1 Fundamentals of Economics.ppt

7/25/2019 1 Fundamentals of Economics.ppt

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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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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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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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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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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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Failure to old tin"s constant

+ceteris paribus assumption,

always tae note to hold other things

constant


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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.

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