This document provides an overview of economics as a social science that studies human behavior related to production, distribution, and consumption under conditions of scarcity. It explains the importance of making choices due to limited resources, and distinguishes between microeconomics and macroeconomics, as well as positive and normative economics. Additionally, it outlines the practical applications of economic principles in personal and societal decision-making.

1. FirstDay Lesson:A Review/Overviewof Economics
Source:IntroductiontoEconomicsbyMarc LiebermanandRobertHall
What is economics?
1. Economicsisa social science. It studiesthose aspectsof humanbehaviorrelatingtoworking,producing
goods,distributingthem,andconsumingthem.
2. Economicshas practical value topeople,businessesandgovernment.
a. DesignedsystemsforPublicBroadcastingSystemtodecidewhatTV showstoproduce
b. Developedtheoriesthathave reducedriskinfinancialmarkets,enabledmore people toobtain
insurance againstfire andtheft,helpedprotectconsumersagainstdefectiveproducts
c. Economicprincipleshave influenceddecisionsabouttaxes,Social Security,unemployment
insurance,businessregulations,international trade,andmanyothergovernmentprogramsand
policies
Economics, Scarcity and Choice
Economicsisthe studyof choice underconditionsof scarcity.
Scarcity- a situationinwhich the amountof somethingavailable isinsufficienttosatisfythe desireforit. Isthere
anythingyoudon’thave rightnowthat you would like to have? Anythingthatyouhave,butthat youwouldlike
moreof? Thisis the problemof scarcity.
As individuals,we face ascarcity of time andspendingpower. Givenmore of either,we couldeachhave more of
the goodsand servicesthatwe desire.There are somanythingsthat we desire rightnow andthe listis endless. But
a little reflectionsuggeststhatour limitedabilitytosatisfythese desiresisbasedontwobasiclimitations:scarce
time (watchinga movie,takingavacation,callingafriend) andscarce spending power(low income,lowassets,low
wealth).
Because of the scarcitiesof time and spending power,eachof usis forcedto make choices.Economicsstudythe
choiceswe make as individualsandhowthose choicesshape oureconomy(e.g.the goodsthateachof us decidesto
buyultimatelydetermine whichgoodsbusinessfirmswill produce,inturnexplainingwhichfirmsandindustrieswill
hire newworkersandwhichwill laythemoff).
Economistsalsostudythe more subtle andindirecteffectsof individualchoice onoursociety. Theywill analyzehow
separate decisionof millionsof peopleunderconditionsof scarcityaffectsthe societyasa whole (e.g.Will most
people liveinthe condominiums?Will thiscongestthe heartof the cityand cause heavytraffic? Will peoplebe
willingtosendtheirchildrentoschoolsfarfromthe downtownarea? Will there be a needformore mallsand
entertainmentcenters?)
Scarcity andSociety
What isscarcity fromsociety’spointof view? Insociety’scase,the problemisascarcity of resources—the thingswe
use to make goodsand servicesthathelpusachieve our goals.
What are the goalsof our society?

