ECONOMICS: SCARCITY AND CHOICE ● A study of the decisions made by people

and businesses regarding the allocation

ECONOMIC SYSTEM resources and prices at which they trade
PRODUCTION goods and services.
● The process by which resources are ● Microeconomics shows how and why
transformed into useful forms. different goods have values.
RESOURCES OR INPUTS ● Deals with the prices and production in
● Anything provided by nature or previous single markets
generations that can be used directly or ● Formulate various types of models
indirect to satisfy human wants. based on logic and observed human
CAPITAL behavior.
● Things that have already been produced
that are in turn used to produce the BASIC CONCEPTS OF
other goods and services. MICROECONOMICS
Incentives and behaviors:
THE THREE BASIC ECONOMIC ● How people, as individuals or in firms,
QUESTIONS react to the situations with which they
1. WHAT WILL BE PRODUCED? are confronted.
- The item or product that will be made.
2. HOW WILL IT BE PRODUCED? Utility theory:
- In what means that the product is made ● Consumers will choose to purchase and
and what is made of. consume a combination of goods that
3. WHO WILL GET WHAT IS will maximize their happiness or
PRODUCED? “utility,” subject to the constraint of
- An intended audience for your product. how much income they have available to
spend.
OPPORTUNITY COST Production theory:
● The concept of constrained choice and ● This is the study of production—or the
scarcity are the central the the process of converting inputs into
discipline of economics. outputs. Producers seek to choose the
● Used in decision making to help combination of inputs and methods of
individuals and organizations make combining them that will minimize cost
better choices by considering in order to maximize their profits.
alternatives. Price theory:
● Utility and production theory interact
COMPARATIVE ADVANTAGE to produce the theory of supply and
● Used to explain why companies, demand, which determine prices in a
countries or individuals can benefit competitive market.
from trade.
WHAT IS MACROECONOMICS?
● Is a branch of economics that studies
BRANCHES OF ECONOMICS how an overall economy– the markets,
businesses, consumers, and governments
WHAT IS MICROECONOMICS? behave.
 ● It examines economy-wide phenomena goods and services and changes in
such as inflation. currency purchasing power
● It deals with the performance, behavior ● Investment in Fixed Assets indicators:
and decision making of an economy as a Indicate how much capital is tied up in
whole. fixed assets
● As the term implies, macroeconomics is ● Employment indicators: Shows
a field of study that analyzes an employment by industry, state, county,
economy through a wide lens. This and other areas
includes looking at variables like ● Government indicators: Shows how
unemployment, GDP and inflation. In much the government spends and
addition, macroeconomists develop receives
models explaining the relationships ● Special indicators: All other economic
between these factors. indicators, such as distribution of
personal income, global value chains,
DIFFERENCE OF MICRO AND MACRO healthcare spending, small business
● Microeconomics is the study of well-being, and more
economics at individual, group, or
company levels. Whereas,
macroeconomics is the study of the SUPPLY AND DEMAND: THEORY
economy as a whole.
MARKET
ECONOMISTS CAN USE MANY ● Any place people come together to
INDICATORS TO MEASURE ECONOMIC trade.
PERFORMANCE. THESE INDICATORS ● Trade or exchange may take place at a
FALL INTO 10 CATEGORIES: physical or virtual location.
● Gross Domestic Product indicators:
Measure how much the economy DEMAND
produces The willingness and ability of buyers:
● Consumer Spending indicators: ● To purchase different quantities of a
Measure how much capital consumers good.
feed back into the economy. ● At different prices
● Income and Savings indicators: ● During a specific time period.
Measures how much consumers make
and save. LAW OF DEMAND
● Industry Performance indicators: As the price of a good rises, the quantity
Measures GDP by industry demanded of the good falls,
● International Trade and Investment and as the price of a good falls, the
indicators: Indicates the balance of quantity demanded of the good rises,
payments between trade partners, how ceteris paribus.
much is traded, and how much is PRICE QUANTITY
invested internationally
● Prices and Inflation indicators: CETERIS PARIBUS
Indicate fluctuations in prices paid for A Latin term meaning “all other things
constant” or “nothing else changes.”
 ● Ceteris paribus is an assumption used to
examine the effect of one influence on an
outcome while holding all other
influences Constant.

QUANTITY DEMANDED
Quantity Demanded is the number of units that
individuals are willing and able to buy at a
particular price during a time period.
Increase in demand (rightward shift in demand
curve)

DEMAND SCHEDULE
DECREASE IN DEMAND
● The numerical tabulation of the quantity
demanded of a good at different prices.
● A demand schedule is the numerical
representation of the law of demand.

