Scarcity - is a gravitational problem that’s why we
have to strategize to lessen or control it. The state
of being scarce or in short supply; shortage.
Economics deals with consumption, production,
and decision.
- Study of scarcity
- Social science that deals with the efficient
allocation of scarce resources to satisfy the
unlimited humans needs and wants
1. Differences between needs and wants.
Needs must be heavier than wants.
Needs - Something you must have for survival. In
the past, there are only 3 basic need. Foods,
Clothes, and Shelter. But as time passed by, our
needs become integral to improve our lives. Such
as, necessity in terms of education and health
care. So the analysis of needs become wider.
Abrahan Maslow – Psychologist created a
significant studies about motivational theory or
Hierarchy of Needs. Maslow's hierachy of needs
comprises 5 classifications of human needs. It is
also called as motivational theory which
represented human actions are directed toward
goal attainment. We must be satisfied before
progressing to the higher level of needs.
First level – these are basic needs tend to be
satisfied for most people to survive before other
things.
2nd and 3rd level – are considered as psychological
needs.
4th level – self esteem referring to human dignity
and strength
5th level – self-fulfillment needs which refers to
realization of a person’s potential.
Difference between Goods and services
Product – anything that a company offers that
satisfy a consumer wants or needs. We refer to
them as goods and services.
Goods – are physical actual products. Form,
shape, smell, etc.
Services - are tasks performed for the benefit of
the recipients.
Things that diffentiate goods from services.
a) Intangibility – services lack certain physical
characteristic and it makes very difficult to assess
them.
b) Inseparability – you have to be present or take
part in the delivery of the service.
Ex.* Haircut.
c) Variability – the service that we receive is
largely dependent upon the person that is actually
providing it.
Example:* you get a haircut and the person is not
very experienced, it can affect the outcome and
quality of that actual service.
d) Perishability – a service is consumed at the
time that is actually purchased. Contrary to goods
where you can acquire them and store them for
use later.Ex.* Haircut. You dont have the ability to
save a haircut for later.
Mixed products – possess characteristics of both
goods and services.Ex.* Restaurants. It provides
an actual meal which represents a tangible good,
and you also get the service provided by the wait
staff. Refilling your water, etc.
*Software is an actual good but its intangible. You
use it repeatedly and it doesnt have to be used at
the same point in time.
Economic Resources and their types
Resources are the factors which help us producing
goods and services that meet human needs and
wants. They are also called factors of
production.
Factors of production
1) Land- land includes not only agricultural soil but
also the natural resources which are free gift of
natures such as: trees, minerals, metals, oil, water,
crops, gems, etc.
2) Labor- it represents all physical and mental
abilites which people make available for
production of goods and services. Labor is usually
measured by the time spent in working during a
period.
3) Capital- refers to man-made resources or
production. It includes equipments, factory
buildings, all sorts of tools, machines, roads,
dams, buses, trucks, etc. These are often called
capital goods which help in the production of
further goods and services. Since capital goods
are man-made, they can produce more every year.
In this way, capital formation every year adds to
the stock of capital and increase our capacity to
produce goods and services. Capital formation in
a year is also called real investment.
4) Entrepreneurship- represents a special human
resource which provides entrepreneurial ability.
Entrepreneur plays a crucial role in our free market
economy. It is he who initiates and organizes the
production process by combining other resources
such as labor, capital, and land. Entrepreneur
takes various business policy decisions and risks
of loss from his venture. Introduce innovations
such as the use of new and better technique of
production and launching a new products.
The Economic Problem
Economic Questions and Activities
Economics is the study of choice in a world of
scarcity.
Wants are infinite, but the resources available to
us are limited.
Economic Activities:
1. What to produce? In order to satisfy all the
wants
- Production is the process of combining
various material inputs and immaterial
inputs (plans, knowledge) in order to make
something for consumption (output). It is
the act of creating output, a good or service
that has value and contributes to the utility
of individuals.
- Know what is the need of the market
- Factors of production: Capital,
Entrepreneurship, Labor, Land
(CELL)
- Capital: man-made resources
(investment)
- Land: natural resources (rent)
- Labor: human resources (salary,
wages)
- Entrepreneurship: human resource
(profit)
- Types of Goods
1. Basic - needed to survive
2. Luxury Goods - not everyone can afford
3. Public - provided by the government
4. Free - no monetary value
5. Economic - undergone process, and has
monetary value in the market
2. How to produce? What is the most effective
way to maximize production to meet as many of
the wants as we can?
- Process of creating the product
- Capital-intensive process that
includes more machineries.
- Labor intensive: includes more
labor
- Intermediate: balanced use of both
labor and capital-intensive-process
3. How much/How many - Know the scope of the
market (aggregate or segmentized)
4. For Whom - Distribution is the way total output,
income, or wealth is distributed among individuals
or among the factors of production (
- Answers the question whom to
produce
- Direct and indirect distributions
- Direct (from suppliers - customers)
- Indirect (from the manufacturer -
merchandise)
5. At what price? - considered already in the
production
- Exchange is a marketplace where
securities, commodities, derivatives and
other financial instruments are traded
- Should have an agreement
- Usually uses money
- Consumption is the act of using resources
to satisfy current needs and wants.
- Final activity in the economy.

Allocating Resources:
- Households: Main source of spending, and
we call this consumer spending
- Firms: purchase capital goods to produce
their output. This is called investment
- Government: Required to spend money on
areas such as education, infrastructure,
and healthcare.
Any economic agenda that promotes some sort of
social or policy agenda could be said to be
normative. For instance, arguing for a higher
minimum wage for the benefit of workers would be
an example of a normative argument, in that this
argument is based on subjective values. However,
an assertion that higher minimum wages would
lead to a higher GDP would be considered positive
economics.

Study of Economics What Is a Positive Theoretical Statement?

A positive statement is one that can establish
Microeconomics – about how individuals, hypotheses that can be empirically tested. In
households, and firms address the economic contrast, a normative statement is instead based
problem. These are smaller scale issues. They are on opinion or subjective values.
concerned with specific markets and industries.
Is Positive Economics Better Than Normative
Example questions: Does buying milk affect the Economics?
demand for coffee? What are the benefits of using Both types have their place, and on their own both
money? also have flaws. Integrating positive and normative
economic statements together is often required in
Macroeconomics – takes more holistic and order to create the policies of a country, region,
broader view of the economy and how government industrial sector, institution, or business.
address the economic problem.
Economic systems
Example questions: How does trading between
countries impact individual economies? An economic system is any system of allocating
Is national debt inevitable or a bad thing? scarce resources. Economic systems answer
Why have some people without jobs not included three basic questions: what will be produced, how
in rates of unemployment? will it be produced, and how will the output society
produces be distributed?
Positive vs. Normative Economics
Circular flow
Positive economics is a stream of economics
that focuses on the description, quantification, and
explanation of economic developments,
expectations, and associated phenomena. It relies
on objective data analysis, relevant facts, and
associated figures. It attempts to establish any
cause-and-effect relationships or behavioral
associations which can help ascertain and test the
development of economic theories.

Normative economics focuses on value-based

judgments aimed at improving economic
development, investment projects, and the
distribution of wealth. Its goal is to summarize the
desirability (or lack thereof) of various economic
developments, situations, and programs by asking
what should happen or what ought to be.

What Is an Example of Normative Economics?