Basic Microeconomics Definition of Economics

Microeconomics – is the field of economics that § Science of choice/making choices,

looks at the economic behaviors of individuals, decisions
household, and companies. § How wealth is allocated (wealth of a
nation)
Example: specific like Dumaguete City § Wiser utilization of resources
§ Incentive analysis
§ Study of Scarcity
Macroeconomics – takes a wider view and Law of Scarcity
looks at the economics on a much larger scale –
regional, national, continental, or even global. § All resources are scarce

Example: Bigger like the Philippines than Luzon Scarcity of humans:

Economy – is an area of production,
distribution, and trade, as well as consumption
of goods and services. It is the process or system
by which goods and services are produced, sold,
and bought in a country or region.
- Goods, services, bads
- Includes everything that human
creates/ made
- Everything is converted with value
from money
- Money is value/costs
- Economy = people
- Pension is from the economy
1. Japan
2. Europe
3. America – first people to age
10 Basic principles of Economics
1. People face trade-offs – The principle
of trade-offs is quite simple. It states
that every time a person acquires
something, it is at the cost of something
else. A common phrase which is used to
describe this concept is, “there’s no such
thing as a free lunch.”

Economy 2. The cost of something is what you give

up to get it – Recognizing the principle
of trade-offs allows people to weigh cost
opportunities. Cost opportunities require
weighing the benefits and costs of a
Money – important element in the economy decision.
For example, weighing the decision to
go to college is not just about the cost of
tuition, but also the time spent in class
Resources and commuting which cannot be used
a. Natural
for making money at work.
Resources
b. Physical/ 3. Rational people think at the margin –
Artificial In business, one assumes that consumers
Natural Resources are rational. Rational decisions assure
resources: c. Human that consumers will try to choose a
Trees, water, Resources product or service which gives them the
land, animals, best price, opportunity cost, and benefit.
d. Time
livestocks, Consumers weigh the opportunity cost
and benefit of available products
mineral, air
4. People respond to incentives –
Because consumers use rational means
to make decisions. Companies often
need to supply reasons and incentives
for consumers to choose their product or
service over others. This is done by
spelling out what the benefits include so
that consumers have enough information
to make a decision. The principle of
incentives is a familiar approach in most
marketing strategies.
5. Trade can make everyone better off
– Trade is a mutually beneficial process.
Ideally, a trade between two parties is a
gain for both sides. In other words,
economic trade, whether between
individuals, companies and individuals,
or even between countries, is not a
competition where one side wins and the
other loses, but rather, a win-win
scenario.
6. Markets are usually a good way to
organize economic activity – A market
economy has been shown to be very
effective compared to centrally planned
economies. Centrally planned
economies, otherwise known as
command economies, are economic
systems run by government or authority
decisions. A market economy, on the
other hand, functions through the
decisions of consumers, businesses, and
firms.
7. Governments can sometimes
improve market outcomes – With this
said, governments can be effective in
helping during times of market failure.
Market failure is a situation in which the
market fails to allocate resources
properly. Examples of market failures
are situations in which bystanders are
harmed by the market (i.e. pollution) or
in which there are monopolies affecting
equal distribution. Different countries
and governments have different policies
when it comes to government
involvement in the market economy.
8. A country’s standard of living
depends on its ability to produce
goods and services – There is a
connection between a country’s standard
of living and productivity. The higher
the quantity of goods which a country
produces indicates a higher standard of
living. The way that a country can
improve standards of living is by
encouraging higher levels of
productivity through education, tools,
and access to opportunities.
9. Prices rise when the government
prints too much money – This
principle is pretty simple: The more
money a country prints, the less value
the money has. This means that an
increase in printing leads to an inflation
in prices.
10. Society faces a short-run tradeoff
between inflation and unemployment
– The short-run effect of printing more
money can lead to higher rates of
employment along with the higher
