MAPUA INSTITUTE OF TECHNOLOGY

MURALLA STREET, INTRAMUROS, MANILA

SCHOOL OF CIVIL, ENVIRONMENTAL, AND GEOLOGICAL ENGINEERING

In Partial Fulfilment of the Requirements in

CEM 111

MICROECONOMICS
under the supervision of:

Engr. Mohebbi Farkam

CEM 111 / A2 | 16:30 21:00

Introduction to Microeconomics
Arce, Angelique R.
Benito, Emerson M.
Paguia, Patrick C.
Patches, Requito D.

OCTOBER 2016

Terminologies

basic needs

-mans needs required

for his survival

capital
services

-materials used in the production of goods and

economic resources
services

-inputs used in the production of goods and

economics system
economic problems

-the framework in which society decides on its

Economics
problem of issuing scarce

-a social science concerned with mans

-resources to satisfy unlimited wants

entrepreneur
used in the creation

-organizes all other factors of production to be

of goods and services

free enterprise system

privately owned
function
variables

-a system in which all economic resources are

-depicts the relationship between two or more

labor

-human effort expended in the production

land
anything found on or

-natural resource, not man-made, covering

under land, water, forests, minerals, and

animals
luxury goods
Macroeconomics
economics as a whole
market
sell goods, services,

-goods that can man do without

-the branch of economy that studies the
-context in which buyers and sellers buy and
and resources

Microeconomics
parts of the economy

-the branch of economics that deals with the

normative economics
what should be
positive economics
what actually is

-an analysis of economics which deals with

right to private property

to own things of

-the right of private individuals and enterprises

-an analysis of economics which deals with

theory
accepted to explain certain

value
-the unproven proposition tentatively
facts or to provide a basis for further

investigation
variable
wants
to be satisfied

-a factor that is subject to change

-the various desires of consumers that have

Scope of Topics of Economy Scope of Topics of

Economy
According to Samuelson
Economics (2001)

and Nordhaus

1. Economics studies how prices of land, labor and capital are

determined, and how these prices are used to allocate scarce
resources.
2. Economics looks into the behaviour of financial market and how it
allocates capital to the rest of the economy.
3. Economics looks into the distribution of income and into ways of
helping the poor without causing harm to the countrys economic
performance.
4. Economics studies the impact of growth of government spending,
taxes, and budget deficits.

5. Economics examines the movement in income and employment during

the different stages of business cycle with the goal of developing new
government policies that will improve economic growth.
6. Economics looks at the trade patterns among nations and analyzes the
impact of trade barriers.
7. Economics examines growth in developing countries and suggests
ways to encourage the efficient use of resources

ECONOMIC ACTIVITY
Mans Basic Economic Activity

Mans basic economic activity consist of effort to satisfy human

wants with the use of goods and services.

Three Elements in the Objective of Satisfaction

1. Human Wants these are unlimited and vary from the needs
for survival to
higher needs for a comfortable and
meaningful life.
2. Use of Resources the basic economic resources of nation
consists of land.
labor, capital, and entrepreneurship.
Since these items
are limited, man must learn how to
allocate them
properly in order to maximize the
number of wants that
can be satisfied.
3. Technique of Production this shows how resources are used
and combined.

CONSUMPTION
The household is the basic consuming unit in the economy. Since
human wants are unlimited, humans maximize their satisfaction through the
proper allocation or mix of expenditures with the context of budget
limitation.
Opportunity Cost defined as the value of a foregone alternative of a
specific resource
Business Firm serves as the economys producing unit to satisfy human
wants with goods
and service
The use of resource generates income for the resource owners. The
owner of the business has to forego the alternative use of his money to
invest in the business for which he charge interest. It is the entrepreneur
who has basically makes the decision as to how production resources should
be best combined to come up with the final output.

Some Economic Problems

1. Unemployment
2. Economic Instability
3. Low level of growth and development
4. Inequality in income distribution
5. Determination of the type of economic system to be
adopted to meet the countrys peculiar conditions and
needs

Economic Analysis
It is the process of directing economic relationship by examining
economic behaviour and events and determining the casual relationships
among the data and activities observed.

Tools in Economics
1. Logic
-analyzing relationship among economics to draw conclusions
from the particular to the general (inductive reasoning) or
from the general to the particular (deductive reasoning).
2. Statistics
-quantitatively describes the economic behaviour and
therefore serves as a basis in hypothesis testing. Hypothesis
becomes a principle or theory when empirically validated.
3. Mathematics
- this enables the analyst to foresee and asses a hypothesis
for validation.

