The document discusses the three basic economic problems of what to produce, for whom to produce, and how to produce. It also covers the four factors of production - land, labor, capital, and entrepreneurship. Traditional, command, market, and mixed economic systems are introduced as approaches that societies use to address these basic economic problems. The concepts of scarcity, opportunity cost, production possibilities frontier, and tradeoffs are also explained in the context of limited resources.

2. THE THREE BASIC ECONOMIC PROBLEMS
•WHAT TO PRODUCE?
•FOR WHOM TO PRODUCE?
•HOW TO PRODUCE IT?

3. 1. WHAT TO PRODUCE?
•IT IS NOT ALWAYS POSSIBLE TO PRODUCE ALL GOODS AND SERVICES THAT
PEOPLE WANT BECAUSE RESOURCES ARE LIMITED.
• FROM THE AVAILABLE RESOURCES CAN ONLY BE PRODUCED A LIMITED
QUANTITY OF GOODS AND SERVICES, AND WHEN THE MAXIMUM
COMBINATIONS OF GOODS AND SERVICES THAT CAN BE PRODUCED HAS
BEEN REACHED, AN INCREASE IN THE QUANTITY OF THE SAID PRODUCT
CONNOTES A DECREASE IN QUANTITY OF ANOTHER.

4. 2. FOR WHOM TO PRODUCE?
•“WHO SHOULD CONSUME THE PRODUCED GOODS AND
SERVICES?”
•WITH THIS REGARD TO THIS QUESTION, WE SHOULD THINK ALSO
WHOSE GENERATION WILL RECEIVE THESE GOODS AND SERVICES:
THE PRESENT OR THE FUTURE GENERATION.

5. 3. HOW TO PRODUCE IT?
•AS A RULE OF THUMB, GOODS AND SERVICES MUST BE
DEVELOPED OR PRODUCED AT ITS OPTIMUM LEVEL – THAT
IS MAXIMUM OUTPUT WITH A MINIMUM INPUT WITHOUT
SACRIFICING THE QUALITY.

6. FOUR FACTORS OF PRODUCTION
•LAND
•LABOR
•CAPITAL
•ENTREPRENEURSHIP

7. LAND
•LAND IS NOT ONLY THE SOIL FOR GROWING AGRICULTURAL
PRODUCTS. IT IS ALSO THE SOURCE OF ALL MATERIALS AND FOOD
WHETHER IN LIQUID, SOLID, OR GASEOUS FORM, IN OR ABOVE THE
EARTH.

8. LABOR
•IT REFERS TO HUMAN EFFORT, WHEN THE EFFORT IS
REWARDED BY SOME KIND OF PAY. THIS REFERS ALSO TO
THE AVAILABLE PHYSICAL AND MENTAL TALENTS OF THE
PEOPLE WHO HAVE TO PRODUCE GOODS AND SERVICES.

9. CAPITAL
•THE WORD COMES FROM THE LATIN ‘CAPUT’ WHICH MEANS ‘HEAD’. IT
REFERS TO THE TANGIBLE, PHYSICAL GOOD (A CAPITAL GOOD) THAT A
PERSON OR SOCIETY CREATES IN THE EXPECTATION THAT ITS USE WILL
IMPROVE OR INCREASE FUTURE PRODUCTION. THAT IS THE REASON WHY
THIS TERM ALSO CONNOTES THE FACILITIES OF GOODS.

10. ENTREPRENEURSHIP
•ENTREPRENEURSHIP MEANS THAT PEOPLE ARE
COMBINING THE OTHER THREE FACTORS OF PRODUCTION
TO CREATE SOME PRODUCTS OR SERVICES TO SELL. THEY
HOPE FOR PROFIT, BUT TAKE RISK LOSS OR BANKRUPTCY.

11. THE ECONOMIC SYTEM
•REFERS TO A SET OF ECONOMIC INSTITUTIONS THAT
DOMINATE A GIVEN ECONOMY WITH THE MAIN
OBJECTIVE OF SOLVING THE BASIC ECONOMIC
PROBLEMS.

