BASIC ECONOMICS WITH

TAXATION AND AGRARIAN

REFORM
BENEDICTOS, MA. JANDA IRA FELINA M.
Philippine Merchant Marine Academy
Instructor 1
ECONOMICS
An Introduction
ECONOMICS

Why do we have to
study ECONOMICS?
What is ECONOMICS?
ECONOMICS
Economics and Scarcity
 It is a social science that deals with the
allocation of scarce resources to satisfy unlimited
human needs and wants.

 It came from the Greek word oikonomia

(household management).

 Economics deals with the ideas of scarcity and

allocation
ECONOMICS
Economics as a SCIENCE

 Economics deals with human behavior that is

why it is considered as a social science, it
studies the theory of how humans make
choices.

 It seeks to explain the why of things -in

production, consumption and distribution.
ECONOMIC MODELS
 In order to capture the complexity of the
relationship between economic agents and
variables. Economists construct their own
laboratory where he abstracts from reality
which they call MODELS.

 Basic relationships could be the

foundation of complex relationships .
ECONOMIC MODELS
 There is a limit in the complexity of a model,
it aims to represent reality but it does not
replace it, it does not need to duplicate
reality. As long as a model provides sound
economic insights how matter how simple it
is, the relationship is valid. The ultimate test
of validity of a model is not how close it can
depict reality but how accurate it can predict
real-world events.
ECONOMIC MODELS
Most of these models have three common
elements which are the following:
 The Ceteris paribus (i.e., other things being
equal or constant) assumption.
 The assertion that economic agents are
optimizers (they want to make the most of
everything).
 The distinction between normative and
positive economics.
ECONOMIC MODELS
CETERIS PARIBUS Assumption

 It enables us to simplify setting and the limits

forces that are being studied.

 What the ceteris paribus assumption implies

is that the other factors, during the study,
are constant if not initially irrelevant.
ECONOMIC MODELS

 Many economic models assume that

economic agents are optimizers.
 Economic agents are:
 Consumers they are assumed to be utility
maximizers

 Producers are assumed to be profit

maximizers,and

 Thegovernment seeks to maximize public

welfare
ECONOMIC MODELS
Positive economics

 It is the branch of economics concerned with

the description and explanation of economic
phenomena.

 It answers the question “what is’’

 It investigates how resources are allocated in

the economy
ECONOMIC MODELS
Normative Economics

 It is the application of positive economics; its

purpose is to generate policy prescriptions.

 It answers the question “what ought to be”

and thus it requires value judgment.

 It proposes how resources should be

allocated in the economy.
ECONOMIC MODELS
 Adopting the example of Bello et al. (2009)
from the book Economics:

In taxation the positive economists would

determine that cutting income taxes could
increase consumption spending while the
normative side would prescribe that the rich
should be taxed more than the poor.
ECONOMIC MODELS

The distinction between positive and

normative economics highlights the role of an
economist as a theorist and a policy advocate,
there are some people who think that positive
analysis is the only proper economic analysis.
MACROECONOMICS VS.
MICROECONOMICS
Mainstream economics can be generally
classified into two branches: Microeconomics
and Macroeconomics

Microeconomics
 It is the study of how individual consumers
and firms behave, and how the market
system allocates scarce resources.
 It is not usually concerned with temporary
fluctuations in the economy.
MACROECONOMICS VS.
MICROECONOMICS
Macroeconomics
 Studies the economy as a whole.

 It seeks to explain why fluctuations happen

and then investigates policies that can
mitigate them.
 It studies three essential phenomena of the
economy:
 Growth of output
 Employment and
 Inflation

All of these relies on the interaction of goods,

labor and assets markets of the economy
ACTIVITY

In order to better understand the meaning of

scarcity, in a half sheet of paper make a list of
how you allocate your monthly school
allowance.
THE TEN ECONOMIC PRINCIPLES AS
STATED BY MANKIW
 How people make decisions
 People Face Tradeoffs. 

 The Cost of Something is What You Give Up to

Get It. 

 Rational People Think at the Margin.

 People Respond to Incentives.

THE TEN ECONOMIC PRINCIPLES AS
STATED BY MANKIW
 How the economy works as a whole

 Trade Can Make Everyone Better Off.

 MarketsAre Usually a Good Way to Organize

Economic Activity.

 Governments Can Sometimes Improve Market

Outcomes.
THE TEN ECONOMIC PRINCIPLES AS
STATED BY MANKIW
 How people interact
A Country's Standard of Living Depends on Its
Ability to Produce Goods and Services.

 Prices
Rise When the Government Prints Too
Much Money.

 Society Faces a Short-Run Tradeoff Between

Inflation and Unemployment.