Economy (Greek word: Oikonomia) - household management

Scarcity - having limited resources in relation to the unlimited needs and wants of the people

Economics - the study of how society manages its resources

Malthusian Theory
- Formulated by Thomas Malthus
- Population grows exponentially while resources grow arithmetically

3 basic questions:
1. What gets produced?
- There is a need to choose what to produce according to the needs of the people
2. How is it produced?
- Either labor intensive or capital intensive
3. Who gets what is produced?
- Identify the number of people who will consume the product to avoid wasting our limited
resources

Types of economic systems

Traditional System
● Produces what people need to survive
● Produced by farming, hunting and gathering
● People make their own or share or trade goods

Command System
● Produces whatever the government decides
● Produced by however the government decides
● People gets by however the government decides (class, reward system, ration)

Market System
● Produces whatever people are willing to buy and sell
● Produced by the methods of production that business owners determine
● People gets according to the determination determined by how much a person is able or
willing to pay

Mixed System
● Produces products that both the people and government decide
● Produced by production in state sector guided by social benefit
● The government prioritizes and mostly provide for those in economic disadvantage

Scarcity forces us to make a choice

Trade-off - picking one over all the other possibilities
Opportunity cost - the value of your next best choice

Scarcity Trade- Opportunity cost

off

Microeconomics - for smaller units such as individuals families and companies that only affect
their own members
Macroeconomics - for bigger units such as government policies, and international trade

Need - essential for survival, general things we need to survive: food, water, shelter, clothing,
etc
Want - mere expressions of needs, specific things we need
 {
Economic wants - things we spend which have
economic value: food, shelter, etc

Two types of wants

Non-economic wants - priceless: love,

happiness, etc

{
Free goods - things we consume but we don’t pay:
water from river, air, etc

Goods

Economic goods - free goods that have prices,

underwent a process: distilled water, etc

[
Universal: all people use:
water, clothing, etc

[
Basic: necessities in
life
Relative: some people use:
eye glasses, aircon, etc

[[
Economi
c wants Created: prevalence of
people
Private: need for
ourselves

Public: things only government can

provide: road, bridge etc

Production - use resources/inputs to create goods/outputs

 - Primary - extractive industries/get from nature (fishing, harvesting)
- Secondary - manufacturing, factories (canned goods, shoes)
- Tertiary - service, not tangible (delivery service, transportation, hotel)

Importance of production
- Satisfying our needs and wants
- Employment
- welfare/utility

Production process

input/resources - used in the production

Produce - combining all inputs to create finished production

Output - the result of the production

Types of
inputs
[
[[
[ Land Capital Labor Entrepreneu
[

- Natural (muscle of r (brain of

resources Finan Physica production) production)

[
- Raw
Land cial l - Workers -
materials
resources - - - man- supervisors
Used made - Manual
vegetables
labor

[
to product
create s used
Mineral businFixed in Consu
resources - ess- producti
mer
charcoal equipmon durable
ent s
used in - not
produci directly
Water ng involve
resources - directly d in
fishes, producti
water on
 Land - Rent

Capital - Interest

Labor - Wage
} INCOME

Entrepreneur - profit

Business organizations
- Entity formed for the purpose of carrying an commercial enterprise
- Describe how businesses are structured
- Describe how to produce goods/services
- Describe how to meet needs of the customers
- Focus to earn profit or to improve society
Maximize - make the profit full
Optimize - make basic thing/advocacy

Types of business Description Advantages Disadvantages

organization

Sole proprietorship - managed/owned by - no need to pay for - no other means in

one individual employees/all profit expanding your
- individual is goes to you business
 responsible for the - do whatever you - capital and profit is
operation of the want in your business limited
business from the (quick decision, - unlimited liabilities
factors of production prompt action) - limited lifespan/size
and ownership of capital - very easy to start - lack of managerial
and profits - easy to wind up expertise
- simplest to form - flexibility in
because of small capital operation
needed

Partnership - two or more - two heads are - more people to

individuals who agree to better than one head share in the profit
put their money and - easy to form, no - general partners
properties together to legal formalities have unlimited liability
put up a business under - partner can - disagreements can
partnership continue expertise occur
- combine capital - partnership may be
General - equal - spread workload dissolved if partner
decision making - share decision dies
Limited - some non- making
active partners joining - easier to raise funds
as an investment, silent
partner

Corporation - most complicated form - liability is shared - complex process to

- millions/billions of - easier access to set up
money to create capital - slow in decision
- ownership depends on - the bigger the - too many
the shares company is, the government
- elect BOD and bigger they can regulation
expertise offer/can hire many -double taxation
- undergo many paper, people
submit to SEC - long lifespan
SEC - securities and
Exchange Commission

Open - anyone can buy

stocks
- Be part owner if
we have stocks
Closed - only family
members

Cooperative
- Individuals come together in economic way (farmers cooperation)

Franchise
- Separating products
- Allow people to use their name
 - Big amount of capital needed

Royalty
- Percentage of your profit that will be paid monthly to franchise company