2. We wanta highstandard of livingforourcitizens,cleanair,safe water,peace andsecurity,goodschools,etc.
Why are we notable to achieve thisgoal satisfactorily?Scarcityof resources.
3 Categoriesof Resources:
1. Labor- the time humanbeingsspendproducinggoodsandservices.
2. Capital- the long-lastingtoolsthatpeople use toproduce goodsandservicesalongwiththeirlabor(e.g.
physicalcapital suchas buildings,machinery,equipment; human capitalsuchasskillsandtrainingsof the
laborforce)
3. Land- the physical space onwhichproductiontakesplace,andalsothe natural resourcesfoundunderitor
on it,such as oil,iron,coal and lumber.
Anythingproducedinthe economycomes,ultimately,from some combinationof these resources.
Example:Inthisclassyouare consuminga service—acollegelecture.Whatwentintoproducingthisservice?Your
instructorissupplying labor. Many typesof capital were usedaswell. The physical capital includes chairs,desks,
computer,the classroom,the building,etc. Inaddition,there was humancapital—yourinstructor’sspecialized
knowledge andlecturingskills. Finally,there was land—thepropertyonwhichyourclassroombuildingsits.
What aboutchalk? Is thistool consideredasacapital?No,since itis not long lasting.A tool is onlyconsidereda
capital onlyif itlasts fora fewyearsorlonger.Chalktendstobe usedupas the lecture isproduces,soit is
consideredaraw material ratherthan a capital.
Goodsand servicesare notimportantto us justas individuals;we alsouse themtoaccomplishoursocial goals(e.g.
“Safe streets”needspolice protectionandthisrequiresresources:police vehicles,police stations,police officers,
laborof autoworkers,electricians,sand,iron,copper,machinerylike cementmixers,cranes,etc.)
Many of the bigquestionsof ourtime centeronthe differentwaysinwhichresourcescanbe allocated:anissue on
planningand strategies.
Scarcity and Economics
The scarcity of resources—andthe choicesitforcesusto make—isthe source of all of the problemswe will studyin
economics:
a. Householdshave limitedincomes,sotheymustbudgetcarefullythe familyincome amongdifferentgoods
and services.
b. Businessfirmstrytomake profit,buttheymust payfor theirinputs,sotheymustchoose carefullywhatto
produce,howmuchto produce and how to produce it.
c. Local,state,and federal governmentsmustworkwithlimitedbudgets,sotheymustcarefullychoose which
goalsto pursue (e.g.strongerdefense,higherstandardof education,higherstandardandaccessibilityof
social services)
2 majorparts of economics:

3. 1. Microeconomics- concernedwiththe behaviorof individualactors onthe economicsscene—households,
businessfirms,andgovernments. Itanalyzesindividualpartsof the economyratherthan the whole. Itlooks
at the choicesmade bythese actorsand how theyinteractwitheachotherin specific markets (e.g.What
will happentothe fare inthe next3 years? How manyjobswill be broughtbycall centerindustries?How
will the local garlicproducesbe affectedbythe smugglingof importedgarlicfromotherAsiancountries?)
2. Macroeconomics- takesanoverall view of the economy. It concentratesonwhatis happeninginthe
economyasa whole (e.g.insteadof focusingonthe productionof garlicandrice,macroeconomicslumpsall
goodsand servicestogetherandlooksatthe economy’s totaloutput.Insteadof focusingonemploymentin
the call centersector,itconsiders totalemployment.)
Positive andNormativeEconomics
There isa distinctioninrelationtothe purposeinanalyzingaproblem. Positive economicsdeal withwhatis—
withhow the economyworks,plainandsimple. It’sconcernare justthe facts (e.g.if we lowerincome tax rates
inthe Philippinesnextyear,willthe governmentbudgetsurplusdecrease?If so,byhow much? What will be its
effectontotal employment?). While Normative economics concernsitself withwhatshould be.Itisusedto
make judgmentsaboutthe economy,identifyproblems,andprescribe solutions. It’sconcernis the makingof
value judgments(e.g.aneconomistadvisesthe governmenttocut spending—anactionthatwill benefitsome
citizensandharmothers).
Why doeconomistsdisagree?
The difference of opinionmaybe positiveinnature:The two economistsmayhave sharplydivergentviews
aboutwhat would actually happenif aspecificpolicyisapplied.
The difference of opinionmayalsobe normativeinnature:adifferingof values. Economists,like everyone else,
have differentvalues. Botheconomistsmightagree withthe new policy;howevertheywoulddifferonthe
reasons(e.g.whowouldbenefitmostorwhowouldbe harmed).The first economistmightputmore emphasis
on benefitstothe overall economy,whilethe secondmightputmore emphasisonpreventingharmtoa
particulargroup.Here,the two economistshave come tothe same positiveconclusion, buttheirdifferentvalues
leadthemto differentnormativeconclusions.
NextLesson:Studypp.7-14. Answerthe followingquestionsforthe oral recitationnextmeeting.
Why studyeconomics?
What isthe methodof economics?
What isan economicmodel?
What are the twofundamental assumptionsineconomics?
What are the basicprinciplesof economics?