MODULE 1: INTRODUCTION IN ECONOMICS- Economic

Thinking

Whether you're preparing for a career in business, the social sciences,

economics, or another field, this course offers a solid foundation in microeconomic
theory. The course materials, which are intended to help students think like
economists, explore how people and businesses make economic decisions through
interesting, real-world examples. Supply and demand, utility, elasticity, production
and costs, and an examination of the various market structures—perfect, oligopoly,
monopoly, and monopolistic—are important subjects.

The Significance of Economic Thought

Why study economics?

The idea of enrolling in an economics course can be intimidating or boring for

many students. Maybe this concern stems from a misunderstanding of what
economics is all about. It's not the study of money or the stock market, nor is it rocket
science or a compilation of dry facts. In essence, economics is merely an intriguing
collection of inquiries structured around a fundamental truth: there are insufficient
resources (cash, land, time, etc.) to meet everyone's needs and desires. This state is
known as scarcity to economists. No one can ever have enough of the things they
desire, and this has an impact on people, countries, and the entire human race.
Everybody has to deal with scarcity at some point, and economists are curious about
how people handle it.

Economics can be an incredibly powerful tool if you learn to think like an

economist and comprehend how people act when faced with scarcity. The behavior of
specific economic agents, such as customers or companies, can be predicted; this is
known as the "micro level" in economics. It is possible to forecast the overall
behavior of an economy, or economies, or macroeconomic level as economists refer
to it. You can gain a deeper comprehension of the decisions—and repercussions—that
you make in your own life.

It is essential to grasp a number of fundamental definitions and

comprehend how they relate to one another in order to comprehend economics.
Over the course of the course, these ideas will be applied frequently. At the most
fundamental level:

Scarcity implies that there are never enough resources to meet everyone's needs.
Economics is the study of the decisions and trade-offs we make when faced with
scarcity
Opportunity cost is what we sacrifice when we select one item above another.

https://youtu.be/g9uUIUqhrSQ See this video for a quick introduction to economics. They are
excellent resources for reviewing and strengthening your comprehension of the topics covered, and
they come highly recommended. Seeking the videos is beneficial even if you consider the reading to
contain sufficient information.
Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship
by: Exequiel Mendoza Perez, MBA
Comprehending Scarcity and Economics

Learning Objectives

Describe scarcity and explain its economic impact

Describe factors of production

Scarcity

There are finite amounts of the resources we value, including labor, time,
labor, capital, land, and entrepreneurs. Simply put, there are never enough resources
to satisfy all of our wants and requirements. We call this state "scarcity."

Economics

We have to make decisions when our resources are limited. Once more, the
study of economics examines how people make decisions in situations of scarcity.
Families, businesses, societies, and individuals can all make these decisions.

Let's think about a few choices we make with constrained resources. Consider
the following:

1. Which courses are you enrolled in this term?

Are you the fortunate student who has every class you've ever wanted to take
with the professor of your choice at the ideal time and place? It's likely that you have
had to compromise on things because they were scarce. Classes meet for a set amount
of time each day, and there are only so many faculty members available to teach
them. It is not possible to assign every faculty member to every time slot. Each
classroom can only have one class assigned to it at a time. This implies that each
student must choose between the teacher, the class location, and the time slot.

2. In what location do you reside?

Take a moment to consider where you would live if you were wealthy beyond
measure. Most likely, that's not where you currently reside. Most likely, scarcity
played a factor in your decision to move. Which place did you choose? In a pinch,
you might have opted to live near your place of employment or education. However,
some places are more expensive than others due to the demand for housing, so you
might have opted to pay more for a convenient location or less for one that requires
you to spend more time traveling. You are compelled to select from the housing that
is available at all times because there is a finite amount of housing in each location.
One's ability to pay must always be taken into consideration when making housing
decisions. When choosing a place to call home, people must contend with constraints
on their ability to pay for housing, time, and other resources. These constraints are
frequently brought about by developers, landlords, city planners, and government
laws.

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
https://youtu.be/yoVc_S_gd_0 You will watch a number of brief videos in this course that break
down difficult economic concepts into easily understood language. Spend some time watching them!
They will assist you in grasping the fundamentals and making sense of the readings, which typically go
into greater detail about the same subject.

