2. Lesson 1
FUNDAMENTALS 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
3. 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
4. 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
5. Cristobal M. Pagoso
Philippine 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
6. Paul A. Samuelson
Economics 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
7. 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. Scarcity
2. Resources
3. Efficiency
8. •
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 satisfaction
TWO TYPES
Free 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.)
9. 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
11. 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
12. Scope of Economics
Paul 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
13. 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;
14. Methods of Economics
Positive 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?
15. •
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 Economics
Positive vs. Normative
16. Scientific Approach
Implied 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
17. Field of Economics
Industrial 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
18. Assignment
1. What are the various
divisions of economic
activity?
2. Explain briefly, in your
own word, the basic
economic problems.