Introduction to

EconomicWith Taxation, Agrarian Reform and Cooperatives

CHRISTOPHER D. BALUBAYAN, AB, MEdALS

InstructorSt. Peter’s College of Toril

1st Term 1st Semester SY 2014-2015

Lesson 1FUNDAMENTALS OF ECONOMICS

• Introduction–Man’s activity, since time immemorial, has been

devoted to work for his survival–In primitive times, this effort was spent primarily

for the protection of their lives–Consciously or unconsciously, they have been

working for basic needs commensurate to their lifestyle

Rationale of Study• Education is an ongoing process to keep its

pace with modern times• Researches have been conducted that have led

to technological advancement• Man is no longer contented to live a simple

lifestyle but he still has to cope with the demands of the time

• To respond to this need, man should become economically oriented with his ways

Definition of Economics• Economics is one of the popular fields of study among

the social science since it covers all kinds of topics• However, its core focuses on understanding how

society allocates its scarce resources• Due to the concept of scarcity, economics tries to

devote most of its time, if not all, on everyday life situations

• However, to be more specific and to have a clear picture of what economics is, the following definitions were drawn from different authors

Cristobal M. PagosoPhilippine Economics, 1989

• Stresses that Economics is the:–Study of wealth–Study of how to go about the business of organizing

consumption and production activities–Study on how to improve society and make human

civilization possible–Study of ordinary life, earning and enjoying a living–Study of how people choose to use scarce resources or

limited productive resources to produce various commodities and how to distribute theses goods to members of the society for their consumption

Paul A. SamuelsonEconomics 1993

• Stressed that economics:–Asks what goods are produced, how these goods are

produced and for whom they are produced–Analyses movement in the overall economy–Studies commerce among nations. It help explain why

nations export and import goods as well as the effects of putting barriers at national frontiers

–Is the science of choice and it helps people choose. It also explains hot to use scarce or limited productive resources and distribute theses goods for consumption

–Is a study of money, banking, capital and wealth

Generally Accepted Definition of Economics

• It is a branch of social science that deals with the study of proper allocation of scarce resources for the satisfaction of mans

unending needs and wants • Three Main Concepts in Economics

1. Scarcity2. Resources 3. Efficiency

• Scarcity–The quality or state of being limited in terms of the provisions for the support

of life• Resources

–The natural, economic, political, or military assets enjoyed by the nation such as mineral wealth, labor, capital or military personnel

–Anything that is used for man’s satisfactionTWO TYPESFree Resources– Goods that can obtained regardless of quantity and without any cost (e.g. Water, air, sunlight, etc.)Economic Resources– Things that can be obtained with some constraints or limitation due to its cost (e.g. Land, machinery,

etc.)

• Efficiency–The ability to do something well or achieve a desired result without wasted

energy or effort or the degree to which this effort was used–The proper utilization of resources that would result in a maximum level of

satisfaction possible, with the given time and technology–Something that results in maximization of its output and minimization of

waste

Economics and Other Sciences• It is a Social Science

–Because it undergoes stages of experimentation, observation, hypotheses, testing and verbal reasoning

• Achilles C. Costales (Economics: Principle and Applications, 2000)

–Cited the relationship of economics with other science

ECONOMICS

PSYCHOLOGY

HISTORY

SOCIOLOGY

POLITICAL SCIENCE

BUSINESS MANAGEMENT

FINANCE

NATURAL SCIENCE

Importance of Economics• It is important to resolve the problem of

scarcity–LAW OF SCARCITY•Goods are scarce because there are not enough resources to produce all the goods that people want to consume

• It serves us in managing our personal lives• It help us in understanding society and

improving the world around us• It improves knowledge of crucial national

issues

Scope of EconomicsPaul A. Samuelson (Economics 1993, page 4)

• MICROECONOMICS–Deals with the interaction of economic agents such as firms,

industries, individuals, government agencies and the like–It looks into the behavior of individual economic decision-

making units, business firms and households• MACROECONOMICS

–Looks at the economy as a whole and it further examines the factors that determine national product

–It also refers to the activity of the economy in the aggregate process

–It examines further how level and growth of output are determined, analyzes inflation and unemployment, asks about the total money supply and investigates why some nations thrive while others stagnate

Contrast Between Microeconomics and

Macroeconomics Microeconomic is concerned with household income;Macroeconomics deals with national income

Microeconomics focuses on individual product prices and relative prices; Macroeconomics looks at the overall price level and how quickly these prices rise and fall

Microeconomics questions how many people are hired this year by the industry; Macroeconomics deals on aggregate employment for a given year

Microeconomics is concerned with the specific and more concrete activities in the economic community;Macroeconomics focuses its attention to more national or global concerns of the economy

Methods of EconomicsPositive vs. Normative

• POSITIVE ECONOMICS(William J. Baumol & Alan S. Blinder, 2000)

–Attempts to understand the behavior and the operation of the economic system without making judgement whether the outcomes are good or bad

EXAMPLE: –(The answers to these questions are the subject of positive

economics)•How much pay will be given to skilled or unskilled workers?•What happens if the corporate tax will be removed?

• NORMATIVE ECONOMICS(William J. Baumol & Alan S. Blinder, 2000)

–Looks at the outcomes of economic behavior and asks whether they are good or bad and whether they can be made better, therefore, it involves judgement and prescription of courses of action

–Offer referred to as policy economics because it deals with the formulation of policies to regulate economic activities

EXAMPLE:–(The answers to these questions are the subject of positive

economics)•Is it the responsibility of the government to subsidize or regulate the high cost of education?•Should medical benefits to the elderly, under the Medicare Program, be available only to those who have income?•Should the government tolerate the sale of foreign goods to compete with local goods in the market?

Methods of EconomicsPositive vs. Normative

Scientific ApproachImplied in the Acquisition of Knowledge in Economics

• Observation of Economic Affairs–Especially drawing historical records, is one of the major

sources of economic knowledge• Economic Analysis

–Refers to an approach that starts with a set of assumptions, then logically deducing certain predictions about the economic behavior of people, firm or overall economy

• Statistical Analysis–Refers to the use of a quantitative inferences of the

available data gathered. –Given how situations, like A and B are both rice-producing

provinces in the region, how will you come up a more realistic data that, between the two provinces, which is producing more than the other one?

–The use of statistical tool is necessary to come up with specific and accurate analysis

Field of EconomicsIndustrial

Organization Urban and Regional Economics

Econometrics

Cooperative Economic Systems

Economic Development

Labor Economics

Finance

International Economics

Public Economics

Economic History

Law of Economics

History of Economic Thought

Assignment

1. What are the various divisions of economic activity?

2. Explain briefly, in your own word, the basic economic problems.