LESSON 1: ECONOMICS AS SOCIAL SCIENCE AND APPLIED SCIENCE IN TERMS OF NATURE

AND SCOPE

THE NATURE AND SCOPE OF ECONOMICS

According to Molina, J. A. & Nadal, G. J I (2020), economics is a SOCIAL SCIENCE concerned with
the explanation and prediction of observed phenomena in the society. Economics studies the way in
the societies solve the fundamental problems of reconciling the unlimited desires of individuals with
scarcity of resources, susceptible to numerous alternative uses. Economics is also an APPLIED SCIENCE
because it uses the scientific method in its explanations, which consists of observing reality and
presenting questions and problems to arrive at the formulation of theories and models. As an applied
science, it follows a systematic procedure to solve issues and problems of the society.

THE FIELDS OF ECONOMICS

Microeconomics and macroeconomics has perspectives on the economy.

*Microeconomics: focuses on the behavior of individual economic units and the functioning of
markets. Its perspective focuses on parts of the economy: individuals, firms, and industries.

*Macroeconomics: studies the functioning of economics as an aggregate (production,

employment). Its perspective looks at the economy as a whole, focusing on goals like production, the
standard of living, unemployment and inflation. Macroeconomics has two types of policies for pursuing
these goals: monetary policy and fiscal policy.

Microeconomics Macroeconomics

*Studies of markets of goods and services *Studies the economy as a whole

*Focuses on the behavior of individual in *Focuses on aggregate indicators (such as

the market production, employment etc.)

*Explains how and why these units make

economic decisions.
 Figure 1. Micro vs Macro Economics

The Economic Agents/Stakeholders:

1. Consumers

• Consume goods and services /offer production factors

• Maximize utility
2. Producers

• Produce goods / demand productive factors

• Maximize profit
3. The public sectors
• Attempt to maximize the well-being of society

*The agents interact among themselves in a specific territorial, social, natural and/or
cultural framework that determines their relationships → Market

BASIC TERMS TO UNDERSTAND ECONOMICS

It is essential that you familiarize yourself with the study of economics. This will
facilitate your understanding of economic analysis. Specifically, you meet GOODS – which yields to
your satisfaction. It is anything used to satisfy your wants and needs.

INTANGIBLE GOODS – when they are in

TANGIBLE GOODS –material
the form of services. Those
goods or commodities.
rendered by doctors, engineers, doctors
Ex. Bags, books, clothes. and other professionals

Goods may also be classified according to use.

CONSUMERS GOODS – goods for the CAPITAL GOODS or INDUSTRIAL GOODS
ultimate consumption of the consumers. used in the
Ex.: toothpaste, bath soap, etc. production of
other goods and
services. Ex.:
buildings, machinery,
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equipment.
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LUXURY
GOODS –
goods man

ESSENTIAL GOODS- used to satisfy may do

the basic needs of man without, but may give comfort and

Example: foods and medicine. satisfaction. Ex., perfume, cakes; chocolates

https://int.search.myway.com/search/AJimage. expensive cars.

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ECONOMIC GOODS –goods which are useful

and scarce; with value attached to them and a
price has to be paid for their use. If a good so
abundant and it can satisfy
everyone’s needs without anybody paying for it,
then, that good is free. The air is free, but the air https://int.search.myway.com/search/AJimage.j
from an aircon is an economic good. html

Figure 2: Kinds of Goods

ECONOMIC RESOURCES OR FACTORS
In the article of Nowaczyk , J (2020) on Identifying the Factors of Production, he defined economic
resources as the factors of production for goods and services. The factors of production are inputs
combinations in the production of goods and services to make an economic profit for the firms. These
factors of production are land, labor, capital, and entrepreneurship. Resources are limited in nature, but
human wants and needs are unlimited, thus, an efficient allocation of these resources or factors of
production is a big challenge for every economy. Economics also helps the entrepreneurs and the
economy to allocate resources in the production of supplies to meet the demands of the consumers.

Land as a Factor of Production Labor as a Factor of Production

Land - natural Labor is the work done by people- education, skills,

resources and motivation and productivity. Productivity
available to measures how much each hour of worker time
create supply produces in output. Workforce receives wage for
such as raw his labor.
materials that
comes from
the ground. It can
be a nonrenewable
resource;
commodities
such as oil and gold; and renewable
resource, such as timber. Oil is a natural Istockphoto.com
resource, but petroleum gas is a capital
good. Farmland is a natural resource, but a
shopping center is a capital good.
https://study.com/academy/lesson/four-
factors-of-production-landlabor-capital-
entrepreneurship.html
 Capital as a Factor of Production Entrepreneurship as a Factor of Production

Capital or Entrepreneurship develops an idea into a business.

capital An entrepreneur combines the other three factors
goods are of production to add to supply. The most successful
capital – entrepreneurs are innovative and risk-takers. The
the income entrepreneurs earn is profits.
money
that

companies used to buy resources; manmade

objects like machinery, equipment, and
chemicals that are used in production. For
example, capital goods include industrial and https://int.search.myway.com/search/AJimage.jhtml
commercial buildings. A commercial aircraft
is example of a capital good.
https://www.market-
inspector.co.uk/blog/2017/01/10-basicoffice-

Figure 3: resources of production and Characteristics

Characteristics of Resources:

1. Scarcity: insufficient resources to supply all the desires and needs of individuals.

In the production of goods and services; there are issues that economics may encounter: these include:
for Land – inadequate land and natural resources; polluted areas; overcrowded spaces; for Labor –
unskilled workforce; mismatch of jobs; for capital - low quality of equipment/machines; insufficient
fund/capital; and for entrepreneurship – Inadequate training of entrepreneurs; limited opportunity;
scarcity of great ideas but many competitors in the market.
2. Multiple use: Resources can have more than one possible use. For example, a plot of land can be used
to plant coffee or to build a factory.

3. Partially replaceable: one resource can replace another in the production of a good or service (e.g.,
replace manual labor with technology).

Scarce resources and unlimited desires → Scarcity

Scarcity and alternative uses → Choice Choice → Opportunity cost