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MicroeconomicsInternational-Busi...

Laga02 Microeconomía 1º Grado en Empresa Internacional Facultad de Economía y Empresa Universidad de Barcelona

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MICROECONOMICS

INTERNATIONAL BUSINESS UB

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Microeconomics 08/10/2020

BLOCK 1: INTRODUCTION TO ECONOMICS

Economics: social science that studies the product, and consumption of goods and services; and the income distribution

It can also be defined as the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. Without scarcity and alternative uses, there is no economic problem. The main problem of economics is the scarcity, that’s why it’s needed to find alternative uses (MIRAR WEB)

Market: is any mechanism/structure that allows buyers and sellers to exchange any type of goods, services and information. The market equilibrium occurs at the price at which quantity demanded and quantity supplied are equal (when the producer and the consumer make an agreement (price and quantity: euros/kilo)). Social science is an academic discipline concerned with society and the relationship among individuals within a society, Economics is a social science that seeks to analyse and describe the production, consumption and distribution of wealth.

Microeconomics: branch of economics concerned with how people make decisions and how these decisions interact. Analyse the behaviour of different economic agents (households, firms/companies and states/administration/public sector = consumers and producers). Macroeconomics: brunch of economics concerned with the overall economy.

Economic growth: growing ability of the economy to produce goods and services.

Difference between positive economics and normative economics -

Positive economics: is the branch of economic analysis that describes the way the economy actually works (statement of fact = “what is”). A positive statement is one that is objective and can be backed up by evidence (EX: If carbon emissions were cut by 25%, air quality would improve and the number of people diagnosed with asthma would decrease significantly).

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Normative economics: makes prescriptions about the way the economy should work (statement of opinion = “what ought to be”).

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It comes from the Greek word oikonomos: oikos “house” + nomos “managing”.

Microeconomics 08/10/2020 A normative statement is a value judgment and states what someone thinks “ought to be”. Normative statements are subjective and influences by personal biases, backgrounds, personal politics… (EX: To clean up air quality and cut down carbon emissions by 25%, 4 x 4 vehicles should only be sold to farmers and those living in rough terrain areas).

Model: is a simplified representation of real situations used to better understand real-life situations. They play a crucial role in economics due to they are used t study a real but simplified economy and also used to simulate an economy on a computer. The “other things equal” (ceteris paribus) assumptions means that all other relevant factors remain unchanged (constant).

Factors of production

Inputs: -

K: capital (there’s the financial capital and the physical capital such as machines, factories, properties, tools, software, hardware… L: labour or human capital (physical workers and their intellectual NR&E: Natural resources and energy Φ (phi): technology Entrepreneurship

The price of the capital is the interest rate of the loan (i), the price of labour is the salary/wages (w), the price of the natural resources and energy is usually the price of the oil and the price of technology is complicated to define but are the copy rights, patterns…

Difference between short run and long run -

Short run: less than the maturity period (less than a year).

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Long run: more than one maturity period (more than a year).

Maturity period: which is the period of time from the moment that you decided to invest one euro until the moment that you receive this euro. 2

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(A forecast is a simple prediction of the future)

Short run: Y = f ( k , L) . Capital and technology are fixed. Variable labour (you can change the number of workers and the number of hors the have to work) Long run: Y = f ( K , L) . Everything is variable.

ECONOMIC SYSTEMS Capitalism: is an economic system in which a country’s trade and industry are controlled by private owners for profit, rather than by the state. (A. Smith, Thomas Malthus, David Ricardo) ADAM SMITH (An inquiry into the nature and causes of wealth of nations 1776) -

Invisible hand: refers to the idea that individual pursuit of self-interest can lead to good results for society as a whole.

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Laissez-faire: He was the founder of free market economics. It is an economic system in which transactions between private parties are absent of any form of economic interventionism such as regulations and subsidies. It is a policy of minimum governmental interference in the economic affairs of individuals and society.

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Limited government: no government intervention. It is a governing or controlling body whose power exist only within pre-defined limits that are established by a constitution or other source of authority.

