A simple compilation from different authors as an introduction to the principles of economics.

1. INTRODUCTION:
PRINCIPLES OF ECONOMICS
By: NMD_SCC

2. Economics – a social
science concerned with
man’s problem of using
scarce resources to
satisfy human wants.
Economic Resources – inputs used in the
production of goods and services

3. Land – natural resources
Labor – human effort expended in p
Entrepreneur – organizes all other factors of
production to be used in the creation of goods and
services

4. Essentials – goods which are used to satisfy the
basic needs of manLuxury Goods – goods man can do without
Opportunity Costs – costs or benefits foregone
in the alternative use of resource
Normative Economics – an analysis of
economics, which deals with what should be
Positive Economics – an analysis of economics,
which deals with what actual is
Macroeconomics – is the division of economics that dea
Microeconomics – is the division of economics
that studies the economy in parts

5. Economics is….
“an inquiry into the nature and causes of
the wealth of the nation”
Adam Smith

6. - Anything used to satisfy a person’s wants and desires.
• may be tangible or intangible
- Classified according to use
• Consumer goods – goods w/c yield satisfaction
directly
• Capital goods – goods used in the production of
other goods and services
- May also be essentials or luxury goods
- May also be classified as economic or free.
- Created by means of production
• Manufacturing or industry
• Agricultural production

7. ECONOMIC RESOURCES/factors of production
Land
- refers to all natural resources, which are given by and found
in nature, and are, therefore , not man-made
- It does not solely mean the soil or the ground surface, but
refers to all things and powers that are given free to mankind
by nature.
- Is an economic good because it is scarce and a price has to be
paid for it.
- People who own land and offer it to others for their use, earn
and income called rent
- The less the supply of land available for man’s use, the higher
is the rent that has to be paid for it.

8. ECONOMIC RESOURCES/factors of production
- Any form of human effort exerted in the production of goods and services.
- It covers a wide range of skills, abilities, and characteristics.
- The supply of labor in a country is dependent on its production and on the
percentage of its population that is willing to join in the labor force.
- Naturally, a country with a high population growth rate is expected to
come up with a bigger labor supply.
- The labor supply is also highly dependent on the people’s social and
cultural practices.
- It is also affected by the migratory tendencies of its population and by the
influx of workers from other countries.
- Labor supply is also expanded by the foreigners who come here and get
employed in jobs which otherwise should be held by Filipinos.
- Since labor supply is not available in any amount at a zero price, anybody
who expends his efforts in the production of goods and services earns an
income. Wages, which are the return on the use of labor, include salaries,
commissions, tips and other forms of remuneration.

9. ECONOMIC RESOURCES/factors of production
- Refers to man-made goods used in the production
of goods and services .
- It does not only include money, it also includes
buildings, machinery, raw materials and other
physical necessities for use in production.
- A nation’s capital stock is dependent on its level of
saving.
- The reward for the use of capital is called interest.
- Money is not actually considered as capital in
economics as it does not produce a good or service
but it is rather a form of asset that is used as a
medium of exchange.

10. ECONOMIC RESOURCES/factors of production

11. THE NEED TO CHOOSE
Scarcity
- The basic and central economic problem
confronting every society.
- It is the heart of the study of economics and the
reason behind its establishment.
- refers to the limitations that exist in obtaining all
the goods and services that people want.
- It gives rise to economic problems and it is the
reason why man has to make a choice.

12. 1. What to produce and how much?
2. How shall goods be produced?
3.For whom shall goods be produced?
Because of scarcity, any society must confront three
fundamental and inter-dependent economic problems.

13. Types of Economic System
1. The Traditional Economy. This is basically a subsistence
economy. A family produces everything goods only for its own
consumption. Decisions on what, how, and for whom to produce
are made by referring to the traditional manner of doing things.
Production is carried on the methods of used by the forefathers,
and is therefore very primitive. This type of economic system is
very backward since it does not allow for change.

14. Types of Economic System
2. The Command Economy. In this type of economy, the
means of production are owned by the government. Its
decisions are arrived at by planners or government men who
dictate what, how, and for whom to produce.
3. The Market Economy. The basic characteristic of this
economy is that resources are privately owned and decisions
are made by the people themselves. Since every consumer
arrives at his own decision, the system is coordinated through
an interlocking network markets and prices. The system
depends on prices set by the conditions of demand and supply.
Competition is supreme; there is consumer sovereignty, and
the price of the good is the guiding factor for producers to
know what and how much to produce.

15. The Mixed Economy
This economy is a mixture of market system and the
command system.
The Philippine economy is described as a mixed economy
since it applies a mixture of three forms of decision-making.
However, it is more market-oriented rather than command
or traditional.

16. Opportunity Cost
- When one makes a choice, there is always an alternative
that has to be given up.
- A producer who decides to produce shoes, gives up other
goods that could be produced with the same resources.
- A student who buys a book with his limited allowance,
gives up the chance of eating out with friends.
- An accountant who decides to teach, gives up the salary
he would have earned had he worked in a big firm like
San Miguel Corporation.
- The values these alternatives given up are referred to as
OPPORTUNITY COSTS. When we make a decision to
buy Good A, we are in effect, making a decision not to buy
Good B.

17. Opportunity Cost
“the cost of choosing to use resources for one purpose
measured by the sacrifice of the next best alternative for
using those resources.”
Example:
If the price of Coke is P10.00 per bottle and one slice of buko
pie is P20.00, then the relative price of buko pie is two
bottles of coke. If a consumer only has P20.00 and chooses
to buy a slice of buko pie with it, then we can say that the
opportunity cost of that slice of buko pie was the 2 bottles of
coke, assuming that the coke was the next best alternative.

