ECONOMICS

Etymology
■ Economics is derived from the Greek
oikonomia: oikos plus nomos. Oikos
means household while Nomos is
from another Greek word, nemein,
meaning: to distribute.
■ In Greek, economos meant
stewardship, thrift, or good
household management, and was
the agent of economia, the wise use
and distribution of resources.
 I. Definition
■ A social science that seeks to analyze and
describe the production, distribution,
and consumption of wealth.
■ Social science concerned with the efficient
use and allocation of limited resources to
achieve maximum satisfaction
of economic wants.
■ Founding of modern Western economics
occurred and generally credited to the
publication of Scottish philosopher Adam
Smith's 1776 book, An Inquiry Into the
Nature and Causes of the Wealth of
Nations.
2 kinds of Economics
■ Macroeconomics - the branch of economics that studies the
overall working of a national economy. It is more focused on
the big picture and analyzing things such as growth, inflation,
interest rates, unemployment, and taxes. When you hear
raising interest rates, inflation or that the national
unemployment rate is 7.5%, you are hearing about
macroeconomic topics.
■ Microeconomics - the branch of economics that studies how
households and businesses reach decisions about purchasing,
savings, setting prices, competition in business, etc. It focuses
at the individual level, while macroeconomics looks at the
decisions that affect entire countries and society as a whole.
II. Key Concepts:
Scarcity
■ Explains the basic economic problem
that the world has limited—or scarce—
resources to meet seemingly unlimited
wants, and this reality forces people to
make decisions about how to allocate
resources in the most efficient way. As
a result, humans are constantly
making choices that are determined by
demand, supply, costs, benefits and
incentives.
■ “There is not enough for everyone.”
Supply and Demand
■ Most market system in the world today is
operating under the law of demand and supply.
■ The law of demand says that at higher prices,
buyers will tend to buy less of an economic
good. The law of supply says that at higher
prices, sellers will tend to supply more of an
economic good.
■ These two laws interact to determine the actual
market prices and volume of goods that are
traded on a market. So that generally when the
supply is high and the demand is low, prices will
tend to go down and conversely when the
demand is high and the supply is low, prices will
tend to go up.
Supply and Demand

Example:
During the nationwide lock down
caused by COVID 19 pandemic
where only few people were allowed
to move, prices of oil went down
precisely because of low
consumption but when lock down
was lifted , oil prices went up again
because of high consumption made
by different sectors in the economy.
Law of supply

■ Sellers are less willing to sell more

when prices are low
■ Sellers are willing to sell more when
prices are high

Price elasticity of supply measures the

responsiveness to the supply of a good or service
after a change in its market price. According to this
basic economic theory, the supply of a good will
increase when its price rises. Elastic means the
product is considered sensitive to price changes.
Law of demand
■ Consumers are willing to buy when
prices are low
■ Consumers are less willing to buy
when prices are high
■ Price Elasticity of demand
– Elastic Demand- Quantity
demanded changes for every
change in price
– Inelastic demand – Quantity
demanded does not change
despite changes in prices
In a nutshell:
■ Overall, price elasticity measures how much
the supply or demand of a product changes
based on a given change in price. Elastic
means the product is considered sensitive to
price changes. Inelastic means the product is
not sensitive to price movements.
■ Equilibrium point - is the point at which the
demand and supply curves in the market
intersect.
■ Equilibrium price –the market price where the
quantity of goods supplied is equal to the
quantity of goods demanded.
3. Costs and Benefits
■ The concept of cost and benefits is
related to the rational
expectations and rational choices of
consumers. In every situation, people
try to maximize their benefits while
minimizing their costs. That is why in
buying consumers would always
discount sales, garage sales, closing
sales, midnight sales and other
promotional strategies of sellers and
producers.
 3. Costs and Benefits
■ In the beer industry for instance, if the
demand for beer is high, breweries will
hire more employees to make more
beer, but only if the price of beer and
the amount of beer they are selling
justify the additional costs of their
salary and the materials needed to
brew more beer. Similarly, the
consumer will buy the best beer they
can afford to purchase, but not,
perhaps, the best-tasting beer in the
store.
Elements of production
 Land

