INTRODUCTION TO ECONOMICS - When a solution is made there is a need

to evaluate it and to evaluate it uses the

ECONOMICS
– comes from the Greek word “ oikonomia”
which means household management. It is also a
social science that deals with the efficient allocation
of scarce resources to satisfy the unlimited needs
and wants
TWO MAIN BRANCH OF ECONOMICS
MICROECONOMICS
- A branch of economics that deals with the
individual entities such as household and
firms. Therefore, Microeconomics deals
with how an individual makes choices and
how these choices affect the market
- Topic under microeconomics are Demand
and Supply and Market Structure
MACROECONOMICS
- A branch of economics that deals with the
aggravated economy or the economy as a
whole
- Topics under macroeconomics
economic growth , inflation
unemployment
positive economics and normative
economics.
- Positive Economics answers the
question “what is”. To answer this
question is to just describe the situation.
- Normative Economics answers the
question “what oath to be”. Answered
base on a person’s valued judgement,
opinions and suggestions.
EFFICIENT ALLOCATION
- Means nothing is wasted or zero waste.
- Needs to answer the 3 basic economic
problems which is “what to produce?”,
“how to produce?”, and “for whom to
produce?
- “What to produce” – To determine what
are the goods and services that the
economy is prioritizing.
- “How to produce?” – To determine
are what will be the approach in producing the
and goods and services.

ECONOMICS AS… - “For whom to produce?” – To

determine the target market of the
Social science product produced.
- Talks about the concept of opportunity
- Allocative Efficiency – the distribution
cost which means amount or value of
of resources to produce goods and
somethings being sacrificed in order to do
services.
or make an alternative action

- Productive Efficiency– the production

Science of goods and services at a least cost
manner.
- Discusses the different scientific
methodology such as the identification f
the problem, formulation of the hypothesis SCARCES RESOURCES
which is the null and alternative, collection
- Limited economic resources. These
data. Primary and Secondary, analysis and
resources are land, labor, capital and
lastly the conclusion and recommendation
entrepreneurship
- It is a science because it uses scientific
- Land – natural resources such as
method in answering different economic
minerals. income payment is called rent
issues.

- Labor – refers to the man power or

- The method used in answering an
services rendered by an individual to other
economic issue is economic methodology.
firms. Income payment is called wages
Under economic methodology there is
descriptive economic, economic theory
- Capital – refers to the tools and assets or
and the economic policy.
equipment that can directly convert raw
materials into the final product. Income
payment is called interest

- Entrepreneurship – refers to the
managerial and supervising power skills of
an individual. Income payment is called
normal profit.
Unlimited needs and wants
- Individuals are said to insatiable which
means cannot be satisfied easily. Their
wants are greater than needs which
resulted to scarcity
- SCARCITY – the fundamental problem of
economics
MIROECONOMICS
by an economy within a specific period of
time
- Economic freedom – freedom to choose
on what to produce, how to produce and
how to consume. When it comes to
economic freedom there is no restriction
when it comes to producing goods and
services on choosing what to produce,
how to produce and for whom to produce.
- Economic security – the economy can
provide for those chronically ill or the
dependents of the economy
- Equitable distribution of income –
uses the inherent power of the state which
is taxation

Microeconomics Price level stability

- Factors that influence individual economic
choices and how the choices of various
decision makers are coordinated by
markets.
Economic Methods
- Theoretical economics – the process of
making economic theory using the facts
and data available. It is related to positive
economics.
- Policy economics – the process of
making economic policies or laws using
the economic theory. It is related to
normative economics
- Prevention of inflation or deflation
Full employment
- Individuals who are able or willing to work
can find jobs
Balance of payment
- Trade balance wherein there is no
possibility of surplus and deficit
Since there is an Economic want with limited
resources which is considered as the fundamental
of economics it will result into the Production
Possibility Curve
Production Possibility curve

- Deductive economics – analysis based

on the general.

- Inductive economics – analyses the

situation from a particular then go to the
general

Economic goals

5E’s

- Economic growth – the increase in the

real gross domestic product or the
increase in the real output of an economy
Gross domestic product – total market
value of final goods and services produces
 - The graph that shows the combination of
two goods that an economy produced
given that they have limited resources.
- it depicts the productive efficiency which
refers to the least cost manner of
producing goods and services due to the
limited resources
- has an assumption that in production
possibility curve there is a full
employment, productive efficiency, fixed
resources, fixed technology and two goods
available in the economy
Law of increasing opportunity cost
- the more the economy produce of a
particular good the greater the cost of
additional units of that goods due to the
fact that the resources needed for its
production become increasing scarce
therefore more costly
Allocative efficiency
- how the goods and services will be
distributed to satisfy the needs and the
wants of an individual
- have to satisfy the assumption that the
marginal cost = marginal benefit
Marginal cost
- additional cost incurred by the firm or the
economy in producing one more output
Marginal benefit
- also known as marginal utility it is the
additional benefit that the consumers can
get given that they will consume one more
unit
if the marginal cost is equal to the marginal benefit
it is called optimal allocation
MARKET
CONSUMERS will be the one who will provide for
the different economic resources or FACTORS OF
PRODUCTION which is the land, labor, capital
and entrepreneurship will be by the PRODUCERS
in producing GOODS AND SERVICES. Whenever
consumers use the factors of production they need
to pay for it which will result into the different
INCOME PAYMENT. When the producers produce
goods and services they will sell it to the
consumers the consumers will pay for it in the form
of EXPENSES when the payment is received by
the producers the expenses will turn into
REVENUE
Producers will never produce free goods because of
they want to avoid loss
In computing for profit the formula is:
PROFIT = TOTAL REVENUE – TOTAL COST
Formula for total revenue is:
TOTAL REVENUE = PRICE X QUANTITY
Negative economic profit means LOSS
MARKET
- a mechanism which brings together the
buyers and the sellers wherein they have
these transaction upon an agreed price
- there are two concept under market which
is the market demand and the market
supply
Market Demand
- The quantity of goods and services that
the buyer is willing and able to purchase
at various prices at any given period of
time focuses on the buyer
Market supply

