MELJUN CORTES Economics Lecture

Principles of EconomicsPrinciples of Economics MeljunMeljun

ECONOMICSECONOMICS- defined as the science which deals with the activities of man in obtaining wealth for the satisfaction of his wants. All these activities that are concerned with the production & use of wealth.

EconomicsEconomics – is a science & its method are scientific; it is a classified and systematized Body of Knowledge. - deals primarily with the Activities of MAN in obtaining Wealth for the satisfaction of his WANTS.

MELJUN CORTESMELJUN CORTES

Principles of EconomicsPrinciples of Economics MeljunMeljunWhat are the relationships of What are the relationships of Economics to the Social Economics to the Social Sciences:Sciences:

1.) Economics and History1.) Economics and History2.) Economics and Sociology2.) Economics and Sociology3.) Economics and LAW3.) Economics and LAW4.) Economics and Ethics4.) Economics and Ethics5.) Economics and Political Science5.) Economics and Political Science6.) Economics and Psychology6.) Economics and Psychology

Principles of EconomicsPrinciples of Economics MeljunMeljunWhat are the relationships of What are the relationships of Economics to the Natural Economics to the Natural Sciences:Sciences:

1.) Economics and Chemistry1.) Economics and Chemistry2.) Economics and Geology2.) Economics and Geology3.) Economics and Physics3.) Economics and Physics4.) Economics and Biology4.) Economics and Biology

Principles of EconomicsPrinciples of Economics MeljunMeljun Fundamentals Institutions ofFundamentals Institutions ofThe Present Economics Systems:The Present Economics Systems:

1.) Private Property1.) Private Property2.) Competition2.) Competition3.) FREE Enterprise3.) FREE Enterprise4.) Cooperative4.) Cooperative

Principles of EconomicsPrinciples of Economics MeljunMeljunDivisions of theDivisions of theField of Economics:Field of Economics:

1.)PRODUCTION1.)PRODUCTION2.)EXCHANGE2.)EXCHANGE3.)DISTRIBUTION3.)DISTRIBUTION4.)CONSUMPTION4.)CONSUMPTION


Relationships ofRelationships ofEconomics to thatEconomics to thatSocial Sciences:Social Sciences:

Is a social sciences & deals with Economics Life of MAN living inIs a social sciences & deals with Economics Life of MAN living in Society.Society.Every industry is dependent upon other industries in one way orEvery industry is dependent upon other industries in one way or another. another. The relationship of MAN to Wealth either as a Producer or asThe relationship of MAN to Wealth either as a Producer or as Consumer is a SOCIAL ACTIVITYConsumer is a SOCIAL ACTIVITY.

Principles of EconomicsPrinciples of Economics MeljunMeljunECONOMICS andECONOMICS and HistoryHistoryA knowledge of industrial and A knowledge of industrial and Economics History is indispensableEconomics History is indispensableto the Economist who desires to to the Economist who desires to understand present’s Institutions and understand present’s Institutions and Problems in the Society.Problems in the Society.

Principles of EconomicsPrinciples of Economics MeljunMeljunECONOMICS andECONOMICS and SociologySociology

The problems of LABOR, the costly The problems of LABOR, the costly strikes, unemployment, long hours of strikes, unemployment, long hours of Work, child labor and social insuranceWork, child labor and social insuranceAre the concern of both SociologyAre the concern of both Sociology and Economicsand Economics

Principles of EconomicsPrinciples of Economics MeljunMeljunECONOMICS andECONOMICS and LAWLAW

LAW are nothing but the crystallization LAW are nothing but the crystallization of long-continued social usages and of long-continued social usages and customs.customs.LAW may direct the forces of LAW may direct the forces of economics life for a while, they cannot economics life for a while, they cannot continue for a long time if they run on continue for a long time if they run on economics practices.economics practices.

Principles of EconomicsPrinciples of Economics MeljunMeljunECONOMICS andECONOMICS and EthicsEthics

Ethics – science of Moral, like the otherEthics – science of Moral, like the othersocial sciences is related to social sciences is related to economics. All individual CODES of economics. All individual CODES of Morals are the out growth the of the Morals are the out growth the of the social code of morals.social code of morals.The conception of right or wrong exists The conception of right or wrong exists only in society in the conduct of MAN only in society in the conduct of MAN as a Social Being.as a Social Being.

