There are 3 strands in the development of the definition
of Economics:
 Study of Wealth
Wealth-getting (Production) and wealth-using
(consumption) implies that the motivation of the
process of wealth accumulation is the utilization of
wealth for the individual’s satisfaction and society’s
welfare.
o Wealth – anything that has value or
importance
 Study of Making choices – decision-making
Decisions based on alternative choices; choose
something that gives additional benefits
Opportunity cost - foregoing or sacrificing the
benefits that would have been derived from
alternatives that were not selected.
 Study of Allocation – distributing wealth because of
limited resources
Allocation of scarce resources to answer the
unlimited human wants.
FOUR FACTORS OF PRODUCTION
1. Land – raw materials
2. Labor – human resources
3. Capital – money/equipment
4. Entrepreneur – the manager
There are 5 elements in the definition of economics:
1. SOCIAL SCIENCE – Study of the society and the
manner in which people behave and influence the
world around us
 SCIENTIFIC METHOD – A method of inquiry
from identifying a problem, proposing
alternative tentative answers or hypotheses,
testing the tentative answers to question or
problems at hand, gathering and treating the
data, and answering the question through the
conclusion
 HUMAN INTERACTIONS – aspire to preserve
group as a social unit, to make it stable,
promote growth, expansion and development.
 MATERIAL WEALTH – how economy make this
wealth available to people with minimum
difficulties, and its expansion.
 OTHER SOCIAL SCIENCES
o Political – the creation and utilization of
power is being studied for preservation,
stability and growth of society as a
political unit
 Government – keeps peace,
stability to prevent chaos;
protect the people and provide
o Behavioral – sociology, anthropology,
psychology – society’s cultural identity
o History – recording and analysis on how
these goals of societal preservation,
stability and development are achieved
2. RESOURCES – Products of nature, qualities of
individuals, and man-made things which are used in
producing goods or services; used to answer the
needs and wants of a society
o NATURAL RESOURCES – can directly provide
goods for current consumption, or use as raw
materials for production of other goods
o HUMAN RESOURCES – qualities of human
beings that may include labor, intelligence,
health, education, talents, and many more; give
capacity to create value directly through
services and indirectly by becoming factor
inputs of production.
o PHYSICAL RESOURCES – man-made resources
that include various types of buildings,
equipment, technology, bridges, factory plants,
and other physical infrastructure that can
provide present and future satisfaction; value
does not disappear but depreciate (wear and
tear)
RESOURCES ARE LIMITED
- Length of time and difficulties in production
o nonrenewable
- Competing uses of resources
3. HUMAN NEEDS AND WANTS
Human wants is a differentiated or expanded
human needs rather than luxuries. This is being
accounted by the way consumers answer their basic
needs and depends on the status of the person.
Human needs are basic necessities for material
survival including food, shelter, and clothing.
ABRAHAM MASLOW’S HIERARCHY OF NEEDS
1. Physiological needs – basic
2. Safety and security – shelter/employment
3. Love and belongingness
4. Self-esteem
5. Self-actualization
4. SCARCITY – Limitation of resources to answer
expanding human wants; permanent; natural
occurrence; major economic problem
Scarcity is a general characteristic of resources in the
light of its competing uses that may arise from the rapid
expansion of human wants.
Shortage is a condition when the supply of good,
service, or resource is not enough to meet the demand;
temporary
Surplus – supply is higher than the demand; wastage
5. ALLOCATION – A mechanism of distributing limited
resources to meet expanding human wants to
respond to the economic problem of scarcity
How can we treat the problem of scarcity?
o Temper or slowdown the expansion of their human
wants in the light of limited resources.
o Hasten the expansion of limited resources in the
light of expanding human wants.
o Combination of two alternatives.
MECHANISMS OF ALLOCATION
1. Market System – Market-based; buyer/seller;
changes in price and corresponding responses
MARKET – A state when buyers and sellers
transact on the purchase or sale of goods and services
Consumer considers the PRICE as an indicator of his
satisfaction/benefit/utility in the purchase of a good or
service. Therefore, a higher price reflects higher utility
while a lower price implies lower utility.
PRICE – both an index of cost or sacrifice (for
producers) and benefit or satisfaction (for buyers)
3 Basic economic questions:
o What to produce?
o How to produce?
o For whom to produce?
o Purchasing power – amount of
resources they have and the
productivity of these resources
2. Command System (government-based; uses
political power to address economic problems of
production and distribution
- The state or agency of government maybe in
charge in the allocation of resources by using its
political power in answering the basic economic
problems
- Temporary alternative mechanism in abnormal
times
- Used in times of calamities, disasters, or
national emergencies
Example:
Typhoon destroyed crops, damaged houses and
business establishments. The government will:
o Ration commodities
o Impose price control
o Confiscate resources
3. Tradition Process
- Practiced in indigenous communities where life
is less complicated and the simple needs of the
society can be self-produced
- Roles of social structure, norms, belief, and
value system are important in shaping the
behavior including the accumulation and
utilization of wealth
ECONOMICS – A social science that deals with the
allocation of scarce resources to meet the unlimited
human needs and wants; science of choosing an activity
from alternative options that will yield the highest
benefits to the society; deals with people and how they
interact w/ one another to sustain, stabilize, and
develop the material dimension of a society
ECONOMICS as an Applied Science
o Accountancy – the info generated in the
recording and analysis on the state of assets can
be useful in making business decisions in terms
of wealth.
o Marketing – understanding the behaviour of
consumers to expand market share
o Finance – formation of excess funds for
investment purposes through concept of saving
rooted on the opportunity cost of present
consumption.
o Management – optimal combination of
resources.
Others; education, international trade, labor, health,
transportation, analysis of environmental problems, and
understanding crimes and social ills.