-thecostoftakingthat

action

Opportunity cost (of an activity): thevalueofthenextbestalternative

thatmustbeforgonetoundertakethatactivity.E.g.Watchingmoviesfor

hours,whileyoucouldalsoworkfor5euroanhour.

Sunk costs:coststhatarebeyondrecoveryatthemomentadecisionmust

bemade.E.g.watchaboringmovietilltheendinsteadofleaving,because

youpaidfortheticket.

The role of economic models:

Economistsusethecost-benefitprincipleasanabstractmodelofhowan

idealisednationalindividualwouldchooseamongcompetingalternatives.

Themodelisasimplifiedrepresentationofreality

4 important decision pitfalls:

 Pitfall1:measuring costsandbenefitsas proportions  rather than

absolutemoneyamount.E.g.Walk3kmtosave€10ona€1000

computer?

 Pitfall2:ignoringopportunitycosts.Whenperformingacost-benefit

analysisofanaction,itisimportanttoaccountforallrelevant

opportunitycost,definedasthevaluesofthemosthighlyvalued

alternativesthatmustbeforgonetocarryouttheaction.

 Pitfall3:failuretoignoresunkcosts.E.g.Eventhoughatickettoa

concertmayhavecostyou€100,ifyouhavealreadyboughtitand

cannotsellittoanyoneelse,the€100isasunkcostandshouldnot

influenceyourdecisionaboutwhethertogototheconcert.

 Pitfall4:failuretounderstandtheaverage-marginaldistinction.The

focusshouldalwaysbeonthebenefitsandcostsofanadditionalunit

activity.Thus,thelevelofanactivityshouldbeincreasedif,andonly

if,itsmarginalbenefitexceedsitsmarginalcost.

Marginal costs:theincreaseintotalcoststhatresultfromcarryingoutone

additionalunitofactivity.

Marginal benefit:anincreaseinthetotalbenefitthatresultfromcarrying

outoneadditionalunitofactivity.

Average cost:thetotalcostofundertaking‘n’unitsofanactivitydivided

by‘n’

Average benefit: thetotalbenefitofundertaking‘n’unitsdividedby‘n’

Microeconomics: the study  of individual choice  under  scarcity  and its

implicationsforthebehaviourofthepricesandquantitiesinindividual

markets.

Macroeconomics:study  of performance of national economics  and the

policiesthatgovernmentsusetotryimprovingthatperformance.

Positive economics (kinh tế học thực chứng)consistsintheconclusionof

economics  that  are  independent  of  the  ethical  value  system  of  the

economist.(IfAhappensthenBhappens):howpeoplewillbehave

Normative economics(kinh tế học chuẩn tắc)consistin statements in

economicsthat reflectorare based ontheethical  value systemof  the

economist,implicitly,explicitly,oromission.(IfAhappensthenBshould

happen):howpeopleshouldbehave.

Chapter 2 : Comparative Advantage

Absolute advantage:1personhasanabsoluteadvantageifanhourspentin

performingataskearnsmorethantheotherpersoninperformingthesame

task.

Comparative advantage:1personhasthiswhenhisopportunitycostof

performing  atask is  lowerthan the  other person’s opportunity cost in

performingthesametask.

The principle of comparative advantage:thismeansthateveryonedoes

bestwheneachpersonconcentratesontheactivitiesforwhichhisorher

opportunitycostislowest.

E.g:Ifapersonproducesnutsandcoffee,theopportunitycostsofnutscan

becalculatedthisway:

OCnuts:Lossincoffee/Gaininnuts

OCcoffee Lossinnuts/Gainincoffee:

PPC (production possibility curve): agraphthatshowstherelationship

betweenthequantityofonegoodthatcanbeproducedforeverypossible

levelofproductionofanothergood.

 PointsthatlieeitheralongorwithinthePPCareattainablepoints:

Attainable point:anycombinationofgoodsthatcanbeproducedusing

currentavailableresources.

 PointsthatlieoutsidethePPCareunattainable:

Unattainable point:anycombination ofgoodsthatcannotbeproduced

usingcurrentlyavailableresources.

 PointsthatliealongthePCCareefficient:

Efficient point:anycombinationofgoodsforwhichcurrentlyavailable

resourcesdonotallowanincreaseintheproductionofonegoodwithout

reductionoftheother.

 PointsthatliewithinthePCCareinefficient:

Inefficient point:any combination  ofgoods  forwhichcurrently

available  resources  enable  an  increase  in  the  production  of  one  good

withoutreductionofproductionoftheother.

The principle of increasing opportunity cost (  Low-hanging-fruit

principle):  Whenresources have different opportunity costs, we should

alwaysexploittheresourcewith  the  lowest  opportunity  cost first, and

afterwardsusetheresourceswithhigheropportunitycost(pickingthemost

accessiblefruitfirst).

Factorsthatshifttheeconomy’sPPF:Aneconomicgrowthresultsinan

outwardshiftintheeconomy’sPPF.

Economic growth:the  ability  of  the  economy  to  produce  increasing

quantitiesofgoodsandservices.

Economicgrowthiscausesbydifferentfactors,e.g.increasesinproductive

resourcesandimprovementsinknowledgeandtechnology(thosearethe2

mainfactors)

Factorsthatmaylimitspecialisation:

 lowpopulationdensity

 Isolation

 Lawsandcustomsthatlimitpeople’sfreedomtotransactfreelywith

oneanother

 Sizeofthemarket

 onceyouarebehind,youstaybehind

 Developingcountriesdonotwanttohavecomparativeadvantagein

rawmaterialsandagricultureforever.

 Developingstrategiesaimedatchangingthecomparativeadvantage

Nationscanalsobenefitfromexchangebasedoncomparativeadvantage.

Outsourcing: a  term  increasingly  used  to  connote  having  services

performedbylow-wageworkersoverseas.

Chapter 3: Supply and Demand

Alleconomicsystemsmustaddress:

-Whatshouldbeproduced?

-Howshoulditbeproduced?

-Forwhomwillitbeproduced?

Market: themarketforanygoodorserviceconsistsofall  buyers and

sellersofthatgoodorservice

The demand curve: ascheduleorgraphshowingthequantityofagood

thatbuyerswishtobuyateachprice.Thedemandcurveisdownward

slopingwithrespecttoprice.

Buyerspurchaseagreaterquantityatlowerpricesandvice-versa,because:

 thesubstitutioneffect

 incomeeffect

 buyer’sreservationprice

The substitution effect:Thechangeinthequantitydemandedofagood

thatresultsbecausebuyersswitchtoorfromsubstituteswhenthepriceof

thegoodchanges.

Income effect: Thechangeinthequantitydemandedofagoodthatresults

fromtheeffectofachangeinthegood’spriceonconsumers’purchasing

power.

Buyer´s reservation price: thelargestamountofmoneythebuyerwould

bewillingtopayforaunitofagood.

If  the  reservation  price  (benefit)  exceeds  the  market  price  (cost),  the

consumerwillpurchasethegood Thebenefitwillexceedthecostfor.

fewerbuyersathigherpricesthanatlowerprices.

The supply curve:acurveorschedulethattellsusthequantityofagood

thatsellerswishtosellateachprice.

Thesupplycurveisupwardslopingwithrespecttotheprice.

Thesellerchargesahigherpriceforadditionalunitsinordertocoverthe

higheropportunitycostsofeachadditionalunit.

Seller’s reservation price:thesmallestamountforwhichasellerwouldbe

willingtosellanadditionalunit(generallyequaltomarginalcost).

Market equilibrium:all  buyers  and  sellers  are  satisfied  with  their

respectivequantitiesattheprevailingmarketpriceattheintersectionof

demand  and  supply  in  the  market  equilibrium  price  and  equilibrium

quantity.

This  means that the quantity  people want  to purchase is equal to  the

quantityfirmsproduce.

Equilibrium price:thepriceatwhichagoodwillsell

Equilibrium quantity:the  quantity  supplied  and  demanded  are  equal.

(Thereisnotendencyforthesystemtochange.)

 (surplus) theamountbywhichquantitysuppliedexceedsExcess supply :

quantitydemandedwhenthepriceofagoodexceedtheequilibriumprice

Excess demand (shortage): the  amount  by  which  quantity  demanded

exceeds  quantity  supplied  when  the  price  of  a  good  lies  below  the

equilibriumprice.



- Aspriceofagoodorservicegoes

down,thequantitythatconsumers

wishtobuywillincrease.

-Asthepriceofagoodorservice

increases,thequantityconsumers

wishtobuywilldecrease.

Price ceiling:amaximumallowableprice,specifiedbylaw

Price floor:aminimumallowableprice,specifiedbylaw

Change in quantity demanded:amovementalongthedemandcurvethat

occursinresponsetoapricechange.

Change in demand:ashiftoftheentiredemandcurve:ademandchangeat

thesameprice.

Shift in demand due to complements:

-2goodsarecomplementsinconsumptionifanincreaseordecreaseinthe

priceofonecausesaleftwardorrightwardshiftinthedemandcurveforthe

other

E.g.tennisracquetsandballs,ginandtonic,printersandpaper.

Shift in demand due to substitutes:

-2goodsaresubstitutesinconsumptionifanincreaseordecreaseinthe

priceofonecausesarightwardorleftwardshiftinthedemandcurveforthe

other

E.g.beerandwine,coffeeandtea.

Shift in demand due to income change:

- demandcurveshiftsrightwardswhentheincomeofbuyersnormal good:

increasesandleftwardswhentheincomesofbuyersdecrease.

- demandcurveshiftleftwardswhentheincomeofbuyersinferior good:

increasesandrightwardswhentheincomeofbuyersdecreases

Otherfactors:

 increasepreference

 increaseinpopulation

 expectedfuturehigherprices

Change in quantity supplied: amovementalongthesupplycurvethat

occursinresponsetoapricechange

Change in supply:a  shift  of  the  entire  supply  change  at  the  same

price.

Shiftsinsupply(righwardordownward)

 decreasepricesofinputsandtheirsubstitutes.

 improvements  of  technology,  which  means  that  there  can  be

producedmorewiththesameinputprices.

 increasenumberoffirmsinthemarket

 expectedfuturelowerprices

 improvementinweather(farming)

 Anincreaseindemandwillleadtoanincreaseinboth,the

equilibriumpriceandquantity.

