CHAPTER I

ECONOMICS
DEFINITIONS AND CONCEPTS

Assoc. Prof. DO TIEN SY, Ph.D

Department of Construction Engineering and Management
Faculty of Civil Engineering
Ho Chi Minh City University of Technology

Assoc. Prof. SY TIEN DO 1

01 DEFINITIONS

02 ECONOMICS

03 SCARCITY

04 PRODUCTION POSSIBILITY FRONTIER

05 PRINCIPLE OF COST INCREASE

06 SCARCITY AND MARKET SYSTEM

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DEFINITIONS

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 DEFINITIONS

• An economy (from Greek οίκος – "household" and

νέμoμαι – "manage") is an area of the production,
distribution, or trade, and consumption of goods
and services by different agents.
• Economics is the science about individuals or
organizations involved in the production,
distribution, and consumption of goods or services.

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 DEFINITIONS

• Resource is limited => Every individual,

organization, and country must decide how to use
their resource.
o Should we watch any TV channel while only 1 TV?

o Should a new car be bought?

o Should a new road be created?

o Should a school be built?

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 DEFINITIONS

• World energy consumption

10%

30%

27%

23%
10%

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 DEFINITIONS

• Breakdown by energy (2018)

Ref: https://yearbook.enerdata.net/total-
energy/
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 PURPOSE

• To predict economic possibilities or situations.

• To develop policies, prevent or correct problems of

unemployment, inflation, or excess of the economy.

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 MACROECONOMICS/MICROECONOMICS

Macroeconomics/Microeconomics

• Macroeconomics: study aggregated indicators

such as GDP, unemployment rates, national
income, price indices, and the interrelations among
the different sectors of the economy.

• Microeconomics: study the behavior of individuals

and firms in making decisions regarding the
allocation of scarce resources and the interactions
among these individuals and firms.

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 MACROECONOMICS/MICROECONOMICS

Macroeconomics/Microeconomics
Phân loại
Sản xuất Giá cả Thu nhập Việc làm
Vi mô Sản xuất/sản lượng Những mức giá Phân phối thu nhập Việc làm trong
(Micro) trong từng ngành riêng lẽ của từng và của cải từng ngành hoặc
hoặc từng doanh sản phẩm doanh nghiệp
nghiệp
Việc làm trong
Bao nhiêu thép? Giá thép Tiền lương trong ngành thép
Bao nhiêu gạo? Giá gạo ngành thép Số lao động
Bao nhiêu ôtô? Giá ôtô Tiền lương tối thiểu trong một hãng

Vĩ mô Sản xuất/Sản lượng Mức giá tổng Thu nhập quốc gia Việc làm và thất
(Macro) quốc gia quát trong nền nghiệp trong
kinh tế tòan bộ nền kinh
tế
Tổng sản lượng Giá tiêu dùng Tổng mức lợi nhận
quốc gia. Giá sản xuất của các doanh Tổng số nhân
Tăng trưởng Tỷ lệ lạm phát nghiệp dụng
Tỷ lệ thất nghiệp

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 SCARCITY

Scarcity

• Scarcity (or paucity) is at the core of economics

• Unlimited human wants in a world of limited
resources.
• It states that society has insufficient productive
resources to fulfill all human wants and needs.

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SCARCITY

Scarcity

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 SCARCITY

• Opportunity Costs: In microeconomic theory,

the opportunity cost, or alternative cost, of
making a particular choice is the value of the most
valuable choice out of those that were not taken.
When an option is chosen from alternatives, the
opportunity cost is the "cost" incurred by not
enjoying the benefit associated with the best
alternative. (Ref: https://www.investopedia.com/terms/o/opportunitycost.asp)

• The loss of potential gain from other alternatives

when one alternative is chosen. (Ref: New Oxford
American Dictionary)

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 SCARCITY

Scarcity (cont.)

• In economics, decision making always involves

opportunity costs.

opportunity costs?

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SCARCITY

Scarcity (cont.)

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 SCARCITY

Scarcity (cont.)

• Opportunity cost in Construction??? Give examples?

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SCARCITY

Scarcity

Ref:
http://www2.harpercollege.edu/mhealy/eco212i/lectures/5es/5
es.htm
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 PRODUCTION POSSIBILITY FRONTIER

Production Possibility Frontier

• The production possibility frontier (PPF) is a curve depicting all
maximum output possibilities for two goods, given a set of
inputs consisting of resources and other factors.
• Assumes that all inputs are used efficiently.

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PRODUCTION POSSIBILITY FRONTIER

Explain the meaning of Points A, B, C, D, E, F, X?

Production Possibility Frontier (cont.)

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PRODUCTION POSSIBILITY FRONTIER

Example: gun and butter

Production Possibility Frontier (cont.)

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 PRINCIPLE OF COST INCREASE

• Resources can not be equally effective when

producing different types of goods or services.

