Microeconomics
Lecture 2
Land, labour, natural resources, and capital are inputs which are used to produce goods and services called
outputs. Capital / labour = indicator of prosperity of a country.
Endogenous resources- depend on us (capital)
Exogenous- does not depend on human action for eg climate (natural resources and labour).
Capital goods- real and tangible assets used in the production of goods or services. (factories, roads,
machines, equipment’s, vehicles).
Positive Economics- focuses on facts, cause, and effect behavioural relationships.
Eg- a higher tax on a good tends to increase its retail price.
Normative economics- expresses normative judgments about what is fair or what ought to be.
Eg- tobacco taxes should rise to discourage smoking.
Lecture 3
Microeconomics- individual econ. Decisions referring to goods and services. (price of a hotel room, one
company in market, price of airline tickets). Individual behaviours. Industry and market structure.
Macroeconomics- structure of economy as a whole (GDP, unemployment, price levels)
The market is a process that allows to reconcile:
• Household decisions on consumption of G and S.
• Bus.. decisions abt what to produce and quantity through price adjustment. (how long workers
work for).
Markets are composed by consumers and producers, with conflicting interests. Consumers- low price.
Producers- sell high price. Result in an agreement. (new cars, old cars, housing, eg of markets).
Need state intervention if:
do not have perfect comp or perfect info or
cost of establishment- dif humans have to reach an agreement. State has to intervene as ppl want dif
things. (condominium meeting, hard to reach conclusions).
or free rider- person w/ personal benefit from goods that are not his. (fishing- fish for their family, no fish
for ppl, need a limit set by gov. to avoid).
How to finance government:
Budget deficit- too high costs for revenue (gov. revenue is taxes) so gov. needs to get loans.
Public debt- the more loans gov. takes the higher public debt. Accumulated debt over years.
Lecture 4
Opportunity cost- value of all that was abdicated to get something else. Resources are finite. Quantity of a
good or service that we have to give up for one more g or s.
Production possibilities frontier (ppr)
Shows various combinations of max quantity of goods that can be produced in this economy with available
resources and tech.
Always negative slope.
Increase production of x by reducing y.
Line not straight bec resources are never equally used for each product.
, Not enough resources for
production. Impossible with
resources available.
Using resources well. Producing max
Using resources possible with resources. (A too)
but not efficiently
Lecture 5
State intervention in economy- regulates and intervenes in markets either by requests or own initiatives.
State econ. Functions:
è Efficiency- market failure that do not allow efficient allocation of resources. -> an unregulated free
market cannot achieve social optimum.
o Imperfect competition- markets where none of the companies have sufficient size to
dominate market alone. State intervenes to reduce negative impact. (airports, energy
producers, local monopolies).
o Externalities- activities that impose costs on benefits to third parties who did not participate
in this action. (education, vaccines, pollution) negative externalities- costs. Positive-
benefits.
State must intervene on neg. externalities (such as pollution) because ppl being affected are
not being compensated by who caused them. (state can set max output for factories, taxes,
incentive sustainability). Positive ext- vaccines- gov supports with investment.
o Public goods- goods not produced by private entities or if so insufficient amounts.
Private goods vs public goods
Consumed by 1 person Can be consumed again by another. (road lights).
cannot be by another. Not profitable.
(dentists, icecream) Cannot exclude ppl from these goods.
Impossible amount consumed by 1 person to
reduce amount for others.
State needs to ensure these.
è Equity- reducing social inequalities in society. State can establish minimum wage (progressive taxes
or transfers (pensions, reformas, subsidio de desemprego).
o Horizontal equity- identical treatment of ppl with similar abilities/ needs.
o Vertical equity- different treatment to reduce consequences. (physical handicap).
è Stability- reduce volatility (peaks) in arregator indicators. (peak in inflation, unemployment rates).
State implements ways to stabilize economy.
Lecture 6- Economic systems
Traditional economy:
Tribalism- men did not produce food, hunter gatherers would fish and hunt.
Agricultural rev- men became sedentary, more division of labour, trade and specialization. Sustent more
ppl.
