THE STO.
NIÑO FORMATION AND SCIENCE SCHOOL-NIGHT CLASS
San Roque, Rosario, Batangas
School Year 2020-2021
CHAPTER 1: INTRODUCTION TO APPLIED ECONOMICS
LESSON 1.1 INTRODUCTION TO
ECONOMICS
SCARCITY- Insufficiency of resources to meet
the wants of the consumers and insufficiency of
resources for producers that hamper enough
production of goods and services. It is a
condition where there are insufficient resources
to satisfy all the needs and wants of the
population. Scarcity is the reason why people
have to practice economics. Example:
Insufficient allowance for a student who needs
to buy book and school supplies.
ECONOMICS- As a study is the social science
that involves the use of scarce resources to
satisfy unlimited wants.
ALFRED MARSHALL- A well-known
economist who described economics as a study
of mankind in the ordinary business of life. It
examines part of the individual and social action
that is mostly connected with the attainment and
use of material requisites as well-being.
RELATIVE SCARCITY- is when a good is
scarce compared to its demand. Example:
Bananas are abundant in the Philippines and are
being grown into a lot of regions around the
country. But when a typhoon destroys banana
plants and the farmer has no banana to harvest,
then bananas become relatively scarce.
ABOSLUTE SCARCITY- is when supply is
limited. Example: Cherries are absolutely scarce
in our country since we do not have the right
climate to grow them and we have to rely on
imports for our supply of cherries. This explains
why cherries are very expensive in the
Philippines.
CHOICE AND DECISION-MAKING
Because of the presence of scarcity,
there is need for a man to make decisions in
choosing how to maximize the use of the scarce
resources to satisfy as many wants as possible.
OPPORTUNITY COST- refers to the value of
the best foregone alternative. Example: When
land is devoted exclusively to the cultivation of
rice, we give up an output of bananas and
mangoes
that we
could have planted on that land area.
ECONOMIC RESOURCES- also known as
factors of production, are the resources used to
produced goods and services. These resources
are, by nature, limited and therefore, command a
payment that becomes the income of the
resources owner.
1.LAND- soil and natural resources that are
found in nature and are not man-made. Owners
of lands receive payments known as rent.
2. LABOR- physical and human effort exerted
in production. It covers manual workers like
construction, workers, machine operators, and
production workers as well as professionals likes
nurses , lawyers and doctors. The income
received by labors is referred to as wage.
3. CAPITAL- man-made resources used in the
production of goods and services which include
machineries and equipment. The owner of the
capital earns income called interest.
ECONOMICS AS A SOCIAL SCIENCE-
Economics is a different science from biology
and chemistry as these are physical sciences.
Economics is a social science because it studies
human behavior just like psychology and
sociology. A social science is, broadly speaking,
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.
BRANCHES OF ECONOMICS
MACROECONOMICS- is a division of comics
that is concerned with the overall performance
of the entire economy. It studies the economic
system as a whole rather than the individual
economic units that make up the economy. It
focuses on the overall flow of goods and
resources and studies the cause of change in th
aggregate flow of money, the aggregate
movement of goods and services and the general
 THE STO. NIÑO FORMATION AND SCIENCE SCHOOL-NIGHT CLASS
San Roque, Rosario, Batangas
School Year 2020-2021
employment of resources. Macroeconomics is
about the nature of economic growth, the
expansion of productive capacity and the growth
of national income.
MICROECONOMICS- is concerned with the
behavior of individual entities such as the
consumer, the producer and the resource owner.
It is 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 is also concerned with the
process of setting price of goods that is known
as Price Theory. Microeconomics studies the
decisions and choices of the individual units and
how these decisions affect the prices of goods in
the market. Likewise, it examines alternative
methods of using resources in order to alleviate
scarcity. It does not focus on aggregate levels of
production, employment and income.
BASIC ECONOMIC PROBLEMS OF
SOCIETY
1. What to produce and how much?- society
must decide what goods and services should be
produced in the economy. Having decided on
the nature of goods that will be produced, the
quantity of these goods should also be decided
on.
2. How to produce?- is a question on the
production method that will be used to produce
the goods and services. This refers to the
resource mix and technology that will be applied
in production.
3. For whom to produce?- is about the market
for the goods. For whom will the goods and
services be produced? The young or old, the
male or female market, the low-income or high-
income groups?
ECONOMIC SYSTEMS
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. Traditional societies exist in
primitive and backward civilizations.
2. COMMAND ECONOMY- This is the
authoritative system wherein decision-making is
centralized in the government or a planning
committee. Decisions are imposed on the people
who do not have a say in what goods are to be
produced. This economy holds true in
dictatorial, socialist and communist nations.
3. MARKET ECONOMY- This is the 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
therefore the basis of the producers’ decisions
on what goods to produce.
WHY ECONOMICS IS IMPORTANT?
Students may ask “ Why do we need to
study economics?” To know how important the
subject is, all they need to do is read the front
page of the newspapers to see that the most
important news are economic in nature. Watch
the news on TV and for sure, economic news
always presents important issues.
Economics will help the students
understand why there is a need for everybody
including the government, to budget and
properly allocate the use of whatever resources
are available. It will help one understand how to
make more rational decisions in spending
money, saving part of it and even investing
some of it.
On the national level, economics will
enable the students to take a look on how the
economy operates and to decide for themselves
if the government officials and leaders are
effective in trying to shape up the economy and
formulate policies for the good of the nation.