Republic of the Philippines

NUEVA ECIJA UNIVERSITY OF SCIENCE AND

MUNICIPAL GOVERNMENT OF TALAVERA
Talavera, Nueva Ecija, Philippines
TALAVERA OFF - CAMPUS
LEARNING UNIT I. THE DISCIPLINE OF ECONOMICS

TOPIC 1. MACROECONOMICS VERSUS MICROECONOMICS

MACROECONOMICS

Macroeconomics is a branch of economics that studies how an overall economy behaves. It is

also concerned with what happens when different economies interact on a global level.

The Three Main Objectives of Macroeconomics

1. Output or Gross Domestic Product (GDP)

Output, the most important concept of macroeconomics, refers to the total amount of goods
and services a country produces, commonly known as the gross domestic product (GDP).
This figure is like a snapshot of the economy at a certain point in time.

2. Unemployment
The unemployment rate tells macroeconomists how many people from the available pool of
labor (the labor force) are unable to find work.

Macroeconomists agree when the economy witnesses growth from period to period, which is
indicated in the GDP growth rate, unemployment levels tend to be low. This is because, with
rising (real) GDP levels, we know the output is higher and, hence, more laborers are needed
to keep up with the greater levels of production.

3. Inflation or Price Stability

The third main factor macroeconomists look at is the inflation rate, or the rate at which prices
rise. It is the main measure of price stability. A low rate of inflation means that prices are
stable.

Instruments of Macroeconomics

There are two ways the government implements macroeconomic policy. Both monetary and
fiscal policy are tools the government uses to help stabilize a nation’s economy.

1. Monetary Policy
Monetary policy is one of the instruments used to achieve macroeconomic objectives.
Monetary policy is the action of the central bank in managing the country’s money and
overall banking system.

A simple example of monetary policy is the central bank’s open market operations. When
there is a need to increase cash in the economy, the central bank will buy government bonds
(monetary expansion). These securities allow the central bank to inject the economy with an
immediate supply of cash. In turn, interest rates—the cost to borrow money—are reduced
because the demand for the bonds will increase their price and push the interest rate down. In
theory, more people and businesses will then buy and invest. Demand for goods and services
will rise and, as a result, the output will increase. To cope with increased levels of
production, unemployment levels should fall and wages should rise.

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NUEVA ECIJA UNIVERSITY OF SCIENCE AND
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On the other hand, when the central bank needs to absorb extra money in the economy and
push inflation levels down, it will sell its Treasury bills, or T-bills. This will result in higher
interest rates, which will cause less borrowing, less spending, and less investment. It will also
decrease demand, which will ultimately push down the price level (inflation) and result in
less real output.

2. Fiscal Policy
Fiscal policy is another instrument to achieve macroeconomic goals, and it involves
government actions in spending and taxation.

The government can also increase taxes or lower government spending in order to conduct a
fiscal contraction. This lowers real output because less government spending means less
disposable income for consumers. And, when more of a consumer's wages go to taxes,
demand will also decrease.

A fiscal expansion by the government would mean taxes are decreased or government
spending is increased. Either way, the result will be growth in real output because the
government will stir demand with increased spending. In the meantime, a consumer with
more disposable income will be willing to buy more.

A government will tend to use a combination of both monetary and fiscal options when
setting policies that deal with the economy.

MICROECONOMICS

The word micro in microeconomics is derived from a Greek words micros which means ‘a
millionth part of a thing’ or simply, ‘small.’ While the word ‘economics’ comes from the two
Greek word oikos, meaning house, and nomos, meaning to manage or to set rules that means the
art of managing a household.

According to Gardner Ackley, microeconomics deals with the division of total output among
industrialists, producers and firms and the allocation of resources among competing groups. It
considers problems of income distribution. Its interest is in relative prices of particular goods and
services.

While Prof. Samuelson said that microeconomics studies the behavior of individual parts and
units of any economy, e. g., determination of the price of a product or study and observation of
the behavior of a consumer or a firm.

Thus, microeconomics is defined as a branch of economics that study the individual behavior
and the functioning of small unit in the economy such as household, firms, markets. It examines
how consumers choose between and services. It establishes the relationship between facts and
results, which are called economic laws.

