FUNDAMENTALS OF

ECONOMICS
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What is Economics?

• derived from greek word, Oikonomia,

which means "household management"

• ECONOMICS is a social science that

studies the proper allocation of scarce
resources to meet/ fulfill unlimited wants
and needs.
Economics

• Social Science
• Allocation
• Scarce Resources
• Wants
• Needs
Goals of Economics

Economics aims to:

• strengthen economic freedom
• promote economic efficiency
• promote economic stability
• promote economic security
• attain a high level of growth in the
economy
– expansion of resources available (goods,
labor force)
– improved skills and technology
Economics as Related to other Social Science

• Anthropology- Gk "anthropos & logus"

which means study of group or people.
– biological= needs/necessities for survival
– psychological= perception and opinion
– social= enhance social life
– cultural = heritage impact for survival
Economics as Related to other Social Science

• Political Science- Gk. "polis" means city or

state and Latin "scire" means to know.
– study of the state or government
– mechanics of the distribution of power

e.g. Economy depends on the form of

government the country has adopted.
Economics as Related to other Social Science

• Sociology- Gk "socius & logus" which

means study of the society or group
– analyzes social interaction, relationship, and
processes

e.g. Producing a product that conforms to the

belief of people belonging to a group/ society
Economics as Related to other Social Science

• Psychology- Gk "psyche" means soul and

"logus" means study.
– perceptions/ influences

e.g. Through a so-called 'mind conditioning'

Economics as Related to other Social Science

• History- study of past events

– allows us to make a comparison

e.g. Comparing/ Correlating the past event to

the present which might give a solution to an
economic problem
Importance of Economics
• Optimizing Resource Usage
– Economics provides possible ways in
maximizing resource utilization and reduce
wastages.
• Utilizes the "Opportunity Cost"
– minimizes opportunity costs to maximize profit
• Gains Social Efficiency
– 'optimal' distribution of resources in society
taking into consideration all costs vs all
benefits
Importance of Economics

• Stabilizes the overall Economy

– sustain economic growth and avoids
economic breakdown
• Understands Individual Economics
– personal choice on how to properly allocate
available resources.
– Maximizing personal profit to avoid chances of
loss
Scarcity

• Why is there Scarcity?

– the main reason of scarcity is having

UNLIMITED wants and needs vs limited
resources.
Scarcity

• Scarcity requires CHOICE

Therefore, when there is SCARCITY and

CHOICE, there is COST
Efficiency

• Efficiency vs Effectiveness

Effective

GOAL

Efficient
 BRANCHES OF ECONOMICS

• MICROECONOMICS
• MACROECONOMICS
Branches of Economics

• Microeconomics
– micro from Gk. prefix "mikro"= small
– study of the behaviors of a particular market,
individual and companies within the economy
in making decisions.
– consumer demand force= driving force in
determining prices and production of level of
goods and services.

The behavior affects the SUPPLY and

DEMAND of a good or services bought and
sold.
Branches of Economics

• Macroeconomics
– from Gk prefix "makro"= large
– study of the whole economy in terms of
performance, decision making and behavior.
– views aggregate indicators (GDP, Labor
Rates, national income, inflation)

MACROECONOMICS centers the TOTALITY

instead on the FINER POINTS.
http://wps.prenhall.com/bp_casefair_econf_7e/30/7931/2030382.cw/index.html
Methodologies of Economics

• Positive Economics
– study of economics based on objective
analysis.
– relates to "what is" and "what has been"
– should be verified with facts
Methodologies of Economics

• Normative Economics
– study of economics based on value-
judgements (subjective)
– concern on "what should be" / "what ought to
be"
– proposing a solution to the situation
 Positive Economics Normative Economics

High inflation rate has BSP should manage the

High Inflation Rates increased the level of level of inflation rate in the
poverty country

Approval of RH Bill will Anti RH Bill group must

Approved RH Bill result to a decrease in rally to fight for their
population growth beliefs

To acquire high-skilled
Country that provides
laborers, minimum wage
Minimum Wage minimum wage is likely to
should be increase by Php
have low-skilled laborers
130.00
3 Fundamental Questions

• What goods and services should be produced and in

what quantities?
• How these goods and services should be produced?
– Two methods in production:
• capital intensive (goods)- Mechanization and mass production;
• labor intensive (services)- Customer Contact
• For whom should these goods and services be
produced?
• Factors of Production
– Land
– Labor
– Capital
– Entrepreneurship
Circular Flow of Production and Payment