12. THE FOUR DIFFERENT ECONOMIC SYSTEMS
•TRADITIONAL
•COMMAND/SOCIALISM
•CAPITALISM/MARKET
•MIXED

13. TRADITIONAL
•COMMUNAL LAND OWNERSHIP;
•THE LEADER DECIDES ON THE MANAGEMENT OF AGRICULTURAL
PRODUCTION WHICH IS THE BASIS OF THE ECONOMY;
•THE PRODUCTION, DISTRIBUTION, AND USE OF ECONOMIC
RESOURCES ARE BASED ON TRADITIONAL PRACTICES;

14. TRADITIONAL
•NEW TECHNOLOGIES ARE NOT WELCOMED SINCE THEY ARE IN CONTRAST
WITH THE TRADITIONAL PRACTICES OF THEIR ANCESTORS;
•THE ECONOMY IS ONLY ITS THIRD PRIORITY WHILE CULTURE AND RELIGION
ARE ITS FOREMOST PRIORITIES;
• MINES ARE USED TO GATHER RAW MATERIALS FOR PRODUCTION.

15. TRADITIONAL
•ECONOMIC SYSTEM IS BASED ON CUSTOMS AND TRADITIONS (HANDED
DOWN FROM 1 GENERATION TO ANOTHER).
•ALLOCATION OF SCARCE RESOURCES STEMS FROM RITUAL, HABIT, OR
CUSTOMS
•BARTER!! MEANS TRADE! NO MONEY!
•EXAMPLES: AFRICA, PARTS OF INDIA, THE AUSTRALIAN ABORIGINES

16. ABORIGINES

17. INUITS

18. ADVANTAGES
•ECONOMIC ROLES ARE SET
•STABLE, PREDICTABLE, AND CONTINUOUS

19. DISADVANTAGES
•DISCOURAGES NEW IDEAS
•LACK OF PROGRESS
•LOWER STANDARD OF LIVING

20. DOES A TRADITIONAL ECONOMY ANSWER
THE THREE ECONOMIC PROBLEMS?
•WHAT WILL BE PRODUCED?
-WHATEVER TRADITION, VALUES, AND RITUALS DICTATE
•HOW WILL IT BE PRODUCED?
-HOWEVER TRADITION, VALUES, AND RITUALS DICTATE
•FOR WHOM WILL IT BE PRODUCED?
-WHOMEVER TRADITION, VALUES AND RITUALS DICTATE

21. COMMAND ECONOMY
•RESOURCE ALLOCATION IS DONE BY GOVERNMENT;
•PRESENCE OF CENTRAL PLANNING OF ALL ECONOMIC ACTIVITIES;
•THERE IS NO FREE COMPETITION (THE GOVERNMENT IS ONLY SELLER);
•ONLY THE GOVERNMENT PLAYS THE ROLE IN SETTING LEGAL FRAMEWORK FOR
ECONOMIC LIFE PRODUCTION AND DISTRIBUTION OF GOODS AND SERVICES;
•THE PRODUCTS OR NEEDS OF THE PEOPLE ARE DISTRIBUTED BASED ON PRIORITIES SET
BY THE COMMITTEE.
•THERE IS VERY LITTLE INPUT FROM THE PEOPLE

22. NORTH KOREA, CUBA, AND CHINA

23. ADVANTAGES
•BASIC NEEDS TAKEN CARE OF
•EDUCATION, PUBLIC HEALTH, OTHER SERVICES COST VERY
LITTLE IF ANYTHING
•VERY LITTLE UNEMPLOYMENT

24. DISADVANTAGES
•DOESN’T MEET WANTS
•NO INCENTIVES
•REQUIRES A LARGE BUREAUCRACY
•NEW AND DIFFERENT IDEAS ARE DISCOURAGED
•NO ROOM FOR INDIVIDUALITY