 Adecreaseindemandwillleadtoadecreaseinboth,the

equilibriumpriceandquantity .

 Anincreaseinsupplywillleadtoadecreaseintheequilibriumprice

andanincreaseintheequilibriumquantity.

 Adecreaseinsupplywillleadtoanincreaseintheequilibriumprice

andadecreaseintheequilibriumquantity.

Buyer’s surplus:thedifferencebetweenthebuyer’sreservationprice

andthepriceheactuallypaid.

Seller’s surplus:thedifferencebetweenthepricereceivedbytheseller

andhisreservationprice.

Total surplus:thedifferencebetweenthebuyer’sreservationpriceand

theseller’sreservationprice

Economic efficiency:whentheeconomicsurplusismaximised.

The Efficiency Principle:  Efficiency  is  an  important  social  goal

becausewhentheeconomicpiegrowslargereveryonecanhavealarger

slice.

The Equilibrium Principle (No-Cash-on-the-TablePrinciple):Amarketin

quilibriumleavesnounexploitedopportunityforindividualsbutmaynot

exploitallgainsachievablethroughcollectiveaction.

Chapter 4: Elasticity

Price elasticity of demand: The  percentage  change  in  the  quantity

demandedthatresultsfroma1percentchangeinitsprice:



 =

percentage change∈quantity demanded

percentage change ∈ price

Priceelasticity=

 

slope

,slope=

rise

run

Determinantsofpriceelasticity:

 substitutionpossibilities(+)

 budgetshare(+)

 time(+)

Atthecommonpointdemand,itislesselasticforsteepercurve:

Perfect elastic demand:eventheslightestincreaseinpriceleadsconsumer

toswitchtosubstitutes

Perfect inelastic demand:consumerscannotswitchtosubstitutesorstop

buyingwhenthepriceincreases

Total expenditure:P x Q =totalrevenue

General  rule:A price increase willincrease  total revenuewhen the %

changeinpriceisbiggerthanthepercentagechangeinquantity.

Forastraight-linedemandcurve,totalexpenditureismaximisedattheprice

correspondingtothemidpointofthedemandcurve.

-Ifdemandiselastic,apriceincreasewillreducethetotalexpenditure.A

pricereductionwillincreasetotalexpenditure.

- If  inelastic, a  price increase  will  increase  total expenditure. A price

reductionwillreducetotalexpenditure.

Cross-price elasticity of demand:the  percentage  change  in  quantity

demandedofonegoodinresponsetoa1 percent  change  in  the  price

of good.another

-Substitutegoods:cross-priceelasticityofdemandispositive.(red/green

apples?)

>1:elastice

<1:inelastic

=1:unitelastic

-complementgoods:cross-priceelasticityofdemandisnegative(pizza

dough/pizzasauce)

Income elasticity of demand is  the  percentage  change  in  quantity

demandedinresponsetoa1percentchangeinincome

-normalgoods:incomeelasticityofdemandispositive

-inferiorgoods:incomeelasticityofdemandisnegative

Supply elasticity of supply:thepercentagechangeinthequantitysupplied

thatoccursinresponsetoa1percentchangeinprice

Perfect inelastic supply:supplyisperfectlyinelasticwithrespecttoprice

ifelasticityiszero(land?)

Perfect elastic supply: supplyisperfectlyelasticwithrespecttopriceif

elasticityisinfinite(Frenchfries?)

Chapter 5: Demand

The law of demand: peopledolessofwhattheywanttodoasthecostof

doingitrises.

Utility (or benefit): thesatisfactionpeoplederivefromtheirconsumption

activities

Marginal utility:the  additional  utility  gained  from  consuming  an

additionalunitofgood

marginal utility=

change utility∈

change consumption∈

The law diminishing marginal utility:Thetendencyfortheadditional

unitgainedfromconsuminganextraunitofagoodtodiminishas

consumptionincreaseatsomepoint.

Optimal combination of goods :theaffordablecombinationthatyieldsthe

highesttotalutility.

Subtitution effect:Whenthepriceofagoodgoesup,thesubtitutesforthat

goodarerelativelymoreactractive.

The rational spending rule:Spendingshouldbeallocatedacrossgoodsso

thatthemarginalutilitypereuroisthesameforeachgood.

MCx

MCy

This  is optimal because you cannot  gain anymore from any exchange

betweenthetwoproducts.

Real price:thedollarpriceofagoodrelativetotheaveragedollarpriceof

allothergoods

Normal price:theabsolutepriceofagoosindollarterm.

The  market demand curve is the horizontal sum of individual demand

curve:

Determinants of supply elasticity:

-Flexibilityofinputs(+)

-Mobilityofinputs(+)

-Inputsubstitutes(+)

-Time(+)

Whenindividualdemandcurvesareidentical.Themarketdemandcurveis

derivedbymultiplyingeachquantityontheindividualdemandcurvebythe

numberofconsumersinthemarket.

Consumer surplus:thedifferencebetweenaconsumer’sreservationprice

foraproductandthemarketpriceactuallypaid.

Calculatingconsumersurplus:Reservationprice–marketprice

Totalconsumer’ssurplusestogether:addalltheindividualsurpluses

Indifference curve:asmoothlyconvexcurvethatgivesthecombinations

of2goodsforwhichtheindividualisindifferent(thesameutility)

 thefurtherout an indifferencecurve,the  higher  the consumer’s

utilityfromthebundlesofAandBonthecurve.

 indifferencecurvesnevertoucheachother,bundlesthatarefurther

outoncurvesgivehigherutility.

 moreofboth,goodAandB,isbetter.

 therationalconsumerwillchoosethefeasiblebundlethatisonthe

highestattainableindifferencecurve.



The marginal rate of substitution (MRS) between2goodsgivestheslope

oftheindifferencecurve.

MRSimpliesthatthelessyouhaveofgoodA,themoreofgoodByouwill

havetogiveupmakingupforafurtherreductioninthequantityofgoodA

whilekeepingutilityconstant.

Consumerrationality:theconsumerwillallocate spending sothatMRS

equalsrelativeprice

Chapter 6: Perfectly Competitive Supply

The increasing opportunity cost (low-hanging-fruit principle): firsttake

theeasyoptions,thengoforthemoredifficultorcostlyalternatives.

Factor of production:aninputusedintheproductionforagoodorservice

Short run: aperiodoftimesufficientlyshortthatatleastsomeofthefirm’s

factorsofproductionarefixed.

Long run:aperiodoftimeofsufficientlengththatallthefirm’sfactorsof

productionarevariable

Law of diminishing returns:

 Aproperty of therelationshipbetweentheamountofagoodor

serviceproduced,andtheamountofavariablefactorrequiredto

produceit

 Increased  productionof the good eventually  requires ever-larger

increasesinthevariablefactorwhensomefactorsofproductionare

fixed.

Fixed factor of production:aninputwhosequantitycannotbealteredin

theshortrun(abottle-makingmachine)

Variable factor of production:aninputwhosequantitycanbealteredin

theshortrun.

Fixed cost:thesumofallpaymentsmadetothefirm’sfixedfactorsof

production.Thesearethepaymentsthathavetobemadefortheserviceof

aninputregardlessofwhetherandhowmuchproductionactuallytakes

place.

Variable cost:thesumofallpaymentsmadetothevariablefactorsof

production

Total cost:thesumofallpaymentsmadetothefirm’sfixedandvariable

factorsofproduction

Marginal cost:the  change  in  total  cost  divided  by  the  corresponding

changeinoutputasoutputchangesfromoneleveltoanother(itconsistsof

thevariablecosts)

MC=changeintotalcosts/changeinoutput

Average total cost (ATC):totalcosts/totaloutput

Average variable costs (AVC):variablecosts/totaloutput

MCalwaysgoesthroughtheminimumofATCwhereMC=ATC.

Because:

 aslongasthemarginalcostsofthenextunitisbelowtheaverage

costs per  unit, the average costs  per unit  goes down.  (when  a

younger-than-averagestudentwalksintheroom,theaveragegoes

down).

 aslongasthemarginalcostsofthenextunitisabovetheaverage

costsperunittheaveragecostperunitgoesup.(whenanolder-than-

averagestudentwalksintheroom,theaveragegoesup).

Profit:thetotalrevenueafirmreceivesfromthesaleofitsproductsminus

allcostsofproduction(explicitandimplicitcosts).

Profit-maximising firm:afirmwhoseprimarygoalistomaximisethe

differencebetweenitstotalrevenuesandtotalcosts.

The perfectly competitive market:a  market  in  which  no  individual

supplierhassignificantinfluenceonthemarketpriceoftheproduct.

Price taker:afirmthathasnoinfluenceoverthepriceatwhichitsellsits

product

Imperfectly competitive firm:afirmthathasatleastsomeinfluenceover

thepriceatwhichitsellsitsproduct.

Thecharacteristicsofperfectcompetition:

 Allfirmssellthesamestandardisesproduct

 Themarkethasmanybuyersandsellers,eachofwhichbuysorsells

onlyasmallfractionofthetotalquantityexchanged

 Productiveresourcesaremobile

 Buyersandsellersarewellinformed

Theindividualfirm’sdemandcurveisoftenhorizontalatthemarket

price.Thisisbecausetherearemanyidenticalfirms,soifafirmraises

itspriceevenalittle,itwillloseallitscustomers

A profitable firm:afirmwhosetotalrevenueexceedsitstotalcost

Profits=TR-TC=(PxQ)–(ATCxQ)=(P–ATC)xQ

Tobeprofitable:PmustbebiggerthanATC

 If  P  >  MC:  the  firm  can  increase  its  profit  by  expanding

production

 IfP<MC: the firm can increaseitsprofitbyproducingand

sellinglessoutput

Thefirm’sprofit-maximisingsupplyruleinperfectcompetition:price

(marginal revenue) = marginal costs

Coi MC là đường cung ngắn hạn của doanh nghiệp cạnh tranh hoàn

hảo:

Profit:P>ATC

Loss:P<ATC

-NếuP<ATC,nhưngP>AVC,hãngvẫntiếptụcsảnxuất,dodoanhsố

bánhàngvẫnđủbùđắpchiphíbiếnđổi

YoumakealosswhenyoucovertheVCandonlyapartofthefixedcost

butwhenyoushutdownyourlossislarger(allfixedcost).

