Republic of the Philippines

NUEVA VIZCAYA STATE UNIVERSITY

Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: IM-SSE108-2S-2022-2023

College: Teacher Education

Campus: Bambang

DEGREE PROGRAM BSED COURSE NO. SSE108

SPECIALIZATION Social Studies COURSE TITLE Microeconomics
YEAR LEVEL 1 TIME FRAME 3 hours WK NO. 1 IM NO. 1

I. UNIT TITLE/CHAPTER TITLE

Understanding Economics

II. LESSON TITLE

1. Economics defined
2. Nature of Economics
3. Methods and Tools of Economics
4. Branches and Divisions of Economics
5. The Methodology of Economics

III. LESSON OVERVIEW

This lesson introduces students to economic concepts that will help them understand the
importance of economics to humans and as future social studies teachers. Furthermore, it will educate
students on the methods and tools used to analyze economic data, which will later contribute to the
proper handling of economic matters.

IV. DESIRED LEARNING OUTCOMES

At the end of the lesson, the students should be able to:

1. define and discuss Economics and its two major divisions;

2. describe the nature of Economics;
3. enumerate and differentiate the different methods and tools used in the study of economics; and
4. discuss the methodology of Macroeconomic

V. LESSON CONTENT
“There is no such thing as abundance….that’s why there is Economics

1. Economics defined
The term "economics" is derived from the Greek words oikos, which means "family, household,
estate," and nomos, which means "custom, law," and thus literally means "household management" or
"state management.".

According to Adam Hayes, economics is a social science that focuses on the production, distribution,
and consumption of goods and services, and analyzes the choices that individuals, businesses,
governments, and nations make to allocate resources.

Definition of known economists

Adam Smith, Scottish philosopher, widely considered as the first modern economist, defined
economics as “an inquiry into the nature and causes of the wealth of nations.”

Alfred Marshall, British economist defined economics as the study of man in the ordinary business of
life. Marshall argued that the subject was both the study of wealth and the study of mankind.

Lionel Robbin, another British economist, defined economics as the subject that studies the allocation
of scarce resources with countless possible uses. In his 1932 text, “An Essay on the Nature and
Page 1 of 7
“In accordance with section 185. Fair Use of a Copyrighted Work of Republic Act 8293, the copyrighted works included in this
material may be reproduced for educational purposes only and not for commercial distribution.”
 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: IM-SSE108-2S-2022-2023
Significance of Economic Science,” Robbins said the following about the subject: “Economics is the
science which studies human behavior as a relationship between ends and scarce means which have
alternative uses.”

Economics is defined in the modern time, it is attributed to the 20th century economist, Paul
Samuelson, that builds upon the definitions of the past and categorized economics as a social science.
According to him, “Economics is the study of how people and society choose, with or without the use of
money, to employ scarce productive resources which could have alternative uses, to produce various
commodities over time and distribute them for consumption now and in the future among various persons
and groups of society.”

In summary, economics is defined as a branch of social science which is concerned with the study of
how individuals, households, firms, industries and government take decision relating to the allocation of
limited resources to productive uses, so as to derive maximum gain or satisfaction.

2. Nature of Economics
a. Economics is a science.
Science is an organized branch of knowledge, that analyses cause and effect relationship between
economic agents. Further, economics helps in integrating various sciences such as mathematics,
statistics, etc. to identify the relationship between price, demand, supply, and other economic factors.
➢ Positive Economics - A Positive Economics or science that is based on cause and effect
relationship between variables but it does not pass value judgment. In other words, it states
“what is”. Positive statements are about facts. They state what the reality is. Economics should
be neutral between ends. It is not for economists to pass value judgments and make
pronouncements on the goodness or otherwise of human decisions.