Principles of EconomicsPrinciples of Economics MeljunMeljunECONOMICS andECONOMICS and Political SciencePolitical Science

Political Science – the study of STATE Political Science – the study of STATE organization has its Economics Aspects.organization has its Economics Aspects.The problems of Taxation are both The problems of Taxation are both Economic & Political. With the present Economic & Political. With the present tendency all over the world for tendency all over the world for government to regulate or go to into government to regulate or go to into between political science & economics between political science & economics becomes more Evident. becomes more Evident.

Principles of EconomicsPrinciples of Economics MeljunMeljunECONOMICS andECONOMICS and PsychologyPsychology

Economics is a study both of man and ofEconomics is a study both of man and ofWealth. The human side of economics is Wealth. The human side of economics is approached chiefly through Psychology.approached chiefly through Psychology.Psychology – teaches that Man is a Psychology – teaches that Man is a bundle of INSTINCTS.bundle of INSTINCTS.Ex. Sex Instinct or instinct of curiosityEx. Sex Instinct or instinct of curiosity Business PsychologyBusiness Psychology Employment PsychologyEmployment Psychology

Principles of EconomicsPrinciples of Economics MeljunMeljunECONOMICS andECONOMICS and ChemistryChemistry

-Most business concerns today make Most business concerns today make use of Chemical Tests to ascertain & use of Chemical Tests to ascertain & determine the quality of materials which determine the quality of materials which enter into the productive process.enter into the productive process.-Chemistry has given Mankind many Chemistry has given Mankind many industries.industries.

Principles of EconomicsPrinciples of Economics MeljunMeljunECONOMICS andECONOMICS and GeologyGeology

-The exploitation of our mineral Wealth The exploitation of our mineral Wealth depends to a large extent upon the depends to a large extent upon the discoveries & investigations of the discoveries & investigations of the Geologist.Geologist.-Geology – furnishes the information as Geology – furnishes the information as to the location probable quantity and to the location probable quantity and estimated value of our Wealth hidden estimated value of our Wealth hidden beneath the surface of the earth.beneath the surface of the earth.

Principles of EconomicsPrinciples of Economics MeljunMeljunECONOMICS andECONOMICS and

PhysicsPhysics-Physics the science that treats if Matter Physics the science that treats if Matter & energy especially of Mechanics, Heat, & energy especially of Mechanics, Heat, Sound, Light & Electricity.Sound, Light & Electricity.-Physics, the Engineer who directs our Physics, the Engineer who directs our industrial Production must rely on the industrial Production must rely on the Information furnished by Physics. Information furnished by Physics. -Electrical Engineering has reshaped Electrical Engineering has reshaped many of our methods of production. many of our methods of production.

Principles of EconomicsPrinciples of Economics MeljunMeljunECONOMICS andECONOMICS and

BiologyBiology-Biology –science that deals with the Biology –science that deals with the origin, structure & function of plans & origin, structure & function of plans & animal has revolutionized our agricultureanimal has revolutionized our agriculture-and animal industry.and animal industry.-Biology – furnished the necessary Biology – furnished the necessary information to veterinarians to fight theinformation to veterinarians to fight the-Enemies of our animal resources. Enemies of our animal resources.


InstitutionsInstitutionsDefined as widely Defined as widely prevalent & highly prevalent & highly standard socialstandard social habits of Man.habits of Man.

Principles of EconomicsPrinciples of Economics MeljunMeljunPrivatePrivatePropertyPropertyOwnershipsEconomics progress is closely bound up with the institutions of Private Property.Takes many forms and include not only Food, Clothing and Land but also all forms of Real Estate and Exclusive Privileges.

Principles of EconomicsPrinciples of Economics MeljunMeljunCompetitionCompetition

-Progress is intimately bound up with competition and economics society From the very beginning has been influenced by this fundamental institution.

CompetitionCompetition , among producers of economics goods results in more efficient methods of production in an endeavor to reduce costs.

Competition – exists not only among sellers but also among buyers CompetitionCompetition – exists among nations of the same stage of economics development as well as in different stages of progress.

Principles of EconomicsPrinciples of Economics MeljunMeljunFREEFREEEnterpriseEnterprise

freedom to engage in all sorts of enterprise has been responsiblefor economic progress.the era of free enterprise known by the characteristics phrase LAISSEZ-FAIRE


CooperationCooperation-CompetitionCompetition among sellers has led to the formation of associations among them. Cooperation among buyers of consumers also exists in many advanced countries today.CooperationCooperation – Cooperative stores are manifestation of the Cooperative movement among consumers.Collective Buying Collective Buying – is always much cheaper then when

consumers buy separately.Competition & Cooperation Competition & Cooperation exist side by side. Competition and Cooperation are the cause for the great economic activity.