- The quantity of goods and services that

the seller is willing and able to supply at
various prices at any given period of time.
Focuses on the seller

Demand and supply can be depicted in 3 ways

which is function, schedule and curve

FUNCTIONS- mathematical expression that shows

the relationship between the price and the quantity CURVE – the series of points that shows the
demanded or the price and the quantity supplied relationship of the price and quantity
Demand Function Demand Curve
- the formula for the demand function is: - this demand curve is based on the
Qd =a-bP example’s demand schedule
Example: If P=0 find Qd
Qd =80 -4(0)
Qd =80
- if the price increase the quantity
demanded decrease

Supply Function

- the formula for supply function is

Qs =a+bP
Example: If P=0 find Qs
Qs =-10 +5(0)
Qs =-10
- favorable to the producers since the
Law of demand
higher the price higher the revenue and
higher the revenue given that the total - States that as the price of a product
cost is constant they will have a higher increases the quantity demanded
economic profit decreases and as the price decreases the
quantity demanded increases. There is an
SCHEDULE – the table that shows the relationship
inverse relationship between the price and
between the price and quantity
the quantity demanded
Demand Schedule
Supply curve
- Demand schedule based on the given
- this supply curve is based on the
example. Qd=80-4(0)
example’s supply schedule

Supply Schedule

- Demand schedule based on the given
example. Qs=-10+5(0)
- upwards sloping curve denotes that there
is a direct relationship between the price
and the quantity supplied wherein when
the price increases the quantity supplied
also increases and when the price
 decreases the quantity supplied also - It occurs when there is a change in price
decreases of the product itself

Non- Price Determinants of demand

- P for prices of related goods and services

- O for the outlook of the future prices
- I for the income
- N for the number of buyers
- T for taste and preferences
- S for season

Non- Price Determinants of supply

- R for resource price

- T for technology
- P for prices of the competing goods
\
- E for expectation to future prices
- N for number of sellers Change in supply
- T for taxes and subsidy
- It occurs when there a change in the non-
Changes in Quantity demanded vs. Change in price determinants of the supply
demand
- An increase in the supply there will be a
Change in quantity demand
rightward shift in the supply curve and a
- It occurs when there is change in the price leftward shift if there is a decrease
of the product itself

- Change in the demand curve itself

Change in demand
- It occurs when there a change in the non-
price determinants of the product
- An increase in the demand there will be a
rightward shift in the demand curve and a
leftward shift if there is a decrease
MARKET EQUILIBRIUM
- A situation where in there is balance in the
market and to satisfy the assumption:
Qd=Qs
- There is a meeting of mind between the
buyers and the sellers because of that be
able to find the equilibrium price and the
equilibrium quantity.

- Three ways in finding the market

equilibrium such as function, schedule and
curve.

Function

Change in quantity supplied vs. Changes in

supply
Schedule
Changes in Quantity supplied
 - When the demand decreases and supply is
constant the price equilibrium and quantity
equilibrium also decreases

Curve

- The intersection of the demand curve and

the supply curve in the graph is called the
- When the demand is constant and the
equilibrium point
supply increases the price equilibrium
decreases and the quantity equilibrium
- The area below the equilibrium point is
increases
shortage.

- Shortage exists when there is greater

quantity demanded compared to the
quantity supplied

- The remedy for shortage is to offer higher

prices and the buyers should bid up the
price

- The area above the Equilibrium point is

called surplus
- When the demand is constant and the
- Surplus exists when there is excess supply supply decreases the price equilibrium
compared to the quantity demanded increases and the quantity equilibrium
decreases
- The remedy for surplus is to lower the
price or put the product on sale

- When the demand increases and supply is

constant the price equilibrium and quantity
equilibrium also increases

- When the demand increases and the

supply also increases the price equilibrium
is indeterminate or constant and the
quantity equilibrium increases
- When the demand decrease and the
supply also decrease the price equilibrium
is indeterminate and the quantity
equilibrium decreases

- When the demand increase and the supply

decrease the price equilibrium increases
and the quantity equilibrium is
indeterminate

- When the demand decrease and the

supply increase the price equilibrium
decreases and the quantity equilibrium is
indeterminate