 It needs more resources to change from producing

one commodity to another

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 SCARCITY AND MARKET SYSTEM

Scarcity and Market System

• Two important decisions of a society are what kind

of goods or services must be produced, and how to
distribute resources for production.

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 SCARCITY AND MARKET SYSTEM

Scarcity and Market System (cont.)

Basically, there are two types of major market

systems:

• Planned Economy

• Market economy

Which System is better?

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SCARCITY AND MARKET SYSTEM

Scarcity and Market System (cont.)

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 10 PRINCIPLES OF ECONOMICS

Scarcity and Market System (cont.)

1) People face trade-offs
How people
2) The cost of something is what you give up to get it
make
3) Rational people think at the margin
decisions?
4) People respond to incentives
5) Trade can make everyone better off
How people
6) Markets are usually a good way to organize economic interact
activity with each
other
7) Governments can sometimes improve market outcomes
8) A country's standard of living depends on its ability to
produce goods and services How the
Economy
9) Prices rise when the government prints too much money
works as a
10)Society faces a short-run tradeoff between Inflation and
Whole
unemployment.

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 HOW PEOPLE MAKE DECISIONS?

Scarcity and Market System (cont.)

1)People face trade-offs

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

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 HOW PEOPLE MAKE DECISIONS?

1. People face trade-offs

“There is no such thing as a free lunch”. To get one thing
that we like, we usually have to give up another thing that
we like. Making decisions requires trading one goal for
another.

"Mọi thứ đều có giá" - Để có được một thứ ưa thích,

người ta phải bỏ ra một thứ khác mà mình thích. Nói cách
khác, quá trình ra quyết định đòi hỏi phải đánh đổi một
mục tiêu nào đó để đạt được mục tiêu khác.

Examples:
how students spend their time
how a family decides to spend its income
how the government spends revenue

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HOW PEOPLE MAKE DECISIONS?

Examples

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HOW PEOPLE MAKE DECISIONS?

Guns or Butter

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HOW PEOPLE MAKE DECISIONS?
Guns or Butter

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 HOW PEOPLE MAKE DECISIONS?

Guns or Butter

The more we spend on national defense(guns) to protect our

borders, the less we can spend on consumer goods (butter)
to raise our standard of living at home.
Researchers in political economy have viewed the trade-off
between military and consumer spending as a useful predictor
of election success.[1]
In this example, a nation has to choose between two options
when spending its finite resources. It may buy either guns
(invest in defense/military) or butter (invest in production of
goods), or a combination of both.
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HOW PEOPLE MAKE DECISIONS?

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 HOW PEOPLE MAKE DECISIONS?

2. The cost of something is what you give up to get it

Significance of opportunity cost in decision

making. Because people face tradeoffs, making
decisions requires comparing the costs and benefits of
alternative courses of action

Opportunity cost

Examples:
The cost of
……going to college for a year is not just the tuition,
books, and fees, but also the foregone wages.
…seeing a movie is not just the price of the ticket, but
the value of the time you spend in the theater

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HOW PEOPLE MAKE DECISIONS?

2. The cost of something is what you give up to get it

Opportunity cost???

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 HOW PEOPLE MAKE DECISIONS?

3. Rational people think at the margin

Rational people
Consumers want to purchase the bundle of goods and
services that allow them the greatest level of
satisfaction given their incomes and the prices they
face.
Firms want to produce the level of output that
maximizes the profits.

Many decisions in life involve incremental decisions:

Should I remain in school this semester? Should I take
another course this semester? Should I study an
additional hour for tomorrow’s exam?
Rational people often make decisions by comparing
marginal benefits and marginal costs.
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HOW PEOPLE MAKE DECISIONS?

3. Rational people think at the margin

Comparing marginal benefits and marginal costs.

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 HOW PEOPLE MAKE DECISIONS?

4. People respond to incentives

Incentive: something that encourages a person to do

something
Because rational people make decisions by comparing costs
and benefits, they respond to incentives.
Incentives may possess a negative or a positive intention. It
may be in a positive or a negative way.

For example,
 Offer a raise in the salary  a positive incentive.
 Put a tax on a good, fuel  a negative incentive.
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 How People Interact With Each Other

5) Trade can make everyone better off

6) Markets are usually a good way to organize
economic activity
7) Government can sometimes improve market
outcomes

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 HOW PEOPLE INTERACT WITH EACH OTHER

5. Trade can make everyone better off

Thương mại làm cho mọi người đều có lợi

• Trade is not like a sports competition, where one side

gains and the other side loses.
• Consider trade that takes place inside your home.
Your family is likely to be involved in trade with other
families daily. Most families do not build their own
homes, make their own clothes, or grow their own
food.
• Countries benefit from trading with one another as
well.
• Trade allows for specialization in products that
benefits countries (or families)

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HOW PEOPLE INTERACT WITH EACH OTHER

5. Trade can make everyone better off

Thương mại làm cho mọi người đều có lợi

Need pen Need pencils

You’re welcome
Thank you

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 HOW PEOPLE INTERACT WITH EACH OTHER

5. Trade can make everyone better off

Thương mại làm cho mọi người đều có lợi

 Columbia in Coffee
 Japan in automobile sector
 Tiger wood in golf
 James in basketball
…

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 HOW PEOPLE INTERACT WITH EACH OTHER
6. Markets are usually a good way to
organize economic activity
Thị trường thường là phương thức tốt để tổ
chức hoạt động kinh tế
• Market economy: an economy that allocates
resources through the decentralized decisions
of many firms and households as they interact
in markets for goods and services.
• Market prices reflect both the value of a product to
consumers and the cost of the resources used to
produce it.