CooperationCooperation may be the result of competition. Both competition and cooperation progress in the world today.

Principles of EconomicsPrinciples of Economics MeljunMeljunPRODUCTIONPRODUCTION

Production – deals with the factors necessary in the creation of wealth. These FACTORS:

1.) LAND1.) LAND 2.) LABOR2.) LABOR 3.) CAPITAL3.) CAPITAL 4.) ENTERPRISE4.) ENTERPRISE

Principles of EconomicsPrinciples of Economics MeljunMeljunEXCHANGEEXCHANGE

- is chiefly devoted to the is chiefly devoted to the consideration of value & price, consideration of value & price, principles of money, credit & principles of money, credit & Banking & their relation to Banking & their relation to price and the exchange of price and the exchange of goods are subjects included in goods are subjects included in this division.this division.

Principles of EconomicsPrinciples of Economics MeljunMeljunDistributionDistribution

- is that division of economics that deals with is that division of economics that deals with the apportionment of the social income or the apportionment of the social income or national dividend among the different factorsnational dividend among the different factorsThat cooperation in production.That cooperation in production.

- used in economics theory should not be used in economics theory should not be confused with marketing or the processing of confused with marketing or the processing of goods from the producer to the buyers or goods from the producer to the buyers or consumersconsumers

Principles of EconomicsPrinciples of Economics MeljunMeljunConsumptionConsumption

-Deals with the utilization of goods and services in the Deals with the utilization of goods and services in the satisfaction of human wants.satisfaction of human wants.

PRODUCERS is also a CONSUMER but consumption as a PRODUCERS is also a CONSUMER but consumption as a division of economics refers specifically to the utilization.division of economics refers specifically to the utilization.

CONSUMPTION - a Producer is also a consumer but CONSUMPTION - a Producer is also a consumer but consumption as division of economics refers specificallyconsumption as division of economics refers specifically to the utilization of finished goods by theto the utilization of finished goods by the ultimate consumerultimate consumer.

Principles of EconomicsPrinciples of Economics MeljunMeljunEconomics Economics andand

BusinessBusinessThe business man especially is concerned in his Work with the The business man especially is concerned in his Work with the Subject-matter of economics.Subject-matter of economics.

A man may be successful in business, but it does not necessaryA man may be successful in business, but it does not necessary follow that he is a Good ECONOMISTS.follow that he is a Good ECONOMISTS.

Economists – defined as the science of business. Economists – defined as the science of business. Economics principles have been formulated from facts providedEconomics principles have been formulated from facts provided by business & the subject-matter of Economics consists to a large by business & the subject-matter of Economics consists to a large extent of the problems of business.extent of the problems of business.


CitizenCitizenEither as a WAGE-EARNER or as an Employer, the Filipino CitizenEither as a WAGE-EARNER or as an Employer, the Filipino Citizen is deeply concerned with the production & distribution of wealth.is deeply concerned with the production & distribution of wealth.

Every person is a part of the economic system & everyone is inEvery person is a part of the economic system & everyone is in contact with economic phenomena in one way or another, so that itcontact with economic phenomena in one way or another, so that it inevitable that we are all students of economics.inevitable that we are all students of economics.


State manState man-The state man is confronted with a variety of economics, upon theThe state man is confronted with a variety of economics, upon the solution of which often depends his solution of which often depends his PRESTIGEPRESTIGE and success in and success in public life.public life.

Peace time problems for the state man include those for FinancingPeace time problems for the state man include those for Financing the normal activities of Government.the normal activities of Government.


Fundamental Fundamental Economic Economic ConceptsConcepts

Principles of EconomicsPrinciples of Economics MeljunMeljunFundamental Economic Fundamental Economic

Concepts:Concepts:

Goods & UtilityGoods & Utility

Goods - Goods - anything that anything that

satisfies HUMAN WANTS .satisfies HUMAN WANTS .


Goods - Goods - anything that anything that

satisfies HUMAN WANTS .satisfies HUMAN WANTS .