Intheshortrun,perfectlycompetitivefirmsmaymakepositiveeconomic

profitinequilibrium.Inthelongrun,however,firmsenterandexitthis

marketuntilprofitsaredriventozeroinequilibrium.Thatis,thelong-run

equilibriummarketpriceunderperfectcompetitionis = .𝑃 𝐴𝑇𝐶

Determinants of supply:

 Technology

 Inputprices

 Numberofsuppliers

 Expectations

 Changesinpricesofotherproducts

Producer surplus: thedifferencebetweentheseller’sreservationpriceand

themarketprice

Khithịtrườngcạnhtranhhoànhảothìlợiíchròngcủaxãhộiđạttốiđa

Shutdownconditionsofafirm

Afirmmustcoveritsvariablecosttominimiselosseswhenproducingata

loss.

Short-runshutdownconditionsiswherePxQ<VCforalllevelsofQor

whereP<minimumvalueofAVC.

NếuP≤AVCmin,doanhnghiệpnênđóngcửavìkhbùlạiđượcFCvàVC

Chapter 7: Efficiency, Exchange and the Invisible Hand in Action

Explicit cost:theactualpaymentsafirmmakestoitsfactorsofproduction

andothersuppliers

Accounting profit: thedifferencebetweenafirm’stotalrevenueandits

explicitcosts.

Accountingprofit=Totalrevenue–Explicitcosts

Implicit costs:theopportunitycostsoftheresourcessuppliedbythefirm’s

owners.

Economic profit (excess profit): the difference between a firm’s total

revenueandthesumofitsexplicitandimplicitcosts

Economicprofit=Totalrevenue–Explicitcosts-Implicitcosts

Normal profit:theopportunitycostoftheresourcessuppliedbythefirm’s

owners,equaltoaccountingprofitminuseconomicprofit.

hecentralroleofeconomicprofit:

Whenafirm’saccountingprofitisequaltotheopportunitycostsofthe

resourcessuppliedbythefirm’sowners,thefirm’seconomicprofitiszero.

 Accountingprofit=normalprofit,wheneconomicprofit=0

Forafirmtoremaininbusinessinthelongrun,itmustearnaneconomic

profitgreaterthanorequaltozero.

Economic loss:aneconomicprofitthatislessthanzero

Rationing function of price:changesinpricesdistributescarcegoodsto

thosewhovaluethemmosthighly

Allocative function of price: changesin  prices  direct  resuources away

fromovercrowdedmarketsandtowardmarketsthatareunderserved.

Invisible hand theory:  Adam  Smith’s  theory  that  the  actions  of

independent,

self-interested  buyersand sellers  will oftenresult in  the most  efficient

allocationofresources.

AccordingtoAdamSmith:

 Peoplearemotivatedbyself-interest

 The  goal  of  profit  maximisation  will  serve  society’s  collective

interest

Profitsandlosseswouldensurethat:

 Supplieswithinamarketwouldbedistributedefficiently(rationing

function)

 Resourceswouldbeallocatedacrossmarketstoproducethemost

efficientpossiblemixofgoodsandservices(allocationfunction)

Responsestoprofitsandlosseswouldensurethat:

 Markets  with  firms  earning  economic  profits  will  attract

firms/resources

 Marketswherefirmsareexperiencingeconomiclossestendtolose

firms/resources

Entry effects:economicprofitsattractfirmstoenterthemarketthenthe

supplycurveshiftsoutwards.

Thisresultsinreducingpricesandeconomicprofits.

 Theentryoffirmscontinuesuntilallfirmsearnaneconomicprofit

ofzero

 PricesbelowminimumATCresultineconomiclosses

Theexitoffirms:whenfirmexitstheindustry,thesupplycurveshifts

inwardsbywhichthemarketpriceincreases.

In  the  long-run  equilibrium,  firms  enter  and  exit  until  price  is at the

minimumoftheremainingfirms’ATC.Supplyisatoutputpriceequalto

theminimumATC.Thus,producersearnzeroeconomicprofit.

Thelong-runsupplycurveinaperfectlycompetitivemarket:

 Anincreaseindemandtemporarilyincreasesthepriceandallows

firmstoearneconomicprofits.

Inaddition,itattractsnewfirmstoentertheindustry,increasingsupply,

drivingdownthepriceandeliminatingeconomicprofits

 Adecreaseindemandtemporarilydecreasesthepriceandcauses

firmstosuffereconomiclosses.

Inaddition,itleadstosomefirmsexitingtheindustry,decreasingsupply,

drivingupthepriceandeliminatingeconomiclosses.

Entry barrier: anyforcethatpreventsfirmsfromenteringanewmarket.

Theycanbecausedbylegalconstraintsanduniquemarketcharacteristics.

Exit barriersare  frequently  caused  by  political  responses  to  decline

demandorrisingcosts.

Efficiency (Pareto efficeiency):asituationwherenofurthertransactionis

possiblethatwillhelpsomewithoutharmingpeople.

Deadweight loss:thereductionintotaleconomicsurplusthatresultsfrom

theadoptionofapolicy

Observationonefficiency:whenthepriceisaboveorbelowtheequilibrium

price,thequantityexchangedwillbelowerthanthemarketequilibrium

quantity.

Cost-saving innovations:

Intheshortrun:

 noimpactontheprice

 economicprofitwillincrease

Inthelongrun:

 othercompanieswilldothesameinnovation

 marketsupplyincreasesasthepricefalls

 afterallthefirmshavedonetheinnovation,theeconomicprofitwill

bezeroagain.

 anyfirmwithouttheinnovation,wouldhaveaneconomiclossequal

totheeconomicprofitofotherfirmsgainedthroughtheinnovation

(inthefirstplace)

Apriceceilingcanaffecttheeconomicsurplus.

Price subsidies:toassistlow-incomeconsumers,governmentalfundingof

“essential”goodsandservices.



Chapter 8: Monopoly, Oligopoly, and Monopolistic Competition

Imperfectly competitive firm (price setter): a firm withat leastsome

contraloverthemarketpriceofitsproducts.

 long-run:economicprofitspossible

Pure monopoly: theonlysupplierofauniqueproductwhithnoclose

substitutes.

=>badforsociety,goodforfirms

Monopolistic competition: has  many  firms  producing  slightly

differentiatedproductsthatarereasonablyclosesubstitutes

 nhiềungườibán:cónhiềudoanhnghiệpcạnhtranhnhauđểthuhút

cùngmộtnhómkháchhàng

 sảnphẩmkhácbiệt:mỗidoanhnghiệpsảnxuấtmộtsảnphẩmkhác

đôichútsovớisảnphẩmcủadoanhnghiệpkhác

 tựdogianhậpvàrờibỏ(freeentry/exit)

-Mỗidoanhnghiệpđộcquyềnvềsảnphẩmhọsảnxuất,nhưngnhiềudoanh

nghiệpcũngsảnxuấtcácsảnphẩmgiốngnhưvậyđểcạnhtranhkháchhàng

Oligopoly:asmallnumberoflargefirmsproducingproductsthatareclose

orperfectsubstitutes

E.g:Viettel,Vinaphone,MobilePhone)

Phầnlớntrongthựctiễnlàthịtrườngcạnhtranhđộcquyền:nhiềudoanh

nghiệp,ràocảnthịtrườngít,cứnhìnthấylợinhuận

dươnglàcódoanhnghiệpgianhập=>đẩylợiíchkinhtếvề0

Chiếnlượckinhdoanh:khácbiệthóasảnphẩmcủamình(khônghẳnlàlàm

sảnphẩmcủamìnhkhácvớidoanhnghiệpkhác)=>khiếnngườitiêudùng

nghĩrằngsảnphẩmcủamìnhkhácvớisảnphẩmkhác

The Essential Difference between Perfectly and Imperfectly

Competitive Firms:

Market poweristhefirm'sability

toraiseitspricewithoutlosingallitssales=>tendstoarisefromfactors

thatlimitcompetition

 Exclusivecontroloverinputs:Quyềnkiểmsoátđầuvào

 Patentsandcopyrights:Bằngsángchếvàquyềntácgiả

=>Bảovệlợinhuậncủadoanhnghiệp,tránhbịsaochép

 Governmentlicensesorfranchises:Giấyphéphoặcnhượngquyền

từchínhphủ

=>Chínhphủchophépdoanhnghiệpđộcquyềntrong1lĩnhvực

nàođấy(e.g:thugomrác)

 Economiesofscaleandnaturalmonopolies:Kinhtếtheoquymô

Constant returns to scale:  all  inputs  are  changed  by  a  given

proportion,outputchangesbythesameproportion

Increasing returns to scale (or economies of scale:allinputsare

changedbyagivenproportion,outputchangesbymorethanthat

proportion

Natural monopoly: a monopolythat resultsfrom economiesof

scale(increasingreturnstoscale)

Agoodwhoseproductionhasalargestart-upcostandlowvariable

cost  is  subject  to

economiesofscale

 Network  economies:

Kinhtếtheomạnglưới

Giátrịcủasảnphẩmtăng

dầnkhimàsố lượng  người

dùngtăngdần

Themostimportantandenduring

of  the  sources  of  market  power  are  economies  of  scale  and  network

economies.

Profit Maximization for the Monopolist:

Marginal benefit = marginal revenue:thechangeinafirm’stotalrevenue

thatresultfromaone-unitchangeinoutput.

Supposeprice:P = a – bq

Revenue:

R = P x q = (a -bq) x q = aq – bq

Thenthemarginalrevenue:MR = R’ = a -2bq

Profitmaximazeatthelevelofoutputwheremarginalcostequalsmarginal

revenue. MC = MR

XácđịnhgiáPbằngcáchtìmđiểmQtrênđườngcầu

Animperfectlycompetitivefirm

facesadownward-slopingdemand

curve

Aperfectlycompetitivefirmfacesa

perfectlyelasticdemandcurve

Monopoly Profit:

Profit=( P – ATC) x Q

-IfP>ATCthenthefirmearnsaprofit.

-IfP<ATC,thenthefirmsuffersaloss.



Price discrinimation:thepracticechargingdifferentbuyersdifferentprices

foressentiallythesamegoodorservice.

