REVIEW

Basic Concepts of Economics

OBJECTIVES:
▪ Explore the basic concepts of Economics
▪ Understand why we should be engaged in
the study of Economics
▪ Enhance our knowledge about the Basic
Economic Principles
▪ Explain how the economic system works
▪ Relate economics to our life experiences
ECONOMY
comes from the Greek word
oikonomos

which means
“one who manages a
household”
DEFINITIONS OF ECONOMICS
 “
Economics is the study
of how society manages
its scarce resources.

G. Mankiw
 “
Economics is the study of the
proper allocation and
efficient use of resources
to produce commodities for
the satisfaction of unlimited
needs and wants of man.

Gabay, et al.
 “
Economics is the social science
that studies the choices that
individuals, businesses,
governments, and entire
societies make as they cope
with scarcity and the incentives
that influence and reconciles
those choices.

Michael Parkin
Our inability to satisfy all our wants is called
scarcity.

With this, we c h o o s e among the available

alternatives.

The choices that we make depend on the

i n c e n t i v e s that we face.
 GOAL OF EC ON OMIC S

▪ To strengthen economic freedom

▪ Promote economic efficiency
▪ Promote economic stability
▪ To improve economic security
▪ Attaining a high level of growth

Gabay, B., R. R., Jr., & Uy, E. (2010). Economics: Its Concepts and Principles. Rex Bookstore.
❖ To strengthen economic freedom

This includes freedom

▪ of consumer choice
▪ of occupational choice
▪ to consume or save
Goals of 1
▪ of enterprise 1
Economics
❖ Promote Economic Efficiency

-making most out of the resources

available
Goals of
1
Economics 2
❖ Promote Economic Stability

-Stability
means there is no violent ups and
downs in the economy.
Goals of
1
Economics 3
❖ Promote Economic Security

Our government is providing us

economic security.
-by keeping the unemployment at low
level
-by ensuring price stability to control Goals of
1
inflation Economics 4
-by enforcement of contracts
-by preservation of environment

There should have an assurance that

goods and services will be available,
payments will be made and a safety net
will assist in case of disaster.
❖ To attain a high level of growth in the
economy

Assurance of economic growth and innovation.

Innovation leads to growth. Growth leads to Goals of
higher standard of living Economics
1
5
Basic Economic 1

Principles
6
How People Make Decision

▪ People face trade- offs

Basic
▪ The cost of something is what you
give up to get it Economic
▪ Rational people think at the margin Principles
▪ People respond to incentives
How People Interact

▪ Trade can make everyone better off Basic

▪ Markets are usually a good way to Economic
organize economic activity Principles
▪ Government can sometimes
improve market outcomes
How the Economy as a Whole Works

▪ A country’s standard of living depends

on its ability to produce goods and
Basic
services Economic
▪ Prices rise when the government prints Principles
too much money
▪ Society faces a short-run trade off
between inflations and unemployment
 METHODOLOGIES OF ECONOMICS

NORMATIVE POSITIVE
ECONOMICS ECONOMICS

has something to do with has something to do with what is

what ought to be, concerned with the way
how the world should be economic relationships are
attempts to describe the world
as it is
1. What to produce?
2. How much to produce?
Basic
3. How to produce? Economic
4. For whom to produce? Problems

???
 FACTORS OF PRODUCTION

LAND LABOR CAPITAL ENTERPRENEUR

EC ON OMIC SYSTEMS
▪ Traditional Economic System
▪ Command Economy
▪ The Market System/Free
Enterprise
▪ The Mixed economy
▪ Classical School
▪ Neo Classical
▪ New Classical ECONOMICS
▪ Keynesian Economics SCHOOL OF
▪ Monetarist THOUGHTS

▪ New Keynesian

https://www.economicsonline.co.uk/Economic_schools.html
Economic Models
Circular-Flow Diagram
The Production Possibilities Frontier
https://study.com/academy/lesson/circular-flow-diagram-in-economics-definition-example.html
 PRODUCTION
POSSIBILITIES
FRONTIER

a curve depicting all

maximum output
possibilities for two
or more goods given
a set of inputs
(resources, labor,
etc.)

assumes that all

inputs are used
efficiently
https://economics4u.weebly.com/production-possibility-frontier-ppf.html
MICROECONOMICS
VS
MACROECONOMICS
 Economics is divided into two branches:

👪 🌏
MICROECONOMICS MACROECONOMICS
study of how households and study of economy wide
firms make decisions and how phenomena, including inflation,
they interact in the markets unemployment, and economic
growth
deals with the behavior of
individual component deals with the behavior of the
economy as a whole
Explore:
Define what is Economics.

Engage:
Why do we need to study Economics?

Enhance:
After studying the Basic Economic Principles, cite the fundamental lessons we learned
1. About individual decision-making
2. About interactions among people
3. About the economy as a whole

E x p l a i n how does the economic system works.

Experience:
Give examples of important trade-offs that you face in your life.
Gabay, B., R. R., Jr., & Uy, E. (2010). Economics: Its
Concepts and Principles. Rex Bookstore.

https://wiki.ubc.ca/10_Principles_of_Economics
Mankiw, N. Gregory. Principles of Economics. 3
Stamford, CT. ISBN 978-1-285-16587-5. References 3

OCLC 884664951.