INTRODUCTION TO

MICROECONOMICS
BSBA 4-1 major in Financial Management BLK A

PP 1-7
TERMS TO REMEMBER
✓ Basic Needs – man’s needs for his survival.
✓ Capital – materials used in the production of goods and
services including money.
✓ Economic Resources – inputs used in the production of
goods and services.
✓ Economic System – the framework in which society decides
on its economic problems.
✓ Economics – a social science concerned with man’s problems
of issuing scarce resources to satisfy unlimited wants.
TERMS TO REMEMBER
✓ Empirical Validation – the use of statistical evidence to prove
the validity of a hypothesis.
✓ Entrepreneur – organizes all other factors of production to be
used in the creation of goods and services.
✓ Free Enterprise System – a system in which all economic
resources are privately owned. Individuals are free to engage
in a business of their choice.
✓ Labor – human effort expanded in production regarding basic
economic problems.
TERMS TO REMEMBER
✓ Function – depicts the relationship between two or more
variables. It shows how one variable called the dependent
variable, depend on other variable or variables, called the
independent variables. For example, the demand function
shows how demand the dependent variable, varies according
to a change in price, the independent variable.
✓ Land – human effort expanded in production regarding basic
economic problems.
✓ Luxury Goods – goods that man can do without.
TERMS TO REMEMBER
✓ Macroeconomics – the branch of economics that studies the
economy as a whole; also known as national income analysis.
✓ Market – context in which buyers and sellers buy and sell
goods, services and resources.
✓ Microeconomics – the branch of economics that deals with
parts of the economy such as the household and the business
firm; also known as price theory.
✓ Normative Economics – an analysis of economics which
deals with what should be.
TERMS TO REMEMBER
✓ Positive Economics – an analysis of economics which deals
with what actually is.
✓ Right to private property – the right of private individuals and
enterprises to own things of value.
✓ Theory/Hypothesis – an unproven proposition tentatively
accepted to explain certain facts to provide a basis for further
investigation.
✓ Variable – a factor that is subject to change or variation.
✓ Wants – the various desires and needs of consumers that
have to be satisfied through the use of goods and services.
ECONOMIC ACTIVITY
ECONOMIC ACTIVITY
Three Elements of Man’s Basic Economic Activity
1. Human wants – that they are unlimited and vary from the needs for
survival, otherwise known as basic needs (e.g. food, clothing, and shelter).
2. Use of Resources – the basic economic resources of a nation consist of
land, labor, capital and entrepreneurship. Since these items are available
in limited amounts, man has to learn to allocate them properly in order to
maximize the number of wants that can be satisfied.
3. Technique of Production – shows how resources are used and
combined in production. Thus, production is described as capital-
intensive or labor-intensive depending on what factor is predominantly
used.
 Resources Payment
Land Rent
Labor Wage/Salary
Capital Interest
Entrepreneurship Profit
CONSUMPTION
1. Household – the basic consuming unit in the economy.
Since human wants are unlimited, humans maximize their
satisfaction through the proper allocation or mix of
expenditures within the context of budget limitations.
2. Business firm – serves as the economy’s producing unit to
satisfy human wants with goods and services.
SOME ECONOMIC PROBLEMS
SOME ECONOMIC PROBLEMS
1. Unemployment
2. Economic Instability
3. Low levels of growth and development – which makes them
more difficult for underdeveloped and developing nations to ris
e from their low levels of income and employment.
4. Inequality in income distribution resulting in concentration of
the nation’s wealth in the hands of few.
5. Determination of the type of economic system to be adopted
to meet the country's peculiar conditions and needs.
ECONOMIC ANALYSIS
• Economic Analysis - the process of directing economic
relationships by examining economic behavior and events and
determining the causal relationships among the data and
activities observed.
• Economic Analyst – uses statistics to quantitively describe
economic behavior and therefore serves as a basis hypothesis
testing. A hypothesis becomes a principle or theory when
empirically (verifiable by observation) validated.
• Mathematics – the third tool which enables an analysts to forese
e and assess hypothesis for empirical validation.
PURPOSES OF ECONOMIC ANALYSIS

• Economic Analysis is an aid in understanding how

economy operates because it explains how economic
variables are related to one another.
• It permits prediction of the result of changes in the
economic variables.
• It serves as a basis for just policy formulation.
METHODOLOGY

• Economic Theory - the ideas and principles th

at aim to describe how economies work.
THE CONSTRUCTION OF ECONOMIC THEORY

• First step: Specification and definition of its postulates.

➢ Postulates - to suggest a theory, idea, etc. as a basic principle from w
hich a further idea is formed or developed.
• Second step: Observation of facts concerning the activity
about which we want to theorize.
• Third Step: The application of the rules of logic to the
observed facts in an attempt to establish causal relationship amo
ng them and to eliminate as many irrelevant and insignificant facts
as possible.
THE CONSTRUCTION OF ECONOMIC THEORY

• Fourth step: Once hypothesis have been formulated, they be

thoroughly tested to determine the extent of which they are val
id, that is, extent to which they yield good explanations and pr
edictions.
• The tools of statistics and Econometrics are particular values in this
respect.
– Econometrics is the quantitative application of statistical and mathematical models
using data to develop theories or test existing hypotheses in economics and
to forecast future trends from historical data. It subjects real-world data to statistical
trials and then compares and contrasts the results against the theory or theories
being tested.
THE FUNCTIONS OF ECONOMIC THEORY

Two categories:
1. To Explain the nature of economic activity.
2. To predict what will happen to the economy as facts
change.
REFERENCES
REFERENCES

• Pagoso, Cristobal M., Dinio, Rosemary P., Villasis, George A.,

Meneses, Pamela Pagoso., Veloso, Priscilla Pagoso, 2014. Int
roductory Microeconomics Fourth Edition. Sampaloc Manila:
Rex Book Store, Inc. (RBSI).
• ADAM HAYES. Jun 25, 2019. Econometrics. https://www.inve
stopedia.com/terms/e/econometrics.asp
• https://dictionary.cambridge.org/us/dictionary/english/econ
omic-theory
• https://dictionary.cambridge.org/us/dictionary/english/postu
late?q=postulates