Class notes
Microeconomics - middle term test
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Contains from chapter 1: What is economics? to chapter 6: Demand and Supply. Contains examples and graphics used on class.
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MicroeconomicsChapter 1: What economics is
Economics is the science which studies human behaviour as a relationship between
given ends and scarce means which have alternative uses.
1.1 Allocation of resources
Economics is not the same as economy - even tho both terms are confused. The first one
is a social science that studies intentional human behaviour or human action (decisions
made with the use of reason - racionally). Meanwhile the second one is refers to a
disciple that teaches how to make money.
Economics helps us to understand why people act as they act - it discovers patterns of
human behaviour. People have resources (time, land, money) that they can spend or
use (allocate then). And the sources we have are scarce, which means that they are
available in limited quantities. People tend to allocate scarce resources to give them
greater satisfaction in comparison - human objective is happiness, satisfaction and the
level of satisfaction we called it utility.
Vocabulary - scarcity and utility.
1.2 Production, trade and consumption
People consume goods with the goal of increase their utility - to able to consume you
must produce first. You can consume what he produces or trade it.
The things that people produce, consume or trade to satisfy their needs are called
goods.
1.3 Self- interest
There are two main forces of human behaviour; the main driving force is self-interest -
the desire to increase one’s well-being. The other driving force is compassion or love -
the desire to increase the Weill-being of other people. People tend to be benevolent.
Adam Smith discovered that helping yourself you also help others. Ex: beer example
1
, Adam Smith is considered father of economics - publish the Wealth of nations (first text
book of economics.
1.4 Opportunity cost
Everything comes at a cost - even if we dont pay there’s always a missed opportunity.
The opportunity cost is the value of the second-best opportunity which we could gain if
we decide to spend our resources on it.
VOCABULARY:
Scarcity: is a fundamental economic property of goods and resources. Means that goos
and resources are always available in a limited quantity.
Utility: is a measure of the satisfaction of an individual received from the consumption of
goods.
Goods: things and services that people produce, trade and consume to satisfy their
needs. Goods are scarce because it takes time, energy or money to produce them.
Consumption: is a process in which people use goods to satisfy their needs.
Production: is a process in which firms use specific goods are called the factors of
production - labour, land and capital to make other goods.
Trade: trade is a process in which people exchange goods with one another to get
goods of higher utility for them.
Opportunity cost: is the cost of an activity measured in term of the net value of the next
best alternative forgone. It is what we could have if we chose the other alternative of the
two best alternative activities available instead of what we had chosen as very best one.
Chapter 2: Ownership
2.1 Property rights
Owned things are called property, this concept of ownership is crucial fro the
functioning of the economy and for the ability of people to pursue happiness.
Ownership is the product of employing labour (L), capital (K) and land.
The situation in which the user of a property does not bear all the costs of his behaviour
imply the temptation not to take the long-term consequences into account and to take
advantage of acting at the expense of the owner. This temptation is called moral hazard.
Most goods are owned by individuals, like personal belongings - some others are
owned mutually, one can agree with a friend to own a car together ex. Marital property
2
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