➢ Normative Economics - As normative economics or science, economics involves value

judgments. It is prescriptive in nature and describes ‘what ought to be’ or ‘what should be the
things’. Normative economics is concerned with normative statements. In this case, economics
is not concerned with facts rather it is concerned with how things should be.

b. Economics is an art.
Art is a branch of study that deals with expressing or applying the creative skills and imagination of
humans to perform a certain activity. Art is a discipline that expresses the way things are to be done, to
achieve the desired end. Economics has various branches like production, distribution, consumption,
and economics, that provide general rules and laws that can solve different problems of society.

Therefore, economics is considered as science as well as art. Science in terms of its methodology
and arts as in application. Hence, economics is concerned with both theoretical and practical aspects of
the economic problems which we encounter in our day-to-day life.

c. Economics is a social science.

Economics is also considered as social science as it deals with studying the behavior of human
beings and their relationships in society. This is because of the exchange of goods takes place within
the society and among different societies to satisfy the needs and wants of people.

3. Methods and Tools of Economics

Methods of Economics
There are two kinds of analysis in economics: positive analysis and normative analysis.

Both macroeconomics and microeconomics involve facts, theories, and policies. Each contains
elements of positive economics and normative economics. Positive economics focuses on facts and
cause-and effect relationships. It includes description, theory development, and theory testing (theoretical
economics). Positive economics avoids value judgments, tries to establish scientific statements about
economic behavior, and deals with what the economy is actually like. Such scientific-based analysis is
critical to good policy analysis.
Page 2 of 7
“In accordance with section 185. Fair Use of a Copyrighted Work of Republic Act 8293, the copyrighted works included in this
material may be reproduced for educational purposes only and not for commercial distribution.”
 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: IM-SSE108-2S-2022-2023

Positive economic analysis simply describes what exists and how things work. It has a more objective
orientation that distinguishes it from normative economic analysis which looks at the outcome of economic
behavior through judgments and prescriptions for courses of action. Positive economics is concerned with
what is, whereas normative economics is concerned with what ought to be.

On the other hand, normative economics incorporates value judgments about what the economy
should be like or what particular policy actions should be recommended to achieve a desirable goal.
Normative economics looks at the desirability of certain aspects of the economy. It underlies expressions
of support for particular economic policies.

To illustrate further, analyze the statement. "Taxes provide government services to the people." This
is a positive statement as it only describes the existence of something. The context of the statement may
be wrong, yet positive economics is not concerned with right or wrong statements. Instead, they only tell
what is. Now, to transform the given example into a normative statement, simply add an expression of
opinion or value judgment. One example is, "Government should levy more taxes to provide more services
to the people."

Other Examples:
֎ Positive statement - The unemployment rate in several European nations is higher than that in the
United States.
֎ Normative statement - European nations should undertake policies to reduce their unemployment
rates.
֎ Positive statement - Other things being equal, if tuition is significantly increased, college enrollment
will fall.
֎ Normative statement - College tuition should be reduced so that more students can obtain an
education.

These two approaches are the vital in studying economics. Economists apply them to come up with
systematized conclusions that will be used to design economic policies and theories.

The Tools of Economics

Economics is a positive science, which means that it deals with reality. In contrast, normative
economics is concerned with what should be. As a result, economics is a study that attempts to explain
how an economy works. To understand and explain economic events and theories, students of economics
must first learn how to use the basic tools of economics. To begin, he must learn how to apply logic in
order to properly reason and draw conclusions. Second, he will be able to conceptualize and quantify
economic principles through the use of mathematics. Third, he employs statistics to quantitatively describe
human behaviors and to serve as empirical evidence in hypothesis testing.

These tools equip the economist or even the student of Economics to approach the subject in a
scientific manner. This scientific approach can be outlined in the following stages:
1. Observation - An analyst should be able to recognize conditions, behaviors, and events in the
environment. By simply looking around, he shall be able to obtain information necessary to analyze
an economic principle.
2. Definitions and Assumptions - The analyst should describe the specific uses of the study and the
peripheral conditions which affect the economic behaviors which are being studied.
3. Deductions - These are hypotheses or theories presented for empirical validation. They are
temporary conclusions made based on one's observations and are still subject to the presentation
of evidence.
4. Empirical Testing - Deductions have to be tested as to their validity and correctness. The
presentation of the empirical evidence will be the basis of rejecting or accepting a hypothesis. The
evidence gathered consists of statistics which is used to verify one's guesses. In the Philippines,
important government agencies serve as major sources of statistics: the National Census and
Statistics Office (NCSO), the National Economic Development Authority (NEDA), the Central Bank,
and even the municipal and city halls.

