INTRODUCTION TO

ECONOMICS
 Economics is a social science that
examines how people choose among
the alternatives available to them.

The word economy comes from a

DEFINITION OF Greek word for “one who manages
ECONOMICS a household.”

It comes from the Greek word

“oikanomia” meaning “household
management”.
 Proper allocation and efficient use of
available resources for the maximum
satisfaction of human wants. – Fajardo

Economic is the study of how societies use

DEFINITION OF scarce resources to produce available
ECONOMICS commodities and distribute them among
different people. – Samuelson

The science of choice. – Nordhaus

 ANCIENT ECONOMIC THOUGHT

Hesiod Interested in efficiency – an

(8 BC) economic concept measured as a
ratio of outputs to inputs.

Maximum efficiency is taken to

be achieving the largest possible
output with a given input.
 ANCIENT ECONOMIC THOUGHT

Plato He made mention of SPECIALIZATION as

the reason for justification of society.
(468-
399
Through specialization, individual learns
BC) and perfects his knowledge in skills in an
art or practice as well as increasing the
production of material things.
 Effects of
Specialization
ANCIENT
ECONOMIC
THOUGHT

It increases output and

improves the welfare It is a component of
of individual in society justice.
by producing more
goods and services.
 Xenophone (430-355 BC)
• Viewed division of labor and
the allocation of resources
ANCIENT within a LATIFUNDA, as a way
ECONOMIC to self-sufficiency.
THOUGHT
• Efficient management will
eventually lead to self-
sufficiency –
“OECONOMICUS”
LATIFUNDA – pieces of land property covering tremendous area.
 Aristotle (384 –
322 BC)
ANCIENT
ECONOMIC •Divided concerns of
THOUGHT economics into two
separate fields:
•Oikonomiks
•Chrematistiks
 ANCIENT ECONOMIC THOUGHT

Oikonomiks – dealt with the

production and consumption of
goods.

Chrematistiks – encompassed the

activities of money-making as
well as some aspects of
production.
 An economic theory that holds the
prosperity of a nation depends upon its
supply of capital, and that the global
volume of trade is “unchangeable”.
Represented by bullion.
MERCANTILISM Bullion – gold or silver in bulk before
coining or valued by weight.

Suggests that the ruling government

should advance by playing a protectionist
role in the economy, by encouraging
exports and discouraging imports.
 Group of economists who believed that the
wealth of nations was derived solely from the
value of land agriculture or land development.

Physiocracy is the first well developed theory

of economics.
PHYSIOCRATS
The most significant contribution of the
physiocrats was their emphasis on productive
work as the source of national wealth.

Self-interest was the motivating reason for

each segment of the economy to play its role. -
Turgot
 French phrase meaning “let do”.

LAISSEZ-FAIRE Synonym for strict free market

THEORY economics.

Understood that private initiative and

production are best allowed to roam
free, opposing economic interventionism
and taxation by the state.
CLASSICAL ECONOMICS

“Selfish behavior by individuals leads to an outcome that

benefits everyone in society” – Adam Smith

Focused on economic growth and economic freedom,

stressing laissez-faire ideas and free competition.

Classical economics can be divided into two branches:

• General Equilibrium Theory

• Quantity Theory of Money
 General Equilibrium Theory
• Explained how much of each
good is created and how the
CLASSICAL
price of each good is related to
ECONOMICS every other good.

Quantity Theory of Money

• This theory is about money prices
as opposed to the real quantities
and relative prices.
 Theory of Comparative
Advantage
• Proposed by David Ricardo.
CLASSICAL • Even if a country could produce
ECONOMICS
everything more efficiently than
the other country, it would reap
gains from specializing in what
it was best at producing and
trading with other nations.
 The Principle of
Population
CLASSICAL
ECONOMICS • Thomas Robert Malthus.
• He made the famous prediction
that population would outrun
food supply, leading to
decrease in food per person.
 Marginalist School
• Emphasized that prices
also depend upon the
CLASSICAL level of demand,
ECONOMICS which in turn depends
upon the amount of
consumer satisfaction
provided by individual
goods and services.
 Neoclassical economics is an approach to economics
that relates supply and demand to an individual's
rationality and his ability to maximize utility or profit.

Neoclassical economics also uses mathematical

equations to study various aspects of the economy.
NEOCLASSICAL
ECONOMICS
Alfred Marshall – emphasized that the price and
output of a good were determined by both supply and
demand

Rational Behavior Theory - states that people act

rationally when making economic decisions.
 Keynesian economics was developed by
the British economist John Maynard
Keynes.

KEYNESIAN Keynesian economics is an economic

ECONOMICS theory of total spending in the economy
and its effects on output and inflation.

Keynes advocated increased

government expenditures and lower
taxes to stimulate demand and pull the
global economy out of the depression.
 Economics is
People cannot Economics offers important in order
live without many favorable to understand
production and possibilities.
problems facing the
consumption. citizen and the
family.

IMPORTANCE OF ECONOMICS
CONCEPT OF SCARCITY, CHOICE AND COST

Scarcity Scarcity is the condition of having

to choose among alternatives.

Means that society has limited

resources and therefore cannot
produce all the goods and
services people wish to have.
 1. What should be
Scarcity and the produced? Using the
economy’s scarce
Fundamental Basic resources to produce one
Questions: thing requires giving up
CONCEPT OF another.
SCARCITY,
CHOICE AND
COST 2. How should goods 3. For whom should
and services be goods and services be
produced? There are produced? If a good or
all sorts of choices to service is produced, a
be made in determining decision must be made
how goods and services about who will get it.
should be produced.
 Opportunity
Cost The value of the best
alternative forgone in making
any choice.

CONCEPT OF Represents an alternative given

SCARCITY, up when a decision is made.
CHOICE AND
COST

The value (not a benefit) of the

choice of a best alternative
cost while making a decision.
 Choice
CONCEPT OF • An act of selecting or
SCARCITY, making a decision when
CHOICE AND faced with two or more
COST possibilities.
• One alternative is
selected over another.