I.

Introduction to Economics

A. Mans Work Against Scarcity

Scarcity
Refers to the limitation that exist in obtaining all the goods and services that people want
It gives rise to economic problems and it is the reason why man has to make a choice. It is the reason
why people economize
Basic economic problem facing all men. It is a condition wherein the needs and wants exceeds the
available resources

Nature of Economics

Making best use of resources (which are usually scarce and have other use)
To satisfy human wants

What are the main problems of economics?

1. What to produce?
2. How much to produce?
3. How to produce?
4. For whom to produce?
5. Where and when to produce?

What is ECONOMICS?

Economics refers to the proper allocation and utilization of the resources to satisfy the unlimited needs
and wants of the people.
Is a discipline concerning proper allocation, utilization and efficient use of scarce resources to attain the
maximum satisfaction of human beings.

Economics as a Science?

It is a systematic & organized body of knowledge

It follows an orderly procedure of gathering data, analyzing facts and drawing conclusions from those
existing phenomena. Just like other fields there is a need to analyze and scrutinize data.

Economics as a Social Science

It deals with peoples interaction with others, an interaction that affect the utilization of material
resources.

General Economic Resources

Economic Resources : things which are needed to carry on the production of goods and services

1. Land
Also known as Natural Resources, includes everything beneath, above and on the surface of the earth
 One of the most important factor in the production of goods and services and source or raw materials
for producing goods
Considered the largest part of the earth contains the resources that help in the improvement of the
economy

2. Labor
Any form of human effort both mental and physical exerted in the production of goods and services
Labor cover a wide range of skills, abilities and characteristics

3. Capital
Man-made goods use in the production of goods and services it includes money, building, machinery,
raw materials and other physical necessities that are used in the production

4. Technology
Societys pool of knowledge. It concern the principles of physical and social phenomena
It embodies applying knowledge of these principle to production and the day-to-day operation of
production.

The Universal Objective of Attaining the Maximum Output out of a given Input

Economics is concerned with Trade-off

Economists insist that both cost and benefits must be considered in making a decision. Economist will
use marginal Analysis to optimize, moving toward a maximum in small steps by asking question whether
a little more or less would make things better or worse.

Function of Economic System

1. Determination of what is to produce.

Picking and choosing from the wants those most important to society as a whole
It should reflect the desires of the group for goods and services that the economy can produce
Theory of Value: Deals with the allocation of resources between different uses and their efficient use.
What should be produced depends upon what the people want, and what the people want is not just a
bundle of goods but something that satisfies much deeper urges
Changes in consumer taste and preference modify the ways in which consumer spend their income.

2. Distribution of Income
Economic system is concerned with the question For whom are the goods and services being
produced?
It is linked with the question What goods are to be produced?
Prices and income will determine how products are to be distributed among various categories of
people
Income of an individual depends on two things: (1) Quantities of Different resources he can put into or
sell to the production process (2) The prices that he/she receives for them

3. Rationing in the very Short Run

Rationing commodities over the time period. The time period is called the very short run
 Economy must ration fixed supplies in two ways:
1st: It must allocate the supply among the different consumer
2nd: It must stretch the given supply over the time period from one production to the next
In free enterprise economy, Shortage will cause the price to increase the fixed supply, surpluses will
cause the price to decrease

4. Technique of Production
Refers to how a given products is to be produced or a service to be rendered
Concept of economic efficiency : refers to the ratio of output with the use of given inputs
The change of technique will depend upon the relative resource price and the quantity of products to be
produced.
The aim is to produce output as cheaply as it can.

5. Economic Maintenance and Growth

Maintenance: Keeping the productive power of the economic machine intact through the provision for
depreciation
Expansion: Refers to continuous increase in the kinds and quantities of Economys resources, together
with continuous improvement in techniques of production

Components of Economics

1. Economics is about making choices. Choices can be on:

What Commodities should be produced
For whom the commodities should be produced
How to best and most efficiently produce these goods
What is the best way to distribute the commodities
How much of the commodities will be produced
2. Economics is analyzing the different choices and their costs.
Choices will have cost. Different alternative choices will have different corresponding costs
3. The choices and their cost will have an effect on the future of those who make these decisions, or to the
recipients of the commodities.

Macroeconomics and Microeconomics

Macroeconomics is the study of the functioning of the economy as a whole. Macro means big or grand.
Macroeconomics studies, among other things:
Interest rates and currency exchange rates;
Trends in prices, output, wages, inflation, unemployment and
Government economic policies and taxation

Microeconomics is the study of smaller and individual entities. It studies the behavior of industries, companies,
and households. Micro means small or miniscule. Microeconomics means, among other things:
How industries price the goods they produce and distribute;
How taxes affect peoples work effort, consumption, saving and allocation
How households allocate and use their financial and other resources.