Also, microeconomics is often called price theory to emphasize the important role that prices
play in determining market outcomes that deals with the price of goods and services, rewards of
the factors of production and interaction. It explains how the actions of all buyers and sellers
determine prices and how prices influence the decisions and actions of individual buyers and

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NUEVA ECIJA UNIVERSITY OF SCIENCE AND
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Talavera, Nueva Ecija, Philippines
TALAVERA OFF - CAMPUS
sellers. In brief, microeconomics is the study of choices made by consumers, firms, and
government and how these decisions affect the market for a particular good and services. The
goal of micro economics is to explain the determination of prices and quantitative individual
goods and services. It analyzes the allocation of scarce resources and seeks to understand how
individuals and firms make choices based on their preferences, constraints, and incentives. It
examines the principles of supply and demand, price determination, and the effects of market.

Microeconomics provides insights into the decision-making processes of individuals and firms
and how their interactions shape market outcomes. It forms the foundation for understanding the
functioning of specific markets, analyzing economic policies, and evaluating the effects of
changes in market conditions on various economic agents.

TOPIC 2. POSITIVE VERSUS NORMATIVE ECONOMICS

POSITIVE ECONOMICS

The positive economics refers to the objective analysis in the study of economics. Most
economists look at what has happened and what is currently happening in a given economy to
form their basis of predictions for the future. It deals with empirical facts as well as cause-and-
effect behavioral relationships and emphasizes that economic theories must be consistent with
existing observations and produce testable, precise predictions about the phenomena under
question.

Key Takeaways

 Positive economics is an objective stream of economics that relies on facts or what is

happening.
 Conclusions drawn from positive economic analyses can be tested and backed up by data.
 Positive economic theory does not provide advice or instruction.
 Statements based on normative economics include value judgments or what should be in
the future.
 Positive economics and normative economics can work hand in hand when developing
policy.

Understanding Positive Economics

The cornerstone of positive economic practice is to look at fact-based behavioral finance or

economic relationships and the cause-and-effect interaction to develop economic theories.

Advantages and Disadvantages of Positive Economics

Advantages of Positive Economics

Positive economics is based on objective data rather than opinions and value judgments. There
are facts we have at our disposal to back up any of our claims. For instance, we can use historical
data to determine the relationship between interest rates and consumer behavior. Higher interest
rates lead consumers to stop borrowing because it means they have to spend more on interest.

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NUEVA ECIJA UNIVERSITY OF SCIENCE AND
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Talavera, Nueva Ecija, Philippines
TALAVERA OFF - CAMPUS
Disadvantages of Positive Economics

Not everyone is concerned with the facts, and certain economic conditions are based on
emotions. As in the example above, people often choose to overlook data when they make
certain choices. Experts may suggest saving during times of economic weakness but individuals
may decide they want to make a big purchase instead. Just because you have a history of data, it
doesn't mean that you can come with up a fool-proof solution or conclusion.

NORMATIVE ECONOMICS

Normative economics is a perspective on economics that reflects normative, or ideologically

prescriptive judgments toward economic development, investment projects, statements, and
scenarios.

Key Takeaways

 Normative economics aims to determine what should happen or what ought to be.
 Normative economics expresses ideological judgments about what may result in
economic activity if public policy changes are made.
 Normative economics cannot be verified or tested.

Normative Economic Statement

Normative Statements contain a value judgment. It contains words such as “have to”, “ought to”,
“must”, “should” or nonquantifiable adjectives such as “important”, that cannot be objectively
measured.

Examples
1. Women should earn the same salary as men.
2. I ought to give more as a way of helping the poor.
3. The level of unemployment must be 5% maximum.

TOPIC 3. RESOURCES

Economic resources are components used to produce goods or services for consumption or use.
Economic resources can also be defined as factors of production. Some economists define
economic resources using land, labor, capital, and entrepreneurship as the factors of production.
Other economic theories include six factors in the definition: land, labor, capital, information,
business reputation, and business ownership risk.

Economic resources are part of a business venture. It contains the need to build a business and
operate it properly. It has four factors of production that include land, labor, capital, and
entrepreneurship. So, what exactly are they? Land is the natural resources such as water or metal.
The natural environment as a whole is also classified under 'land'. Natural resources come from
nature and are used to produce goods and services. Natural resources are often limited in quantity
due to the time it takes to form them. Labor, this economic resource refers to human capital.
Workers use their physical effort to produce goods and provide services. They receive income
called "wages" for work done. In terms of education or training, businesses can hire workers

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NUEVA ECIJA UNIVERSITY OF SCIENCE AND
MUNICIPAL GOVERNMENT OF TALAVERA
Talavera, Nueva Ecija, Philippines
TALAVERA OFF - CAMPUS
from a specific educational background to reduce training time. Capital refers to man-made
materials used in production. It also serves as an investment in capital goods for future use.
Financial resources are also part of capital. The payment of the use of capital is called "interest".
and the last one is, Entrepreneurship, entrepreneurship is a special human resource that does not
only refer to the entrepreneur who builds a business. It also refers to the ability to generate ideas
that can potentially become economic goods, risk-taking, decision-making, and business
operations, which require the integration of the other three factors of production. Why are they
necessary in a business? First of all, is the Land that needs a place to build the business you will
build, Labor that can service and work in your business, Capital that will be used to build your
business and an example of this is machinery equipment and others and Entrepreneurship that
can help the owner to operate a business and the example of this is the Business Partner,
Investors, and others.

