Professional Documents
Culture Documents
Terms to Remembers
Economics Basic Needs Luxury Goods Economic Resources Land Labor Entrepreneur Capital Theory Market Wants
Variable Macroeconomics
Microeconomics
Normative Economics Positive economics Empirical validation
Economic System
Free enterprise system Right to private property Function
and capital are determined, and how these prices are used to allocate scarce resources.
market and how they allocated capital to the rest of the economy.
into ways of helping the poor without causing harm to the countrys economic performance.
and employment during the different stages of the business cycle with the goal of developing government policies that will improve economic growth. nations and analyzes the impact of trade barriers.
developing countries and suggests ways to encourage the efficient use of resources.
Economic activity: Mans economic activity consists of efforts to satisfy human wants with the use of goods and services.
3 elements are involved in this objective of satisfaction: 1. Human wants 2. Use of Resources 3. Technique of production
Human wants
Human wants wants are unlimited. This vary from
CLOTHES
FOOD
SHELTER
Human Wants
Man is also subject to created wants (caused by advertising).
Use of Resources
The basic economic resources of a nation consist of:
Land Labor Capital Entrepreneurship
These are available in limited amounts, which is why man has to learn how to allocate them properly to maximize the number of wants that can be satisfied.
Resources
The economy should pay the owners of these basic factors of production for the use of their resources such as rent for the land, wage or salary for labor, interest for capital and profit for entrepreneurship.
Technique of Production
Shows how
CONSUMPTION
Household is the basic consuming unit in
the economy. Since human wants are unlimited, it maximizes its satisfaction through proper allocation or mix of expenditures within the context of budget limitations.
Allowance per week is 500 Budget: Transportation 100 Food 250 Soft drinks 50 Others - 100
Food 125
Soft drinks 30
Others - 100
T-shirt - 145
Business firm the economys producing unit to satisfy human wants with goods and services. They hire employees and use resources to operate and provide goods and services.
PROFIT
Resource owners
Pay for the use of resources
Unemployment Economic Instability Low levels of growth and development Unequal income distribution Determination of the countrys type of economic system.
Unemployment
this is a problem because it leads to idle
resources. This means that income is foregone in resources which would generate earnings to the owners if used.
Economic Instability
makes it difficult for producers to make accurate
forecasts on demand and consumption levels, causing fluctuations in production and supply of goods and services, which further leads to surpluses or shortages.
how goods will be produced, the quantities to be made, and how these goods and services shall be distributed.
examining economic behavior and events, and determining the causal relationships among the data and activities observed.
Tools in Economics:
Logic 2. Statistics 3. Mathematics
1.
Logic
first tool of economics. Used in establishing
relationships among different variable to draw conclusion from particular to general or from general to particular.
Statistics
used to quantitatively describe economic
behavior and therefore serves as basis for hypothesis testing. Hypothesis becomes a theory when empirically validated.
Mathematics
enables the analyst to conceptualize and quantify
operates because it explains how economic variables are related to one another. It permits prediction of the results of changes in economic variables It serves as basis for policy formulation.
Economic Policy
This consists of interventions or courses of action
taken by the government or other private institutions to manipulate the results of economic activity.
may be monetary, fiscal or trade for the purpose of achieving economic welfare.
Methodology:
One must use economic theory to make a useful
among the important facts or variables that surrounded and permeate economic activity. Theories are based on premises or postulates (conditions that are taken as given).
2.
The observation of facts concerning the activity about which we want to theorize.
Ex. Looking at the exchanges of groceries between supermarket and consumers: What facts are relevant and what facts can be disregarded?
3.
facts and to eliminate as many irrelevant and insignificant facts as possible. inductive (particular to general). hypotheses.
4.
validity. Some hypothesis will not stand repeated testing and therefore should be rejected.
Others may be modified and tested. Hypotheses that hold up to most of the time in most
as the testing process is never ending. Economic theories continue to evolve and grow.
facts change.
1.
Positive Economics
Supposed to be completely objective Limited to the cause and effect relationships of
economic activity
1.
Normative Economics
Concerned with what ought to be Value judgments must necessarily be made
Ex. Economic policy making conscious intervention in
economic activity with the intent of altering the course that it will take.
