Basic

Microeconomics
Module
(Week 1)
Intended Learning Outcomes

At the end of this module, you are expected to:

✓ Explain the role of scarcity, specialization, opportunity

cost and cost/benefit analysis in economic decision-

making.
✓ Define economics and scarcity

✓ Identify the factors of production

✓ Differentiate microeconomics and macroeconomics

✓ Differentiate normative and positive economics

✓ Identify the types of economic system and the three

questions that every economy must answer

 Introduction

Economics
 is a social science that deal with the proper allocation of scarce resources

to satisfy the unlimited wants of man.

✓ Needs are essential for human life survival like food, clothing, and shelter.

✓ Wants are goods that give more satisfaction and make more life pleasant
and worth living
Introduction

Maslow’s Hierarchy of Needs

 Introduction

Economic Resources (Factors of Production) = Factor Payment

➢ Land Rent
➢ Labor Wages
➢ Capital Interest
➢ Entrepreneurial Skills Profit
Two Branches of Economics:

 Microeconomics –
A branch of economics that deals with the behavior of individual
components such as household, firm, and individual owner of
production

❑ Macroeconomics
A branch of economics that deals with the behavior of economy as a
whole with the view of understanding the interaction between
economic aggregates such as employment, inflation, and national
income.
Methods of Economics

 Positive Economics.
➢ An economic analysis that explains what happens in the economy
and why, without making any recommendations.
➢ Based on facts and answers the question “What is”

❑ Normative Economics.
It is an economic statement that makes recommendation. The statement is
employed to make value judgement about the economy and suggest solutions
to economic problems and answer the questions “What ought to be”.
Scientific Method of Economics

 Economists have developed techniques, referred to as

the scientific approach in data gathering, data
presentation, and data analyses, that make a starting
point in understanding economic issues that lead to
creating decisions
 Steps in Scientific Method of Economics

1. Data Gathering.
Data is obtained through historical records and interviews of
past performances that is organized in a way that can be easily
analyzed.
2. Economic Analysis.
Synthesize gathered data.
3. Economic Conclusions

Reasoning to generate conclusions.

Category of reasoning :

1. inductive reasoning - reasoning from particular to general

2. deductive reasoning -reasoning from general to particular

Economic system .

❑ Is a means by which societies or governments organize and

distribute available resources, services, and goods across a
geographic region or country

❑ Types of Economic System

➢ Market Economy
➢ Command Economy
➢ Mixed Economy
➢ Traditional Economy
Types of Economic system .

❑ Market Economy
✓ The economic system in which most businesses are owned and operated by
individuals is the free market system, also known as ” capitalism. ”
✓ In a free market, competition dictates how goods and services will be allocated.
Business is conducted with only limited government involvement.
✓ The economies of the United States and other countries, such as Japan, are based
on capitalism.

❑ Command Economy
✓ In a planned system, the government exerts control over the allocation and
distribution of all or some goods and services.
✓ The system with the highest level of government control is communism.
Types of Economic system .

❑ Mixed Economy
✓ A mixed economic system 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.

❑ Traditional Economy
✓ A traditional economy is a system that relies on customs, history, and
time-honored beliefs.
✓ Tradition guides economic decisions such as production and distribution.
Societies with traditional economies depend on agriculture, fishing,
hunting, gathering, or some combination of them.
✓ They use barter instead of money.
Basic Problems in Economics

❑ The fundamental economic problem is the issue of scarcity and how best to
produce and distribute these scare resources.
 Therefore because of scarcity, economics is concerned with:
1. What to produce?
2. How to produce?
3. For whom?