Page 3 of 7
“In accordance with section 185. Fair Use of a Copyrighted Work of Republic Act 8293, the copyrighted works included in this
material may be reproduced for educational purposes only and not for commercial distribution.”
 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: IM-SSE108-2S-2022-2023

4. Branches and Divisions of Economics

a. Microeconomics
The part of economics whose subject matter of study is individual units, such as the consumer, a
household, a firm, an industry, etc. It analyzes the way in which the decisions are taken by the economic
agents, concerning the allocation of the resources that are limited in nature. It studies consumer behavior,
product pricing, firm’s behavior. Factor pricing, etc.

Microeconomics involves
✓ Supply and demand in individual markets.
✓ Individual consumer behavior. e.g. Consumer choice theory
✓ Individual labor markets – e.g. demand for labor, wage determination.
✓ Externalities arising from production and consumption. e.g. Externalities

b. Macroeconomics
It is that branch of economics which studies the entire economy, instead of individual units. The area
of focus includes the level of output, total investment, total savings, total consumption, etc. Basically, it is
the study of aggregates. It analyzes the economic environment, wherein the firms, consumers,
households, and governments make decisions. It covers areas like national income, general price level,
the balance of trade and balance of payment, level of employment, level of savings and investment.

Macroeconomics involves
✓ Monetary / fiscal policy. e.g. what effect does interest rates have on the whole economy?
✓ Reasons for inflation and unemployment.
✓ Economic growth
✓ International trade and globalization
✓ Reasons for differences in living standards and economic growth between countries.
✓ Government borrowing

Divisions of economics
Economics is divided into four major categories. They are consumption, production, exchange, and
distribution. In modern times, economists have added a new division: public finance. All of the above
divisions are interconnected. And they rely on one another.

1. Consumption
Consumption is the branch of economics that is concerned with spending by households and firms on
Page 4 of 7
“In accordance with section 185. Fair Use of a Copyrighted Work of Republic Act 8293, the copyrighted works included in this
material may be reproduced for educational purposes only and not for commercial distribution.”
 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: IM-SSE108-2S-2022-2023
goods and services. Consumption deals with the satisfaction of human wants. There is economic activity
in the world because there are wants. When a want is satisfied, the process is known as consumption.
Generally, in plain language, when we use the term 'consumption', what we mean is usage. But in
economics, it has a special meaning. We can speak of the consumption of the services of a lawyer, just
as we speak of the consumption of food.

2. Production
Production involves combining inputs or factors, such as land, labor and capital, to produce goods
and services. Economists use a production function to study the relationship between inputs and the
goods and services produced.

Production refers to the creation of wealth. Strictly speaking, it refers to the creation of utilities. And
utility refers to the ability of a good to satisfy a want. There are three kinds of utility. They are form utility,
place utility and time utility.

3. Exchange
Exchange refers to the buying and selling of goods and services, either through barter or the medium
of money. In most economies, exchange occurs in a market, the medium that brings together consumers
and producers

In modern times, no one person or country can be self-sufficient. This gives rise to exchange. In
exchange, we give one thing and take another. Goods may be exchanged for goods or for money. If goods
are exchanged for goods, we call it barter. Modern economy is a money economy. As goods are
exchanged for money, we study in economics about the functions of money, the role of banks and we also
study how prices are determined. We also discuss various aspects of international trade.

4. Distribution
Distribution examines the allocation of the national income among various inputs, or factors of
production. Distribution also can refer to the distribution of income among individuals and households.

