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Introduction to Economics

The document provides an introduction to economics, defining it as the study of how societies allocate scarce resources to satisfy human wants. It distinguishes between microeconomics, which focuses on individual economic units, and macroeconomics, which examines the economy as a whole. Additionally, it outlines basic economic problems, classifications of goods, and different economic systems such as capitalism, communism, and socialism.

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itsmejinnybriones
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4 views

Introduction to Economics

The document provides an introduction to economics, defining it as the study of how societies allocate scarce resources to satisfy human wants. It distinguishes between microeconomics, which focuses on individual economic units, and macroeconomics, which examines the economy as a whole. Additionally, it outlines basic economic problems, classifications of goods, and different economic systems such as capitalism, communism, and socialism.

Uploaded by

itsmejinnybriones
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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INTRODUCTION TO ECONOMICS

Learning Objectives:

To be able to:
- familiarize with the meaning of economics;
- differentiate microeconomics from macroeconomics;
- identify the basic terms used in Economics;
- identify the basic economic problems;
-distinguish the models of economic system.

Basic Concept

Every man of any distinction makes an economic decision everyday.


Deciding on how much to spend and save, the kind of food to buy, the type of
school to enroll, the amount of time for work and leisure, and many more are
only some situations where one applies economics. Thus, it is very important to
understand the various issues and intricacies concerning economics.

Definition of Economics
“Economics is concerned with humanity’s well-being or welfare. It
encompasses the social relationships or social organizations involved in allocating
scarce resources among alternative human wants and in using those resources
toward the end of satisfying wants as fully as possible.” Richard Leftwich
(1979)

“Economics is the study of how societies use scarce resources to produce


valuable commodities and distributes them among different groups.” Paul
Samuelson and William Nordhaus (1989)

“Economics is the study of how people make their living, how they acquire
food, shelter, clothing and other material necessities and comfort of this world. It
is a study of the problems they encounter and of the ways in which these problems
can be reduced.” Paul Wonnacott and Ronald Wonnacott (1986)

“Economics is a scientific study which deals with how individuals and


society generally make choices. Individuals and groups in society have
innumerable wants. To satisfy those wants, there are resources that can be used.
These resources, however, are not freely available. They are scarce and
furthermore have other alternative uses. Dimensions of choice include present and
future use of available resources. Moreover, the uses of these resources carry with
them costs and corresponding benefits. Concerns with costs and benefits require
efficiency in resources use.” Gerardo Sicat (1983)

Generally, Economics can be defined as a social science which deals with


the proper allocation and efficient use of available resources for the maximum
satisfaction of human wants (Fajardo, 1990).

Divisions of Economics

1. Microeconomics deals with the problems and analysis of behavior of


individual economic unit such as the consumer (household), seller
(firm) and owners of factors of production.
2. Macroeconomics deals with the problems of the whole economy and how
aggregated economic units or sectors such as consumer, business,
government and foreign sectors are interrelated.

MICROECONOMICS

Microeconomics is the study of the way the market for a particular good
or service works, that is, how the market-clearing price and the quantity of goods
and/or service that we exchange are determined. In a capitalist economy, the
market is the central concept of microeconomics. It focuses on its two main
players – the buyer and the seller, and their interaction with one another.

Microeconomics operatives in the level of the individual business firm, as


well as that of the individual consumer. It concerns how a firm maximizes its
profits, and ho a consumer maximizes his satisfaction.

Microeconomics is also described variously as Price Theory or the


Economics of the Firm.

Human Wants
Human wants are the goods and services needed by human beings.
Goods and services are those that yield satisfaction. It may be tangible (i.e.
shoes, dress, pencils, food) or intangible (i.e. haircut, foot spa, dental care).

Classification of Goods
Consumer goods vs. Capital goods
1. Consumer goods- When we eat hamburger, we get immediate satisfaction.
Hence, hamburger is a consumer good.
2. Capital goods- those that are used in the preparation of the hamburger
does not give a direct satisfaction (instead an indirect satisfaction because
without which, the hamburger cannot be prepared.)
Money is considered a “Capital” good because it does not give direct satisfaction.
Instead, it provides a means to buy (consumer) goods.

Essential goods vs. Luxury goods


1. Essential goods- These are the “basic” needs of man.
2. Luxury goods- These are those that contribute to man’s comfort and well-
being.

Characteristics of Wants
1. Unlimited
2. Varied
3. Insatiable (over an aggregate period of time)

Origin of Wants

1. Survival. People want food, clothing and shelter because they are
needed to survive.
2. Dictated by culture. The desire to have appliances such as television,
refrigerators and gas stoves are dictated by the culture where one
lives.
3. Generated by activity necessary to satisfy other wants. The desire to
complete college education is not because one really wishes to spend
and sacrifice in coming to school but this activity is needed because
it is essential to satisfy the ultimate desire of getting a better job in
the future.

Resources
Resources refer to the factors or inputs of production. They are those
which are needed to produce goods and services. These include:
1. Economic Resources. These are those with price tag because they are
scarce.
2. Free resources. These are those that has no price (because they are
abundant).

BASIC ECONOMIC PROBLEMS

1. What goods and services to produce and how much?


2. How to produce the goods and services?
3. For whom are the goods and services?

ECONOMIC SYSTEM
A system is a structure. So an economic system is the economic structure
of a given economy.
Models of Economic System

1. Capitalism – the factors of production and distribution are owned and


managed by private individuals or corporations. It has been known by
similar terms like market economy, free-enterprise economy, or laissez
faire economy. The latter are French words which mean no government
intervention in economic affairs. The essential characteristics are:
-private property -free competition
-economic freedom -profit motive
2. Communism – the opposite of capitalism wherein the government contr0ls
the economy. This is also called command economy or classless society.
The essential characteristics of communism are:
-no private property -no profit motive
-no free competition -presence of central planning
-no economic freedom
3. Socialism – the combination of capitalism and communism. The major
and strategic industries are owned and managed by the state while the
minor industries belong to the private sector. Karl Marx, the “father of
modern socialism”.

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