Purposes of Economic Analysis

1. Aid in understanding how economy operates.
2. Permits prediction of results of changes on economic variables
3. Basis for just policy formulation.

Economic Policy
This consist of intervention or courses of action taken by the
government or other private institutions to manipulate the results of
economic activity.
The economic policy adopted by the government may be:
1. Monetary

2. Fiscal
3. Trade for economic welfare

Methodology
Economic Theory is a systematic study of economy activity
which consists of sets of principles or casual relationships among
the important facts or variables that surround and permeate
economic activity.

The Functions of Economic Theory

1. to explain the nature of economic activity
2. to predict what will happen to the economy as facts change

Positive Economics is completely objective, limited to the causeand-effect relationship of economic activity; it is concerned with
the way economic relationships are.

Normative Economics is concerned what is ought to be; value

judgments must necessarily be made, that is, possible objectives
must be ranked, and choices must be made among those
objectives
Economy policy-making conscious intervention in economic
activity with the intent of altering the course that it will take is
essentially normative in character.

PRICE THEORY AND ECONOMIC THEORY

Price theory (microeconomic theory) and the theory of the

economy as a whole (macroeconomic theory) constitute the basic
analytical tool kit of the discipline of economics.

MICROECONOMICS
-concerned primarily with the market activities on individual economic units
such as consumers, resource owners, and business firms.
-concerned with the flow of goods and services from business firms to
consumers, the composition of the flow, and the process for establishing
relative prices of the component parts of the flows.

-concerned with the flow of resources or service form the resource owners to
business firms, with their evaluation, and with their allocation among
alternative use.

MACROECONOMICS
-treats the economic system as a whole rather than individual economic
units of which it is composed.
- The particular goods and services making up the flow from the business
firms to consumers are not integrated parts of the analysis, nor are the
individual resources or services moving from resource owners to business
firms.
- The focus of macroeconomics are the value of the overall flow of goods
(net national products) and the value of the overall flow of resources
(national income).

Characteristics of Microeconomics
1. Microeconomics looks at the decisions of individual units
2. Microeconomics looks at how prices are determined in various type
of market structures
3. Microeconomics is concerned with social welfare
4. Microeconomics has a limited focus
5. Microeconomics develops skills
a. helps develop logical reasoning
b. helps develop skill in construction and use of models
c. employs optimizing techniques
d. concepts are applicable to personal resource allocation

ECONOMIC MODELS
Verbally composed of series of statements of assumptions or given
and statements of implications or deductions. The statement describes
the essential features of an item or process and the inter-relationship
between factors and variables model.

Mathematical Notation are shortcut representation of verbal

explanations
Graphically if the given raw data and compute for the results,
graphical figures can be illustrated

Microeconomics is concerned with three types of

models
1. models to explain the resource allocation
2. models to explain how prices and quantities exchanged
3. models to examine the market economy as an interrelated system

COMPARATIVE VS DYNAMIC ANALYSIS

Comparative statics focuses on the shift in equilibrium positions

for an economic system. Equilibrium refers to a state in which there is
balance of internal forces and no tendency for the situation to change
unless outside forces intervene. It can also be termed static. However,
dynamic analysis focuses on the pattern and rate of change for some
variables between points in time

PARTIAL VS GENERAL EQUILIBRIUM

Partial equilibrium analysis compares equilibrium changes for one
decision unit or one market independent of related changes in the
economic system. It assumes for the purpose of analysis that other
factors will remain the same.
General equilibrium analysis recognizes the interdependence of all
decision units and all markets in the economic system. It examines
changes in within the context of the entire system. All variables are
allowed to adjust in response to the initial change. The changes are
then incorporated into the calculations.

AN OVERVIEW OF THE ECONOMY

BASIC ECONOMIC PROBLEMS

1.

What to produce?
2. How much to produce?
3. How to produce?
4. For whom to produce?

TYPES OF ECONOMIC SYSTEM

1. Traditional Economic system
2. Command economies
3. Market system

The Market System and the Enterprise

Under the free enterprise system, the individuals is free to do any of the
following:
Purchase goods and services of the choice within the limits of his
income.

 Offer for sale his economic resources in exchange for a financial

remunerations.
Establish a business enterprise of the choice for the production and
sale of a desired product.

The Mixed Economy

An economic system combining private and public enterprise.
It is seldom that an economic system exists in its pure form.