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Free market: is an economic system that allows supply and demand to regulate prices, wages, etc., rather than government policy (very small governmental control)

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Production function: relationship between the quantity of inputs a firm uses and the quantity of outputs it produces.

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Division of labour: the separation of a work process into a number of tasks, with each task performed by a separate person or group of persons (workers can focus on specefici tasks).

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K accumulation (capital accumulation): is the dynamic that motivates the pursuit of profit, involving the investment of money or any financial asset with the goal of increasing the initial monetary value if said asset as a financial return, whether in the form of profit, rent, interest, royalties or capital gains.

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Free Trade: is an international trade left to its natural course without tariffs, quotas or other restrictions. Under a free trade policy, goods and services can be bought and sold across international borders with little or no governmental tariffs, quotas, subsidies, or prohibitions to inhibit their exchange.

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Microeconomics 08/10/2020

Microeconomics 08/10/2020 The capitalism failed in 1929 for the first time (NY crash) and the second in 2007. Socialism/communism: any of various economic and political theories advocating collective or governmental ownership and administration of the means of production and distribution of goods.

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Conflict of classes: conflict between different classes in a community resulting from different social or economic positions and reflecting opposed interests.

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Working class’ conquest of political power Theory of value: use-value, exchange-value (price), surplus-value. It is a term used in economics which covers all the theories included in economics that explain price of goods and services or exchange value. The basic and most important questions of the theories of economics are why the price of goods and services are priced as they are, how the price of goods and services are considered and how the correct price of goods and services can be calculated.

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Extraction of surplus value or surplus profit Minimum wage to reproduce the proletariat

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Economic organization: is the way in which the means of production and distribution of goods are organized, such as capitalism or socialism.

The communist system failed when Berlins wall fall in 1989. Price: is the result of the market. Where producer and consumers reach an agreement Cost: is the addition of the price of the inputs that we have used in the production. Tc = K· i + L·w Value: there’s subjective and objective value. The subjective value is your point of view. The objective value is when we create/add value, when we produce. It is created thanks to the capital, the labour, natural resources and energy and technology.

Mixed economy: is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. JOHN MAYNARD KEYNES (The General theory of employment, interest and money, 1936): appeared after the crash of 1929. -

Mixed economy: is an economic system in which both the state and private sector direct the economy, reflecting characteristics of both market economies and planned economies. It protects private property and allows a level of economic freedom in the

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KARL MARX (The Communist manifesto, 1848), Das Kapital (1867-1894) WATCH VIDEOS

Microeconomics 08/10/2020

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Economic intervention by public sector: it is the regulatory action taken by governments that seek to change the decision made by individuals, groups and organization about social and economic matters.

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Aggregate demand: it is an economic measurement of the total amount of demand for all finished goods and services produced in an economy. It is expresses as the total amount of money exchanged for those goods and services at a specific price level and point in time.

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Stabilization function

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Public deficit: it is the gap between revenues and expenditures for a government (over a given period of time), often referred to as an internal deficit or fiscal deficit.

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Public debt: total amount of money borrowed by the government of a country, including individuals, businesses and other governments.

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Macroeconomic equilibrium with unemployment

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Animal spirits: represent the future expectation. Term coined by John Maynard Keynes, that describes how people arrive at financial decisions, including buying and selling securities, in times of economic stress or uncertainty. I = f ( i ; animal spirits). When the interest rate increases the private investments (I) decreases and otherwise, when the interest rate decreases, the private investments increases.

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Liquidity paradox: when the variation of interest rate doesn’t affect the ……. (MIN 46 O AIXI CLASSE)

ECONOMIC AGENTS -

Households: basic unit of consumption (EX: families, adults sharing a home, person living alone…). Households buy goods and services to satisfy their basic needs (food and water, accommodation and clothes) and be happy. In economic terms: to maximise happiness and utility.

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State/administration: public management

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Firms/companies/enterprises typologies: basic unit of production. 5

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use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims.