Think about the following important points while you watch the video:

Economics is the study of how people make decisions when resources are scarce.
Scarcity exists when the demand for goods and services by people outpaces the
supply. People consider costs and benefits when making decisions out of self-interest.

Issues with Scarcity

All societies, regardless of size, have to make decisions regarding the use of
their resources. Families have to choose between saving up for a luxurious vacation or
a new car. Towns have to decide whether to allocate more funds for the school system
or for law enforcement and fire safety. Governments must choose between increasing
funding for environmental preservation and national defense. Most of the time, the
budget simply doesn't have enough money to cover everything.

Since resources can never fully satisfy all needs and desires, economics helps
us understand the decisions made by individuals, families, businesses, and societies.

Economic Goods and Free Goods

Economic goods, or scarce goods, make up the majority of goods and services.
Products considered scarce are those for which, in a perfect world, there would be a
larger demand than supply. Economic goods are selling for more money on the
market as a result of the shortage. That is, they are not free for consumers to obtain.

What is a good example that isn't in short supply? Is there water in the sea? In
a desert, sand? Since consumers can get as much as they want for free, any good
whose supply exceeds demand if its price were zero is referred to as a free good. Air
was once thought of as a free good, but clean air is becoming more and more scarce.

Productive Resources

Now that we have established the finite nature of resources, let us examine the
definition of resources in more detail. There are four factors of production, or
productive resources (resources must be able to produce something:

Land: any natural resource, including the land itself as well as vegetation, animals,
wind, sun, water, and other elements.
Economic capital: anything produced with the intention of using it to produce
other goods and services. Keep in mind the differences between economic capital,
which is productive, and financial capital, which is not. Although money itself isn't
productive, the equipment and tools it can be used to purchase can be.

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
Labor: any form of intellectual or physical assistance to people. Likewise known as
human capital.

Entrepreneurship: the capacity of an individual (an entrepreneur) to arrange the

other production elements, spot a profit opportunity, and take on risk

In the video that follows, factors of production and productive resources are clarified
once more.: https://youtu.be/0PgP0dXAGAE

The link between money, goods, and services is explained by the economy's circular
flow. It is frequently depicted using a circular flow model, similar to the one in Figure
1-1.

The two main economic actors shown in the diagram are households and
businesses. The product market and the factor/resource market are the two
marketplaces in which these two players compete with one another. In the product
market, households buy the products and services that companies are willing to sell.
The roles are reversed in the resource market, where households sell their resources—
land, labor, capital, and entrepreneurship—to businesses. Interdependence is a
recurrent theme in economics, and the model amply illustrates it.

The Opportunity Cost Concept

Opportunity Cost

Every decision you make regarding how to use your limited resources also
represents a decision to forgo other options. The concept of opportunity cost is used
by economists to describe what must be forgone in order to achieve a desired goal.
Every decision has an opportunity cost, which is a basic tenet of economics. The
learning you miss out on is the opportunity cost of sleeping through your economics
Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship
by: Exequiel Mendoza Perez, MBA
class—which is not advised. You are not allowed to spend your money on movies if it
is spent on video games. The decision to marry someone means that you forfeit the
chance to marry other people. Put simply, we are surrounded by opportunity cost.

The concept of opportunity cost states that the price of one good is equal to the
opportunity cost of not doing or consuming something else; to put it another way,
opportunity cost is the cost of the best possible substitute.

People always have to make trade-offs—giving up something they want in

order to obtain something else they want more—because they are forced to make
decisions.

To learn more about opportunity cost and to see additional examples, watch this video.
https://youtu.be/PSU-_n81QT0

Microeconomics and Macroeconomics

Learning Objectives

Distinguish between macroeconomics and microeconomics

Micro vs. Macro

The fact that economics is a broad field should be evident by now. There are
two subfields within economics: macroeconomics examines the economy as a whole,
while microeconomics concentrates on the activities of individual agents within the
economy, such as households, businesses, and workers. Its main concerns are wide-
ranging and include trade balance, inflation, unemployment, and growth.
Macroeconomics and microeconomics are complementary viewpoints on the topic of
the economy as a whole rather than two distinct fields of study.
Studying a biological ecosystem, such as a lake, presents an example of why
both macroeconomic and microeconomic viewpoints are important. A person
studying the lake might concentrate on particular subjects, such as the trees that
encircle it, specific types of algae or plant life, or the traits of specific fish or snails.
An alternative perspective would be to look at the lake's ecosystem as a whole, from
top to bottom, taking into account what exists in the ecosystem, how it stays in
balance, and how external factors affect it. Despite having different points of view,
both methodologies are helpful and both researchers study the same lake. Similar in
that they both examine the same economy, but from distinct vantage points and with
distinct priorities, are macroeconomics and microeconomics.