25. DOES A COMMAND ECONOMY ANSWER THE
THREE BASIC ECONOMIC PROBLEMS?
•WHAT IS BEING PRODUCED?
-WHATEVER THE GOVERNMENT DECIDES
•HOW IS IT BEING PRODUCED?
-THE GOVERNMENT WILL TELL SOMEONE TO MAKE IT
•FOR WHOM IS IT BEING PRODUCED?
-WHOMEVER THE GOVERNMENT DECIDES NEEDS IT

26. CAPITALISM/MARKET
•THE PRIVATE SECTOR OWNS AND MANAGES THE MEANS OF PRODUCTION;
•THE PRICE SYSTEM IN A MARKET STRUCTURE APPLIES TO DETERMINE HOW MUCH WILL
BE PAID FOR A CERTAIN COMMODITY OR SERVICE;
•IT IS ALSO KNOWN AS LAISSEZ-FAIRE OR FREE ENTERPRISE;
•THERE IS MINIMUM GOVERNMENT INTERFERENCE ON DECISIONS PERTAINING TO THE
MANAGEMENT OF THE ECONOMY (PROTECTION OF THE SOCIETY AGAINST INTERNAL
AND EXTERNAL AGGRESSION);

27. CAPITALISM/MARKET
•EXISTENCE OF COMPETITION OFTEN RESULTS TO MONOPOLY;
•THERE IS PRESENCE OF ECONOMIC POWER.

28. CANADA, SOUTH KOREA, SINGAPORE,
GERMANY, GREAT BRITAIN, AND US

29. ADVANTAGES
•INDIVIDUAL FREEDOM FOR ALL
•LACK OF GOVERNMENT INTERFERENCE
•INCREDIBLE VARIETY TO CHOOSE FROM
•HIGH DEGREE OF CONSUMER SATISFACTION

30. DISADVANTAGES
•REWARDS ONLY PRODUCTIVE PEOPLE
•WORKERS AND BUSINESSES FACE UNCERTAINTY (COMPETITION)
•NOT ENOUGH PUBLIC GOODS (EDUCATION, HEALTH, DEFENSE)
•UNEMPLOYMENT
•MUST GUARD AGAINST MARKET FAILURE

31. ANSWERING THE THREE BASIC ECONOMIC
PROBLEM…
•WHAT WILL BE PRODUCED?
-WHATEVER THE CONSUMER WANTS
•HOW WILL IT BE PRODUCED?
-ENTREPRENEURS WILL RESPOND TO DEMAND
•FOR WHOM WILL IT BE PRODUCED?
-WHOMEVER IS WILLING TO WORK FOR IT (OR AFFORD IT)

32. MIXED ECONOMY
•THE MEANS OF PRODUCTION ARE OWNED AND CONTROLLED BY THE PRIVATE SECTOR
AS WELL AS THE GOVERNMENT;
•THE PEOPLE DECIDE ON ECONOMIC ACTIVITIES WITHIN THE ECONOMY;
•THE COMBINATIONS OF THE BEST FEATURES OF CAPITALIST AND COMMAND
ECONOMIES ARE OBSERVABLE IN THE MARKET;
•THE PROBLEM OF DISTRIBUTION OF GOODS AND SERVICES AND ALLOCATION OF
ECONOMIC RESOURCES ARE DETERMINED THROUGH A COMBINATION OF THE MARKET
AND GOVERNMENTAL LAWS AND POLICIES.

33. MIXED ECONOMY
IN THE REAL SITUATION, ECONOMIC SYSTEMS ARE RARELY 100 PERCENT EXAMPLES OF ANY ONE SYSTEM. AT
PRESENT, THERE IS NO ECONOMY TODAY APPLYING A PURE ECONOMIC SYSTEM. MAJORITY, IF NOT ALL, OF
THESE ECONOMIC SYSTEMS ARE PRESENT IN VARYING DEGREES IN ANY ECONOMY. THE PHILIPPINES, FOR
EXAMPLE, IS BEST DESCRIBED AS A MARKET SYSTEM BUT IT CONTAINS MANY COMMAND ELEMENTS LIKE
REGULATORY AGENCIES AND EXECUTIVE ORDERS ISSUED BY THE PRESIDENT. TRADITIONAL SYSTEM
ELEMENTS ARE QUIETLY OBSERVED, LIKE IN THE WAY MANY YOUNG PEOPLE CHOOSE THEIR PARENTS’
OCCUPATION. BUT IN A WAY, MOST ECONOMIC SYSTEMS ARE MIXED, ALTHOUGH THEY ARE USUALLY
IDENTIFIABLE AS BEING PREDOMINANTLY OF ONE TYPE OR ANOTHER.

