CHAPTER I

ECONONIC WAY OF THINKING

WHAT IS SCARCITY??

Scarcity -the basic and central economic problem confronting every society. -a commodity or services being in short supply, relative to its demand.

Limited resources wants

unlimited

SCARCITY

WHAT IS ECONOMICS??
Economics

-the science that deals with the management of scarce resources. -scientific study on how individuals and the society generally makes choices. -simply scarcity and choice.

ORIGIN OF ECONOMICS
Greek roots Oikos- household Nomus- system or management
Oikonomia/oikonomus-

management of household.

WHAT IS THE RELATIONSHIP BETWEEN ECONOMICS AND SCARCITY??

The

problem of scarcity gave birth to the study of economics. If there is no scarcity, there is no need for economics.

WHAT IS CETERIS PARIBUS??

Ceteris

Paribus - all other things held constant or all else equal.

BIRTH OF ECONOMIC THEORY

CLASSICAL ECONOMICS
Adam Smith of Scotland -Father of Economics -responsible for the recognition of economics as a separate body of knowledge. Wealth of the Nations -1776, bible of economics

 John

Stuart Mill -heir of David Ricardo -develop the basic analysis on political economy or the importance of a states role in the national economy.

 Karl

Marx -much influenced by the conditions brought about by the industrial revolution. Das Capital -his major work -the centerpiece from which major socialist thought was to emerge.

NEOCLASSICAL ECONOMICS
Leon

Walras -general economic system Marshall -Principles in Economics

Alfred

KEYNES GENERAL THEORY

John

Maynard Keynes -English economist -The General Theory of Employment, Interest and Money (1936).

NON-WALRASIAN ECONOMICS
John

Hicks -recognized for his analysis of ISLM model. IS-good markets (investment saving) LM-money market (demand for,
and supply for money)

POST-KEYNESIAN ECONOMICS
Development of private and public institutions ECONOMIST: Paul A. Samuelson Kenneth J. Arrow James Tobin Lawrence Klein Joan Robinson Manuel Kolechi

NEW CLASSICAL ECONOMICS

Highlighted the importance of adherence to national expectations hypothesis and analysis. ECONOMIST: Smith Ricardo Malthus

POSITIVE ECONOMICS
conditions as they are or consider economics as it is Answers the question what is
Economic

NORMATIVE ECONOMICS
Economic

condition as it should be the question what should be

Answers

FOUR BASIC ECONOMICS QUESTION

1.
2. 3. 4.

WHAT TO PRODUCE?
HOW TO PRODUCE? HOW MUCH TO PRODUCE? FOR WHOM TO PRODUCE?

KINDS OF PRODUCTION

Labor intensive production -uses more human resources or manual labor.

Capital intensive production -employs more technology and capital goods like machineries and equipment.

RELATIONSHIP OF ECONOMICS TO OTHER SCIENCES

Business Management -provides employment opportunities History -provides information regarding to theories Finance -management of money, credit, investment and banking Physics -innovations and outputs Sociology -study the behavior of society Psychology -the study of the behavior of man

IMPORTANCE OF STUDYING ECONOMICS

To understand the society To understand global affairs

To be an informed voter

3 Es in Economics

Efficiency -productivity and proper allocation of economic resources.

Equity -means justice and fairness Effectiveness -attainment of goals and objectives

IMPORTANT ECONOMICS TERMS

Wealth -anything that has functional values Consumptions -refers to direct utilization or usage Production -formation by the firms of an output Exchange -process of trading goods/ or services Distribution -process of allocating or apportioning scarce resources

BRANCHES OF ECONOMICS
Microeconomics

-deals with the individuals decision making

Macroeconomics

-refers to the economy as a whole

OPPORTUNITY COST
-Refers to the foregone value of the next best alternatives -is expressed in relative price

FACTORS OF PRODUCTION
Land -refers to all natural resources Labor -any form of human effort exerted Capital -man made goods used in production Entrepreneurship -person who organize

BASIC DECISION PROBLEMS

Consumptions -determines what types of goods or services they want to utilize or consume Production -determines the needs, wants and demands of consumers Distributions -primarily addressed to the government Growth over time -basic decision problem that a society or nation must deal with.

TYPES OF ECONOMIC SYSTEM

Traditional economy -basically a subsistence economy Command economy -the manner of production is dedicated by the government Market economy -Capitalism, characteristic is that the resources are privately owned Socialism -economic system wherein key enterprise are owned by the state Mixed economy -mixture of market system and command system