Needtohaveinformationofreservationpriceofbuyers

Perfectly discriminating monopolist: a  firm  that  charges  each  buyer

exactlyhisorherreservationprice

If  the firm can perfectly discriminate  the price, then the quantity  that

maximizesthemonopolist’sprofit=thequantityisoptimalforsociety

-Nếunhàđộcquyềncóthểphânbiệtgiámộtcáchhoànhảo=>Lợinhuận

tăng,tốtchocảxãhội(mứcsảnlượngbằngmứctốiưucủaxãhội)

-Thựctiễn:perfectpricediscriminationlàkhôngkhảthi(ngườibánphải

biếtchínhxácRPcủatừngkháchhàng–khôngthể,thậmchíngườibánđôi

khicònkhôngbiếtRPcủahọlàbaonhiêu).

Hurdle method of price discrimination:thepracticebywhichselleroffers

adiscounttoallbuyerswhoovercomesomeobstacle.

-Ngườibántạorachướngngạivậtnàođấyđểngườimuavượtqua=>

khiếnchínhsáchphânbiệtgiátrởnêntựnhiênhơntrongmắtkháchhàng,

khôngcảmthấybịphânbiệtđốixử.

Perfect hurdle: a  threshold  that  completely  segregates  buyers  whose

reservationpriceslie  above  it  from otherswhose reservation  prices  lie

belowit,imposingnocostonthosewhojumpthehurdle

=>Phânbiệtgiálàcôngcụquantrọngđểgiatănglợinhuận.Khidoanh

nghiệpđộcquyềnthànhcôngtrongviệcphânbiệtgiá,thìnókhôngchỉcó

lợichobảnthândoanhnghiệpmànócòncólợichoxãhội

Public Policy toward Natural Monopoly:

 State onwership and

management: Trong

thực  tiễn,  khi  doanh

nghiệpcósứcmạnhđộc

quyềnthìchínhphủcó

thểmuốncan

thiệp để  gia tăng phúc

lợi  xã  hội  (giảm  thiểu

deadweighloss)

-Yêucầudoanhnghiệp

đặt giá  = chi phí  biên

(nhược:doanhnghiệpđộcquyềnbịlỗ)

=>Chínhphủtàitrợbùlỗdựavàongânsách(thuế),nhưngdoanh

nghiệpkhôngcóhiệuquảkinhtế

Deadweight loss:thelossof

consumerandproducersurplus

causedbydisparitybetweenprice

andmarginalcost

-Sựsụtgiảmcủathặngdưxãhội

đếntừviệcnhàđộcquyềnđặtgiá

caohơnchiphíbiên

-Sảnlượngthấphơnmứctốiưucủa

xãhội

-Yêucầudoanhnghiệpđặtgiá=ATC(duytrìeconomicprofit=0)

=>Nhược:Chínhphủphảicóthôngtinđầyđủvềcầuthịtrường



 State regulation of private monopolies



 Exclusive contracting for natural monopoly



 Vigorous enforcement of antitrust laws

Chpter 11: Externalities, Property Right, and the Environment

External cost (nagative externality):acostofanactivitythatfallson

peopleotherthanthosewhopursuetheactivity

External benefit (positive externality):abenefitofanactivityreceivedby

peopleotherthanthosewhopursuetheactivity

Externality:anexternalcostorbenefitofanactivity

Observations:

 Externalitiesreduceeconomicefficiency

 Solutionsofexternalitiesmaybeefficient

 Governmentinterventionorothercollectiveactionmaybeeffective

whenefficientsolutionstoexternalitiesarenotpossible

positiveexternality:theleveloftheactivitywillbelessthanthesocial

optimallevel=>underproduction

negativeexternality:theleveloftheactivitywillbehigherthanthesocial

optimallevel=>overproduction

Coase theroem:ifatnocostpeoplecannegotiatethepurchaseandsaleof

therighttoperformactivitiesthatcauseexternalities,theycanalwaysarrive

atefficientsolutionstotheproblemscausedbyexternalities.

Remedies for externalities:

-LawsandRegulations:

-Theoptimalamountofnegativeexternalitiesisnotzero:thesocially

optimallevelofpollutionreduction(MBandMCalmostalwaysintersect

belowthemaximumamountofpollutionreduction)

-Compensatorytaxandsubsidies:

 Aperunittaxonoutputcanmovethemarkettothe

sociallyoptimaloutputwhenthereisanegativeexternality

-Peoplemustpayforthedamagetheycause

 Aperunitsubsidyonoutputcanmovethemarkettothe

sociallyoptimaloutputwhenthereisapositiveexternality

-Paypeopleforthebenefitstheycreate

Tragedy of the commons:thetendencyforaresourcethathasnopriceto

beuseduntilitsmarginalbenefitfailstozero.

Positional externality:occurswhenanincreaseinoneperson’s

performancereducestheexpectedrewardofanotherinsituationsinwhich

rewarddependonrelativeperformance.

Positional arms race:aseriesofmutuallyoffsettinginvestmentsin

performanceenhancementthatisstimulatedbyapositionalexternality.

Positional arms control agreements:anagreementinwhichcontestants

attempttolimitmutuallyoffsettinginvestmentsinperformance

enhancement

Environment Regulation:

-Taxingpollution

-Auctioningpollutionpermit(muabánphátthải)

-Climatechangeandcarbontaxes

Chapter 12: The Economics of Information

The free-rider problem: anincentiveprobleminwhichtoolittleofagood

orserviceisproducedbecausenon-playerscannotbeexcludedfromusing

thegood

Twoguidelinesforrationalsearchforinformation:

 Additionalsearchtimeismorelikelytobeworthwhileforexpensive

itemsthancheapones

 Pricespaidwillbehigherwhenthecostofasearchishigher

Thegambleinherentinsearch:

 Thereareadditionalcostsanduncertainbenefitswhenengagingin

furthersearch

 Therefore,thereisadegreeofriskorgamblefromthesearch

Determiningwhetherornottogamble:computetheexpectedvalue.

Expected value of a gamble:thesum of  thepossible outcomesofthe

gambleweightedbytheirprobabilityofoccurrence.

Fair gamble:agamblewhoseexpectedvalueiszero

Better-than-fair gamble: onewhoseexpectedvalueispositive.

Risk-neutral person:someonewhowouldbewillingtoacceptanyfair

gamble(orbetterthanfairgamble)

Risk-averse person:someonewhowouldrefuseanyfairgamble.

Asymmetric information:where  buyers  and  sellers  are  not  equally

informedaboutthecharacteristicsofproductsorservices.

Lemons model:George  Akerlof’s  explanation  of  how  asymmetric

informationtendstoreducetheaveragequalityofgoodsofferedforsale.

Example:

 Peoplewhohavebelowaveragecarsaremorelikelytosellhem

 Buyersknowthatbelow-average-carsaremorelikelytobeonthe

marketthatgoodonesandlowertheirreservationprices

 Becauseusedcarpricesarelow,peoplewithgoodcarskeepthem

longer

 Theaveragequalityofusedcarsfallsevenfurther.

The credibility problem in trading:peopletendtointerpretambiguous

informationinwaysthatpromotetheirowninterests.

Costly-to-fake principle:to  communicate  information  credible  to  a

potentialrival,asignalmustbecostlyordifficulttofake.

Statistical discrimination:thepracticeofmakingjudgementsaboutthe

quality ofpeople,goodsorservicesbased  on  the characteristicsofthe

groupstowhichtheybelong.

Adverse selection:thepatterninwhichinsurancetendstobepurchases

disproportionatelybythosewhoaremostcostlyforcompaniestoinsure.

 Itraisespremiums

 Itreducesthenumberoflow-riskpolicyholders

 Itincreasestherisklevelofinsured

Moral hazard: thetendencyofpeopletotakegreaterriskswhentheyare

protectedfromthefullconsequenceswhentheriskturnsoutbadly.

Chapter 14: Public Goods and Tax Policy

Public goods: agoodor servicethat,toatleastsomedegree,isboth

nonrivalandnonexcludable.

Nonrival good: a  good  whose  consumption  by  one  person  does  not

diminishitsavailabilityforothers(e.g:cleanair,Youtube)

Nonexcludable good: a  good  that  is  difficult,  or  costly,  to  exckude

nonpayersfromconsuming.

 difficulttopreventpeoplefromconsumingit(e.g:nationalarmy)

Pure public good:agoodorservicethat,toahighdegree,isbothnonrival

andnonexcludable.

Collective good (toll/club good):agoodorservicethat,toatleastsome

degree,isnonrivalbutexcludable(e.g:Netflix)

Pure private good:oneforwhichnonpayerscaneasilybeexcludedandfor

whicheachunitconsumedbyonepersonmeansonelessunitavailablefor

others

 bothrivalandexcludable(e.g:agriculturalproducts)

Pure common food:oneforwhichnonpayerscannoteasilybeexcludedand

forwhicheachunitconsumedbyonepersonmeansonelessunitavailable

forothers

 rivalbutnonexcludable(e.g:catchingfishintheocean)

Hànghóakhôngcótínhloạitrừ =>khôngmanglạidoanhthu,lợi

nhuậnchodoanhnghiệp=>doanhnghiệpkhôngcóđộnglựcđểcung

cấphànghóachoxãhội

Noteveryonebenefitsequallyformpublicgoodandservice=>taxingin

WLP=>don’tknowexactlyWLPofeveryone,andpeoplealsodon’tknow

theirWLP

(Nhữngngườigiàuhơn,cảmnhậnrõrànghơnlợiíchcủapublicgood)

head tax (thuế đầu người):ataxthatcollectsthesameamountfromevery

taxpayer

regressive tax (thuế lũy thoái):ataxunderwhichtheproportionofincome

paidintaxesdeclinesasincomerises

proportional income tax (thuế phần trăm thu nhập):oneunderwhichall

taxpayerspaythesameproportionofincomeintaxes

progressive tax (thuế lũy tiến): oneinwhichtheproportionofincome

paidintaxesrisesasincomerises

Public good demand curve: the  vertical  summation  of  the individual

demandcurves.