34. THE THREE ISMS
•CAPITALISM
•COMMUNISM
•SOCIALISM

35. THE THREE ISMS
THE CLASSIFICATION OF DIFFERENT SOCIETIES INTO TRADITIONAL,
COMMAND, MARKET AND MIXED ECONOMIC SYSTEMS SPANS THE
ENTIRE COURSE OF HISTORY, BUT IN THE LAST CENTURY THE WORLD
HAS BEEN DIVIDED INTO GREAT ECONOMIC AND POLITICAL SYSTEMS
REPRESENTING SOCIALISM AND CAPITALISM.

36. CAPITALISM
IS AN ECONOMIC SYSTEM IN WHICH MOST RESOURCES ARE
PRIVATELY OWNED, PEOPLE ARE FREE TO CHOOSE THEIR
OCCUPATION, THE KIND AND AMOUNT OF PRODUCTION IS
DETERMINED BY PRICE AND PEOPLE SEARCHING FOR A PROFIT, AND
THERE IS SUBSTANTIAL AMOUNT OF COMPETITION.

37. THREE ASPECTS OF CAPITALISM
•THE INSTITUTION OF PRIVATE OWNERSHIP IS GENERALLY ACCEPTED. FACTORIES,
LAND, GOODS, AND SERVICES ARE PRIVATELY OWNED BY INDIVIDUALS OR
GROUP OF INDIVIDUALS LIKE STOCKHOLDERS AND SHAREHOLDERS.
• MOST PEOPLE ARE FREE TO PURSUE THEIR OWN ECONOMIC SELF-INTERESTS,
THAT IS, TO WORK FOR PERSONAL GAIN. FOR THIS REASON, CAPITALISM IS
OFTEN CALLED THE FREE- ENTERPRISE SYSTEM; MOST PEOPLE ARE FREE TO
CHOOSE THEIR OWN OCCUPATIONS.

38. THREE ASPECTS OF CAPITALISM
•BECAUSE PEOPLE ARE MOTIVATED BY SELF-INTEREST, THEY COMPETE WITH
ONE ANOTHER TO GET AHEAD, TO MAKE A BETTER PRODUCT, TO CONTROL
MARKETS IN ORDER TO MAINTAIN OR OBTAIN A LARGE PROFIT. THERE IS
ALWAYS A STRUGGLE FOR LARGER PROFIT LEAD (USUALLY, BUT BY NO
MEANS ALWAYS) TO A HIGH DEGREE OF COMPETITION AMONG BUSINESS.

39. COMMUNISM
HOLDS THAT THE PEOPLE THEMSELVES, NOT THE GOVERNMENT, OWN THE
MEANS OF PRODUCTION. IN A COMMUNIST STATE, EVERYONE WORKS AT
WHAT HE OR SHE CAN DO BEST. THERE IS NO SYSTEM OF WAGES OR PROFITS
NEEDED TO SPUR PEOPLE TO WORK. EVERYONE SIMPLY TAKES FROM WHAT IS
PRODUCED WHATEVER HE OR SHE NEEDS TO LIVE COMFORTABLY. NO
GOVERNMENT OR BUREAUCRACY SUPERVISES WHAT THE PEOPLE DO.

