Lesson 1: Introduction

to Economics

BS Tourism Management 3A
Sorsogon State College
Sorsogon City
SCARCITY
• insufficiency of resources to meet the wants of
consumers and insufficiency of resources for
producers that hamper enough production of
goods and services
• is a condition where there are insufficient
resources to satisfy all the needs and wants of a
population
• is the reason why people have to practice
economics
SCARCITY
Relative Scarcity
• when a good is scarce compared to its demand
• occurs not because the good is scarce per se and is
difficult to obtain but because of the circumstances
that surround the availability of the good
Example: Bananas are abundant in the Philippines
but when a typhoon destroys the banana plants,
then bananas become scarce
SCARCITY
Absolute Scarcity
• is when supply is limited
Example: oil since we have no oil wells, we rely
heavily on imports from oil-producing countries
CHOICE AND DECISION-MAKING
• Because of the presence of scarcity, there is a
need for man to make decisions in choosing how
to maximize the use of the scarce resources to
satisfy as many wants as possible
A homemaker who has a monthly budget needs to
decide on how to utilize it. If the budget is not enough,
she has to give up some things. She needs to make a
choice. If she decides not to buy new shoes for the
children at the start of the year, then this is the choice
she gave up
OPPORTUNITY COST
• refers to the value of the best foregone alternative
Example: A manager who quits his job in order to
take up a master’s degree, gives up his salary as
manager. That salary is his opportunity cost
• In making a choice, trade-offs are involved
• The opportunity cost of watching a movie in SM is the
value of other things that you could have bought with
that money such as a combo meal or a simple t-shirt in
a PE class
ECONOMIC RESOURCES
• also known as factors of production
• the resources used to produce goods and
services
• are limited and therefore, command a payment
that becomes the income of the resource owner
ECONOMIC RESOURCES
1. Land - soil and natural resources that are found in
nature and are not man-made. Owners of land receive
a payment known as rent.
2. Labor - physical and human effort exerted in
production. The income received is referred to as wage.
3. Capital - man-made resources used in the production of
good and services. The owner of capital earns an
income called interest.
ECONOMICS AS A SOCIAL SCIENCE
• Economics is a social science because it studies
human behavior just like psychology and sociology
• A social science is the study of society and how
people behave and influence the world around them
• As a social science, Economics studies how
individuals make choices in allocating scarce
resources to satisfy their unlimited wants
• According to Alfred Marshall, Economics is a study
of mankind in the ordinary business of life
TWO BRANCHES OF ECONOMICS
Macroeconomics
• is concerned with the overall performance of the
entire economy
• studies the economic system as a whole rather than
the individual economic units that make up the
economy
• focuses on the overall flow of goods and resources
• is about the nature of economic growth, expansion of
productive capacity, and growth of national income
TWO BRANCHES OF ECONOMICS
Microeconomics
• is concerned with the behavior of individual entities such
as the consumer, the producer, and the resource owner
• more concerned on how goods flow from the business firm
to the consumer and how resources move from the
resource owner to the business firm
• it studies the decisions and choices of the individual units
and how these decisions affect the prices of goods in the
market
• examines alternative methods of using resources to
alleviate scarcity
BASIC ECONOMIC PROBLEMS OF
SOCIETY
1. What to produce and how much - society must
decide what goods and services should be
produced and the quantity of these goods
2. How to produce - what production method
will be used. This refers to the resource mix
and technology that will be used.
3. For whom to produce - is about the market
for the goods.
ECONOMIC SYSTEMS
• the means through which society determines the
answers to the basic economic problems
1. Traditional economy
• decisions are based on traditions and practices
upheld over the years and passed on from
generation to generation
• methods are stagnant and therefore not
progressive
• exists in primitive and backward civilizations
ECONOMIC SYSTEMS
2. Command economy
• authoritative system wherein decision-making is
centralized in the government
• decisions are imposed on the people who do not
have a say in what goods are to be produced
• this holds true in dictatorial, socialist and
communist nations
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 and are the
basis of the producers’ decisions on what goods to
produce
WHY ECONOMICS IS IMPORTANT
• will help students understand why there is a
need to budget and properly allocate the use of
whatever resources are available
• will help one understand how to make more
rational decisions in spending money, saving part
of it, and even investing some of it
• will enable students to take a look on how the
economy operates and if government officials
and leaders are effective