■ Includes any natural

resource used
to produce goods and
services. ... Some common
land or natural resources
are water, oil, copper,
natural gas, coal, and
forests.
 Labour

■ The amount of physical,

mental, and social effort
used to produce goods
and services in an
economy.
Capital

■ The sum of money which you use

to start a business, or which you
invest in order to make more
money. Capital is the part of an
amount of money borrowed or
invested which does not include
interest.
Entrepreneurship

■ Individuals who create new

business, bearing most of the
risks and enjoying most of the
rewards. They play key roles in
any economy, using their skills
and initiatives necessary to
anticipate needs and bring good
new ideas to the market.
 Economic indicators
■ Reports that detail a country's
economic performance in a specific
area. These reports are usually
published periodically by
governmental agencies or private
organizations, and they often have
a considerable effect on
stocks, fixed income, and forex
markets when they are released.
They can also be very useful for
investors to judge how economic
conditions will move markets and to
guide investment decisions.
Economic Indicators
1. Gross Domestic Product (GDP) is considered by many to be the broadest
measure of a country's economic performance. It represents the total market
value of all finished goods and services produced in a country in a given year or
another period.
2. Consumer Price Index (CPI) - the most widely used measure of inflation and of
the effectiveness of the government’s economic policy. The CPI gives the
government, businesses, and citizens an idea about prices changes in the
economy, and can act as a guide in order to make informed decisions about the
economy.
– The CPI is an indicator of the change in the average retail prices of a fixed
basket of goods and services commonly purchased by households relative
to a base year.
– The CPI is most widely used in the calculation of the inflation rate and
purchasing power of the peso.
Economic Indicators
3. Unemployment figures -When workers are unemployed,
their families lose wages, and the nation as a whole loses
their contribution to the economy in terms of the goods or
services that could have been produced. Unemployed workers
also lose their purchasing power, which can lead to
unemployment for other workers, creating a cascading effect
that ripples through the economy.
4.Price of crude oil
Types of Economic System
Every society must answer three
questions:
1. What goods and services should be produced?
2. How should these goods and services be produced?
3. Who consumes these goods and services?

The way these questions are answered determines the

economic system.
Economic system – methods used by a society to produce and
distribute goods and services.
1. Free Market
■ An economic system based on supply and
demand with little or no government control.
■ Economic decisions and the pricing of goods
and services are guided by the interactions of a
country's individual citizens and businesses.
■ People often use the terms free enterprise, free
market, or capitalism to describe this economic
system.
■ A free enterprise economy has five important
characteristics. They are: economic freedom,
voluntary (willing) exchange, private
property rights, the profit motive, and
competition.
1. Free Market
■ Free market economy is generally
regarded as most conducive for growth
and transparency.
■ It ensures competitive markets.
■ Consumers' voices are heard in that their
decisions determine what products or
services are in demand.
■ Supply and demand create competition,
which helps ensure that the best goods
or services are provided to consumers at
a lower price.
2. Command Economic System
■ The government, rather than the free
market, determines what goods should be
produced, how much should be produced,
and the price at which the goods are offered
for sale. It also determines investments and
incomes. (Centrally- Planned)
■ The command economy is a key feature of
any communist society. Cuba, North Korea,
and the former Soviet Union are examples of
countries that have command economies,
while China maintained a command
economy for decades before transitioning to
a mixed economy that features both
communistic and capitalistic elements.
3. Mixed Economic System
■ A system that combines aspects of both capitalism
and socialism.
■ Protects private property and allows a level
of economic freedom in the use of capital, but also
allows for governments to interfere
in economic activities in order to achieve social
aims.
■ United States and Philippines are examples
of mixed economy, exhibiting characteristics of both
capitalism and socialism. Such a mixed
economy embraces economic freedom when it
comes to capital use, but it also allows for
government intervention for the public good.