Lesson 1:

REVIEW OF BASIC
ECONOMIC CONCEPTS
& PRINCIPLES

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 ECONOMICS
■ Defined as the study of choices that
individuals and societies make in the
production, distribution and
consumption of goods.
■ Defined as the study of proper allocation
and efficient use of scarce resources to
produce commodities for the satisfaction
of unlimited needs and wants of man.

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BASIC TERMS IN ECONOMICS
GOODS- anything which yields satisfaction to someone

■ According to satisfaction:
1. Tangible- material goods or commodities
2. Intangible- services like those rendered by the doctors,
teachers, painters, etc.

■ According to use:
1. Consumer goods- which yields satisfaction directly. (e.g. softdrinks,
foods, etc)
2. Capital goods- used in the production of other goods and services (e.g.
buildings, machinery, equipment)
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■ Goods may also be:
1. Essentials- if they are used to satisfy the basic needs of man such
as food, shelter, medicine.
2. Luxury- are those goods man may do without, but are used to
contribute to his comfort and well-being. (Perfumes, chocolates,
expensive cars, etc)

■ Goods may also be classified as:

1. Economic- is a good which is both useful and scarce. It has a value
attached to it and a price has to be paid for its use.
2. Free- goods with no opportunity cost.

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TOOLS OF ECONOMICS It will be the basis of rejecting or accepting
a hypothesis.

EMPIRICAL TESTING
Recognize conditions, behaviors
and events in the environment. Hypothesis or theories

OBSERVATION DEDUCTIONS

DEFINITIONS &
ASSUMPTIONS
Describe the specific uses of the study and the
peripheral conditions which affect the economic
behaviours which are being studied. PPT created by: CBParagas
THE NEED TO CHOOSE
SCARCITY-refers to the limitations that exist in
obtaining all the goods and services that people want.

➢ Is what a person sacrifices

when they choose one option
over another
➢ A concept in economics that
quantifies the impact of
selecting one option instead of
another “next best”
alternative.
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THE DIVISIONS OF THE FIELD OF ECONOMICS
PARTS
■ MICROECONOMICS- concerns the study of Price system
specific components within an economy Individual consumer
and how choices made by individuals,
Individual firm
households and businesses affect the
economy. AGGREGATE/TOTAL

Income, Spending

■ MACROECONOMICS- is the study of the Output, Price Level

national and international economies and Employment
how they are affected by large scale choices
and public policies. PPT created by: CBParagas
METHODOLOGY OF
ECONOMICS

■ POSITIVE ANALYSIS- study the world is. It

attempts to describe what happens and why it
happens.
■ NORMATIVE ANALYSIS- studies the way the
world should be. It attempts to prescribe what
should be done.
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 POSITIVE ANALYSIS NORMATIVE ANALYSIS

How much will a new gasoline tax raise Should there be a new tax on
the price of gasoline? gasoline?

Will an increase in the minimum wage Should there be an increase in the

increase unemployment? minimum wage?

How much will a drought in the corn What should the price of corn be?
belt raise the price of corn? Of wheat?

Increase income taxes lower the
spending capacity of the consumers.
If the price of a good decreases, other
things equal, quantity demanded will
increase.
Higher minimum wage should be given
to workers.
We rather have lower taxes than higher
welfare benefits.
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What is the
importance of
studying economics?

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 Lesson 2:
BASIC ECONOMIC
PROBLEMS &
ECONOMIC SYSTEMS

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THREE FUNDAMENTAL QUESTIONS IN ECONOMICS

What
and how How to
How much to produce Factors of production
much to depends on the type of produce?
produce? economic system a
country has.
-refer to goods and For a market economy,
services. this decision is driven by
These are the things consumer sovereignty. For whom
that people value and For a command economy,
produce to satisfy this is determined by the
to
wants and desires. government. produce?
*GOODS- tangible
things such as food
and clothing
*SERVICES- are tasks
done by people. PPT created by: CBParagas
 ➢ Human effort in
➢ Refers to
the production
all natural
of goods and
resources
services

➢ Entrepreneurship
➢ Man-made means that people
goods used in are combining the
the production other three factors
of goods and of production to
services. create some
products or
➢ Managerial and services to sell.
organizational ability
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TRADITIONAL
ECONOMY
➢Decisions on what, how and
for whom to produce are
made by referring to the
traditional manner of doing
things.

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COMMAND
ECONOMY
➢The means of production are
owned by the government.
➢Its decisions are arrived at by
planners or government men who
dictate what, how and for whom
to produce.

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 MARKET
ECONOMY
➢ The resources are privately owned and
decisions are made by the people
themselves.
➢ Competition is supreme; there is
consumer sovereignty; and the price of
the good is the guiding factor for
producers to know what and how much
to produce.

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 MIXED
ECONOMY
➢A form of economy with
elements of traditional,
command and free market are
present in varying degrees- that
is both private and public
institutions exercise economic
control.
Essential characteristics:
1. The means of production are owned and controlled by
the private sector as well as the government;
2. The people decide on economic activities within the
economy;
3. The combinations of the best features of capitalist and
command economies are observable in the market;
and
4. The problem of distribution of goods and services and
allocation of economic resources are determined
through a combination of the market system an
governmental laws and policies
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 THE THREE ISMS:
CAPITALISM, COMMUNISM & SOCIALISM
CAPITALISM
PROPONENTS: ➢ Adam Smith
CHARACTERISTICS: ➢ Free market enterprise
➢ Resources are privately
owned
➢ People are free to choose
their occupation
➢ The kind and amount of
production is determined
by price
➢ People are searching for
profit
➢ Competition
COMMUNISM
➢ Karl Marx and Friedrich
Engels
➢ Classless society
➢ Everyone works at what he
or she can do best
➢ No system of wages or
profits
➢ all property and wealth
are communally-owned,
instead of by individuals.
➢ Considered idealistic
SOCIALISM
➢ Karl Marx and Friedrich
Engels
➢ Individuals own personal
property but all industrial
and production capacity is
communally owned and
managed by a
democratically elected
government.
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 PRODUCTION POSSIBILITIES FRONTIER
(PPF)
➢ it illustrates three concepts: scarcity, choice and opportunity cost.
➢ is a graph that shows all the different combinations of output of two
goods that can be produced using available resources and technology.
➢The slope of the PPF indicates the opportunity cost of producing one
good versus the other good, and the opportunity cost can be compared
to the opportunity costs of another producer to determine comparative
advantage.

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PRODUCTION POSSIBILITIES FRONTIER
(PPF)

Productive efficiency

unattainable

Inefficient use of resources

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