In economics, the state of the macroeconomy affects the micro decisions made
by specific businesses. For instance, businesses are more likely to hire workers if the
economy as a whole is expanding. Ultimately, the microeconomic choices made by
specific households and businesses determine how well the macroeconomy performs.

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
Microeconomics

What influences how individuals and households spend their money? Considering
their spending limit, which combination of products and services will best suit their
requirements and preferences? How do people choose between working full- or part-
time, and whether to work at all? How do individuals determine how much to borrow
in order to spend more than they currently have or how much to save for the future?

What decides what goods a company will make and sell, and in what quantities? What
establishes the prices that a business will charge? What dictates a company's method
of product production? What decides how many employees it will recruit? How is a
company going to fund its operations? When will a business choose to grow, reduce,
or even shut down? The theories of the firm and consumer behavior will be covered in
this text's microeconomic section.

Macroeconomics

What factors influence a society's or country's degree of economic activity?—that is,

what is the actual production volume of goods and services? What factors influence
the number of jobs in an economy? What establishes the standard of living in a
country? What drives the expansion or contraction of the economy? What makes
companies decide to increase employee count or reduce it? And finally, what is the
long-term driver of economic growth?

Numerous criteria or objectives can be used to evaluate the macroeconomic health of

an economy. The following are the key macroeconomic objectives:

Increases in living standards

Low rate of unemployment
Minimal inflation

These objectives are pursued by macroeconomic policy through fiscal and

monetary policy:

Monetary policy, which is carried out by a country's central bank and includes
policies that impact bank lending, interest rates, and financial capital markets. This is
the Bangko Sentral ng Pilipinas (BSP) in the Philippines.

Fiscal policy, The legislative body of a country determines matters pertaining to

government spending and taxation. To establish the budget for the Philippines, this is
the responsibility of the Congress and the executive branch (Senate).

The following video provides an explanation of the distinctions between macroeconomics and
microeconomics, along with their respective focal points: https://youtu.be/w8tUIq7Blsg

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
 Table 1.1
Microeconomic and Macroeconomic Issues/Concerns

Branch of Production Prices Income Employment

Economics
Microeconomics Production/Output Price of Distribution Employment in
of the firm goods and of income a company
services and wealth
*Perez textile *Medical *Wage rate *Jobs in the
production care prices in the steel manufacturing
in the industry industry
Philippines
Pepe’s rice *Prices of *Number of
production in a gasoline employees in
year San Miguel
Corporation
*Apartment
rental in
Echague
Macroeconomics National Aggregate National Employment
Production/Output Price Level Income and
unemployment
rate
*Philippines’ *Consumer *Total *Number of
Total Industrial Price Index wages and employed and
Output salaries underemployed
in the
Philippines
*Gross Domestic *Producer *Total
Product Price Index corporate
profits
*Inflation
Rate

Overview of the Production Possibilities Frontier

The production possibilities frontier (or PPF, for short) is a comprehensive model
of the economy that displays every possible combination of goods, services, and
products that a society could produce, given the resources at its disposal.

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
The Production Possibilities Frontier

Learning Objectives

 Explain the production possibilities frontier

Society as a whole cannot have everything it might want, just as individuals

cannot have everything they want and must instead make decisions. The production
possibilities frontier (PPF) model is a tool used by economists to explain the
limitations society faces when determining what to produce.

You'll notice similarities between societal and individual choice as you read this
section. For the time being, concentrate on the similarities as there are more of them
than differences.

Individuals must manage their finances and schedules, while societies must
contend with the scarcity of resources (labor, land, capital, raw materials, etc.). There
is a limit to the amount of goods and services society can produce because its
resources are limited at any given time. Stated differently, the limited resources lead
to a limited number of products.