GOOD – has a broad meaning. Ex. Material thing – commoditiesGOOD – has a broad meaning. Ex. Material thing – commodities Im-materials thing – servicesIm-materials thing – services - common terms of Economics.- common terms of Economics. - It is an all-inclusive term and embraces all kinds of - It is an all-inclusive term and embraces all kinds of commodities as well as services. commodities as well as services. - the SERVICES of physician, a lawyer or a teacher- the SERVICES of physician, a lawyer or a teacher satisfy HUMAN WANTS just as much as concrete andsatisfy HUMAN WANTS just as much as concrete and tangible objects such as Cell phone, Laptop, GF.tangible objects such as Cell phone, Laptop, GF. - Services are immaterials GOODS while the Commodities- Services are immaterials GOODS while the Commodities are materials GOODS example Sardines, Corn Beefare materials GOODS example Sardines, Corn Beef

Principles of EconomicsPrinciples of Economics MeljunMeljunUtility - Utility - the quality of a thing that satisfies the quality of a thing that satisfies

DESIRE. All goods possess some qualities or attributes that are DESIRE. All goods possess some qualities or attributes that are capable of satisfying some one or other of our numerous DESIRES capable of satisfying some one or other of our numerous DESIRES or WANTS.or WANTS.

Utility – Utility – is an Abstract concept; it is not is an Abstract concept; it is not

attached to the thing like a Physical Quality.attached to the thing like a Physical Quality. - It is subjective not objective.- It is subjective not objective.

- is not inherent in the object - is not inherent in the object which it makes Desirable. It comes into existence only which it makes Desirable. It comes into existence only because DESIRES appear & it passes out of existence because DESIRES appear & it passes out of existence when the DESIRES disappear or die out.when the DESIRES disappear or die out.A thing not wanted by Man has no Utility.A thing not wanted by Man has no Utility.

Principles of EconomicsPrinciples of Economics MeljunMeljunUtility & Human Utility & Human WANTSWANTS

-- It has been observed that Utility comes into existence because of- It has been observed that Utility comes into existence because of the presence of WANTS.the presence of WANTS.

Now WANTS are not always Now WANTS are not always inborninborn in MAN; there are certainin MAN; there are certain

wants that appear because of the relation of MAN with his fellowmen. wants that appear because of the relation of MAN with his fellowmen. The individual aspect of UTILITY is not only due to the difference in the DESIRES, tastes and feeling of MEN but also to the differences in the MONEY incomes or the ability of individuals to satisfy their DESIRES. Utility is a quality not only of material things but also of immatrials goods like SERVICES, DEEDS, BEHAVIOR.

Principles of EconomicsPrinciples of Economics MeljunMeljunUtility & Human Utility & Human WANTSWANTSUTILITY depends upon the individual inasmuch as MEN differ in UTILITY depends upon the individual inasmuch as MEN differ in their TASTES and DESIRES. Things have different appeals to their TASTES and DESIRES. Things have different appeals to different individuals. different individuals.

The mere recognition that a thing is useful does not infuse the thing The mere recognition that a thing is useful does not infuse the thing that WANT-GRATIFYING quality called UTILITY. The thing that WANT-GRATIFYING quality called UTILITY. The thing recognized as being useful must also be capable of being used. recognized as being useful must also be capable of being used.

All thing that no increase in MAN’s WELL-BEING, but if found out All thing that no increase in MAN’s WELL-BEING, but if found out that are undiscovered and unused, also danger to the MAN then that are undiscovered and unused, also danger to the MAN then these thing have no UTILITY.these thing have no UTILITY.

Principles of EconomicsPrinciples of Economics MeljunMeljunFREE GOODSFREE GOODS

Free Goods exist only in certain places Free Goods exist only in certain places and not everywhere. and not everywhere.

Example of these are air; water; Example of these are air; water; sunlight; these things are gifts of nature sunlight; these things are gifts of nature and any body can enjoy them in almost and any body can enjoy them in almost any quantity. Man enjoy these FREELY any quantity. Man enjoy these FREELY then this is FREE GOODS.then this is FREE GOODS.

Principles of EconomicsPrinciples of Economics MeljunMeljunECONOMICECONOMIC

GOODSGOODS If goods are scare, they must be paid for; they command a price. If goods are scare, they must be paid for; they command a price. Few of the things that satisfy HUMAN WANTS are FREE. Few of the things that satisfy HUMAN WANTS are FREE. Most of the things we need are SCARCE and can be obtained only Most of the things we need are SCARCE and can be obtained only

by the exertion of effort. Goods that are SCARCE are called by the exertion of effort. Goods that are SCARCE are called

ECONOMIC ECONOMIC GOODS.GOODS. The ability to command a price is the mark of Economic Goods.The ability to command a price is the mark of Economic Goods. If goods are scarce we must ECONOMIZE in their use; Generally, If goods are scarce we must ECONOMIZE in their use; Generally, Nobody ever Economize in the use of sunshine or air or water in Nobody ever Economize in the use of sunshine or air or water in the open spaces. the open spaces.