Why Does Quantity Demand Go Down as

Price Goes Up?
● people substitute lower priced goods for
higher priced goods.
Decrease in demand (leftward shift in demand
Individual Demand Curve
curve)
An Individual Demand Curve represents the
price-quantity combination of a particular
FACTORS THAT TO SHIFT IN DEMAND
single buyer.
CURVE:
● INCOME
Market Demand Curve
● PREFERENCES
A Market demand curve represents the price-
● PRICES OF SUBSTITUTE GOODS
quantity combination of a good for all buyers. In
● PRICES OF COMPLEMENTARY
this case, the demand curve would show all
GOODS
buyers demand for CDs.
● NUMBER OF BUYERS
● EXPECTATIONS OF FUTURE PRICES

FACTORS CAUSING A SHIFT IN THE

DEMAND CURVE- INCOME
NORMAL GOOD
A good the demand for which rises (falls) as
income rises.
INCREASE IN DEMAND
INFERIOR GOOD
A good the demand for which rises (falls) as
income rises SUPPLY CURVE
NEUTRAL GOOD The graphical representation of the law of
A good the demand for which does not change supply, which states that price and quantity
as income rises or falls. supplied are directly related,
PREFERENCES ceteris paribus.
People’s preferences affect the amount of a good FIXED SUPPLY
they are willing to buy at a particular price. A Straight curve only
change in preferences in favor of a good shifts
the demand curve rightward. SUPPLY SCHEDULE
PRICES OF RELATED GOODS ● The numerical tabulation of the quantity
SUBSTITUTES - Two goods that satisfy similar supplied of a good at different prices.
needs or desires. If two goods are substitutes, ● A supply schedule is the numerical
the demand for one rises as the price of the representation of the law of supply.
other rises
COMPLEMENTS - Two goods that are used Factors that Cause the Supply Curve to Shift:
jointly in consumption. If two goods are ● Prices of relevant resources
complements, the demand for one rises as the ● Technology
price of the other falls. ● Prices of Other Goods
NUMBER OF BUYERS ● Number of sellers
The demand for a good in a particular market ● Expectation of future prices
area is related to the number of buyers in the ● Taxes and subsidies
area; the more buyers, higher demand; fewer ● Government restrictions
buyers, lower demand.
SUBSIDY
Subsidies are a monetary payment by
EXPECTATIONS OF FUTURE PRICE government to a producer of a good or service.
Buyers who expect the price of a good to be
higher next month may buy it now, thus CHANGE IN SUPPLY
increasing the current (or present) demand for
the good.

SUPPLY
The willingness and ability of sellers to produce
and offer to sell different quantities of a good at
different prices during a specific time period.
A Change in any of these (shift) factors can
LAW OF SUPPLY cause a change in supply
As the price of a good rises, the quantity 1. Prices of Relevant Resources
supplied of the good rises, and as the price of a 2. Technology
good falls, the quantity supplied of the good 3. Prices of other goods
falls, ceteris paribus. 4. Number of sellers
PRICE QUANTITY 5. Expectations of Future
 6. Price able to sell, and both equal the amount actually
7. Taxes and Subsidies bought and sold.
8. Government Restrictions
Disequilibrium
Change in Quantity Supplied A state of either surplus or shortage in the
● A change in quantity supplied refers to a market
movement along a supply curve. Disequilibrium Price
● The only factor that can directly cause a A price other than equilibrium price. A price at
change in the quantity supplied of a which the quantity demanded does not equal the
good is a change in the price of the quantity supplied.
good, or own

MARKET EQUILIBRIUM
● Equilibrium in a market is the price
quantity combination from which there
is no tendency for buyers or sellers to
move away.
● Graphically, equilibrium is the
intersection point of the supply and
demand curves.

SURPLUS AND SHORTAGE

Surplus (Excess Supply) - A condition in which
quantity supplied is greater than quantity
demanded. Surpluses occur only at prices above
equilibrium price.
Shortage (Excess Demand) - A condition in
which quantity demanded is greater than
quantity supplied. Shortages occur only at prices
below equilibrium price.

Equilibrium Price (Market- Clearing Price)

The price at which quantity demanded of the
good equals quantity
Supplied

Equilibrium Quantity
The quantity that corresponds to equilibrium
price. The quantity at which the amount of the
good that buyers are willing and able to buy
equals the amount that sellers are willing and