Principles of Economics w/ TAR

What is Economics?
The term economics comes from the Ancient
Greek (oikonomia) from oikos means house
and nomos means "law or management“.
Hence “Household Management”.
 therefore, economics is a social science that
deals with the study of proper allocation and
efficient use of scarce resources to produce
commodities for the maximum satisfaction of
“Needs” or “Wants”.
Needs – it is essential for human survival.
3 kinds of Needs
1. Basic Needs
2. Needs for descent and comfortable living
3. Needs for luxury goods

Wants – dimension among many choices that gives

more satisfaction.
2 Kinds of Wants
1. Public Wants
2. Private Wants
 Goals of Economics
1. Strengthen Economic Freedom
 Freedom such as Consumer choice, occupational choice,
to consume or to save and to own properties.
2. Promote Economic Efficiency.
 Producing ,more output with the use of fewer resources.
3. Promote Economic Stability
 Consistent growth in a changing world the movement of
output in the economy at a reasonable ranges.
4. Promote Economic Security
 Existence of individual security, incomes are established
in the market place.
5. Improve high level of growth in the economy
 Capacity to produce goods, growing rapidly than the
population.
 Economic as Related to “Social Science”
1. Anthropology – study biological, psychological and
cultural aspect of human life.
2. Political Science – systematic study of the state
and the government.
3. Sociology – study of people.
4. Psychology – study of human behavior.
5. History – the study of fast events
2 Branches of Economics
a. Micro Economics – deals with the behavior of
individual components.
b. Macro Economics – deals with the behavior of the
economy as a whole.
 Development of Economic Thought
Classical Economics
According to Adam Smith, a selfish behavior by
individuals leads to an outcome that benefits
everyone in the society.
Two branches of Classical Economics
1. General Equilibrium Theory, (Leon Walras, 1874)
 How much of each good is created and how the
price of each good is related to every other
good.
2. Quantity theory of Money, (David Hume)
 It is all about money prices as opposed to real
quantities and relative prices.
Neoclassical Economics
 Presumed an element of “Irrationality” in the
context of inter – temporal decision making.
 William Stanley Jevons, Irving Fishing, Alfred
Marshall and Arthur Cecil Pigou observed a
preference for present over future consumption,
each took an evidence that consumer foresight was
defective.
Keynesian Economics
 John Meynard Keynes is considered as the Father of
macroeconomics.
 A revolutionary idea that would replace existing
economic thought and put a major question in the
concept of the unregulated economy as a “ Self
Correcting System”.
Monetarism
 It talks about the supply of money that is total
quantity of money in the system and how fast it is
rising and falling.
 Movements in money are major determinants of
both price level and total economic activities.
 Over the long run, any increase of money supply
faster than the trends of growth of the money
causes Inflation.
 Over the short run, fluctuation in the growth of
money generate business cycle
 Slower money growth causes Recession;
accelerating Money growth brings about recovery
and boom.
New Classical Economic, (Robert Lucas & Thomas Seargent)
How economy works and use all the
information available to them in making their
economic decisions. Thus, when the
government change the economic policy,
people anticipate the consequences of the
change and alter their behavior accordingly.