18. Positive Economics – the branch of economics that concerns
the description and explanation of economic phenomena.
Sometimes defined as the economics of “what is.”
Normative Economics – looks at the outcomes of economic
behavior and asks whether they are good or bad and whether
they can be made better. It involves judgment and prescription
of courses of action. Oftentimes referred to as policy
economics because it deals with the formulation of policies to
regulate economic activities
The Tools ofEconomics

19. Stages of the Scientific Approach
1. Observation. An analyst should be able to recognize
conditions, behaviors, and events in the environment.
2. Definitions and Assumptions. The analyst should describe
the specific uses of the study and the peripheral conditions
which affect the economic behaviors which are being
studies.
3. Deductions. These are hypothesis or theories presented for
empirical validations. They are temporary conclusions
made, based on one’s observations and are still subject to
the presentation of evidence.
4. Empirical testing. Deductions have to be tested as to their
validity and correctness.

20. FIELDS OF ECONOMICS
The study of economics encompasses a broad range of inquiry and is linked to many
other disciplines. To show its diversity, economics should be described in relation to
other fields of study and issues that economist address. These are the following fields
of study:
1. Industrial Organization. It looks carefully at the structure and
performance of firms within the industries and of industries within an
economy. How do the businesses compete? Who gains and who loses?
2. Urban and Regional Economics . It studies the spatial arrangement of
economic activity. Why do we have cities? Why are manufacturing
firms locating farther and farther from the center of urban areas?
3. Econometrics. This applies statistical techniques and data to
economic problems in an effort to test hypotheses and theories. Most
schools require economics majors to take at least one course in
statistics or econometrics.

21. 4. Comparative Economic System. This examines the ways alternative
economic systems function. What are the advantages and disadvantages
of different systems? What is the best way to convert the planned
economics of the former Soviet Union to a market system?
5. Economic Development. It focuses on the problems of poor countries.
What can be done to promote development in these nations? Important
concerns of development economists include population growth and
control, provision for basic needs, and strategies for international trade.
6. Labor Economics. It deals with the factors that determine wage rates,
employment and unemployment. How do people whether to work, how
much to work, and what kind of job?
7. Finance. Examines the ways on how households and firms actually
finance its economic activities. It involves the study of capital markets,
futures and options, capital budgeting and asset valuation.
FIELDS OF ECONOMICS

22. FIELDS OF ECONOMICS
8. International Economics. This studies trade flows among countries and
international financial institutions. What are the advantages and
disadvantages for a country that allows its citizens to buy and sell freely in
world markets? Why is the dollar strong or weak?
9. Public Economics. It examines the role of government in the economy.
What are the economic functions the government? How should the
government finance the services that it provides? What programs should
government implement to confront the problems of poverty,
unemployment and pollution?
10. Economic History. Traces the development of the modern economy.
What economic and political events and scientific advances caused the
Industrial Revolution? What explains the tremendous growth and progress
of post-World War II Japan? What caused the Great Depression of the
1930’s?

23. 11. Law of Economics. It analyzes the economic function of legal rules
and institutions. How does the law change the behavior of individuals
and businesses? What is the economic cost of crime?
12. History of Economic Thought. This is grounded in philosophy. It
studies the development of economic ideas and theories over time, from
Adam Smith (1723-1790) in eighteenth century, to the works of
economists such as Thomas R. Malthus (1766-1834), Karl Marx (1818-
1883) and John Maynard Keynes (1883-1946). Economic theory is
constantly developing and changing. Studying the history of ideas helps
give meaning to modern theory and puts it in perspective.
FIELDS OF ECONOMICS

24. SCOPE OF ECONOMICS
Microeconomics
- concerned with the behavior and activities of specific
economics units – individuals, households, firms,
industries, and resource owners. The central concept is
the market.
Macroeconomics
– deals with the behavior of the economy as a whole
with respect to output, income, the price level, foreign
trade, unemployment, and other aggregate economic
variables.

25. ECONOMIC GOALS
1. Economic Growth. The growth in wealth of a nation, as measured
by an increase in gross national product, or in national income. An
economy can grow without benefiting everyone in it; in the 1970s
Brazil's economy grew at rates of around 10%, but at the end of that
era, the gap between rich and poor had widened. For this reason,
many geographers are reluctant to equate economic growth with
development, arguing that true development should contain an
element of social justice.
2. Full Employment. The economic condition when everyone who
wishes to work at the going wage-rate for their type of labor is
employed. A situation in which all available labor resources are being
used in the most economically efficient way. Full employment
embodies the highest amount of skilled and unskilled labor that
could be employed within an economy at any given time.

26. ECONOMIC GOALS
3. Economic Efficiency - The allocation of resources to their highest
valued use and the production and distribution of goods and services at
the lowest possible cost. In such a situation, society's resources are
allocated so that no change in the allocation can further improve anyone's
well-being without making someone else worse off. In order to achieve
Economic efficiency the following need to occur: 1) any product X is
produced at the lowest cost. 2) The economy uses all the raw materials
that in hand.
4. Price Level Stability – the economy should be able to avoid great
fluctuations in the general level of prices. The maintenance of equilibrium
between the outflow and inflow of dollars or foreign exchange. (Inflation -
The rate at which the general level of prices for goods and services is rising,
and, subsequently, purchasing power is falling.
5. Economic Freedom – a high degree of freedom to choose what
economic activity to undertake should be afforded the various sectors
consisting of executives, workers, and consumers.

27. ECONOMIC GOALS
6. An equitable distribution of income – the
economy must not be made up of a certain group
that is so poor and destitute while other wallow in
great luxury.
7. Economic Security – there should be enough
provision for those who are not able to earn minimal
income like the aged, the chronically ill, the disabled,
etc.
8. Balance of Trade – a balance of trade that is
reasonable must be maintained.