40. SOCIALISM
IS AN ECONOMIC SYSTEM IN WHICH THE GOVERNMENT OWNS AND
OPERATES THE MAJOR INDUSTRIES OF THE COUNTRY. IT MEANS ALSO THAT
THE GOVERNMENT ALSO DECIDES IN THOSE MAJOR INDUSTRIES THE
ANSWERS TO THE THREE ECONOMIC QUESTIONS. SOCIALISM DOES NOT
IMPLY DICTATORSHIP. SOCIALISM CAN EXIST IN DEMOCRATIC COUNTRIES
AS WELL AS AUTHORITARIAN ONES.

41. THE MAIN REASON FOR SOCIALISM’S EXISTENCE
IS THAT SOCIALISTS HOPE TO OVERCOME
CAPITALISM’S TWO IMPORTANT PROBLEMS.
1. THE UNEQUAL DISTRIBUTION OF INCOME AND WEALTH;
2. THE UNEVEN COURSE OF ECONOMIC GROWTH WITH
PERIODS OF BOOM OR BUST.

43. THE LAW OF SCARCITY
SCARCITY
-REFERS TO THE CONDITION THAT ALL RESOURCES ARE AVAILABLE ONLY IN
LIMITED SUPPLY.
LAW OF SCARCITY
- STATES THAT GOODS ARE SCARCE BECAUSE THERE ARE NOT ENOUGH
RESOURCES TO PRODUCE ALL THE GOODS THAT THE PEOPLE WANT TO
CONSUME.

44. TYPES OF RESOURCES
•SOCIETY
•LAND
•FORESTS
• MINERALS
•HUMAN
•MENTAL

45. TYPES OF RESOURCES
•PHYSICAL
•MANUFACTURE AIDS TO PRODUCTION
•TOOLS
•MACHINERY
•BUILDINGS

46. COMMODITIES
-THINGS PRODUCED

47. TYPES OF COMMODITIES
•GOODS (TANGIBLES E.G. CARS, CLOTHES, SHOES)
•SERVICES (INTANGIBLES E.G. HAIRCUT, MASSAGE,
EDUCATION)

48. PRODUCTION
-THE ACT OF MAKING GOODS AND SERVICES

49. CONSUMPTION
•THE ACT OF USING THEM TO SATISFY HUMAN
WANTS

50. SOCIAL COSTS OF INDIVIDUAL DECISIONS
• A PERSONAL DECISION MAY IMPOSE COSTS, NOT JUST TO
ONESELF, BUT ALSO ON OTHERS. CONSEQUENTLY, THE TOTAL COST
TO SOCIETY – SOCIAL COST – IS MEASURED BY THE
OPPORTUNITY COSTS BORNE BY INDIVIDUALS FOR THEIR OWN
DECISIONS PLUS ADDITIONAL COSTS THAT MAY BE BORNE BY
OTHERS.

51. PRODUCTION POSSIBILITIES FRONTIER
(PPF) PPF ILLUSTRATES THREE CONCEPTS:
•SCARCITY – INDICATED BY THE UNATTAINABLE COMBINATION ABOVE THE
BOUNDARY
•CHOICE – CAN BE SEEN BY THE NEED TO CHOOSE AMONG THE ALTERNATIVE
ATTAINABLE POINTS ALONG THE BOUNDARY AND OPPORTUNITY COST
•OPPORTUNITY COST – REFERS TO THE COST OF USING THEM IN THEIR BEST
ALTERNATIVES.

53. THE REASON WHY PPF IS DOWNWARD SLOPING
BECAUSE OF OPPORTUNITY COST. DUE TO THE
OPPORTUNITY COST, TRADE-OFF ARISES.

54. TRADE-OFF
•- A SITUATION IN WHICH MORE OF ONE GOOD
THING CAN BE OBTAINED ONLY BY GIVING OFF
ANOTHER THING.

55. TWO FACTORS WHY AVAILABLE GOODS
AND SERVICES ARE NOT ENOUGH TO
SATISFY THE HUMAN’S MATERIAL WANTS:
•UNLIMITED HUMAN WANTS
•LIMITED QUANTITY OF GOODS