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HOW PEOPLE INTERACT WITH EACH OTHER

6. Markets are usually a good way to

organize economic activity

What to buy

What to work for What to produce

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 HOW PEOPLE INTERACT WITH EACH OTHER
7. Government can sometimes improve
market outcomes
Đôi khi chính phủ cải thiện được kết cục thị
trường
• Government policy can be most useful when there is market
failure.
• Nguyên lý này hàm ý rằng mặc dù thị trường là phương thức tốt
để tổ chức hoạt động kinh tế, nhưng sự can thiệp của chính phủ
cũng cần thiết để cải thiện sự công bằng và hiệu quả. Lý do ở
đây là thị trường có thể thất bại trong việc phân bổ nguồn lực
một cách có hiệu quả và không thể đảm bảo sự phân phối công
bằng. Tuy nhiên, không phải lúc nào chính phủ cũng cải thiện
được thị trường, vì bản thân chính phủ cũng có thể thất bại khi
can thiệp vào thị trường
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HOW PEOPLE INTERACT WITH EACH OTHER

7. Government can sometimes improve

market outcomes

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 How the Economy works as a Whole

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 tradeoff between
Inflation and unemployment.

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 How the Economy works as a Whole
8. A country's standard of living depends on its
ability to produce goods and services
Mức sống của một nước phụ thuộc vào năng lực
sản xuất của nước đó
productivity: the quantity of goods and services
produced from each hour of a worker’s time.
High productivity implies a high standard of living.

Hầu hết sự khác biệt về mức sống có nguyên nhân ở sự

khác nhau về năng suất lao động của mỗi quốc gia (số
lượng hàng hóa được làm ra trong mỗi một giờ lao động của
một công nhân). Ở những quốc gia, người lao động sản xuất
ra được lượng hàng hóa và dịch vụ lớn hơn trong một đơn vị
thời gian, thì hầu hết người dân được hưởng mức sống cao;
còn những quốc gia có năng suất kém hơn, thì hầu hết
người dân phải chịu cuộc sống khó khăn. Thực chất, tốc độ
tăng năng suất lao động của một quốc gia quyết định tốc độ
tăng thu nhập bình quân của quốc gia đó.
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How the Economy works as a Whole

8. A country's standard of living depends on

its ability to produce goods and services

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 How the Economy works as a Whole
9. Prices rise when the government prints
too much money
Giá cả tăng khi chính phủ in quá nhiều tiền
Inflation: sustained increase in the overall level of prices
in the economy.

Examples:
• Germany after World War I (in the early 1920s),
• the United States in the 1970s and
• Zimbabwe in the 2000s.
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How the Economy works as a Whole
9. Prices rise when the government prints
too much money
Giá cả tăng khi chính phủ in quá nhiều tiền

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 How the Economy works as a Whole
10. Society faces a short-run tradeoff between
Inflation and unemployment.
Chính phủ đối mặt với sự đánh đổi ngắn hạn
giữa lạm phát và thất nghiệp
Inflation and unemployment

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 How the Economy works as a Whole
10. Society faces a short-run tradeoff between
Inflation and unemployment.
Chính phủ đối mặt với sự đánh đổi ngắn hạn
giữa lạm phát và thất nghiệp
Most economists believe that the short-run effect of a monetary
injection (injecting/adding money into the economy) is lower
unemployment and higher prices.
• An increase in the amount of money in the economy stimulates
spending and increases the demand of goods and services in
the economy.
• Higher demand may over time cause firms to raise their prices
but in the meantime, it also encourages them to increase the
quantity of goods and services they produce and to hire more
workers to produce those goods and services. More hiring
means lower unemployment.

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 REFERENCES

1. Video:
https://www.youtube.com/watch?v=2YULdjmg3o0&fb
clid=IwAR3mEYluECBHj473IMvol8VS8qWxowHklSP-
u3b0TmEarHvcBNPbFhLLQ5g
https://www.youtube.com/watch?v=wvwgIiP4gjY&fbcl
id=IwAR00Q6Xjzaqts0NMwyxaiYQw6QtFYsHxeT79nWf
QKadxLr3inc6K0LDkiD4
https://www.youtube.com/watch?v=zcN0d8foBXI&fbcl
id=IwAR2ROJZ74NzZBbkvSPl8eoFNBXVXSasYJ0ZMvk
n7R714045BQm7bUSaqO-s

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PROBLEMS

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