Suppose a society desires two products: health care and education. This situation
is illustrated by the production possibilities frontier in Figure 1.

The vertical, or y, axis represents health care, and the horizontal, or x, axis
represents education. What is the origin of the PPF? It results from the methods used
in the production of the two goods as well as the restricted resources that can be used
in that process. Let's say that a single teacher is able to instruct 25 students in a
classroom. Education can be given to a maximum of 250 students if society has 10
teachers in total. We would say that utilizing the current educational procedures, one
teacher could "produce" education for 25 students.

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
 Imagine if a society devoted all of its resources to the provision of medical
care. While it is undoubtedly one way to divide up a society's resources, doing so
would leave nothing for education. Point A in Figure 1 depicts this option. In a similar
vein, as demonstrated at point F, society could devote all of its resources to providing
healthcare but none to providing education. Alternatively, any combination of health
and education indicated on the production possibilities frontier could be produced by
society The production possibilities frontier essentially serves the same purpose for
society as a consumer's budget constraint does for an individual. Any combination of
the two goods on or within the PPF may be selected by society. It lacks the resources,
though, to produce outside the PPF.

The production possibilities frontier, above all, makes the trade-off between
healthcare and education crystal evident. Assume society has decided to function at
point B and is thinking about creating more educational opportunities. The PPF slopes
downward from left to right, making it impossible for society to afford more
education without sacrificing some health care. That is the price this society must pay.
Let's say it thinks about going from point B to point C. What would the additional
education's opportunity cost be? The healthcare that society would have to forgo
would be the opportunity cost.

Remember that the terms "monetary" and "fiscal," which refer to government
revenue or taxes, will help you distinguish between these policies.

These are the principal instruments available to the government. Filipinos

have a tendency to believe that the government can solve any economic issues we
face, but how realistic is that belief? These are only a few of the topics that this course
will cover later.

Watch this video about the hypothetical "Econ Isle" to have another look at the production possibilities
frontier. https://youtu.be/nsQi2ipSP2c?t=9

See another explanation for the PPF's curvature by watching this video.
https://youtu.be/Nw0ugthoc8o?t=7

Differences between a Budget Constraint and a PPF

We can now discuss the distinctions between a person's budget constraint and
society's PPF.

The various combinations of goods and services that a customer can buy with their set
budget are displayed in a budget constraint. A production possibilities frontier depicts
the range of products and services that a community can generate given its restricted
resources. The production possibilities frontier (PPF) differs from a budget constraint
in that it considers societal choice, which means that its axes will have much larger
numbers than those of a budget constraint on an individual basis.

The primary distinction between the two graphs is that a production possibilities curve
is normally concave towards the origin, whereas a budget constraint is represented by
a straight line. The explanation for this discrepancy is rather straightforward: the ratio
Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship
by: Exequiel Mendoza Perez, MBA
of the prices of the two goods or services determines a budget line's slope. Prices are
fixed, regardless of the quantity of each good or service that a customer purchases.
The cost to society of producing one good or service in comparison to another is
represented by the slope of a PPF, on the other hand. The relative costs shift when
society reallocates resources from one product to another, which also affects the PPF's
slope. Let’s dig into this.

Start by examining point A, which is located at the upper left corner of the PPF, to
comprehend why it is curved. Assume we have two different types of resources:
teachers and doctors, as in Figure 1 (repeated below). At point A, every resource—
that is, every teacher and every doctor—is committed to providing healthcare; nothing
is left over for education. Let's say that the teachers are doing their best to assist the
doctors while they practice medicine. This would be absurd, even out of control.
Children, for instance, do not attend school; instead, they see a doctor every day,
whether or not they are ill. Every part of the body is being cosmetically operated on,
but there is no such thing as a college or high school education!

Now consider a scenario in which some of these funds are transferred from healthcare
to education, resulting in the economy reaching point B rather than point A. Which
kinds of resources will be used to produce education? The doctors would be better off
practicing medicine instead of teaching, since they are not very good at either.
However, the teachers excel in teaching but struggle in providing healthcare. That
isn't what they were trained for, after all. Thus, shifting teachers from healthcare to
education makes sense. Furthermore, because the teachers weren't very good at
providing healthcare, the society doesn't lose much when they move. But since that is
what teachers are trained to do, there is a lot of education gained. This indicates that
there will be a minimal drop in healthcare from point A to point B, but a significant
increase in education. In terms of graphics, the slope—that is, the ratio of rise to run
—is flat because the rise is small and the run is large. Put differently, there is little
opportunity cost associated with education in terms of healthcare.