ACCOUNTING: Balance Sheet

Difference between efficacy and efficiency -

Efficacy (or effectiveness): is the capacity to produce an effect. It is the ability of an intervention/action/product to produce a desired effect. (the cost is not a important)

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Efficiency (economic efficiency): refers to the use of resources so as to maximize the production of goods and services. Production proceeds at the lowest possible per-unit cost (minimization) = OPTIMIZATION. The property of society getting the most it can from its scarce resources.

Pareto efficiency: no one can improve without damaging someone else. An economy is efficient, according to Pareto, if it takes all opportunities to make some people better off without making other people worse off.

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Equity: means that everyone gets his or her fair share. Since people can disagree about what’s “fair”, equity isn’t as well-defined a concept as efficiency. (ex: if you have low incomes, you pay less than the ones who have larger incomes) When we increase the efficiency, we have to scarify equity. If we increase the equity, probably we will not be as efficient as we could be. Conflict between: equity, making life “fairer”, or efficiency, making sure that all opportunities to make people better off have been fully exploited. Markets usually lead to efficiency. The incentives built into markets economy already ensure that resources are usually put to good use. Opportunities to make people better off are not wasted. But there are some exceptions: market failure, the individual pursuit of self-interest found in markets makes society worse off = the market outcome is inefficient.

The circular-flow diagram: It is a representation of the economy. Trade takes the form of barter when people directly exchange goods and services they have for goods or services they want. The circular-flow diagram is a model that represents the transactions in an economy by flows around a circle. -

Households buy goods and services from firms. Firms buy factors of production from households Inner flow = goods and services Outer flow = money

Households offer labour Circular flow of economic activities: 7

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Microeconomics 08/10/2020

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A household or a person or a group of people that share their income. A firm is an organization that produces goods and services for sale. The markets for goods and services is where firms sell goods and services that they produce to households. The factor markets are where firms buy the resources they need to produce (factors of production)

Business pay’s company taxes and individuals pays income taxes and the VAT (value added tax = IVA) through the consumption. Security (seguredad social) is paid one part for the households and another is paid by the company.

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Ultimately. Factor markets determine the economy’s income distribution: how total income is divided among the owners of the various factors of productionMacroeconomic identity: Income = Production = Expenditure

OPPORTUNITY COST Opportunity cost: sources are limit (scarcity), so we have to choose. The opportunity cost is the lost option, what you must to give up in order to get it. (ex: the cost of attending to economics class is what you must give up to be in the classroom during the lecture = sleeping, watching TV…). Opportunity cost is about what you have to forgo to obtain your choice. It is also defined as the value of the next best alternative.

The production possibility frontier (PPF): It’s the maximum quantity that we can produce in an economy with the scarcity of resources. The efficient quantity that we can produce. -

Illustrates trade-offs facing an economy that produces only two goods. It shows the maximum quantity of one good that can be produced for any given production of the other. (taking into account of a concrete amount of resources) The PPF improves our understanding of trade-offs by considering a simplified economy that produces only two goods by showing this trade-off graphically.

Opportunity cost and slope of PPF -

If the tradeoff remains constant along the PPF then we say they face a Constant Opportunity Cost and the PPF has a linear slope. 9

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Microeconomics 08/10/2020

Microeconomics 08/10/2020 -

If the tradeoff increases along the PPF than we say they face an Increasing Opportunity Cost and the PPF has a nonlinear slope.

Application of the opportunity cost in the graphic PPF with constant opportunity cost (OC): If we want to produce one leather jacket we have to scarify 2 units of computers. Slope is -2. Negative because when I decided to increase the quantity of leather jackets (X) I have to decrease computers (Y), the result will be negative.

The production possibility frontier with constant opoortunity cost:

The opportunity cost of one unit of fish is 6/8 = 0’75 coconuts. And the o.c of one coconut is 8/6 = 4/5 = 1’3 units of fish.

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All the options around the PPF are efficient!!!

The opportunity cost is increasing. When this happens the slope is concave Technological development? *

The production possibilit...