Introduction

to Economics
What is economics?
Economics
- as a study, is the social
science that involves the

use of scarce resources to

satisfy unlimited wants.
Why do man need
to practice
economics?
- Part of human behavior is the
tendency of man to want to have as
many good and services as he can.
- However, his ability to buy goods
and services is limited by his income
and purchasing power.
- It is therefore in this context that
man has to practice economics.
Alfred Marshall
- a well-known economist. Described
economics as a study as mankind in the
ordinary business of life. It examines part of
the individual and social action that is most
closely connected with the attainment and
use of material requisites of well-being.
What is
scarcity?
 SCARCITY (kakulangan)
- is a condition where
there are insufficient
resources to satisfy all the
needs and wants of a
population.
Scarcity may
be relative or
absolute.
When does a
scarcity become
relative?
Relative scarcity
- is when a good is scarce compared to its
demand.
- For example, coconuts are abundant in the
Philippines since that plant easily grows in our
soil and climate. However, coconuts become
scarce(kulang) when the supply is not
sufficient (hindi sapat) to meet the needs of the
people.
 Relative scarcity occurs not because the
good(stock) is scarce per se and is difficult to
obtain but because of the circumstances
(kalagayan) that surround the availability of the
good.
Banana are abundant in the Philippines and are
being grown in a lot of regions around tha country.
But when a typhoon destroy banana plants and the
farmer has no bananas become relatively
scarce( medyo kulang).
When does a
scarcity
become
absolute?
 Absolute scarcity (lubos na kulang)
is when supply is limited . Oil is scarce
in the country since we have no oil wells
from which we can source our petroleum
needs, so we rely heavily on imports from
oi-producing countries like Iran and other
Middle East countries.
Cherries are absolutely scarce in
our country since we do not have
the right to grow them and we
have to rely on imports for our
supply of cherries. This explains
why cherries are very expensive in
the Philippines.
CHOICES AND
DECISION-
MAKING
Is there a need for a man
to make decisions in
choosing how to maximize
the use of scarce
resources to satisfy as
many wants as possible?
 A homemaker (maybahay) who has a monthly
budget needs to decide on how to utilze it to pay
the rent, to buy food, to pay the chidren’s tuition
fees, and to buy a new clothes and shoes.
If the budget is not enough, then the
homemaker has to give up some of these things.
She needs to make a choice. If she decides not to
buy new shoes for her children at the start of the
school year, then this is the choice she gave up.
What is opportunity
cost?
Opportunity cost
- refers to the value the best foregone
alternative.
- When land is devoted exclusively to the
cultivation of rice , we give up an output of
bananas or mangoes that we could have planted
on that area.
- A producer who decides to transform all his
leather into shoes, gives up the chance to
produce bags with that leather.
 - A school teacher who could have
worked in a bank, give up the salary
that she would have earned as a bank
employee.
- A manager who quits his job in
order to take up master’s degree,
gives up his salary as a manager. That
salary is his opportunity cost..
What will happen to
a person without
scarcity?
Without scarcity, a person
does not need to make
choices he/she can have
everything he/she wants.
 The concept of opportunity cost holds true
for individual, business, and even a society.
In making a choice, trade-offs are involved.
The opportunity cost of watching a movie in
a cinema is the value of other things that
you could have bought with that money such
as a pint of ice cream, a combo meal in a
fast food, or a simple t-shirt to be used in PE
class.
Another example is giving up work in
favor of a recreational activity, say
you go on a week’s stay in Boracay
on a leave without pay. Then you
are giving up the income you would
have earned had you not decide to
go on that trip.
Another example would be a business
proprietor that withdraws 10,000 from
his savings account so he can buy
materials to be used in his business. He
gives up the interest the savings would
have earned but his goal is to earn more
money that would be generated by the
business.
ECONOMIC RESOURCES
- Also known as factors of production,
are the resources used to produce
goods and services. These resources
are, by nature, limited and therefore,
command a payment that becomes
the income of the resource owner
1. Land
- soil and natural resources that
are found in nature and are not
manmade.Owners of lands receive
a payment known as rent.
2. Labor
- physical and human effort exerted in
production. It covers manual workers like
construction workers, machine operations, and
production workers, as well as professionals like
nurse, lawyers, and doctors. The term also
includes jeepney drivers, farmers, and
fishermen. The income received by labors is
referred to a wage.
3. Capital
-man-made resources used in the
production of goods and services,
which include machineries and
equipment. The owner of capital
earns an income called interest.
What is ECONOMICS
as a social science?
ECONOMICS AS A SOCIAL SCIENCE

- Economics is a social science because it

studies human behavior just like
psychology and sociology.
- A social science is broadly speaking, the
study of society and how people behave
and influence the world around them.
Two branches of economics:
1. Macroeconomics
- is a division of economics that is
concerned with the overall performance of
the entire economy. It studies the economic
system as a whole rather than the individual
economic units that make up the economy.
2.Microeconomics
- on the other hand, is concerned with the behavior of
individual entities such as the consumer, the producer,
and the resource owner. It is more concerned on how
goods flow from the business fir to the consumer and
how resources move from the resource owner to the
business firm. It is also concerned with the process of
setting prices of goods that is also know as Price
Theory.
Microeconomics studies the decisions and
choices of the individual units and how
these decisions affect the prices of goods
in the market. Likewise, it examines
alternative methods of using resources in
order to alleviate scarcity. It does not
focus on aggregate levels of production ,
employment, and income.
BASIC ECONOMIC
PROBLEMS OF
SOCIETY
All societies are faced with
basic questions in the economy
that have to be answered in
order to cope (makaya) with
constraints(pagpilit) and
limitations.
These are:

1. What to produce and how much

- society must decide what goods and

services should be produced in the
economy. Having decide on the nature
of goods that will be produced, the
quantity of these goods should also be
decided.
2. How to produce
- is a question on the production
method that will be used to
produce the goods and services.
This refers to the resource mix
and technology that will be
applied in production.
3. For whom to produce
-isabout the market for the
goods. For whom will the goods
and services be produced? The
young or old, the male or
female market, the low-income
or the high-income groups.
How these questions are answered
depends on the nature of the
economic system in place.
The economic system is the
means by which society answers
the basic economic problems.
Three economic system:

1. Traditional economy
--Decisionsare based on traditions(kaugalian)
and practices(gawi) upheld over the years and
passed on from generation to generation .
Methods are stagnant and therefore not
progressive. Traditional societies exist in
primitive and backward civilizations.
2. command economy
--Thisis the authoritative system wherein
decision-making is centralized in the
government or a planning committee.
Decisions are imposed on the people who do
not have a say in what goods are to be
produced. This economy holds true in
dictatorial, socialist, and communist nations.
3. market economy
--Thisis the most democratic form of economic
system. Based on the workings of demand and
supply, decisions are made on what goods and
services to produce. People’s preferences are
reflected in the prices they are willing to pay in
the market and are therefore the basis of the
producers’ decision on what goods to produce.
 QUIZ:
A.Describe the type of economic
system characterized in each of
the following sentences.(1-10)
WHY ECONOMICS IS
IMPORTANT?
Why do we need to study
economics?
To know the important the subject is,
all you need to do is read the front
page of the newspapers to see that
the most important news are
economic in nature . Watch the news
on TV and for sure, economic news
always presents important issues.
• Economics will help the students understand
why there is a need for everybody, including the
government, to budget and properly allocate
(tamang paglaan) of whatever resources are
available .

• It will help one understand how to make more

rational (wise)decisions in spending money,
saving part of it, ad even investing some of it.
On the national level, economics will
enable the students to take a look on how
the economy operates and to decide for
themselves if the government officials
and leaders are effective in trying to
shape up the economy and formulate
policies for the good of the nation.
POSITIVE ECONOMICS VERSUS
NORMATIVE ECONOMICS
What is positive
economics?
Positive economics
deals with what is- things that
are actually happening such as
the current inflation rate, the
number of employed labor, and
the level of the Gross National
Product.
Normative economics
on the other hand,refers to
what should be- that which
embodies the ideal such as the
ideal rate of population growth
or the most effective tax system.
Positive economics is an overview
of what is happening in the
economy that is possibly far from
what is ideal.
Normative economics focuses on
policy formulation that will help
to attain the ideal situation.
MEASURIN
G THE
We always get to read in the
newspapers how our economy has
grown in recent years. Before we
go into the essence of applied
economics, it is beneficial that we
get to learn first how of the
economy is actually measured.
The national government is always
happy to inform the people that the
country’s Gross Domestic
Product(GPD) has grown in rates,
much higher than in the previous
administration. We will now go into a
short discussion of what the GDP is
all about.
The government plans for a better
economy from a perspective of what the
economy has been. Shaping the
economy’s future is changing past and
present perspectives extended to the
future. In particular, looking ahead is
grounded on past and present
performance and health of the economy.
The heart of the economy is
production whose value measures
both resources input and output
of people. The interplay of
resources and outputs tell how
well the economy has performed.
COUNTING ALL
THROUGH GNP
What is all about
GNP?
As the mirror of all products,

Gross National Product (GNP)

–is the market value of final
product, both sold and unsold,
produced by the resources of the
economy in a given period.
What does the market
value means?
Market value
- is determined by supply and
demand while the economy’s
resources are those belonging
to Filipino citizens and
corporations.
Not all resources belonging to
the economy are in the
economy, like capital and
entrepreneurship that
brought the SM mall to China.
Conversely, not all resources in
the economy belong to the
economy like capital and
entrepreneurship brought to the
country by multinationals like
Nestle and Procter and Gamble
(P&G).
In addition, the value of final
products already includes the values
of its components from the lower
production stages. For example, the
price of your leather wallet already
includes the value of leather that in
turn includes the value of animal
hide.
In other words, counting the
values of products from the raw
material to the intermediate and
on to the final production stages,
double counts and overstates the
value of the economy’s
production.
Likewise, the value of any
product in a certain period should
no longer be counted in
succeeding periods to avoid
double counting and
overstatement that can mislead
decision-making.
GNP/GDP:

Expenditure
Approach
One way to account GNP
and classify its component
is by end-use expenditure.
When does products
are final?
Products are final when they
have reached the highest
levels of processing in the
economy for different uses in
the given period.
GNP equation:

GNP=C+I+G+(X-M)
Where:
C- household and individual consumption
G- government expenditure on goods
and services including labor.
X- exports
I- classified s investments.
M- import component are excluded since
import products are produced in
other economies.
What is a
GDP?
Gross Domestic Product
(GDP)
- is defined as the market value of final
products produced within the country.
The resources in the economy
include capital and
entrepreneurship belonging to
other countries brought to the
domestic economy by foreign
businesses.
Table 1.1, GDP is net of GNP
after deducting Net Factor
Income from abroad or by
deducting factor income from
abroad and adding back Factor
Payments to other countries.
Another way to account GNP
and classify its components is
by resource uses and
contributions that make up
the production stages.