Graph illustrating how a society's resources are limited and frequently require
prioritizing where to invest. Healthcare is plotted on the y-axis and education is
plotted on the x-axis of this graph.

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
Re-exhibited is Figure 1. A frontier of production potential displaying healthcare and
education.

Starting from point F on the other end of the PPF and moving to point D would mean
that doctors would be transitioning from teaching to healthcare, which would result in
a large gain in healthcare and a small loss in education (using the same reasoning as
before). In summary, there would be a significant opportunity cost to education in
terms of healthcare, and the PPF would have a steep slope from point F to point D.

In general, the cost of production rises in proportion to the cost of producing other
goods or services as society produces more and more of a given good or service. As a
result, a PPF's slope begins flat and gets progressively steeper. The general rule still
applies even though there are more resources and goods available to us than just labor
in the real world.

There is an alternative way of looking at this. Budget dollars are the only scarce
resource available to consumers. We are merely spending money on different things
when we select more of one good and less of another, but every dollar is the same
when it comes to buying any good. There are numerous scarce resources for society.
Teachers and doctors are the two distinct resources in our straightforward example
above, and each is more adept at one task than the other. Stated differently, the value
of each resource varies when it comes to producing distinct goods. Generally
speaking, the trade-off (e.g., budget line) will be constant when allocating a single
scarce resource; however, the trade-off (e.g., PPF) will increase when allocating
multiple scarce resources.

The PPF's curved shape and the Law of Diminishing Returns

The law of diminishing returns is probably familiar to you if you've ever stayed up
late studying: eventually, every hour you spend studying makes you less successful.

The lesson is not that society will inevitably make a drastic decision, such as stopping
all funding for health at point F or education at point A. Rather, the takeaway is that
the benefits of allocating more marginal resources to education rely on the amount
that is currently being allocated. On the one hand, if there are currently very few
resources allocated to education, then increasing those resources can result in
comparatively significant gains. However, adding more resources will only result in
comparatively smaller gains if a significant amount of resources are already allocated
to education.

The law of diminishing returns is the term used to describe this pattern because it
occurs so frequently. According to this law, the marginal benefit of allocating more
resources to a particular goal will decrease as those resources are allocated. For
instance, after spending almost nothing on crime reduction, a government may see
comparatively significant gains in crime reduction after increasing spending by a
specific amount. However, subsequent increases usually result in comparatively
smaller reductions in crime, and it would be extremely costly to provide enough
police and security to bring down crime to zero.
Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship
by: Exequiel Mendoza Perez, MBA
The production possibilities frontier curve demonstrates that while more resources are
allocated to education, the first gains are fairly significant but eventually decline as
they move from left to right along the horizontal axis. Similarly, the initial gains are
fairly large but again gradually diminish as more resources are added to the health
care system, moving from bottom to top on the vertical axis. The production
possibilities frontier bends outward as a result of the law of diminishing returns.

The Basic Problems in Economics

The basic problem in economics is to determine the most efficient and

effective way to allocate resources. This means that a decision must be made on how
the resources will be used to produce the goods and services which people in the
society need and want. Identifying and setting a priority among the country’s
economic goals gives a nation a sense of direction. However, because of scarcity, any
society faces the basic economic problem of what, how and for whom to produce.

1) What to produce. This is a decision as to the types of goods and services

society desires. Are the goods to be produced for consumption or
investment?

2) How to produce. How are goods and services will be produced? It is

made of wood or bronze? Is it with the use of a machine or bare hands?
This is a question on the technique of production and the manner of
combining resources to come up with the desired output.

3) For whom to produce. Will the goods and services to be produced for the
children or adults, for girls or boys, for the rich or for the poor? This is the
problem of distribution. It is the determination of how output is to be
divided or allocated among members of the society.

