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Applied Economics Lesson 1

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11 views

Applied Economics Lesson 1

applied eco lesons

Uploaded by

kyrakeanerasonable
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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LESSON 1

REVISITING ECONOMICS AS A
SOCIAL SCIENCE
Defining Economics

Economics
-Refers to the effective management of scarce resources to
satisfy unlimited human wants and needs.

-It is a social science that studies the means by which


individuals, groups, and societies produce, distribute, and
consume products and services.
The origin of the study of
Economics is traced to Adam
Smith who wrote the book An
Inquiry into the Nature and
Causes of the Wealth of
Nations in 1776 and started
the idea of economics as a
separate discipline from
Philosophy.
Basic Economic Concepts
• Scarcity

• Unlimited Human Wants and Needs


Scarcity
-Is a fundamental concept of
economics.

-It refers to the limitation of


resources, particularly
economic resources such as
land, labor, capital, and
entrepreneurship.
The concept of scarcity is
coupled with the fact that
human wants and needs
are unlimited. Economics
defines needs as things
that are essential for
human survival, while
wants are those that are
desired but are not
essential for survival.
Economic Resources and Factors of Production
• Land

• Labor

• Capital

• Entrepreneurship
Land
-Refers to all natural resources
that exist without man’s
intervention.

-It encompasses all things derived


from the forces of nature such as
air, water, forests, vegetation, and
minerals.

-The payment for land is called


rent.
Labor
-Refers to human inputs such as
manpower skills that are used in
transforming resources into
different products that meet our
needs.

-The payment for labor is called


wages and salaries.
Capital
-Is a man-made factor of
production used to create
another product. Examples are
machinery and equipment used
in manufacturing companies.

-The payment for capital is


interest.
Entrepreneurship
-Is the factor of production that
integrates land, labor, and capital to
create new products.

-An entrepreneur is an individual who


makes the decisions with regard to
production and utilizing the other
factors of production.

-A successful entrepreneur not only ENTREPRENEURSHIP


creates new products, he or she also
innovates by improving on old ones.
The Basic Economic
Questions
What to produce?

-A society determines the kind and quantity of


products it will produce depending on what the
consumers want to buy or are willing to pay for.
How to produce?

-A society who will produce goods and what process of


production will be used.

-Goods may be produced by corporations, small business-


owners, or the government itself.

-The process of producing goods may be addressed


depending on the costs and the availability of resources
needed.
For whom to produce?

-The question revolves around the issue of who will benefit


from the goods and services produced. This depends on the
distribution of wealth in a particular society. Therefore,
consumer who has the capacity to pay for certain goods and
services is more likely to benefit than the one who cannot
afford them.
Economic System

-Is characterized by the type of institution responsible for


the management and allocation of resources used in the
production of goods and services.
Generally, there are three known
economic systems, namely,

• Market economic system

• Command economic system

• Mixed economic system


Market Economic System

-Is where all economic resources are


owned by private entities. This system
proposes the following answers to the
three economic questions: 1) produce
goods that yield high profits; 2) produce
at maximum efficiency with minimum
costs; and 3) distribute the goods to
those who can afford to buy them.
Command Economic System

-Is where all economic resources are owned


by government. The question “what to
produce?” is answered by producing more
public goods like roads, public schools, and
public hospitals. The question “How to
produce?” is answered by employing all
possible laborers and using available
machinery and equipment. The government
answers the final question by producing for
the public.
Mixed Economic System

-Is where all three questions are answered by


both the government and private entities in
consideration of their mutual benefit.
Economic resources are owned by both.
Today, most countries apply this type of
economy but in different proportions – some
countries employ an economic system which
is more command-oriented than market-
oriented, while others have a more market-
oriented economic system.
Decision-making and Rationality

-Decision making, therefore, is an important aspect of economics.


An important part of economic study is determining how individuals
or groups of individuals will behave give certain changes in the
economy.

-Economics uses concept of rationality to predict the actions of


people. Rationality is defined as the assumption that individuals are
consistent and logical in their decision-making, and that they seek an
outcome that is most beneficial to them.
Opportunity Cost

-One of the evident effect of scarcity is opportunity


cost. This refers to the cost of giving up an alternative
by selecting the best choice.

-When resources are scarce or limited, consumers are


compelled to choose how to manage them efficiently
and decide how much of their wants or needs will be
satisfied and how much of them will be left
unsatisfied.

-Hence, when a particular need is pursued, all the


other alternatives are forgone. And the more we have
of a particular good, the more we sacrifice other
things.
Trade-off

-Once the choice is made, you


can no longer go back and undo
such choice. This is called a
trade-off. Trade-offs could result
in either the satisfaction of
needs or a failure to meet them.

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