INTRODUCTORY
Macroeconomics by PAGOSO, DINIO & VILLASIS
BASIC TERMS IN ECONOMICS
GOODS
- Anything which yields satisfaction to
someone.
- Anything used to satisfy a persons wants
and desire.
- It could be tangible or intangible.
CLASSIFICATION OF GOODS
1. CONSUMER GOODS
- Goods which yield direct satisfaction.
Ex. Soft drinks and foods
2. CAPITAL GOODS
- Goods used in the production of other
goods and services.
Ex. Building, Machinery, Equipment
3. ESSENTIAL GOODS
- If they are used to satisfy the basic needs of
man such food, shelter and clothing.
4. LUXURY GOODS
- Those goods man live without, but are used
to contribute to his comfort and well-being.
Ex. Perfume, chocolates, expensive cars.
5. ECONOMICE GOODS
- Good which is both useful and scarce. It has
a value attached to it and price has to be
paid for its use.
6. FREE GOODS
- Goods that is so abundant that there is
enough of it to satisfy everyones needs
without paying for it.
ECONOMIC RESOURCES
- Things which are needed to carry on the
production of goods and services.
BASIC ECONOMIC RESOURCES
LAND - refers to all natural resources, which are
given by and found in nature, and therefore not
man-made.
- Includes soil, river, forests and mineral
deposits.
LABOR any form of human effort exerted in
the production of goods and services.
CAPITAL refers to man-made goods used in
the production of goods and services.
ENTREPRENEUR The person who combines
the other economic resources for use in the
production of goods and services
SAVINGS
- refers to the part of a persons income
which is not spent on consumption.
PROFIT
- Income earned by the entrepreneur.
SCARCITY
- Refers to the limitations that exist in
obtaining all the goods and services that
people want.
3 FUNDAMENTAL AND INTER-DEPENDENT
ECONOMIC PROBLEMS
1. What to produce and how much?
2. How shall goods be produced?
3. For whom shall goods be produced?
TYPES OF ECONOMIC SYSTEM
1. TRADITIONAL ECONOMY
- Production is carried on in the methods
used by the forefathers, and therefore very
primitive. This type of economic system is
very backward since it does not allow for
change.
2. COMMAND ECONOMY
- The means of production owned by the
government. Its decisions are arrived at by
planners of government men who dictate
what, how and for whom to produce.
3. MARKET ECONOMY
- The basic characteristics of this economy is
that resources are privately owned and
decisions are made by the people
themselves.
4. MIXED ECONOMY
- Computation of the 3 economic system.
OPPORTUNITY COST
- An alternative that has to be given up.
CONSUMPTION POSSIBILITIES LINE
- This is the downward sloping line reflects
that inverse relationship between the
consumption to possible combination.
 THE METHOD OF ECONOMICS CRITERIA FOR JUDGING ECONOMIC OUTLINES
- Economics asks and attempts to answer 1. Efficiency
two kinds of questions: positive and 2. Equity
normative. 3. Growth
POSITIVE ECONOMICS 4. Stability
- An approach to economics that seeks to
understand behaviour and the operation of
systems without making judgements. It
describes what exists and how it works.
NORMATIVE ECONOMICS
- An approach to economics that analyses
outcomes of economic behaviour, evaluates
them as a good or bad, and may prescribe
courses of action. Also called POLICY
ECONOMICS.
DESCRIPTIVE ECONOMICS
- The compilation of data that describe
phenomena and facts.
ECONOMICS THEORY
- A statement or set of related statements
about cause and effect, action and reaction.
THEORIES AND MODELS
- A formal statement of the theory. Usually a
mathematical statement of presumed
relationship between 2 or more variables.
VARIABLE
- A measure that can change from time to
time or from observation to observation.
CETERIS PARIBUS OR ALL ELSE EQUAL
- Device used to analyse the relationship
between 2 variables while the values of
other variables are held constant.
*In formulation of theories and models, it is
especially important to avoid two pitfalls: The
Post Hoc Fallacy and the Fallacy of composition.
POST HOC FALLACY
- A common error made of thinking about
causation. If event A happens before event
B it is not necessarily true that A caused B.
FALLACY OF COMPOSITION
- The erroneous belief that what is true for a
part is necessarily true for the whole.
ECONOMIC POLICY
- Economic theory helps us understand how
the world works, but the formulation of
economic policy requires a second step. We
must have objectives. What do we want to
change? Why? What is the good and what
is bad about the way the systems
operating? Can we make it better?