ECONOMICS – studies allocation of limited resources used to produce goods and services.

ECONOMIC THINKING- direct result of the scarcity problem, that exist during the unlimited
wants and needs but lack of or limited of resources.
LAW OF SCARCITY- economic system cannot produce all goods and services that consumers
want, and most consumers do not have the resources to purchase everything they want.

2SIDES OF SCARCITY PROBLEM

• Unlimited wants
• Limited resources
ECONOMY- is the large set of interrelated production and consumption activities that aid in
determining how scarce resources are allocated. Also known as “economic system”.

FATHER OF ECONOMICS – adam smith – an inquiry into the nature and causes of the wealth of
nations. (1776)
ECONOMIC SCIENCE- is a social science that uses the scientific method to explain and
understand how human behavior respond to scarcity.
SOCIAL SCIENCE- the study of society and the manner in which people behave and influence the
world around us. (ESRC,2017)

BRANCHES OF ECONOMICS
* Microeconomics --------- is a social science that studies the implications of individual human
action, specifically about “how those decisions affect the utilization and distribution of scarce
resources.

* Macroeconomics --------- is a branch of economics field that studies how the aggregate
economy behaves.

POSITIVE VS NORMATIVE ECONOMICS

--- POSITIVE ECONOMICS- a study of economics based on objective analysis

- Statements do not have to be correct, but they must be able to be
tested and proved or disproved. (TALKS ABOUT WHAT IS, WHAT WAS
ON WILL BE).

--- NORMATIVE ECONOMICS- is a perspective on economics that reflects normative judgments

or opinionated reactions toward economic projects, statements, and scenarios. -subjective and
value based. (OPINION BASED)

ECONOMIC RESOURCES
◼ The goods or service s available to individuals and businesses.
 - Land- pertains to all-natural physical resources – raw materials
- Labor- human capital available to transform raw or national resources
into consumer goods. (WORKERS INVOLVE IN PRODUCTION)
- Capital- represent monetary resources companies use to purchase
natural resources and other capital goods. (BUILDINGS, FACILITIES,
EQUIPMENT, VEHICLES.)
- Entrepreneurship- creating valuable goods and services

Opportunity cost- forgone alternative like loss of benefits (a benefit that a person could have
received, but gave up, to take another course of action.) – OPPORTUNITY LOST

PPF- PRODUCTION POSSIBILITY FRONTIER

- Is a curve depicting all maximum output possibilities for two goods,
given a set of inputs consisting of resources and other factors?
- ADJUSTING \ EFFIECIENT COMBINATION \ MAXIMIZATION \
INCREASING
NOTE: when the ppf shifts outwards, we know there is growth in economy—
---- when the ppf shifts inwards it indicates that the economy is shrinking.

CONSTANT OPPORTUNITY COST- resources to produce the product are very similar
INCREASING OPPORTUNITY COST- resources are not very similar, when you increase
more of the other one you get more of the other.

CIRCULAR FLOW – simple economic model illustrating the flow of goods and services thru the
economy.

HOUSEHOLD- includes everyone, all people, seeking to satisfy unlimited wants and needs.
RESPONISBLE FOR CONSUMPTION EXPENDITURES- BIG SECTOR
BUSINESS SECTOR- the function of firms is to supply goods and services to domestic household
and firms- THIS SECTOR DOES THE PRODUCTION THAT UNDERTAKE THE TASK OF COMBINING
RESOURCES TO PRODUCE GOODS AND SERVICES.
GOVERNMENT- passing laws, collecting taxes, - IT BUYS PORTION OF GROSS DOMESTIC
PRODUCTS.
FOREIGN SECTOR- anything and everything that lies beyond the borders of a nation.
RESOURCE MARKET
• Household sell
• Firms buy

PRODUCT MARKET
• Business sell
• Household buy

MARKET AND GOVERNMENT

• Capitalism- also known as market system – each individual or business works in its own
interest and maximizes its own profit based on its own decisions.

• Communism – government takes control of everything, a centrally planned economy

where the government takes control of all political and economic power. -COMMAND
SYSTEM- is a economic where the government owns most of the factors of production
and decides to allocation.

• Socialism- describe as an economic system between communism and capitalism – seek

to redistribute the wealth more equitably by the communal ownership of natural
resources and major industries. Such as banking and public utilities.]

ECONOMIC SYSTEMS- are the means by which countries and governments distribute resources
and trade of goods and services.

FREE MARKET ECONOMY- no restrictions and regulations on buyers and sellers.

COMMAND ECONOMY- the government takes control of all political and economic power.
MARKET ECONOMY- Driven by choices of consumers and producers- they benefit from each
other when they act in self- interest. Decisions are made not by government but by individual
MIXED ECONOMY- has elements of tra ditional, command market systems and producers.
TRADITIONAL ECONOMY- BARTER—relies on customs to answer the three basic questions
Three Basic QuestionsWhat to Produce
]?How should it beProduced?
For Whom should it beProduced