ECONOMICS a social science concerned with man’s
problem of using scarce resources to satisfy human wants
a scientific study on how individuals and the society generally make choices
a study that attempts to explain how an economy operates
3 Es IN ECONOMICS- EFFICIENCY - EQUITY- EFFECTIVENESS
Need. A human need is a state of felt deprivation. Examples include the need for food, clothing, warmth and safety.Wants. Wants are how people communicate their needs (expressed need). A hungry person may want a hamburger, noodles, or cheese and bread.Demands. Wants backed by buying/purchasing power.
SCARCITY.(the limitations that exist in obtaining all the goods and services that people want)
LIMITED RESOURCES VS UNLIMITED WANTS
Opportunity Cost - The value given up for choosing an alternative
FOUR BASIC ECONOMIC QUESTIONS
What to produce? How to produce? How much to produce? For whom to produce?
TOOLS OF ECONOMICS
Logic. It pertains to valid reasoning and drawing of conclusionMathematics. It means conceptualizing and quantifying economic principlesStatistics. It means describing behaviors quantitatively and testing hypothesis in making inferences
SUB-CLASSIFICATION OF ECONOMIC ANALYSIS
Positive Economics. It deals with the causal relationships that exist in economics. There is no value judgment and deals with “what is”
Normative Economics. It deals with the way economic relationships ought to be. Value judgments play an integral part in the ranking of possible objectives and the choice to be made among them. It deals with “what ought to be”
SCIENTIFIC APPROACH
Observation
Definitions and Assumptions
Deductions
Empirical Testing
Goods – anything that yields satisfaction to someoneEconomic Good - a good which is both useful and scarceUtility – (usefulness) is the ability of something to satisfy
needs or wantsEconomic Resources - inputs used in the production of
goods and services (factors of production)Land – natural resourcesLabor – any form of human effortCapital – man-made goodsEntrepreneur – the economic good that commands price
Wealth – anything of value owned Rent – payment for the use of land Wages – payment for the use of labor Interest – payment for the use of capital Profit – income of entrepreneur
CLASSIFICATION OF GOODS
According to form Tangible goods Intangible goods
According to use Consumer goods Capital goods
According to need Essential goods Luxury goods
According to means of production
Manufacturing Agriculture
production
TYPES OF ECONOMIC SYSTEMSTRADITIONAL ECONOMY Family or Community
based Economic System that relies on custom and ritual to make its choices.
Examples: Aborigines Amazon Tribes
TYPES OF ECONOMIC SYSTEMSMARKET ECONOMY Individual or
Consumer based Economic System that relies on the consumption choices of consumers.
Examples: *The U.S.A. *Japan Any Capitalist
Economy
TYPES OF ECONOMIC SYSTEMSCOMMAND ECONOMY Centrally Controlled
Economy where the Government makes all decisions.
Examples: Cuba China Any Communist
Country or Dictatorship
TYPES OF ECONOMIC SYSTEMSMIXED ECONOMY Economic System that
incorporates some Governmental involvement into a Market Based Economy.
Examples: *The U.S.A. *Japan Most “Modern”
Economies
MODELS OF ECONOMIC SYSTEM
Capitalism. It refers to a free enterprise or laissez faire economy (no government intervention)
Communism. When the government controls the economy
Socialism. It is a mixture of capitalism and communism. It contains the characteristics of both capitalism and communism
STOCK AND FLOW VARIABLES
Production – the use of economic resources in the creation of goods and services
Employment – the use of economic resources in production
Consumption – the use of economic resources
Flow – a quantity measured over a particular period of time
Stock – a quantity measured as of a given point in time
Monetary policy – that which affects savings, investment, and money supply
Fiscal supply – that which controls taxes and government expenditures
Trade policy – that which affects a country’s exports and imports
Inflows – income that go inside the economy like investment, government expenditures, exports which expand the flow of goods and services
Outflows – incomes that go out of the economy like savings, taxes, and imports, which constrict the flow of goods and services
Multiplier – the number of times income is generated by an original inflow
THE CIRCULAR FLOW ECONOMIC MODEL
CIRCULAR ECONOMIC MODEL