MODULE II| Midterm |KAYCEE P.

BUGTONG

INTRODUCTION

BASIC TERMS
1. Economics
A social science concerned with man’s problem of using scarce resources to satisfy human wants.
2. Economy
Study of allocation of our limited resources to satisfy our unlimited wants and desires.
3. Scarcity
Refers to the limitations that exist in obtaining all the goods and services that people want.
4. Goods
Anything that yields satisfaction to someone
5. Economic resources
Inputs used in the production of goods and services.
6. Economic good
A good which is both useful and scarce.
7. Land
All natural resources.
8. Labor
Human effort expended in production
9. Capital
Materials used in the production of goods and services including money.
10. Entrepreneur
Organizes all other factors of production to be used in the creation of goods and services.
11. Essentials
Goods which are used to satisfy the basic needs of man.
12. Luxury goods
Goods that man can live without it.
13. Opportunity cost
Costs or benefits foregone in the alternative use of a resource.
14. Microeconomics
It is the division of economics that studies the economy in parts.
15. Macroeconomics
The division of economics that deals with aggregates.

NATURE OF ECONOMICS

I. WHY STUDY ECONOMICS?

A. Learn a new way of thinking
B. To understand society
C. To understand global affairs
D. To be an informed voter

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.

II. ECONOMICS, SCARCITY AND CHOICE

A. Economy is any system for the production, distribution and assumption of goods and services.
B. Economics
It is the study of allocation of our limited resources to satisfy our unlimited wants and desires;
It is a science that deals with the management of scarce resources. It is also described as a
scientific study on how individuals and the society generally make choices. (Fajardo 1997).

A P P L I E D E C O N O M C I S | Midyear
Page 1|4
 MODULE II| Midterm |KAYCEE P. BUGTONG

The origin of the term “economics” - Two Greek roots of the word economics are oikos meaning
household and nomus- meaning system of management. Oikonomia or oikonomus means
“management of household.”

C. Scarcity
It pertains to the limited availability of economic resources relative to society’s unlimited
demand for goods and services (Kapur, 1997)
D. Relationship between Economics and Scarcity
The problem of scarcity gave birth to the study of economics. Their relationship is such that if
there is no scarcity, there is no need for economics. The study of economics was essentially founded in
order to address the issue of resource allocation and distribution, in response to scarcity.

III. THE THREE FUNDAMENTAL QUESTIONS IN ECONOMICS

To cope with the problem of scarcity, every economy must answer three main questions;
A. What and how much to produce
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 to these goods that will be
produced, the quantity to these foods should also be decided on.
B. How to produce (Land, Labor, Capital)
It 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.
C. For whom to produce
It is about the market for the goods. For whom will be the goods and services be produced?
The young or old, the male or female market, the low-income or the income groups?

IV. OPPORTUNITY COST

The value of the next best alternative that was not chosen. This could either be seen in terms
of monetary and non – monetary costs. The concept of opportunity cost holds true for individuals,
businesses, and even a society. In making a choice, trade-offs are involved.

V. ECONOMICS AS A SOCIAL SCIENCE

Economics is concerned about people. It is the social science that studies the economic choices
that people make to cope in a world of scarce resources. It makes use of the scientific method in
coming up with answers to a certain problem or in understanding a situation.

VI. THE CETERIS PARIBUS ASSUMPTION

It means “all other things held constant or all else equal.” This assumption is used as a device
to analyze the relationship between two variables while the other factors are held unchanged.

VII. POSITIVE ANALYSIS

It is an economic analysis that considers economic conditions “as they are”, or considers
economics “as it is”. It uses objective or scientific explanation in analyzing the different transactions in
the economy. It simply answers the question ‘what it is’.
Example of positive statements:
*The economy is now experiencing a slowdown because of too much politicking and
corruption in the government.

