ECONOMICS Employment & Unemployment Consumption

– is the study of how individuals, business firms, governments and societies as a The Microeconomics VS Macroeconomics Distinction - is a way of classifying the different
whole make choices under conditions of scarcity. types of problems economists study based on the level of detail we want to consider.
ELEMENTS: CONCEPT: The Positive Economics VS Normative Economics Distinction - is based on the purpose of
Individuals Choices analyzing a problem.
Business Firms Scarcity
Governments SCARCITY SCARCITY
Societies - requires people to make choice and every choice involves trading off one thing for
What makes ECONOMICS differ from other social sciences? another. Consider your own situation. Because your own resources-money and
- It tries how people behave and how they interact time-are scarce, each time you choose to do something, you also choose not to do
Unlimited
within a society; also uses a scientific approach in its Limited Human Wants
something else.
investigations. Resources and Needs CHOICE
“PRODUCTION and DISTRIBUTION - a trade-off-exchanging one thing for something else or exchanging more of one
GOODS - are physical objects.
ACTIVITIES to attain the material survival thing for less of something else.
SERVICES – are workstability
done forandpeople.
growth of any society.” OPPORTUNITY COST
- The higher the opportunity cost of doing something else, the less like it will be done.
RESOURCES - The lower the opportunity cost of doing something else, the more like it will be
- These are the most basic elements that people use to produce the goods and done.
resources that they want.
TRADE-OFFS WHO GETS WHAT OF AVAILABLE RESOURCES? THE ECONOMIC PROBLEM
- Situations in which they have to choose between 1. What should be produced with society’s resources? 1. What to produce
two things that cannot be had (or done) at the same time. 2. How should they be produced? 2. How to produce
3. Who should get what is produced? 3. For whom to produce

MACROECONOMICS TRADITION - In many tribal societies and small villages,

– from the Greek word makros meaning LARGE. it remains dominant force, decisions on who gets of
– A study that stands back from individual parts of an economy and takes an available resources, goods, and services are governed
overall view of the economy. by traditional principles of fairness. Methods of
MICROECONOMICS production shaped by practices of the past are handed
- From the Greek word mikros meaning SMALL. down from one generation to another.
- A study that takes a close-up view of the economy and analyzes individual parts of
an economy. COMMAND - is the dominant method of resource allocation, decisions on who gets what of
MACROECONOMICS MICROECONOMICS available resources, goods and services are governed by a central planning system. Like in
Interest Rates Price of Commodity China, allocation is in standard.
Money Supply Individual Income
GNP (Gross National Product/Gawa Ng Pinoy) Trade-Offs
Government Expenditure and Income Demand and Supply
MARKET - the dominant method of resource allocation, decisions on who gets what of
available resources, goods and services are determined by the independent decisions of
individual consumers and producers through a system known as the price system.
CIRCULAR-FLOW MODEL---a visual model of a “free” market in which allocation of resources
occurs without government intervention.
TWO TYPES OF DECISION MAKERS – households and business firms.
TWO TYPES OF MARKETS —PRODUCT MARKETS and RESOURCE MARKETS.
The upper half depicts exchanges that take place in product markets, where
business forms sell goods and services to households who buy them. The outer arrows show
the flow of goods and services from business firms to households. The inner arrows show
the flow of payments from the households to the business firms who receive these
payments as revenue/spending.
The lower half illustrates exchanges that take place in resource markets, where
households sell or rent out land, labor, capital and entrepreneurial services to business firms
who buy or hire them. The outer arrows show the flow of resources from households to
business firms. The inner arrows show the flow of payments from the business firms to
households who receive these payments as income, rent, wages, interest and profit.
(Generally speaking)
TWO TYPES OF DECISION MAKERS:
1. HOUSEHOLD
- consists of several individuals, but we will view each household as acting
like a single decision maker.
- As consumers, households choose what goods and services to buy and in what
quantity.
-As resource owners, households choose the quantities of labor, land,
capital, and entrepreneurial services to sell or rent out to business firm. (Generally,
speaking, households sell resources to business firms the government, and the rest
of the world.)
2. BUSINESS FIRMS
- Are economic units formed by profit-seeking entrepreneurs who organize land,
labor, and capital to produce goods and services;
- May be in the form of business organizations;
- Choose the quantities of land, labor, capital and entrepreneurial services to
employ and also choose the quantities of goods and service to produce and sell to
households. (Generally speaking, business firms sell goods and services to households, other
business firms, the government, and the rest of the world.)
MARKET
- Any arrangement that enables buyers and sellers to interact, get information
and engage in exchange.
TWO TYPES OF MARKETS:
1. PRODUCT MARKET
- Where business firms sell goods and services to households who buy them.
2. RESOURCE MARKET
- Where households sell or rent out land, labor, capital and entrepreneurial
services to business firms who buy or hire them.
An important point to remember is that, in a MARKET ECONOMY, goods and services as
well as resources sell at prices that are free to respond to market forces. (In a COMMAND
ECONOMY, prices are administered by a planning bureaucracy). In a MARKET ECONOMY,
household and business firms make choices and markets coordinate these choices through
price adjustments.