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PRINCIPLES OF MICROECONOMICS
Chapter 1: Thinking Like an Economist
Economics:the  study  ofhow  people  make choices  under conditions  of
opportunitycost,defined asthe valuesofthe mosthighly valued
scarcityandtheresultsofthosechoicesforsociety.
alternativesthatmustbeforgonetocarryouttheaction.
Economicanalysis ofhumanbehaviour beginswith theassumptionthat 
Pitfall3:failuretoignoresunkcosts.E.g.Eventhoughatickettoa peoplearerational.
concertmayhavecostyou€100,ifyouhavealreadyboughtitand
Rational person:someone  with well-defined  goals and will  fulfil those
cannotsellittoanyoneelse,the€100isasunkcostandshouldnot
goalsasbestashecan.
influenceyourdecisionaboutwhethertogototheconcert.
Peoplenormallyfacetrade-offswhentheywanttoachievetheirgoals,this 
Pitfall4:failuretounderstandtheaverage-marginaldistinction.The
isaresultofscarcity.
focusshouldalwaysbeonthebenefitsandcostsofanadditionalunit
The Scarcity Principle (No-Free-Lunch Priciple): although  we  have
activity.Thus,thelevelofanactivityshouldbeincreasedif,andonly
boundlessneedsandwants,resourcesavailabletousarelimited,sohaving
if,itsmarginalbenefitexceedsitsmarginalcost.
moreofongoodthingusuallymeanshavinglessofanother.
Marginal costs:theincreaseintotalcoststhatresultfromcarryingoutone
The Cost-Benefit Priciple: anactionshouldonlybetakenifitsbenefits
additionalunitofactivity. exceeditscosts.
Marginal benefit:anincreaseinthetotalbenefitthatresultfromcarrying
Economic surplus:thebenefitoftakinganaction-thecostoftakingthat
outoneadditionalunitofactivity. action
Average cost:thetotalcostofundertaking‘n’unitsofanactivitydivided
Opportunity cost (of an activity): thevalueofthenextbestalternative by‘n’
thatmustbeforgonetoundertakethatactivity.E.g.Watchingmoviesfor
Average benefit: thetotalbenefitofundertaking‘n’unitsdividedby‘n’
hours,whileyoucouldalsoworkfor5euroanhour.
Microeconomics: the  study  of  individual  choice  under  scarcity  and  its
Sunk costs:coststhatarebeyondrecoveryatthemomentadecisionmust
implications for the behaviourof the prices and quantities in individual
bemade.E.g.watchaboringmovietilltheendinsteadofleaving,because markets.
youpaidfortheticket.
Macroeconomics:study  of  performance  of  national  economics  and  the
The role of economic models:
policiesthatgovernmentsusetotryimprovingthatperformance.
Economistsusethecost-benefitprincipleasanabstractmodelofhowan
Positive economics (kinh tế học thực chứng)consistsintheconclusionof
idealisednationalindividualwouldchooseamongcompetingalternatives.
economics  that  are  independent  of  the  ethical  value  system  of  the
Themodelisasimplifiedrepresentationofreality
economist.(IfAhappensthenBhappens):howpeoplewillbehave
4 important decision pitfalls:
Normative economics(kinh tế học chuẩn tắc)consist  in  statements  in
economics  that  reflect  or  are based  on the  ethical  value system  of  the 
Pitfall  1: measuring costs  and benefits as proportions  rather than
absolute moneyamount. E.g.Walk3km to save €10on a €1000
economist,implicitly,explicitly,oromission.(IfAhappensthenBshould computer?
happen):howpeopleshouldbehave. 
Pitfall2:ignoringopportunitycosts.Whenperformingacost-benefit
analysisofanaction,itisimportanttoaccountforallrelevant
Chapter 2 : Comparative Advantage
Absolute advantage:1personhasanabsoluteadvantageifanhourspentin
performingataskearnsmorethantheotherpersoninperformingthesame task.
Comparative advantage:1personhasthiswhenhisopportunitycostof
performing  a task  is  lower than  the  other  person’s  opportunity  cost in
performingthesametask.
The principle of increasing opportunity cost (  Low-hanging-fruit
The principle of comparative advantage:thismeansthateveryonedoes
principle):  When  resources  have  different  opportunity  costs,  we  should
bestwheneachpersonconcentratesontheactivitiesforwhichhisorher
always  exploit  the  resource  with  the  lowest  opportunity  cost first, and
opportunitycostislowest.
afterwardsusetheresourceswithhigheropportunitycost(pickingthemost
E.g:Ifapersonproducesnutsandcoffee,theopportunitycostsofnutscan accessiblefruitfirst).
becalculatedthisway:
Factorsthatshifttheeconomy’sPPF:Aneconomicgrowthresultsinan
OCnuts:Lossincoffee/Gaininnuts
outwardshiftintheeconomy’sPPF.
OCcoffee:Lossinnuts/Gainincoffee
Economic growth:the  ability  of  the  economy  to  produce  increasing
PPC (production possibility curve): agraphthatshowstherelationship
quantitiesofgoodsandservices.
betweenthequantityofonegoodthatcanbeproducedforeverypossible
Economicgrowthiscausesbydifferentfactors,e.g.increasesinproductive
levelofproductionofanothergood.
resourcesandimprovementsinknowledgeandtechnology(thosearethe2 mainfactors) 
PointsthatlieeitheralongorwithinthePPCareattainablepoints:
Attainable point:anycombinationofgoodsthatcanbeproducedusing
Factorsthatmaylimitspecialisation:
currentavailableresources.  lowpopulationdensity  Isolation 
PointsthatlieoutsidethePPCareunattainable:
Unattainable point:any combination of goods thatcannot be produced 
Lawsandcustomsthatlimitpeople’sfreedomtotransactfreelywith
usingcurrentlyavailableresources. oneanother  Sizeofthemarket 
PointsthatliealongthePCCareefficient:
Efficient point:anycombination ofgoodsfor whichcurrentlyavailable 
onceyouarebehind,youstaybehind
resourcesdonotallowanincreaseintheproductionofonegoodwithout 
Developingcountriesdonotwanttohavecomparativeadvantagein reductionoftheother.
rawmaterialsandagricultureforever. 
PointsthatliewithinthePCCareinefficient: 
Developingstrategiesaimedatchangingthecomparativeadvantage
Inefficient point:any combination  ofgoods  forwhich currently
Nationscanalsobenefitfromexchangebasedoncomparativeadvantage.
available  resources  enable  an  increase  in  the  production  of  one  good
Outsourcing: a  term  increasingly  used  to  connote  having  services
withoutreductionofproductionoftheother.
performedbylow-wageworkersoverseas.
Chapter 3: Supply and Demand
The supply curve:acurveorschedulethattellsusthequantityofagood
Alleconomicsystemsmustaddress:
thatsellerswishtosellateachprice.
-Whatshouldbeproduced?
Thesupplycurveisupwardslopingwithrespecttotheprice.
-Howshoulditbeproduced?
Thesellerchargesahigherpriceforadditionalunitsinordertocoverthe
-Forwhomwillitbeproduced?
higheropportunitycostsofeachadditionalunit.
Market: the  market  for  any good  or  service  consists  of all  buyers and
sellersofthatgoodorservice
The demand curve: ascheduleorgraphshowingthequantityofagood
that buyers wish to buy at each price.The demand curve  is downward
slopingwithrespecttoprice.
- Aspriceofagoodorservicegoes
down,thequantitythatconsumers
wishtobuywillincrease.
-Asthepriceofagoodorservice
Seller’s reservation price:thesmallestamountforwhichasellerwouldbe
willingtosellanadditionalunit(generallyequaltomarginalcost).
increases,thequantityconsumers
Market equilibrium:all  buyers  and  sellers  are  satisfied  with  their
wishtobuywilldecrease.
respectivequantitiesattheprevailingmarketpriceattheintersectionof
demand  and  supply  in  the  market  equilibrium  price  and  equilibrium
Buyerspurchaseagreaterquantityatlowerpricesandvice-versa,because: quantity.
This  means  that  the  quantity  people  want  to  purchase  is  equal  to  the  thesubstitutioneffect quantityfirmsproduce.  incomeeffect
Equilibrium price:thepriceatwhichagoodwillsell 
buyer’sreservationprice
The substitution effect:Thechangeinthequantitydemandedofagood
Equilibrium quantity:the  quantity  supplied  and  demanded  are  equal.
thatresultsbecausebuyersswitchtoorfromsubstituteswhenthepriceof
(Thereisnotendencyforthesystemtochange.) thegoodchanges.
Excess supply (surplus)
:theamountbywhichquantitysuppliedexceeds
Income effect: Thechangeinthequantitydemandedofagoodthatresults
quantitydemandedwhenthepriceofagoodexceedtheequilibriumprice
fromtheeffectofachangeinthegood’spriceonconsumers’purchasing
Excess demand (shortage): the  amount  by  which  quantity  demanded power.
exceeds  quantity  supplied  when  the  price  of  a  good  lies  below  the
Buyer´s reservation price: thelargestamountofmoneythebuyerwould equilibriumprice.
bewillingtopayforaunitofagood. 
If  the  reservation  price  (benefit)  exceeds  the  market  price  (cost),  the
consumer  will  purchase  the  good The .
 benefit  will  exceed  the  cost  for
fewerbuyersathigherpricesthanatlowerprices. 
expectedfuturelowerprices
Price ceiling:amaximumallowableprice,specifiedbylaw 
improvementinweather(farming)
Price floor:aminimumallowableprice,specifiedbylaw 
Anincreaseindemandwillleadtoanincreaseinboth,the
Change in quantity demanded:amovementalongthedemandcurvethat
equilibriumpriceandquantity.
occursinresponsetoapricechange. 