VIII. NORMATIVE ANALYSIS

It is an economic analysis which judges economic conditions “as it should be’. Concerned with
human welfare. It deals with ethics, personal value judgments and obligations analyzing economic
phenomena. It answers the question ‘what should be’. It is also referred to as policy economics
because it deals with the formulation of policies to regulate economic activities.
Examples of normative statements:
*The Philippine government should initiate political reforms in order to regain investor
confidence, and consequently uplift the economy.

IX. ECONOMIC GROWTH AND DEVELOPMENT AS GOALS IN ECONOMICS

A P P L I E D E C O N O M C I S | Midyear
Page 2|4
 MODULE II| Midterm |KAYCEE P. BUGTONG

A. Economic growth – means more output per capita of essentially the same collection of goods and
services.
B. Economic Development – means economic growth plus well – being. It does not only measure
progress in terms of monetary and material standards.

X. THE DIVISIONS OF THE FIELD OF ECONOMICS

A. Microeconomics
The study of specific components within the economy and how choices made by individuals,
households and businesses affect the economy. Is concerned with the behavior of individual entities
such as the consumer, the producer, and the resource owner.
It is more concerned on how foods 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 prices of goods that is also known as price theory.
Microeconomics studies the decision and choices of the individual units and how these decisions
affects the prices of goods in the market.

B. Macroeconomics
A division of Economics that is concerned with the overall performance of the entire company.
It studies economic system as a whole rather than the individual economic units that make up the
economy. Macroeconomics is about the nature of economic growth the expansion of productive
capacity and the growth of national income. The study of the national and international economies and
how they are affected by large scale choices and public policies.

XI. SCARCITY
Scarcity is a condition where there are insufficient resources to satisfy all the need and wants of
a population.
A. Relative Scarcity
Relative scarcity is when goods is scarce compared to its demand. It 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.
B. Absolute Scarcity
Absolute scarcity is when the supply is limited. It explains why there are some products thata re
very expensive in the Philippines.
C. Choice and Decision Making
With the presence of scarcity, there is a need to make decisions in choosing how to maximize
the use of scarce resources to satisfy as many wants as possible.
D. What will happen if there is no scarcity?
Without scarcity, a person does not need to make choices since he/she can have everything
he/she wants.

XII. ECONOMIC RESOURCES

A. Land
Land refers to all natural resources, which are given by and found in nature, and are, therefore,
not man-made. The term includes the soil and natural resources. Land is an economic good because it
is scarce and a price has to be paid for it. Thus, people who own land and offer it to others for their
use, earn an income called RENT.
B. Labor
Labor is any form of physical and human effort exerted in production. It covers manual workers
like construction workers, machine operators, and production workers, as well as professionals like
nurses, lawyers and doctors. The term also includes jeepney drivers, farmers and fisherman. The
income received by labors is referred to as wage.
C. Capital
Capital refers to man-made resources used in production of goods and services, which include
machineries and equipment. Capital is therefore an economic good and the owner of capital earns
income for its use. The owner of capital earns an income called interest.
D. Entrepreneur
He is a person who combines the other economic resources for use in the production of goods
and services. He decides on the combination of land, labor, and capital to be used in production. Since
not everybody had the managerial and organizational ability to be an entrepreneur, entrepreneurship is
an economic good that commands a price. This price is the income earned by the entrepreneur and is
called profit.
A P P L I E D E C O N O M C I S | Midyear
Page 3|4
 MODULE II| Midterm |KAYCEE P. BUGTONG

XIII. ECONOMIC SYSTEMS

The economic system is the means through which the society determines the answers to the
basic economic problems.
A. Traditional Economy
Decisions are based on tradition practices upheld over the years and passed on from generation
to generation. Methods are stagnant progressive therefore traditional societies exist in primitive and
backward civilizations.
B. Command Economy
This is the authoritative system wherein decision-making centralized in the government or a
planning committee. Decisions are imposed on the people who do not have a say about it. The
economy holds true dictatorial, socialist, and communist nations.
C. Mixed 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 preference are
reflected in the prices they are willing to pay in the market and therefore the basis of the
producer’s decisions on what goods to produce.

A P P L I E D E C O N O M C I S | Midyear
Page 4|4