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