Adecreaseindemandwillleadtoadecreaseinboth,the
Change in demand:ashiftoftheentiredemandcurve:ademandchangeat
equilibriumpriceandquantity. thesameprice.
Shift in demand due to complements:
-2goodsarecomplementsinconsumptionifanincreaseordecreaseinthe
priceofonecausesaleftwardorrightwardshiftinthedemandcurveforthe other
E.g.tennisracquetsandballs,ginandtonic,printersandpaper.
Shift in demand due to substitutes:
-2goodsaresubstitutesinconsumptionifanincreaseordecreaseinthe
priceofonecausesarightwardorleftwardshiftinthedemandcurveforthe 
Anincreaseinsupplywillleadtoadecreaseintheequilibriumprice other
andanincreaseintheequilibriumquantity.
E.g.beerandwine,coffeeandtea. 
Adecreaseinsupplywillleadtoanincreaseintheequilibriumprice
Shift in demand due to income change:
andadecreaseintheequilibriumquantity. -normal demand good:
curveshiftsrightwardswhentheincomeofbuyers
increasesandleftwardswhentheincomesofbuyersdecrease. -inferior demand good:
curveshiftleftwardswhentheincomeofbuyers
increasesandrightwardswhentheincomeofbuyersdecreases Otherfactors:  increasepreference  increaseinpopulation 
expectedfuturehigherprices
Change in quantity supplied: a movement along thesupply curve that
Buyer’s surplus:thedifferencebetweenthebuyer’sreservationprice
occursinresponsetoapricechange
andthepriceheactuallypaid.
Change in supply:a  shift  of  the  entire  supply  change  at  the  same
Seller’s surplus:thedifferencebetweenthepricereceivedbytheseller
price.
andhisreservationprice.
Shiftsinsupply(righwardordownward)
Total surplus:thedifferencebetweenthebuyer’sreservationpriceand 
decreasepricesofinputsandtheirsubstitutes.
theseller’sreservationprice 
improvements  of  technology,  which  means  that  there  can  be
Economic efficiency:whentheeconomicsurplusismaximised.
producedmorewiththesameinputprices. 
increasenumberoffirmsinthemarket
The Efficiency Principle:  Efficiency  is  an  important  social  goal
becausewhentheeconomicpiegrowslargereveryonecanhavealarger slice.
The Equilibrium Principle (No-Cash-on-the-TablePrinciple):Amarketin
quilibriumleavesnounexploitedopportunityforindividuals butmaynot
exploitallgainsachievablethroughcollectiveaction. Chapter 4: Elasticity
Price elasticity of demand: The  percentage  change  in  the  quantity
Perfect elastic demand:eventheslightestincreaseinpriceleadsconsumer
demandedthatresultsfroma1percentchangeinitsprice: toswitchtosubstitutes
 =percentage change∈quantity demanded
percentage change ∈ price >1:elastice <1:inelastic =1:unitelastic
Perfect inelastic demand:consumerscannotswitchtosubstitutesorstop
buyingwhenthepriceincreases
Total expenditure:P x Q =totalrevenue
General  rule: A price  increase  will  increase  total  revenue when  the  % P rise
changeinpriceisbiggerthanthepercentagechangeinquantity.
Priceelasticity=   1  ,slope= Q slope run
Forastraight-linedemandcurve,totalexpenditureismaximisedattheprice
Determinantsofpriceelasticity:
correspondingtothemidpointofthedemandcurve. 
substitutionpossibilities(+)
-Ifdemandiselastic,apriceincreasewillreducethetotalexpenditure.A  budgetshare(+)
pricereductionwillincreasetotalexpenditure.  time(+)
-  If  inelastic,  a  price  increase  will  increase  total  expenditure. A price
Atthecommonpointdemand,itislesselasticforsteepercurve:
reductionwillreducetotalexpenditure.
Cross-price elasticity of demand:the  percentage  change  in  quantity
demanded  of  one  good  in  response  to  a  1 percent  change  in  the  price ofanothergood.
-Substitutegoods:cross-priceelasticityofdemandispositive.(red/green apples?)
-complement goods: cross-price elasticity ofdemand is negative (pizza
The law of demand: peopledolessofwhattheywanttodoasthecostof dough/pizzasauce) doingitrises.
Income elasticity of demand is  the  percentage  change  in  quantity
Utility (or benefit): thesatisfactionpeoplederivefromtheirconsumption
demandedinresponsetoa1percentchangeinincome activities
-normalgoods:incomeelasticityofdemandispositive
Marginal utility:the  additional  utility  gained  from  consuming  an
-inferiorgoods:incomeelasticityofdemandisnegative additionalunitofgood ∈ marginal utility= change utility
change∈consumption
Supply elasticity of supply:thepercentagechangeinthequantitysupplied
The law diminishing marginal utility:Thetendencyfortheadditional
thatoccursinresponsetoa1percentchangeinprice
unitgainedfromconsuminganextraunitofagoodtodiminishas
Perfect inelastic supply:supplyisperfectlyinelasticwithrespecttoprice
consumptionincreaseatsomepoint.
ifelasticityiszero(land?)
Optimal combinationof goods:theaffordablecombinationthatyieldsthe highesttotalutility.
Subtitution effect:Whenthepriceofagoodgoesup,thesubtitutesforthat
goodarerelativelymoreactractive.
The rational spending rule:Spendingshouldbeallocatedacrossgoodsso
thatthemarginalutilitypereuroisthesameforeachgood. MCx MCy = Px Py
This  is  optimal  because  you  cannot  gain  anymore  from  any  exchange
betweenthetwoproducts.
Perfect elastic supply: supplyisperfectlyelasticwithrespecttopriceif
Real price:thedollarpriceofagoodrelativetotheaveragedollarpriceof
elasticityisinfinite(Frenchfries?) allothergoods
Normal price:theabsolutepriceofagoosindollarterm.
Determinants of supply elasticity:
The  market  demand  curve  is  the horizontal  sum  of individual  demand
-Flexibilityofinputs(+) curve: -Mobilityofinputs(+) -Inputsubstitutes(+) -Time(+) Chapter 5: Demand 
therationalconsumerwillchoosethefeasiblebundlethatisonthe
highestattainableindifferencecurve.
Whenindividualdemandcurvesareidentical.Themarketdemandcurveis 
derivedbymultiplyingeachquantityontheindividualdemandcurvebythe
The marginal rate of substitution (MRS) between2goodsgivestheslope
numberofconsumersinthemarket.
oftheindifferencecurve.
Consumer surplus:thedifferencebetweenaconsumer’sreservationprice
MRSimpliesthatthelessyouhaveofgoodA,themoreofgoodByouwill
foraproductandthemarketpriceactuallypaid.
havetogiveupmakingupforafurtherreductioninthequantityofgoodA
whilekeepingutilityconstant.
Consumer rationality: theconsumer willallocate spending sothat MRS equalsrelativeprice
Calculatingconsumersurplus:Reservationprice–marketprice
Chapter 6: Perfectly Competitive Supply
Totalconsumer’ssurplusestogether:addalltheindividualsurpluses
The increasing opportunity cost (low-hanging-fruit principle): firsttake
theeasyoptions,thengoforthemoredifficultorcostlyalternatives.
Factor of production:aninputusedintheproductionforagoodorservice
Short run: aperiodoftimesufficientlyshortthatatleastsomeofthefirm’s
factorsofproductionarefixed.
Long run:aperiodoftimeofsufficientlengththatallthefirm’sfactorsof productionarevariable
Law of diminishing returns:
Indifference curve:asmoothlyconvexcurvethatgivesthecombinations 
Aproperty of therelationshipbetween the amount ofa good or
serviceproduced,andtheamountofavariablefactorrequiredto
of2goodsforwhichtheindividualisindifferent(thesameutility) produceit 
the  further  out  an indifference  curve,  the  higher  the consumer’s
utilityfromthebundlesofAandBonthecurve. 
Increased  production of  the  good  eventually  requires  ever-larger
increasesinthevariablefactorwhensomefactorsofproductionare 
indifferencecurvesnevertoucheachother,bundlesthatarefurther fixed.
outoncurvesgivehigherutility. 
moreofboth,goodAandB,isbetter.
Fixed factor of production:aninputwhosequantitycannotbealteredin
younger-than-averagestudentwalksintheroom,theaveragegoes
theshortrun(abottle-makingmachine) down).
Variable factor of production:aninputwhosequantitycanbealteredin 
aslongasthemarginalcostsofthenextunitisabovetheaverage theshortrun.
costsperunittheaveragecostperunitgoesup.(whenanolder-than-
Fixed cost:the sumofallpaymentsmadetothefirm’sfixedfactorsof
averagestudentwalksintheroom,theaveragegoesup).
production.Thesearethepaymentsthathavetobemadefortheserviceof
Profit:thetotalrevenueafirmreceivesfromthesaleofitsproductsminus
aninputregardless ofwhether andhowmuch productionactually takes
allcostsofproduction(explicitandimplicitcosts). place.
Profit-maximising firm:a firm whose primary goal isto maximise the
Variable cost:the sum of  all payments made to  the variable factors of
differencebetweenitstotalrevenuesandtotalcosts. production
The perfectly competitive market:a  market  in  which  no  individual
Total cost:thesumofallpaymentsmadetothefirm’sfixedandvariable
supplierhassignificantinfluenceonthemarketpriceoftheproduct. factorsofproduction
Price taker:afirmthathasnoinfluenceoverthepriceatwhichitsellsits
Marginal cost:the  change  in  total  cost  divided  by  the  corresponding product
changeinoutputasoutputchangesfromoneleveltoanother(itconsistsof
Imperfectly competitive firm:afirmthathasatleastsomeinfluenceover thevariablecosts)
thepriceatwhichitsellsitsproduct.