prices. Some economists believe that
this short-run effect is still worth the
cost of inflation and eventually evens
out over time, while other economists
are not sure whether the relationship
between employment and prices exist.
Conclusion
Economic principles are the complex
ways in which the economy runs (or
fails). These 10 economic principles by
Gregory Mankiw demonstrate that our
everyday decisions as businesses and
consumers make a big difference in the
economy.
Definition of Economics
1. Study of Scarcity of Resource and
How society manages to fulfill
unlimited wants and needs
o Without scarcity there will
be NO ECONOMICS
o Scarce – limited or fixed
amount and depleting
o If it is DEPLETING then it
is not renewable
o Needs are what we need in
order to survive, we cannot
live without it and needs
can be fulfilled
o Wants are what we can live
without, it cannot be
fulfilled, it has no limits
2. Economics deal with the choices we
make
o There are traders, sellers who
keep supplies in a facility and
will just let it all out if supplies
are no longer available, they try
to manipulate
o Before making a decision, see
first the cost and its benefits,
what would be the results?
3. Examines how individuals and
societies manages resources
1. Quality of resource each
economy has have different
ways
2. Can be used in many
different ways like
agriculture, infrastructure,
housing
3. Outweigh cost on the
benefits
3 Basic Elements of Economy
1. To produce
2. To consume
3. To distribute
3 Basic Questions of the Economy
1. What to produce?
2. How to produce?
3. For whom?
Economic System
1. In a pure market economy, the basic
economic questions are answered by
private individuals and businesses
freely interacting over time. Private
property is protected, and
competition and negotiation are
encouraged.
2. In a pure command economy, the
basic economic questions are
answered by the government, which
owns the productive resources and
handles distribution of goods and
services.
3. Mixed Socialist
Command/Communist
Free Market/ Open Economy/ Market System
Mixed/ Socialist
Free market/ Mixed Command/ b. Voluntary exchange
Open economy/ Socialist Communist c. Freedom to compete in market
Market system d. Protection of persons/ property – No
protection since the owner of the
property makes the law which are
the congressman
Note: The voluntary exchange and freedom to
compete in market are more of monopoly
1.What to Led by Need whatever price of electricity, no objective since
produce? Private sector/ it has NO COMPETITION
Depends on the intervention 4. Full employment
price by the - people who are capable, willing
Impact: Poverty government should have jobs. Business owners
prefer low cost resulting to lack of
2.How to Government Resources jobs.
produce? Influence - There are lands who were not
Depends on the touched and planed with crops that’s
cost why there is shortage
Impact: 5. Economic Growth – economy is
Unemployment growing
6. Economic Security
3.For whom? Government Everybody – consistent ability to meet all needs
To those who Influence such as product and services AND
can afford wants
Impact: - Capacity
Unequal 7. Economic Stability
- Available to people without
interruption
Economic Goals/ Objectives - Interruptions such as:
1. Productivity – raise the level of a.) Unemployment
production of goods and services b.) Price
• Being productive is efficiency c.) Budget (Unemployment, Price,
• Efficiency is the least amount of cost Budget)
(resources) to generate the maximum
output Quality of Life
• We need to consider scarcity 1. Comfort
2. Equity – equitable distribution of the 2. Success
fruits of the economy, distributing the 3. Good governance
products of the resources 4. Economic indicators are met thru health,
Issue: widening gap between rich and poor education, income
• Requires fairness distribution
Two most important priorities of the whole
• Equity – fairness, justice VS
world
Equality is classic reality
1. Food
• Free market is more on equity
2. Weapon
• More equal distribution, the more
people suffer
3. Economic Freedom
Aspects of Economic Freedom or
Ingredients:
a. Personal choice
 Topic 1. Production

Production
- Manufacturing
- Relationship between inputs and outputs; mathematical or technological means of
knowing inputs and outputs

Inputs Conversion process Outputs

- which are the
- raw materials technology, - Final products
such as land procedure,
system/process or
(rent), labor
ideas
(salaries/wages),
Entrepreneurial
skills (profits),
and capital
(interest)

Technology
- Innovation, economic development of Machines, Equipment, System
- Associated with the idea when converted into something will result to a technology
- Idea of coming up to all procedures and processes, the finish product is the computers
and etc.