Kimberly C.

Binoya BA 200 MICROECONOMICS Sec I October 5, 2020

A. Explain the meaning of Economics

~Economics is a social science concerned with the production, distribution,
and consumption of goods and services. It studies how people use resources
and respond to incentives, or the study of decision-making. It often involves
topics like wealth and finance, but it’s not all about money. Economics is a
broad discipline that helps us understand historical trends, interpret today's
headlines, and make predictions about the coming years.

B. Origin of Economics
~The English term 'Economics' is derived from the Greek word 'Oikonomia'.
Its meaning is 'household management'. Economics was first read in ancient
Greece. Aristotle, the Greek Philosopher termed Economics as a science of
'household management'.

C. Difference between Microeconomics and Macroeconomics

~ Microeconomics studies individuals and business decisions, while
macroeconomics analyzes the decisions made by countries and
governments. Microeconomics focuses on supply and demand, and other
forces that determine price levels, making it a bottom-up approach.

D. Factors of Production and explain each

1. Land
Land has a broad definition as a factor of production and can take
on various forms, from agricultural land to commercial real estate
to the resources available from a particular piece of land. Natural
resources, such as oil and gold, can be extracted and refined for
human consumption from the land. Cultivation of crops on land by
farmers increases its value and utility. For a group of early French
economists called the physiocrats who pre-dated the classical
political economists, the land was responsible for generating
economic value.

2. Labor
Labor refers to the effort expended by an individual to bring a
product or service to the market. Again, it can take on various
forms. For example, the construction worker at a hotel site is part
of labor as is the waiter who serves guests or the receptionist
who enrolls them into the hotel.
 3. Capital
In economics, capital typically refers to money. But money is not
a factor of production because it is not directly involved in
producing a good or service. Instead, it facilitates the processes
used in production by enabling entrepreneurs and company
owners to purchase capital goods or land or pay wages. For
modern mainstream economists, capital is the primary driver of
value.

As a factor of production, capital refers to the purchase of goods

made with money in production. For example, a tractor purchased
for farming is capital. Along the same lines, desks and chairs
used in an office are also capital.

4. Ownership

The definition of factors of production in economic systems

presumes that ownership lies with households, who lend or lease
them to entrepreneurs and organizations. But that is a theoretical
construct and is rarely the case in practice. With the exception of
labor, ownership for factors of production varies based on
industry and economic system.

For example, a firm operating in the real estate industry typically

owns significant parcels of land. But retail corporations or shops
lease land for extended periods of time. Capital also follows a
similar model in that it can be owned or leased from another
party. Under no circumstances, however, is labor owned by firms.
Labor’s transaction with firms is based on wages.

E. Explain the basic economic questions

1. What to produce?
Given limited resources of labour, raw materials and time, economic agents
have to decide what to produce. Most primitive economies concentrate on
producing food and shelter – the basic necessities of life. However, with
increased productivity, the economy has more available resources which can
be used for non-necessary goods, such as leisure and education.
 In a free market, production is determined by market forces. Firms and
entrepreneurs will produce goods in demand by consumers. In a mixed
economy, with government intervention, the government may decide to
produce more public goods – which are not profitable but do improve
economic welfare.

2. How to produce?
The entrepreneur will try and produce goods for the most profitable and cost-
effective method. This motivation is behind the growth of technology and more
efficient production methods, such as the assembly line. A government may
regulate production methods to limit damage to the environment.

3. For whom to produce?

In a free market, goods are provided for those with the ability to pay. This may
be through a simple barter exchange or in more advanced economies through
cash payments. In more altruistic societies, we may seek to produce goods
and services for those, who may not be able to afford them. For example,
many western economies provide health care free at the point of use.

F. Describe the economic system

~ An economic system is a means by which societies or governments
organize and distribute available resources, services, and goods across a
geographic region or country. Economic systems regulate the factors of production,
including land, capital, labor, and physical resources. An economic system
encompasses many institutions, agencies, entities, decision-making processes, and
patterns of consumption that comprise the economic structure of a given community.