MC=changeintotalcosts/changeinoutput
Thecharacteristicsofperfectcompetition:
Average total cost (ATC):totalcosts/totaloutput 
Allfirmssellthesamestandardisesproduct
Average variable costs (AVC):variablecosts/totaloutput 
Themarkethasmanybuyersandsellers,eachofwhichbuysorsells
onlyasmallfractionofthetotalquantityexchanged 
Productiveresourcesaremobile 
Buyersandsellersarewellinformed
MCalwaysgoesthroughtheminimumofATCwhereMC=ATC.
Theindividualfirm’sdemandcurveisoftenhorizontalatthemarket
price.Thisisbecausetherearemanyidenticalfirms,soifafirmraises
itspriceevenalittle,itwillloseallitscustomers
A profitable firm:afirmwhosetotalrevenueexceedsitstotalcost
Profits=TR-TC=(PxQ)–(ATCxQ)=(P–ATC)xQ
Tobeprofitable:PmustbebiggerthanATC 
If  P  >  MC:  the  firm  can  increase  its  profit  by  expanding production 
IfP<MC: the firm can increaseitsprofitbyproducingand sellinglessoutput Because:
Thefirm’sprofit-maximisingsupplyruleinperfectcompetition: price 
aslongasthemarginalcostsofthenextunitisbelowtheaverage
(marginal revenue) = marginal costs
costs  per  unit,  the  average  costs  per  unit  goes  down.  (when  a
Coi MC là đường cung ngắn hạn của doanh nghiệp cạnh tranh hoàn hảo: Profit:P>ATC
Producer surplus: thedifferencebetweentheseller’sreservationpriceand themarketprice Loss:P<ATC
Khithịtrườngcạnhtranhhoànhảothìlợiíchròngcủaxãhộiđạttốiđa
Shutdownconditionsofafirm
Afirmmustcoveritsvariablecosttominimiselosseswhenproducingata loss.
Short-runshutdownconditionsiswherePxQ<VCforalllevelsofQor
whereP<minimumvalueofAVC.
NếuP≤AVCmin,doanhnghiệpnênđóngcửavìkhbùlạiđượcFCvàVC
-NếuP<ATC,nhưngP>AVC,hãngvẫntiếptụcsảnxuất,dodoanhsố
bánhàngvẫnđủbùđắpchiphíbiếnđổi
YoumakealosswhenyoucovertheVCandonlyapartofthefixedcost
butwhenyoushutdownyourlossislarger(allfixedcost).
Chapter 7: Efficiency, Exchange and the Invisible Hand in Action
Intheshortrun,perfectlycompetitivefirmsmaymakepositiveeconomic
Explicit cost:theactualpaymentsafirmmakestoitsfactorsofproduction
profitinequilibrium.Inthelongrun,however,firmsenterandexitthis andothersuppliers
marketuntilprofitsaredriventozeroinequilibrium.Thatis,thelong-run
Accounting profit: thedifferencebetweenafirm’stotalrevenueandits
equilibriummarketpriceunderperfectcompetitionis𝑃 =𝐴𝑇𝐶. explicitcosts. Determinants of supply:
Accountingprofit=Totalrevenue–Explicitcosts  Technology
Implicit costs:theopportunitycostsoftheresourcessuppliedbythefirm’s  Inputprices owners.  Numberofsuppliers
Economic profit (excess profit): the  difference  between  a firm’s  total  Expectations
revenueandthesumofitsexplicitandimplicitcosts 
Changesinpricesofotherproducts
Economicprofit=Totalrevenue–Explicitcosts-Implicitcosts
Normal profit:theopportunitycostoftheresourcessuppliedbythefirm’s
Entry effects: economicprofitsattractfirmstoenterthemarketthenthe
owners,equaltoaccountingprofitminuseconomicprofit.
supplycurveshiftsoutwards.
hecentralroleofeconomicprofit:
Thisresultsinreducingpricesandeconomicprofits.
Whenafirm’saccountingprofitisequaltotheopportunitycostsofthe 
Theentryoffirmscontinuesuntilallfirmsearnaneconomicprofit
resourcessuppliedbythefirm’sowners,thefirm’seconomicprofitiszero. ofzero 
Accountingprofit=normalprofit,wheneconomicprofit=0 
PricesbelowminimumATCresultineconomiclosses
Forafirmtoremaininbusinessinthelongrun,itmustearnaneconomic
profitgreaterthanorequaltozero.
Economic loss:aneconomicprofitthatislessthanzero
Rationing function of price: changesinpricesdistributescarcegoodsto
thosewhovaluethemmosthighly
Allocative function of price: changes in  prices  direct  resuources away
fromovercrowdedmarketsandtowardmarketsthatareunderserved.
Invisible hand theory:  Adam  Smith’s  theory  that  the  actions  of independent,
self-interested  buyers and  sellers  will  often result  in  the  most  efficient allocationofresources.
Theexit of firms: whenfirm exits the industry, the supply curveshifts AccordingtoAdamSmith:
inwardsbywhichthemarketpriceincreases. 
Peoplearemotivatedbyself-interest
In  the  long-run  equilibrium,  firms  enter  and  exit  until  price  is  at  the 
The  goal  of  profit  maximisation  will  serve  society’s  collective
minimumoftheremainingfirms’ATC.Supplyisatoutputpriceequalto interest
theminimumATC.Thus,producersearnzeroeconomicprofit.
Thelong-runsupplycurveinaperfectlycompetitivemarket: 
Anincreaseindemandtemporarilyincreasesthepriceandallows
firmstoearneconomicprofits.
Inaddition,itattractsnewfirmstoentertheindustry,increasingsupply,
Profitsandlosseswouldensurethat:
drivingdownthepriceandeliminatingeconomicprofits 
Supplieswithinamarketwouldbedistributedefficiently(rationing 
Adecreaseindemandtemporarilydecreasesthepriceandcauses function)
firmstosuffereconomiclosses. 
Resourceswouldbeallocatedacrossmarketstoproducethemost
Inaddition,itleadstosomefirmsexitingtheindustry,decreasingsupply,
efficientpossiblemixofgoodsandservices(allocationfunction)
drivingupthepriceandeliminatingeconomiclosses.
Responsestoprofitsandlosseswouldensurethat:
Entry barrier: anyforcethatpreventsfirmsfromenteringanewmarket. 
Markets  with  firms  earning  economic  profits  will  attract
Theycanbecausedbylegalconstraintsanduniquemarketcharacteristics. firms/resources
Exit barriersare  frequently  caused  by  political  responses  to  decline 
Marketswherefirmsareexperiencingeconomiclossestendtolose demandorrisingcosts. firms/resources
Efficiency (Pareto efficeiency):asituationwherenofurthertransactionis
possiblethatwillhelpsomewithoutharmingpeople.
Deadweight loss:thereductionintotaleconomicsurplusthatresultsfrom
theadoptionofapolicy
Observationonefficiency:whenthepriceisaboveorbelowtheequilibrium
price,thequantityexchangedwillbelower thanthemarketequilibrium quantity. Cost-saving innovations: Intheshortrun:
Monopolistic competition: has  many  firms  producing  slightly  noimpactontheprice
differentiatedproductsthatarereasonablyclosesubstitutes 
economicprofitwillincrease 
nhiềungườibán:cónhiềudoanhnghiệpcạnhtranhnhauđểthuhút Inthelongrun:
cùngmộtnhómkháchhàng 
othercompanieswilldothesameinnovation 
sảnphẩmkhácbiệt:mỗidoanhnghiệpsảnxuấtmộtsảnphẩmkhác 
marketsupplyincreasesasthepricefalls
đôichútsovớisảnphẩmcủadoanhnghiệpkhác 
afterallthefirmshavedonetheinnovation,theeconomicprofitwill 
tựdogianhậpvàrờibỏ(freeentry/exit) bezeroagain.
-Mỗidoanhnghiệpđộcquyềnvềsảnphẩmhọsảnxuất,nhưngnhiềudoanh 
anyfirmwithouttheinnovation,wouldhaveaneconomiclossequal
nghiệpcũngsảnxuấtcácsảnphẩmgiốngnhưvậyđểcạnhtranhkháchhàng
totheeconomicprofitofotherfirmsgainedthroughtheinnovation (inthefirstplace)
Apriceceilingcanaffecttheeconomicsurplus.
Price subsidies:toassistlow-incomeconsumers,governmentalfundingof
“essential”goodsandservices. 
Chapter 8: Monopoly, Oligopoly, and Monopolistic Competition
Oligopoly:asmallnumberoflargefirmsproducingproductsthatareclose
Imperfectly competitive firm (price setter): a firm withat leastsome orperfectsubstitutes
contraloverthemarketpriceofitsproducts.
E.g:Viettel,Vinaphone,MobilePhone) 
long-run:economicprofitspossible
Pure monopoly: the  only supplier  of  a  unique product  whith  no close substitutes.
=>badforsociety,goodforfirms 
Exclusivecontroloverinputs:Quyềnkiểmsoátđầuvào 
Patentsandcopyrights:Bằngsángchếvàquyềntácgiả
=>Bảovệlợinhuậncủadoanhnghiệp,tránhbịsaochép 
Governmentlicensesorfranchises:Giấyphéphoặcnhượngquyền từchínhphủ
=>Chínhphủchophépdoanhnghiệpđộcquyềntrong1lĩnhvực
nàođấy(e.g:thugomrác) 
Economiesofscaleandnaturalmonopolies:Kinhtếtheoquymô
Phầnlớntrongthựctiễnlàthịtrườngcạnhtranhđộcquyền:nhiềudoanh
Constant returns to scale:  all  inputs  are  changed  by  a  given
nghiệp,ràocảnthịtrườngít,cứnhìnthấylợinhuận
proportion,outputchangesbythesameproportion
dươnglàcódoanhnghiệpgianhập=>đẩylợiíchkinhtếvề0
Increasing returns to scale (or economies of scale:allinputsare
Chiếnlượckinhdoanh:khácbiệthóasảnphẩmcủamình(khônghẳnlàlàm
changedbyagivenproportion,outputchangesbymorethanthat
sảnphẩmcủamìnhkhácvớidoanhnghiệpkhác)=>khiếnngườitiêudùng proportion
nghĩrằngsảnphẩmcủamìnhkhácvớisảnphẩmkhác
Natural monopoly: a  monopoly  that  results  from  economies  of
The Essential Difference between Perfectly and Imperfectly
scale(increasingreturnstoscale) Competitive Firms:
Agoodwhoseproductionhasalargestart-upcostandlowvariable cost  is  subject  to economiesofscale
Animperfectlycompetitivefirm  Network  economies:
facesadownward-slopingdemand
Kinhtếtheomạnglưới curve
Giátrịcủasảnphẩmtăng
dần  khi mà  số  lượng  người dùngtăngdần
Themostimportantandenduring
of  the  sources  of  market  power  are  economies  of  scale  and  network
Aperfectlycompetitivefirmfacesa economies.
perfectlyelasticdemandcurve
Profit Maximization for the Monopolist:
Marginal benefit = marginal revenue:thechangeinafirm’stotalrevenue
