Introduction to

Economics
Jerrold P. Ello
Assistant Professor IV
MSU-IIT Integrated Developmental School
 What is Economics?
-study on how societies choose to use scarce productive resources that
have alternative uses , to produce commodities of various kinds, and to
distribute them among different groups (Samuelson and Nordhaus)

-study of how individuals and society in general make choices that

involve the use of scarce resources from among alternative wants that
need to be satisfied (Sicat)

- is a social science that studies the optimum allocation, over time, of

scarce human and non-human resources among their alternative uses
in order to satisfy unlimited human wants and needs (Villegas)

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 Economics…
-is a study of how society allocates scarce resources to satisfy
unlimited human wants and needs
-comes from the Greek word “OIKONOMIA” which means
management of the household
-is a study of wealth
• Use of wealth for production and consumption
-is a study of making choices
• Opportunity cost: best forgone alternative use of a resource
-is as a study of allocation
• Allocation of scarce resources to answer unlimited human wants

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 Economics…
-is a social science because its central subject is man and how
he interacts with the other elements of society
-It is also a pure because it is a systematic body of knowledge
which utilizes the scientific approach (econometrics) in
explaining how society allocates scarce resource among
alternative wants that need to be satisfied.

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 Resources and the study of economics
• Resources-natural, human, and man-made wealth that can provide
satisfaction through the production of goods and services.
• Natural Resources- forms of wealth derived from nature, including
land, forests, mountains, rivers, and seas.
• Human Resources-labor , muscular or brain power of the people to
create things
• Physical Resources- man-made things used in the production of
goods and services.

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 Resources and the study of economics
-Raw materials: inputs of production subject to further
processing and transformation
-Factor inputs: transforming inputs that process the raw
materials and intermediate inputs into final goods and
services
-Resources are limited: time-consuming, competing uses

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 Scarcity as a source of economic problem
-Scarcity: a
condition where there are insufficient
resources to satisfy all the needs and wants of a
population

-Economic goals : material survival, stability and growth

-Scarcity vs. Shortage vs. Surplus

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 Allocation of resources
Allocation: Social mechanism of distributing limited resources to meet
expanding human wants

• Market system as an allocation mechanism

• Market: a place where buyers and sellers transact on the purchase or sale
of a good or service
• Price as cost (sacrifice) and benefit (satisfaction)
• The problem of scarcity is addressed through the changes in price and the
corresponding responses of the buyers and sellers

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 BASIC ECONOMIC PROBLEMS/QUESTIONS
-These problems need to be answered in order to cope with
constraints and limitations
1. What to produce and how much

2. How to produce

3. For whom to produce

-How these questions are answered depends on the nature

of the economic system

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 Economic Systems
1. Traditional Economy
• Decisions are based on traditions and practices

• Methods are stagnant; not progressive

• Traditional societies exist in primitive and backward

civilizations
• What to produce: what the culture tells them

• How to produce: hand-crafted

• For whom: for themselves

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 Economic Systems
2. Command Economy
• Authoritative system/Centrally Planned

• Decision making is centralized in the government or a

planning committee
• Decisions are imposed on people who do not have a say in
what goods are to be produced
• Holds true in dictatorial, socialist, and communist nations

• Communism is an example

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 Economic Systems
3. Market Economy
• 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 -- this becomes the basis of the
producers’ decisions on what goods to produce

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 Economic Systems
4. Mixed Economy
• Basic economic questions are answered by combining
traditional, state-run and private enterprises
• No real disadvantage: inclination

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 Scope of Economic

• Microeconomics-looks at how individual markets work. It

focuses on how individual households and firms make their
choices

• Macroeconomics – looks at the economy as a whole. It

looks at aggregate prices, production, and income

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 Positive vs Normative Economics

Positive economics is concerned with the development and

testing of positive statements about the world that are
objective and verifiable.

Normative statements derive from an opinion or a point of

view. It involves value judgment (what ought to be).

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 Economics and other sciences

• Mathematics
• Physics, Chemistry, and Biology
• History
• Sociology
• Psychology
• Ethics

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