Post on 25-Feb-2018
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Fundamentalsof
EconomicsECON1E: Principles of MicroeconomicsUniversity of St. La Salle 1
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Economics
This is the study of proper allocation and
ecient use of available resources for the
maximum satisfaction of human wants.
The study of how individuals and societies
cooseto use the scarce resources that
nature and previous generations haveprovided.
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Economics
The term economics comes from
the Ancient Gree word oi!onomeia
!oi!os " house# nomos " custom
or law$% literally mana"ement of
te ouseold or rule of te
ouse.
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Economics
&Political economy& was the earlier
name for the sub'ect% but economists in
the late 1(th century suggested
)economics) as a shorter term for
)economic science) to establish itself as
a separate discipline outside of political
science and other social sciences.
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Nature of Economics
*conomics is classi+ed as a social
science because it deals with the study
of man,s life and how he lives with othermen.
e.". ouseold #ud"etin"$ payin" ta%es
-t is also considered as the &ueen of
Social Science.
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Nature of Economics
ur economic problems are not
purely economic in nature.
These are also caused by
noneconomic factors which may be
cultural% educational% social% or
political.
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Nature of Economics
Therefore% we need not only
economic solutions but also political%
social and cultural reforms.
e.". poor farmer$ 'o is "iven land$
as several #ad a#its li!e eavy
drin!in" and "am#lin"
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Concept of Economics
Scarcity
is the fundamental economic problem of
having seemingly unlimited
human wants in a world of limited
resources. -t states that society has
insucient productive resources to ful+ll
all human wants and needs.
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Concept of Economics
Scarcity
if everything is abundant% the price is
0ero and there is no need for allocation
and no such things as economic goods
!i.e. economics becomes useless$
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Concept of Economics
E(ciency
when resources are used in such a way
that people can get as much as they can
get !speci+c to their wants and needs$
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)ivision of Economics Microeconomics
The branch of economics that examines the
functioning of individual industries and the
behavior of individual decision2maing units 3
that is% business +rms and households.
e.". price of rice$ num#er of 'or!ers in
San Mi"uel Corporation$ income of Mr.
Sy
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)ivision of Economics
Macroeconomics
The branch of economics that examines
the economic behavior of aggregates3income% employment% output% and so on
3on a national scale.
e.". "ross national product$ level
of employment$ national income
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)ivision of Economics
4icroeconomics loos at the individual unit
3the household% the +rm% the industry. -t
sees and examines the trees.4acroeconomics loos at the whole% the
aggregate. -t sees and analy0es the
forest.
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)ivision of Economics
5hen we study the income or expenditure
of a family savings ban% we are dealing
with microeconomics#
5hen we deal with the total income or
total expenditure of the whole baning
industry% then we are involved in the study
if macroeconomics.
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Fallacies on Economic*easonin"
Post oc fallacy
assumes that because one event
occurred before another% the previousone caused the succeeding event
e.g. The rooster crows immediately
before sunrise, therefore the rooster
causes the sun to rise.
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Fallacies on Economic*easonin"
Failure to old tin"s constant
+ceteris paribus assumption,
always tae note to hold other things
constant
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Fallacies on Economic*easonin"
fallacy of composition
assumes that what holds part of the
system applies for the entire system
e.g. If someone stands up out of his seat at
a basketball match, he can see better.
Therefore, if everyone stands up they can all
see better.