Resource Utilization and Economics

RESOURCE UTILIZATION

ANDECONOMICSTimothy O. Atayde

BAMA203

RESOURCE UTILIZATION AND ECONOMICS

ECONOMICS• Efficient allocation of the scarce means of

production toward satisfaction of human needs and wants.

• Came from two Greek words: “oikos” (household) and “nomus” (system or management).

• “Oikonomia” or “oikonomus” therefore means the management of household.


SCARCITY• Limitedness of resources.• The limited availability of economic resources

relative to man’s or society’s unlimited demand for goods and services.

• The basic and central economic problem confronting every man and society.


FACTORS OF PRODUCTION• LAND – The soil or the ground surface together with all

the natural resources; the compensation for use of landis called rent.

• LABOR – Any form of human effort exerted in the production of goods and services. The compensation for labor rendered is called salary (annual basis) or wage (hourly compensation).

• CAPITAL - Man-made goods used in production of other goods and services.

• ENTREPRENEURSHIP – The person who manages all the factors of production.


CIRCULAR FLOW MODEL

BUSINESS

•WAGES, SALARIES,RENT, INTEREST, PROFIT

•LABOR, LAND, CAPITAL,ENTREPRENEURIAL ACTIVITY

•BUY RESOURCE•SELL PRODUCTS

•SELL RESOURCE•BUY PRODUCTS•GOODS AND SERVICES

•CONSUMPTION AND EXPENDITURE

RESOURCE MARKET

PRODUCT MARKET

HOUSEHOLD


CIRCULAR FLOW MODEL• RESOURCE MARKET - the place where

resources or the services of resource suppliers are bought and sold.

• PRODUCT MARKET – the place where goods and services produced by businesses are bought by and sold to the households.

• BUSINESS – buys resources and sell the products.

• HOUSEHOLD – buys products and sell resources.


OPPORTUNITY COST• Refers to the foregone value of the next best

alternative.• Expressed in relative price. This means that the

price of one item should be relative to the price of another.


BASIC DECISION PROBLEMS• CONSUMPTION – The society decides the goods and

services they want to consume and utilize.• PRODUCTION – The producers determine the

consumer’s demands and decides how to allocate resources to meet them.

• DISTRIBUTION – Proper allocation of all the resources for the benefit of the whole society.

• GROWTH OVER TIME – All problems of choice have to be seen in the context of future events.


FOUR BASIC ECONOMIC QUESTIONS• What to produce?• How to produce?• How much to produce?• For whom to produce?


3E’S IN ECONOMICS• EFFICIENCY- refers to productivity and proper

allocation of economic resources.• EFFECTIVENESS – Attainment of goals and

objectives.• EQUITY- Justice and fairness.


POSITIVE AND NORMATIVE ECONOMICS• POSITIVE ECONOMICS - An economic analysis

that considers economic conditions “as they are” or “as it is”.

• NORMATIVE ECONOMICS - An economic analysis which ju8dges economic conditions “as it should be”.


CETERIS PARIBUS ASSUMPTION• “All things are held constant or else equal.”• Used as device to analyze the relationship

between two variables while the other factors are held unchanged.


BRANCHES OF ECONOMICS•MICROECONOMICS – Individual decision, focuses on two main players – the buyer and the seller.•MACROECONOMICS – It seeks to understand the behavior of the economy as a whole.


TYPES OF ECONOMIC SYSTEM• TRADITIONAL ECONOMY – basically a

subsistence economy• COMMAND ECONOMY – production is dictated

by the government.• MARKET ECONOMY – resources are privately

owned.• SOCIALISM – owned by the state.• MIXED ECONOMY – mixture of market and

command.


IMPORTANT ECONOMIC TERMS• WEALTH- anything that has functional value.• CONSUMPTION- usage of the available goods

and services by the buyer or consumer.• PRODUCTION- creation of firms by an output.• EXCHANGE- process of trading or buying and

selling goods or services for money.• DISTRIBUTION- process of allocating or

apportioning scarce resources to be utilized.


NOTABLE ECONOMISTS AND THEIR CONTRIBUTIONS• Adam Smith – known as the “Father of Economics”,

wrote the “Wealth of the Nations” known as the bible in economics.

• Karl Marx – wrote “Das Kapital”• Alfred Marshall – wrote “Principle in Economics” and

developed the analysis of equilibrium and the concept of marginalism.

• John Maynard Keynes – wrote “The General Theory of Employment, Interest and Money”

• John Hicks – recognized for his analysis of the IS-LM model

Resource Utilization and Economics

Economy & Finance

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