Microeconomics
It is primarily concerned with the market
activities on individual economic units such as consumers, resource owners, and business firms.
4.
5. 6.
the flow of goods and services from business firms to consumers the composition of the flow the process of establishing relative prices of the component parts of the flow the flow of resources from resource owners to business firms the evaluation of resources the allocation of resources among alternative uses
Macroeconomics
Treats the economic system as a whole rather
product) and the value of the overall flow of resources (national income) receive the focus of attention.
most relevant data and to build an overall conceptual framework of the price system in operation from those.
most important in motivating most economic units. Eliminating less important data, certain contact with reality is lost but we gain understanding on the overall operation of the economy.
Characteristics of Microeconomics
1.
Microeconomics looks at the decisions of individual units (household, producers and firms).
Ex. How efficiently is our resources used?
2.
3.
5.
reasoning. Microeconomics will help you develop skills in construction and use of models.
ECONOMIC MODELS
Microeconomics makes extensive use of
example of comparative static analysis (a comparison of two different economic outcomes Wikipedia.com).
expressed in 3 ways:
Verbal or logical 2. Mathematical 3. Graphical
1.
Verbal:
Supply is a schedule of prices and quantities that
a supplier would be willing to offer for sale at each price period of time.
more at higher prices and would sell less at lower prices. This is because higher prices, if other things are held constant, means higher profits.
directly related.
Mathematical:
The law of supply can be expressed in an
equation:
Qs=500
This means that if the price for commodity is Php 1, quantity supplied would be Php 500.00 (Php 1 x 500 = Php 500.00.
Graphical:
Price Qty.
Supplied
1 2 3 4 5
10 20 30 40 50
only on the fundamental elements of an object or process. In the example, supply is analyzed based on varying prices. But supply could also be affected by other factors.
real-world phenomena are classified as theories. But not all models are theories. The test of the theory is the consistency of its predictions.
Models that explain resource allocation or choice decisions of individual household, producers and firms.
2.
Models that explain how prices and quantities exchanged are determined in various types of market structures.
3.
Models that examine the market economy as an interrelated system (general equilibrium model).
balance of internal forces and no tendency for the situation to change unless outside forces intervene. A system in such an equilibrium may also be termed static.
20. If demand will go up because of increase in population or extensive advertising effort, price would go up to Php 22. Comparative analysis is applicable here because of the shift in equilibrium.
units and all markets in the economic system. All variables are allowed to adjust in response to the initial change.
like price. It will also depend on several other factors like income, population, advertising, promotion and the like.
OVERVIEW OF ECONOMY
The Circular Flow of
Economic Activity:
Basic activities: Production Consumption
Employment
Income generation
Householdconsuming unit
Firm producing unit
provided by the business firms. The business firms/producers on the other hand, pays the consumers/resource owners for labor, land or capital used for the operation of their business.
What to produce?
The country should identify the type of goods
able to produce all the product that the people in the nation desires.
will have to compose the total output. How much of the decided products to be produced will be produced.
How to produce?
This refers to the technique of production and the
will buy the products? Will the goods and services be sold to high income groups or to poorer buyers, to women or men?
rice does exactly what his father did when he planted rice 20 years ago.
introduced in the production techniques. This is normally practiced in underdeveloped regions, especially in areas where transportation and communication are nonexistent.
Command economies:
The answers to the economic problems are
dictated by the government through the head of the nation or a group of men designated by the head to make decisions.
production.
curtailed and this does not enable him to participate in the decision-making process. Individual preferences are not considered at all.
Market system:
This deals with economic problems by
considering consumers choices. The indicators are consumers demand in the market, reflected in the prices of goods and services.
about what goods to produce and how much of these goods should be produced.
the limits of his income. Offer for sale his economic resources in exchange for financial remuneration. Establish a business enterprise of his choice for the production and sale of a desired product.
pure form. While the US exercises market economy, there is a form of government regulation and control.
Philippines adopts the 3 types of economic system: Traditional a system used in isolated barrios Command although Filipinos exercise the market system, they are also influenced by government decisions, regulations and laws. 3. Market Filipinos exercise the different activities under the free enterprise system.
1. 2.