ECONOMIC SYSTEMS

An economic system is a set of economic institutions that dominates a given

economy. An institution is a set of rules of conduct, established ways of thinking, or
ways of doing things. The principal objective of an economic system is to solve the
basic economic problems. They have varied concepts, strategies, and ways of
improving the living conditions of their people. Different countries have different
methods of tackling economic problems. There are four main types of economic
systems: the traditional, market economy, command economy and a mixed economy.

1) Traditional Economic System. In the traditional economic system, economic

decisions are made based on customs and traditions. The economy is generally repeat
the decisions made at an earlier time or by an earlier generation. The basic problems
of what, how and for whom to produce are decided by customs and traditions.

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
2) Market Economy or Free Enterprise Economy or Capitalism. The basic
problems of what, how and for whom to produce are decided by the market system or
simply the demand or supply condition. The factors of production are owned and
managed by private individuals or corporations. The essential characteristics of this
economic system are private ownership presence of competition, economic freedom
and profit motivation.

The market economy advocates forces within a competitive market, which

constitute the “invisible hand”, to determine how resources should be allocated. But
the excessive reliance on the market system is also detrimental to the economy
especially to the great majority of the people who can not compete if they only have
the skills termed as labor input at hand. If everything is left to the private sector
society is at a mess, too. Still, there might be responsible businesses that value and
acknowledge their corporate responsibilities. Yet, how many are they in the
economy?

To do these, government comes into the picture by directing activities in the

economy through its policy measures and supports to the household and business
sectors, hence a mixed system.

3) Command System or the Centrally Planned Economy or

Socialism/Communism. This economic system relies on the government to decide
how the country’s resources would be best allocated. The essential characteristics of
the command economy are: no private ownerships, no free competition, no profit-
motivation and central economic planning is present.

Most countries with a command economy have recognized the role of

competition and the importance of international trade for the growth of the economy
and have started to open up their economy to eventually adopt the market system,
hence, a transition to a mixed economy.

4) Mixed System or Mixed Economy. This economic system is a combination of the

market economy and command economy. Generally, most countries in the world can
be categorized as mixed economic system like the Philippines. There is public and
private ownership of resources and enterprises. Countries already recognize the
advantages of a market system because of competition. The presence of competition
makes the market efficient while the command economic system recognizes the
importance of government intervention in directing the economy.

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
 Table 1.2
Comparative Characteristic of Market Economy and Command Economy

Features Market Economy Command Economy or

Centrally Planned
Economy
Ownership of resources Private or individual Government, state or
ownership people ownership
Competition Presence of competition No individual competition
but a collective one
Economic decision on Market system or pricing State, government of the
what, how and for whom system people
to produce
Distribution of income Unequal distribution of Equal distribution of
income, there are rich and income (no rich and no
poor poor)
Motives for operations Operation for profit Operation for service
(welfare oriented
economy)

ECONOMIC GOALS

Economic policies are developed for certain goals which the economy would
like to achieve. The following are the goals or objectives of any society which may
minimize economic and social problems.

1) ECONOMIC GROWTH. An increase in the total output produced in the

economy measured in terms of Real Gross Domestic Product. It happens when
the economy increase its production capacity and develop better ways of
producing and developing new products and services.

2) EQUITABLE DISTRIBUTION OF INCOME. To ensure that no group of

citizens faces extreme poverty while others enjoy abundance and prosperity.
To do this, the government can impose heavy taxation from the rich and spend
this for social services.

3) PRICE STABILTIY. To prevent increases in the general price level known

as inflation, as well as decreases in the general price level known as deflation.

4) FULL EMPLOYEMT. To provide suitable jobs for all citizens who are
willing and able to work. Full employment is not only confined to
employment of labor but also full utilization of land, capital and entrepreneur
that will propel to more production in the economy, hence, economic growth.

5) ECONOMIC FREEDOM. To guarantee that businesses, workers and

consumers have a high degree of freedom in their economic activities.

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
 6) ECONOMIC SECURITY. To provide for those who are disabled,
chronically ill, handicapped or otherwise dependent.

Positive and Normative Statements

Learning Objectives

Distinguish between positive and normative statements

There are two different but related tasks that economists perform. They study
economic problems, for example, in order to establish causation and effect. For
instance, what caused the unemployment rate to spike sharply in 2008 and 2009?
Additionally, economists recommend policies. For instance, what action should the
federal government take in light of the rising unemployment rate?