Economic resources not only have four factors of production, they also have the characteristics
of Limited Supply, Alternative Uses, Cost, and Productivity. The first is Limited Supply, there
are not enough resources to produce all the goods and services people want. The fact that
economic resources are limited in supply and have alternative uses gives rise to the concept of
scarcity as one of the problems a business can face. Alternative Uses, economic resources can be
used in different ways, and the decision to use a resource for one purpose means that it cannot be
used for another purpose. Cost, economic resources have a cost associated with them, either in
terms of money or opportunity cost (the value of the next best alternative use of the resource).
Productivity, the amount of output that can be produced with a given input of resources varies
depending on the quality and quantity of the resource.

We cannot call it a business without any of the above. No matter if the business is big or small,
all of that is needed and that is included in business because there is no perfect person to do
business especially in people, business includes problems, shortages, losses, and many others.
So, if you are planning to build a business, you need to know this to be an advantage to you and
increase your knowledge. It's different that we know the trend of doing business because it will
help us especially since I also plan to do business someday.

TOPIC 4. OPPORTUNITY COST

The opportunity cost is the value the company forgoes when choosing one option over another,
whether the loss is monetary or use of time (productivity) or energy (efficiency). When a
company decides to allocate resources to one activity or area, it also decides not to pursue a
competing activity.

Key Takeaways
 Opportunity cost is money or benefits lost by not selecting a particular option during the
decision-making process.
 Opportunity cost is composed of a business's explicit and implicit costs.
 Opportunity cost helps businesses understand how one decision over another may affect
profitability.

Opportunity cost is incurred when a business chooses one option over another. For example,
consider an ecommerce business that to date has shipped its products directly to customers.

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TALAVERA OFF - CAMPUS
What Opportunity Cost Tells Businesses?

Every business decision represents benefits gained and lost. For example, the decision to
purchase a new construction vehicle can be viewed as a comparison between what the business
will gain by buying one — such as the ability to begin a new project while another is ongoing —
versus what it will cost it by not buying one, such as the inability to take on that new project are
forgoing its resulting profit.

Weighing Opportunity Cost

Opportunity cost is the sum of two specific types of costs: explicit and implicit, the former being
more easily calculated than the latter.

Explicit Costs and Implicit Costs

Explicit costs, also referred to as accounting costs and explicit expenses, are typical business
expenses a company incurs and records in its general ledger. Unlike explicit costs, implicit costs
typically don't have a fixed monetary value that a company can track.

REFERENCES
 MICROECONOMICS
https://www.accaglobal.com/gb/env/student/exam-support-resources/fundamentale-exams-
study-resources/fi/technical articles/introduction-to-microeconomics.html

 MACROECONOMICS
https://www.studysmarter.co.uk/explanations/macroeconomics/introduction-to-
macroeconomics/

 POSITIVE ECONOMICS
https://www.investopedia.com/terms/p/positiveeconomics.asp

 NORMATIVE ECONOMICS
https://pediaa.com/difference between-positive-and-normative-economics/#
https://www.educba.com/normative-economics/
https://www.investopedia.com/terms/n/normative economics.asp

 RESOURCES
https://www.studysmarter.co.uk/explanations/microeconomics/economic-principles/
economic-resources/
https://study.com/learn/lesson/economic-resources-examples
types.html#textEconomic%20resources%20are%20components%20usedis%20not%20the
%20only%20one
https://www.youtube.com/watch?v=nh3Qur7r3dw

 OPPORTUNITY COST
https://www.netsuite.com/portal/resource/articles/accounting/opportunity-cost.shtml-text-
Opportunity%20cost9:201%20the%20value%20of%20the%20eliminated%20choice%2C
%20andlike 20Net Sute%20Cloud 20Accounting 20Software.

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 Republic of the Philippines
NUEVA ECIJA UNIVERSITY OF SCIENCE AND
MUNICIPAL GOVERNMENT OF TALAVERA
Talavera, Nueva Ecija, Philippines
TALAVERA OFF - CAMPUS

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