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Economics y a social science that studies the allocation of scarce resources to satisfy unlimited human wants y originated from

the word Greek word ³oikonomia´ which means ³household management´ y ³a social science that studies human behaviour as a relationship between ends and scarce means which have alternative uses´²Lionel Robbins y the study of how individuals and groups make decisions with limited resources as to best satisfy their wants, needs, and desires y ³the study of how men and society choose, with or without the use of money, to employ scarce productive resources to produce various commodities over time and distribute them for consumption, now and in the future, among various people and groups of society´² Samuelson Branches of economics: 1] Microeconomics is the study of the economic behavior of individual consumers, firms, and industries and the distribution of total production and income among them y considers individuals both as suppliers of labor and capital and as the ultimate consumers of the final product y studies how individual consumers and firms behave, and how the market system allocates scarce resources 2] Macroeconomics is the study of the behaviour of employment, output and inflation y seeks to explain why fluctuations occur and formulate policies that could mitigate fluctuations y deals with factors affecting growth/output, employment and inflation 3] Agricultural economics is an applied science which deals with theories of economics which are useful in agriculture 4] Positive economics dwells mainly on making statements about ³what is´ or predictions about ³what will happen´ when a certain action that has implications on the allocation of scarce resource is proposed y states what is expected to happen when the current conditions are changed either by domestic consumers or producers, by the international market at large, or by government intervention or policy 5] Normative economics is concerned with ³what should be´ y often identified with policy prescriptions

Relation of Economics to other sciences y Philosophy and theology y philosophical and theological principles serve as value judgments in choosing among alternative ways of achieving economic goals y History y especially economic history, provides empirical support to some theory of economic development y Sociology y studies the behaviour of ma in society and the relationships among social groups y Economics is intimately interwoven with political science The Four Basic Economic Questions y What to produce? y How much to produce? y How to produce? y For whom to produce

Models y have a simplifying descriptive value and a powerful predictive value under the properly defined circumstances y provide the underlying reasons why such behaviour could, in fact, be consistently predicted Production Possibilities Frontier (PPF) y a simple tool which demonstrates the possibilities that an economy can produce with limited resources y aka ³transformation curve´ y assumptions: y only two goods are produced y the society is endowed with three factors of production (land, labor and capital) y at any point in time, resources are fixed in their totality, but could readily be transferred from 1 sector to another y in both production of goods, the technology is given at any point in time y the technology exhibits diminishing returns in the use of all productive inputs y all productive resources are fully employed

Fundamental Economic Problems y Problem of choice y choice is important when resources are limited scarce y since resources are scarce, allocating more resources to one activity implies less resources allocated to other Example: activities (if this happens, then there is trade-off between the activities) y To promote economic growth y greater output enables a country to enjoy a higher standard of living y To avoid long-term balance of payment deficits y to ensure country pays its way in international trade

Three kinds of economy 1] Market Economy 2] Planned Economy 3] Mixed Economy

Economic theory y the bridge between economic models and the real world y a catalogue of models to enable to understand and interpret the past and to predict some aspects of the future

A B C D E F

X 0 100 200 300 400 500

Y 1000 950 850 650 400 0

F 100 100 100 100 100

C -50 -100 -200 -250 -400

C -0.5 -1.0 -2.0 -2.5 -4.0

F

Discussion: y at point D, if all resources are used, at most 300 units of product X and 650 units of product Y can be produced y if production of product X is increased, the production of product Y must decrease 1 y opportunity cost of producing product X is the amount of product Y that must be given up to produce an extra unit of product X y any point along the PPF all resources are fully employed, using the best available technology y at point A, specializing in product Y while at point F specializing in product X y PPF downward sloping, shows the trade-off, it is also ³bowed out´ or concave because of increasing opportunity cost y points inside the PPF, not all resources are fully employed and/or not using the best techniques and/or producing inefficiently y points outside the PPF are infeasible y increase in resources and/or technological improvements leads to an outward shift of the PPF

1

Opportunity cost is the value of the best forgone alternative

Demand is the term for the amount of a good and/or 4] the right to choose which is the right to choose products at competitive prices with an assurance of service that consumers are both willing and able to satisfactory quality purchase 5] the right to representation which is the right to express consumer interests in the making and execution of Law of demand government policies y the quantity demanded of a good and for service is 6] the right to redress which is the right to be negatively or inversely related to its own price compensated for misrepresentation, shoddy goods or y holding all other things constant, the quantity demanded unsatisfactory services for a commodity or service is negatively or inversely 7] the right to consumer education which is the right to related to its own price acquire the knowledge and skills necessary to be an informed customer A demand schedule is a numerical tabulation of the 8] the right to a healthy environment which is the right to quantity demanded (Qd ) at selected prices, ceteris paribus live and work in an environment which is neither threatening nor dangerous and which permits a life of A demand curve is a graphical representation of the dignity and well-being demand schedule Consumer Responsibilities Demand function y Qd is expressed as a mathematical function of price: 1] to be more alert and questioning about the use of and the price and quality of goods and services we use Qd =a-bP; wherein [Qd ] is the demanded quantity, [a] is the horizontal intercept of the function, and [-b] is the 2] [action] the responsibility to assert ourselves and act to ensure that we get a fair deal slope of the function y as long as we remain passive consumers, we will continue to be exploited Market demand 3] [social concern] to be aware of impact of our y the sum of the demand of all individual buyers consumption on other citizens, especially disadvantaged y horizontal summation of the individual demands at the or powerless groups, whether in the local, national or stated price international community Normal goods are products whose demand increases 4] [environmental awareness] to understand the environmental consequences of our consumption as income increases while inferior goods are products 5] [solidarity] the responsibility to organize together as whose demand increases as income decreases consumers to develop the strength and influence to promote and protect our interest A substitute good is a good that can be used in place of another good while a complementary good is a good that is consumed along with another good

The Eight Basic Consumer Needs 1] the right to basic needs which guarantee survival, adequate food, clothing, shelter, health care, education and sanitation 2] the right to safety which is the right to be protected against the marketing of goods or the provision of services that are hazardous to health and life 3] the right to information which is the right to be protected against dishonest or misleading advertising or labelling and the right to be given the facts and information needed to make an informed choice