The first kind of work is economic science, where scientists try to understand how the
world (or at least the economy) functions using theories and data. The conclusions are
known as positive statements, and this process is known as positive reasoning. Given
that GDP, or economic production, determines employment levels, it would be
reasonable to conclude that the slowdown in GDP during that time period contributed
to the rise in unemployment. The Great Recession has been the name given to this
downturn.

The second kind of activity is more arbitrary and invariably rests on the values of the
researcher. The process is known as normative reasoning, and the results are known
as normative statements. One suggestion for policy would be to encourage demand in
the economy by the government, as unemployed workers are not receiving any
income, and this would enable them to find new employment. A different
recommendation for policy would be that the government shouldn't try to stimulate
demand because doing so could result in a larger federal budget deficit that would
have to be made up for by higher taxes in the future. Which of these suggestions is the
best one to follow? Depending on your personal standards, yes.

Positive Statements

In general, positive reasoning and positive statements are impartial. They are
therefore testable. These can be divided into two groups. One is a hypothesis, such as
"a decline in GDP causes unemployment," which can be empirically verified by
examining the GDP and unemployment data. Similar to hypotheses, a statement of
fact can be proven to be true or false. Examples of such statements are "It's raining"
and "Microsoft is the largest producer of computer operating systems in the world." A
positive statement is a factual assertion or a hypothesis. Also keep in mind that while
affirmative claims are testable, they remain true even if they are untrue.

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
Normative Statements

Even though disagreements over affirmative statements are common, they can
eventually be settled by research. But there is another class of claims for which
research can never reconcile discrepancies. Any statement that assigns a value is
normative. Nobody can "prove" that a statement is true or false; it is the speaker's
opinion in this case. These are a few instances of normative claims in the field of
economics:

We should assist the underprivileged more.

Filipinos ought to put aside more money for their retirement.
Business profits are excessively high.

These claims are unprovable because they are predicated on the values of the person
making them.

Normative statements frequently cause controversy because different people hold

different values. An economist whose principles lead him or her to believe that we
ought to assist the impoverished more will differ from an economist whose principles
lead him or her to believe that we ought not. Until one of these two economists
convinces the other to adopt a different set of values, the two will continue to disagree
because there is no test for these values. Such differences in values form the basis of
many of the disagreements among economists, making them unlikely to be resolved.

People frequently present arguments as positive in order to persuade audiences when,

in reality, they contain normative elements. Newspaper and other media opinion
pieces are excellent instances of this. Because of this, it's critical to distinguish
between normative and positive claims.
To review the differences between normative and positive analysis, watch this brief video.
https://youtu.be/AV_p_QntywA

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA
Module 1- Activity 1

Discussion: Is Economics a Science?

Write a minimum of 200 words in response to the following prompts in a post,

and then leave a comment on TWO other posts.

Make an introduction to your classmates first. From where are you? What activities
do you enjoy? Why are you taking this class, and what are your academic objectives?
In terms of economics, what are you most eager to learn about?

Economics: Is it a science? Why not, and why not also? Provide the definitions of
"science" and "economics" as you understand them in your response and explanation.

Module 1- Activity 2

Assignment: Butter or Guns?

You will show that you can create a basic production possibilities curve in this
assignment by providing information on the quantity of one input (labor) and the
labor needed to produce each of the two outputs (butter and guns). Additionally, you
ought to be able to determine the opportunity cost of one good in relation to another
using the PPC's slope. You will provide an explanation of your figure analysis to
support your claim that combinations of the two goods cannot be produced outside of
the PPC.

Assume a country has twelve labor units in total, which can be used to make
butter or firearms. Producing one butter requires two labor units, whereas
producing one gun requires six labor units.

Justify the existence of scarcity in this economy. Make use of the data to support your
arguments.

1) What is the maximum number of firearms that can be manufactured?

2) What is the greatest amount of butter that can be made?
3) Create a production possibility curve for the country.
4) What is the country's opportunity cost associated with firearms?
5) Justify the country's inability to produce four butters and three guns.
6) Justify the nation's decision to not produce two butters and one gun.

Basic Microeconomics for Marketing Management/Human Resource Management/Entrepreneurship

by: Exequiel Mendoza Perez, MBA