Principles of EconomicsPrinciples of Economics MeljunMeljunFundamental Economic Concepts:Fundamental Economic Concepts:

Economic Terms for Scientific Economic Terms for Scientific Analysis:Analysis:GoodGoodUtilityUtilityHuman WantsHuman WantsFree GoodsFree GoodsEconomics GoodsEconomics Goods

WealthWealthMoneyMoneyPublic WealthPublic WealthPrivate WealthPrivate WealthCapitalCapitalIncomeIncomeScarceScarce


INCOME = Consists of INCOME = Consists of the goods & services the goods & services resulting from the resulting from the

productive activities productive activities of the people.of the people.


Materials Goods/Income of a personMaterials Goods/Income of a person – includeall those things such as clothing, foods,

houses, machinery, boats, ca, rice, other forms of property.

- finals forms ready to be used up or consumed immediately.


Immaterials Goods/Income of a personImmaterials Goods/Income of a person – consists of such diverse things as the

services of servants example:

teacher’s instructionphysician’s consultation

nurse’s care taking


Money Income – enables a man to procure both material & immaterial goods.

- is a free & it could be used to any form of income desired at any time.

Ex. Automobile

2 Specialized Forms of Income:2 Specialized Forms of Income: 1.) Materials Income 2.) Immaterials Income


Fluidity of INCOMEFluidity of INCOME:-Income is often defined as an INFLOW of satisfaction from Economics Goods.

Ex. Nation’s Wealth – utilized in many ways & out of this Utilization.

MONEY INCOME MONEY INCOME – person who received income & if the income is saved. Example: Buying stocks/bonds; invested in a mortgage Money Deposited in a Bank.


Different Kinds of INCOME:

1.) Money Income1.) Money Income2.) Real Income2.) Real Income3.) Psychic Income3.) Psychic Income4.) Gross Income4.) Gross Income5.) Net Income5.) Net Income6.) Individual Income6.) Individual Income7.) National Income7.) National Income

-Income from CAPITAL comes in

many forms:- Income is usually reckoned in terms of

MONEY.


1.) Nominal IncomeNominal Income – income is expressed in terms of money. - it is a Money Income.

2.) Real IncomeReal Income – these are materials goods inthe forms of clothing ; rice;meat; vegetables & otherconcrete objects.

Ex. Standard of Living


3.) Psychic IncomePsychic Income – desirable results produced in the realm of feeling by

valuable objects or by valuable changes in the environment which Accrue to or affect an economic within given period.

1.) Salary of Man public esteem job satisfaction2.) Men invest money on a beautiful home.


** A large money income does not always mean a A large money income does not always mean a large measure of Well-being on the part of the large measure of Well-being on the part of the receives for if prices are high relatively small receives for if prices are high relatively small quantities of goods can be bought with quantities of goods can be bought with even a large money income.even a large money income.

** Money is only a means to an end; it is used to Money is only a means to an end; it is used to purchase those desirables objects that are purchase those desirables objects that are essentials to well-beingessentials to well-being.


4.) Gross IncomeGross Income – means the total receipts that he receives within a certain period of time. example: acquisition of INCOME

expenses are incurred

ex. Sari-Sari Store – TOTAL RECEIPTS

keeping books of transactions

Profits – cannot be determined by looking at the gross income alone. Expenses must be deducted.


5.) NET IncomeNET Income – is an income after deducting all operating & administrative expenses; taxes. Net Income of Wage Earner - is the thing that counts & just as in the case of the individual it is not the amount that he earns but the amount that he saves that determines his real worth. worth.


6.) Individual IncomeIndividual Income – the aggregate monetary income of the individual is larger than the value of the National Product. ex. Profit of the Seller/Wholeseller Employee Net Take Home Pay7.) National Income National Income – is not always equal to the sum of individual income. ex. Philippines Income


INCOME OF THE PHILIPPINES: - What constitute the Total Wealth of the Philippines. It is desirable also to know what is the TOTAL NATIONAL INCOME from year to year to determine whether the country is growing Richer or Poorer.

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MELJUN CORTES Economics Lecture