Lecture 2
Land, labour, natural resources, and capital are inputs which are used to produce goods and services called
outputs. Capital / labour = indicator of prosperity of a country.
Endogenous resources- depend on us (capital)
Exogenous- does not depend on human action for eg climate (natural resources and labour).
Capital goods- real and tangible assets used in the production of goods or services. (factories, roads,
machines, equipment’s, vehicles).
Positive Economics- focuses on facts, cause, and effect behavioural relationships.
Eg- a higher tax on a good tends to increase its retail price.
Normative economics- expresses normative judgments about what is fair or what ought to be.
Eg- tobacco taxes should rise to discourage smoking.
Lecture 3
Microeconomics- individual econ. Decisions referring to goods and services. (price of a hotel room, one
company in market, price of airline tickets). Individual behaviours. Industry and market structure.
Macroeconomics- structure of economy as a whole (GDP, unemployment, price levels)
The market is a process that allows to reconcile:
• Household decisions on consumption of G and S.
• Bus.. decisions abt what to produce and quantity through price adjustment. (how long workers
work for).
Markets are composed by consumers and producers, with conflicting interests. Consumers- low price.
Producers- sell high price. Result in an agreement. (new cars, old cars, housing, eg of markets).
Need state intervention if:
do not have perfect comp or perfect info or
cost of establishment- dif humans have to reach an agreement. State has to intervene as ppl want dif
things. (condominium meeting, hard to reach conclusions).
or free rider- person w/ personal benefit from goods that are not his. (fishing- fish for their family, no fish
for ppl, need a limit set by gov. to avoid).
How to finance government:
Budget deficit- too high costs for revenue (gov. revenue is taxes) so gov. needs to get loans.
Public debt- the more loans gov. takes the higher public debt. Accumulated debt over years.
Lecture 4
Opportunity cost- value of all that was abdicated to get something else. Resources are finite. Quantity of a
good or service that we have to give up for one more g or s.
Production possibilities frontier (ppr)
Shows various combinations of max quantity of goods that can be produced in this economy with available
resources and tech.
Always negative slope.
Increase production of x by reducing y.
Line not straight bec resources are never equally used for each product.
, Not enough resources for
production. Impossible with
resources available.
Using resources well. Producing max
Using resources possible with resources. (A too)
but not efficiently
Lecture 5
State intervention in economy- regulates and intervenes in markets either by requests or own initiatives.
State econ. Functions:
è Efficiency- market failure that do not allow efficient allocation of resources. -> an unregulated free
market cannot achieve social optimum.
o Imperfect competition- markets where none of the companies have sufficient size to
dominate market alone. State intervenes to reduce negative impact. (airports, energy
producers, local monopolies).
o Externalities- activities that impose costs on benefits to third parties who did not participate
in this action. (education, vaccines, pollution) negative externalities- costs. Positive-
benefits.
State must intervene on neg. externalities (such as pollution) because ppl being affected are
not being compensated by who caused them. (state can set max output for factories, taxes,
incentive sustainability). Positive ext- vaccines- gov supports with investment.
o Public goods- goods not produced by private entities or if so insufficient amounts.
Private goods vs public goods
Consumed by 1 person Can be consumed again by another. (road lights).
cannot be by another. Not profitable.
(dentists, icecream) Cannot exclude ppl from these goods.
Impossible amount consumed by 1 person to
reduce amount for others.
State needs to ensure these.
è Equity- reducing social inequalities in society. State can establish minimum wage (progressive taxes
or transfers (pensions, reformas, subsidio de desemprego).
o Horizontal equity- identical treatment of ppl with similar abilities/ needs.
o Vertical equity- different treatment to reduce consequences. (physical handicap).
è Stability- reduce volatility (peaks) in arregator indicators. (peak in inflation, unemployment rates).
State implements ways to stabilize economy.
Lecture 6- Economic systems
Traditional economy:
Tribalism- men did not produce food, hunter gatherers would fish and hunt.
Agricultural rev- men became sedentary, more division of labour, trade and specialization. Sustent more
ppl.