thatresultfromaone-unitchangeinoutput.
Supposeprice:P = a – bq
Revenue:R = P x q = (a -bq) x q = aq – bq 2
Thenthemarginalrevenue:MR = R’ = a -2bq
Market poweristhefirm'sability
Profitmaximazeatthelevelofoutputwheremarginalcostequalsmarginal
toraiseitspricewithoutlosingallitssales=>tendstoarisefromfactors revenue. MC = MR thatlimitcompetition
XácđịnhgiáPbằngcáchtìmđiểmQtrênđườngcầu
Perfectly discriminating monopolist: a  firm  that  charges  each  buyer
exactlyhisorherreservationprice
If  the  firm  can  perfectly  discriminate  the  price,  then  the  quantity  that
maximizesthemonopolist’sprofit=thequantityisoptimalforsociety
-Nếunhàđộcquyềncóthểphânbiệtgiámộtcáchhoànhảo=>Lợinhuận
tăng,tốtchocảxãhội(mứcsảnlượngbằngmứctốiưucủaxãhội)
-Thựctiễn:perfectpricediscriminationlàkhôngkhảthi(ngườibánphải
biếtchínhxácRPcủatừngkháchhàng–khôngthể,thậmchíngườibánđôi
khicònkhôngbiếtRPcủahọlàbaonhiêu). Monopoly Profit:
Hurdle method of price discrimination:thepracticebywhichselleroffers
Profit=( P – ATC) x Q
adiscounttoallbuyerswhoovercomesomeobstacle.
-IfP>ATCthenthefirmearnsaprofit.
-Ngườibántạorachướngngạivậtnàođấyđểngườimuavượtqua=>
-IfP<ATC,thenthefirmsuffersaloss.
khiếnchínhsáchphânbiệtgiátrởnêntựnhiênhơntrongmắtkháchhàng,
khôngcảmthấybịphânbiệtđốixử.
Perfect hurdle: a  threshold  that  completely  segregates  buyers  whose
reservation  prices  lie  above  it  from others  whose  reservation  prices  lie
belowit,imposingnocostonthosewhojumpthehurdle
=>Phânbiệtgiálàcôngcụquantrọngđểgiatănglợinhuận.Khidoanh
nghiệpđộcquyềnthànhcôngtrongviệcphânbiệtgiá,thìnókhôngchỉcó
lợichobảnthândoanhnghiệpmànócòncólợichoxãhội
Public Policy toward Natural Monopoly:  State onwership and management: Trong
Deadweight loss:thelossof
thực  tiễn,  khi  doanh
consumerandproducersurplus
nghiệpcósứcmạnhđộc
causedbydisparitybetweenprice
quyềnthì chínhphủ có andmarginalcost thểmuốncan
-Sựsụtgiảmcủathặngdưxãhội
thiệp  để  gia  tăng  phúc
đếntừviệcnhàđộcquyềnđặtgiá 
lợi  xã  hội  (giảm  thiểu
caohơnchiphíbiên deadweighloss)
-Sảnlượngthấphơnmứctốiưucủa
-Yêucầudoanhnghiệp xãhội
Price discrinimation:thepracticechargingdifferentbuyersdifferentprices
đặt  giá  =  chi  phí  biên
foressentiallythesamegoodorservice.
(nhược:doanhnghiệpđộcquyềnbịlỗ)
Needtohaveinformationofreservationpriceofbuyers
=>Chínhphủtàitrợbùlỗdựavàongânsách(thuế),nhưngdoanh
nghiệpkhôngcóhiệuquảkinhtế
-Yêucầudoanhnghiệpđặtgiá=ATC(duytrìeconomicprofit=0)
-Paypeopleforthebenefitstheycreate
=>Nhược:Chínhphủphảicóthôngtinđầyđủvềcầuthịtrường
Tragedy of the commons:thetendencyforaresourcethathasnopriceto 
State regulation of private monopolies
beuseduntilitsmarginalbenefitfailstozero. 
Exclusive contracting for natural monopoly
Positional externality:occurswhenanincreaseinoneperson’s 
Vigorous enforcement of antitrust laws
performancereducestheexpectedrewardofanotherinsituationsinwhich
Chpter 11: Externalities, Property Right, and the Environment
rewarddependonrelativeperformance.
Positional arms race:aseriesofmutuallyoffsettinginvestmentsin
External cost (nagative externality):acostofanactivitythatfallson
performanceenhancementthatisstimulatedbyapositionalexternality.
peopleotherthanthosewhopursuetheactivity
Positional arms control agreements:anagreementinwhichcontestants
External benefit (positive externality):abenefitofanactivityreceivedby
attempttolimitmutuallyoffsettinginvestmentsinperformance
peopleotherthanthosewhopursuetheactivity enhancement
Externality:anexternalcostorbenefitofanactivity
Environment Regulation: Observations: -Taxingpollution 
Externalitiesreduceeconomicefficiency
-Auctioningpollutionpermit(muabánphátthải) 
Solutionsofexternalitiesmaybeefficient
-Climatechangeandcarbontaxes 
Governmentinterventionorothercollectiveactionmaybeeffective
whenefficientsolutionstoexternalitiesarenotpossible
Chapter 12: The Economics of Information
positiveexternality:theleveloftheactivitywillbelessthanthesocial
optimallevel=>underproduction
The free-rider problem: anincentiveprobleminwhichtoolittleofagood
negativeexternality:theleveloftheactivitywillbehigherthanthesocial
orserviceisproducedbecausenon-playerscannotbeexcludedfromusing
optimallevel=>overproduction thegood
Coase theroem:ifatnocostpeoplecannegotiatethepurchaseandsaleof
Twoguidelinesforrationalsearchforinformation:
therighttoperformactivitiesthatcauseexternalities,theycanalwaysarrive 
Additionalsearchtimeismorelikelytobeworthwhileforexpensive
atefficientsolutionstotheproblemscausedbyexternalities. itemsthancheapones
Remedies for externalities: 
Pricespaidwillbehigherwhenthecostofasearchishigher -LawsandRegulations:
Thegambleinherentinsearch:
-Theoptimalamountofnegativeexternalitiesisnotzero:thesocially 
Thereareadditionalcostsanduncertainbenefitswhenengagingin
optimallevelofpollutionreduction(MBandMCalmostalwaysintersect furthersearch
belowthemaximumamountofpollutionreduction) 
Therefore,thereisadegreeofriskorgamblefromthesearch
-Compensatorytaxandsubsidies:
Determiningwhetherornottogamble:computetheexpectedvalue. 
Aperunittaxonoutputcanmovethemarkettothe
Expected value of a gamble:the sum of  the possible outcomes of  the
sociallyoptimaloutputwhenthereisanegativeexternality
gambleweightedbytheirprobabilityofoccurrence.
-Peoplemustpayforthedamagetheycause
Fair gamble:agamblewhoseexpectedvalueiszero 
Aperunitsubsidyonoutputcanmovethemarkettothe
Better-than-fair gamble: onewhoseexpectedvalueispositive.
sociallyoptimaloutputwhenthereisapositiveexternality
Risk-neutral person:someonewhowouldbewillingto acceptanyfair
gamble(orbetterthanfairgamble)
Risk-averse person:someonewhowouldrefuseanyfairgamble.
Asymmetric information:where  buyers  and  sellers  are  not  equally
Chapter 14: Public Goods and Tax Policy
informedaboutthecharacteristicsofproductsorservices.
Lemons model:George  Akerlof’s  explanation  of  how  asymmetric
Public goods: a  good or service  that,  to  at  least  some  degree,  is  both
informationtendstoreducetheaveragequalityofgoodsofferedforsale.
nonrivalandnonexcludable. Example:
Nonrival good: a  good  whose  consumption  by  one  person  does  not 
Peoplewhohavebelowaveragecarsaremorelikelytosellhem
diminishitsavailabilityforothers(e.g:cleanair,Youtube) 
Buyersknowthatbelow-average-carsaremorelikelytobeonthe
Nonexcludable good: a  good  that  is  difficult,  or  costly,  to  exckude
marketthatgoodonesandlowertheirreservationprices nonpayersfromconsuming. 
Becauseusedcarpricesarelow,peoplewithgoodcarskeepthem 
difficulttopreventpeoplefromconsumingit(e.g:nationalarmy) longer
Pure public good:agoodorservicethat,toahighdegree,isbothnonrival 
Theaveragequalityofusedcarsfallsevenfurther. andnonexcludable.
The credibility problem in trading:peopletendtointerpretambiguous
Collective good (toll/club good):agoodorservicethat,toatleastsome
informationinwaysthatpromotetheirowninterests.
degree,isnonrivalbutexcludable(e.g:Netflix)
Costly-to-fake principle:to  communicate  information  credible  to  a
Pure private good:oneforwhichnonpayerscaneasilybeexcludedandfor
potentialrival,asignalmustbecostlyordifficulttofake.
whicheachunitconsumedbyonepersonmeansonelessunitavailablefor
Statistical discrimination:the practice of making judgements  about the others
quality ofpeople,  goods  or services based  on  the characteristics  of the 
bothrivalandexcludable(e.g:agriculturalproducts)
groupstowhichtheybelong.
Pure common food:oneforwhichnonpayerscannoteasilybeexcludedand
Adverse selection:thepatterninwhichinsurancetendsto bepurchases
forwhicheachunitconsumedbyonepersonmeansonelessunitavailable
disproportionatelybythosewhoaremostcostlyforcompaniestoinsure. forothers  Itraisespremiums 
rivalbutnonexcludable(e.g:catchingfishintheocean) 
Itreducesthenumberoflow-riskpolicyholders 
Itincreasestherisklevelofinsured
Moral hazard: thetendencyofpeopletotakegreaterriskswhentheyare
protectedfromthefullconsequenceswhentheriskturnsoutbadly.
Hànghóakhôngcótínhloạitrừ =>khôngmanglạidoanhthu,lợi
nhuậnchodoanhnghiệp=>doanhnghiệpkhôngcóđộnglựcđểcung
cấphànghóachoxãhội
Noteveryonebenefitsequallyformpublicgoodandservice=>taxingin
WLP=>don’tknowexactlyWLPofeveryone,andpeoplealsodon’tknow theirWLP
(Nhữngngườigiàuhơn,cảmnhậnrõrànghơnlợiíchcủapublicgood)
head tax (thuế đầu người):ataxthatcollectsthesameamountfromevery taxpayer
regressive tax (thuế lũy thoái):ataxunderwhichtheproportionofincome
paidintaxesdeclinesasincomerises
proportional income tax (thuế phần trăm thu nhập):oneunderwhichall
taxpayerspaythesameproportionofincomeintaxes
progressive tax (thuế lũy tiến): oneinwhichtheproportionofincome
paidintaxesrisesasincomerises
Public good demand curve: the  vertical  summation  of  the  individual demandcurves. 

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