Wealth is produced by the combination of land, labor, capital and organization. And it is distributed in
the form rent, wages, interest, and profits. In economics, we are not much interested in personal
distribution. That is, we do not analyze how it is distributed among different persons in the society.

5. Public Finance
Governments are active participants in the economy. Public finance is the division of economics that
studies taxation and expenditure by governments and the economic effects.

5. The Methodology of Economics

Economic methodology refers to study of practices, processes, and principles in relation to the
discipline of economics as social science. It also includes the theories, models and assumptions
underlying economic reasoning. It deals with what is and what is not economics.

Like the physical and life sciences, as well as other social sciences, economics relies on the scientific
method. It consists of a number of elements:
➢ The observation of facts (real-world data).
➢ Based on those facts, the formulation of a possible explanation of cause and effect (hypothesis).
➢ The testing of this explanation by comparing the outcomes of specific events to the outcome
predicted by the hypothesis.
➢ The Acceptance, rejection, or modification of the hypothesis, based on these comparisons.
➢ The continued testing of the hypothesis against the facts. As favorable results accumulate, the
hypothesis evolves into a theory. A very well tested and widely accepted theory is referred to as a
law or principle. Combinations of such laws or principles are incorporated into models—simplified
representations of how something works, such as a market or segment of the economy.

Example (Demand Theory)

1. Observe consumers’ behavior
2. Form hypothesis of how consumers spend
Page 5 of 7
“In accordance with section 185. Fair Use of a Copyrighted Work of Republic Act 8293, the copyrighted works included in this
material may be reproduced for educational purposes only and not for commercial distribution.”
 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: IM-SSE108-2S-2022-2023
3. Make prediction from hypothesis
4. Use evidence to test predictions. Evidence supports the hypothesis becoming a theory. Further tests to
strengthen the theory. However, if the evidence does not support predictions so reject the hypothesis.
It is then important to use the positive and normative statements.

Laws, principles, and models enable the economist, like the natural scientist, to understand and
explain reality and to predict the various outcomes of particular actions. But as we will soon see, economic
laws and principles are usually less certain than the laws of physics or chemistry.

Page 6 of 7
“In accordance with section 185. Fair Use of a Copyrighted Work of Republic Act 8293, the copyrighted works included in this
material may be reproduced for educational purposes only and not for commercial distribution.”
 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: IM-SSE108-2S-2022-2023
VI. LEARNING ACTIVITY

VII. ASSIGNMENT

VIII. EVALUATION

IX. REFERENCES
A. Books
Manapat, C., & Ang, A. (2016). Macroeconomics: An introduction (2nd ed.). C & E Publishing, Inc.

Manapat, C., & Pedrosa, F. (2018). Economics, taxation, and agrarian reform (2nd ed.). C & E Publishing,
Inc.

B. Online Resources
Hall, S. (2017, September 26). What are the major divisions of economics? Retrieved from
https://bizfluent.com/facts-6173474-major-divisions-economics-.html

BrainKart.com. (n.d.). Main divisions of economics. Retrieved from https://www.brainkart.com/article/Main-

Divisions-of-Economics_1512/

Nature of economics: As a science, art, social science. (2021, January 21). GeekTonight. Retrieved from
https://www.geektonight.com/nature-of-economics/

Prepared by:

JUDITH P. ALINDAYO - PATNAAN

Faculty

Page 7 of 7
“In accordance with section 185. Fair Use of a Copyrighted Work of Republic Act 8293, the copyrighted works included in this
material may be reproduced for educational purposes only and not for commercial distribution.”
 Republic of the Philippines
NUEVA VIZCAYA STATE UNIVERSITY
Bayombong, Nueva Vizcaya
INSTRUCTIONAL MODULE
IM No.: IM-SSE108-2S-2022-2023

Page 8 of 7
“In accordance with section 185. Fair Use of a Copyrighted Work of Republic Act 8293, the copyrighted works included in this
material may be reproduced for educational purposes only and not for commercial distribution.”