When you hear the word economics, you probably think of “big business”—large corporations that run

banks and petroleum refineries, or companies that make automobiles, computers and, yes, even online
games or social media providers.

These simple questions emphasize that the central concept of economics is summarized in one simple
word: SCARCITY. Scarcity requires a great need for economics to be studied by everyone. The choices
we make on the use of our scarce resources largely determine what needs and wants we would be
satisfying and how much satisfaction would we get.

In the entire history of humankind, there has only been one planet thus far where we get our resources:
Mother Earth. No other planet in our entire galaxy, much less our own solar system, could contribute to
our pool of resources, which we can use to make the things we use and consume.

Scarcity as an issue does not only pertain to resources that are used to produce goods and services. It
also pertains to other various resources, such as financial resources (capital) in a business enterprise, the
aim of which is to maximize its resources to make profit. It may also pertain to the daily, weekly, or
monthly limited allowances and budgets of students, whose concern is how to stretch the budget for a
particular period.
Scarcity also implies that an income-earner should also be able to manage his or her money until the
next payday. Job seekers are also concerned since there seems to be scarcity of jobs in the Philippines
today. The government is also concerned since limited national budgets dictate austerity measures and
priority projects only.

Scarcity is the condition that results from society not having enough resources to produce all the things
people would like to have.

A need is a basic requirement for survival, such as food, clothing, and shelter.
A want is simply something we would like to have but is not necessary for survival Food, for example, is
needed for survival. Because many foods will satisfy the need for nourishment, the range of things
represented by the term want is much broader than that represented by the term need

TINSTAAFL
Because resources are limited, everything we do has a cost—even when it seems as if we are getting
something “for free.” For example, do you really get a free meal when you Figure 1.1 Scarcity use a “buy
one, get one free” coupon? The business that gives it away still has to pay for the resources that went
into the meal, so it usually tries to recover these costs by charging more for its other products. In the
end, you may actually be the one who pays for the “free” lunch! Realistically, most things in life are not
free, because someone has to pay for producing them in the first place. Economists use the term
TINSTAAFL to describe this concept. In short, it means There Is No Such Thing As A Free Lunch.

Economics is from the Greek word ‘oikonomia’ or ‘oikonomos,’ which means management of
household: oikos (house) + nomos (managing)
In the modern world, economics, means
1) The careful or thrifty use of management of resources, as of income, materials, or labor; or
2) The management of the resources of a country, community, or business

Somebody interested in the evolution of the word economics may inspect the following:

Greek: oikos + nomia

Latin: oeconomia
Spanish: economia
English: economics
Filipino: ekonomiya / ekonomya

Approximate Period Significance of the Period Household Managing Activities

11,000 B.C. (and beyond) (Ice Age) polar ice caps
started to melt; earliest known
start of the creation of bodies
of water in the world
9,000 B.C. Earliest traces of nomadic
activity
6,000 B.C. Earliest known civilization
(China, Yang Tze River)
3,000 B.C. Next known civilization
(India, Indus River)
2,800 B.C. Middle East civilizations
(Tigris & Euphrates)
dentification of the most
important resources to survive;
water guaranteed survival of
species
Men made weapons; hunted for
food and looked for viable
shelters; Women took care of
children, prepared food, made
clothing & maintained shelter;
Nomadic activities. were
minimized and tribal leaders
were elected to manage
household needs; self-
sufficiency was the main
objective of tribes
Nomads settled near fresh
water, built more permanent
shelters, had livestock activities;
early traces of agricultural
technology – cultivation and
irrigation: signs of early
government and civilization
Civilizations flourish with the
settlement of people in the
communities; sustainability was
the main objective
Significance of rivers for
economic activities like trading
and agriculture
BRIEF HISTORY OF ECONOMICS
This brief historical introduction aims to give a background on most profound names in
the study of economics and their important contributions in this field of study.

Birth of Economic Theory: Classical Economics

Economic theory saw its birth during the mid-1700s and 1800s. During this era, two important
economists emerged.
Adam Smith of Scot land.
 He is considered the most important personality in the history of economics– being regarded as
the “Father of Economics”.
 He was responsible for the recognition of economics as a separate body of knowledge.
 His book, “Wealth of the Nations”, published in 1776, became known as “the bible in
economics” for a hundred years.
 Smith new idea that the “wealth of nations” should be defined as the sum of the goods
produced by labor, not the personal financial wealth of those who owned them.
Competition in markets, along with the division of labor and the invisible hand, would lead to
increased productivity and output.
 Smith’s doctrine of laissez-faire (French for “let it be”) marked the beginning of modern
economic thought, and it still serves as the basis of our free market economy.
 He observed that labor becomes more productive as each worker becomes more skilled at a
single job. This made him the first to introduce and recognize the importance of the
“division of labor.”
One of his major contributions was his analysis of the relationship between consumers and producers
through demand and supply which ultimately explained how the market works through the invisible
hand.

John Stuart Mill was the heir to David Ricardo (Father of International Trade), who developed the basic
analysis of the political economy or the importance of a state’s role in its national economy. The term
political economy is an older English term applies management to an entire polis (state). Moreover,
Karl Marx, a German, also emerged during this period. He is much influenced by the conditions brought
by the industrial revolution upon the working classes. His major work, Das Kapital, is the centerpiece
form which major socialist thought was to emerge.

Neoclassical Economics (1870s)

Neoclassical Economics was believed to have transpired around the year 1870. Its main concern was
market system efficiencies. It brought recognition to the economists
 Leon Walras, who introduced the general economic system, Leon Walras developed the analysis
of equilibrium in several markets.
 Alfred Marshall, who became the most influential economists during that time because of his
book Principles of Economics Alfred Marshall developed the analysis of equilibrium of a
particular market and the concept of “marginalism”