WHAT IS ECONOMICS?

Economics does not teach man how to get rich, nor does it provide
magic formulas as to what business one should venture into, how to get
a job and what kind of products he should manufacture.
Economics simply explains why some businesses succeed while
others do not and why a particular economic event occurs.

ECONOMICS DEFINED
From the Greek Words OIKOS
meaning household and NOMOS

ECONOMICS

The wise production and use of

wealth to meet demands or needs of
the people
NATURE AND SCOPE OF ECONOMICS
Every man of any distinction makes an economics decision every day.
Deciding on how much to spend and save, the kind of food to buy, the
type of school to enroll, the amount of time for work and leisure, and
may more be only some situation where one applies economics.

Economics – is a social science that deals with how individuals organize

themselves in order to distribute scarce resources to create products
and services that meet man’s infinite and multiplying desires and needs.

ECONOMICS AS SCIENCE
 It is science because, in relation to those general laws and
principles, it is an organized body of facts, orchestrated, structured
and systematized. (Observation, hypothesis formulation, knowledge
set, experimentation, inference, generalization)
  Using some kind of logic based on a collection of systematic
relations, economic analysis attempts to described economic events.
 It is social science since individuals or societies and their actions,
unpredictable in nature, are subject of economics.

RELATIONS OF ECONOMICS TO OTHER SCIENCES

 ECONOMICS
 MATHEMATICS
 NATURAL SCIENCE
 SOCIOLOGY
 GEOGRAPHY
 HISTORY
 ETHNIC/ RELIGION
 POLITICS

SCOPE OF ECONOMICS
1. Microeconomics (from the Greek word mikros, meaning “small”)
 Takes a closer view on the behavior of individual markets work. It
focuses on how individual households, firms and industries make
their choice, and the interaction of such decisions in the particular
market.

Example: Determine the price of rice and how much of it is produced

and sold. It would also look at how regulations and taxes affect the price
and supply rice.

2. MACROECONOMICS (from the Greek word makros, meaning. “large”)

 Deals with the problem of the economy as a whole. It looks at the
aggregate prices, production and income.

Example: The study of the Philippine economy would analyze the gross
national income and total employment.
 ECONOMICS
 

MICROECONOMICS MACROECONOMICS
SPECIFIC GENERAL
Deals with economic Deals with economic
behavioral of individual problem as a whole such as
household, firms and aggregate prices,
industries production and income

CONCERNS OF ECONOMICS

1. Production – is the use of inputs for generating output.

 Inputs are commodities or services that are used to produce
goods and services.
 Outputs are the different goods and services which come out of
production process.
*Society has to decide what outputs will be produced and in what
quantity.
2. Distribution – is the total product distribution by members of society.
It is linked to the issue of for whom goods and services are to be
produced.
3. Consumption – is the used of products and services. Consumption is
the final conclusion of economic operations.
4. Public finance – is concerned with the government spending and
revenue. Economics studies how the government collects money by
taxes and its borrowing.

TYPES OF ECONOMICS
1. Household Economics – the family is the most popular use of
economics. At this stage, someone who knows the economic principles
would be able to improve the functioning of the household.
2. Business Economics – when individuals or a group of people starts to
work, they are part of business economy system in their workplace. In
this form, you’re dealing with rent, salaries, income, and others.
3. National Economics – economic factor that influence the country as a
whole. Deals with the control of a nation’s revenue, spending, wealth or
capital.
4. International Economics – The highest stage of economic operation
concerning the industry of one country with other countries such as
trade, tourism, exchange rates.

THE ECONOMIC AGENTS/ STAKEHOLDERS

1. Consumers – are the individuals or companies purchasing goods or
services. They are individuals or other economic organizations making of
a good or service. In addition, they don’t sell on the item they
purchased.
2. Producers – Firms who produce goods and services. They may be
individuals, entrepreneurs (self-employed) or large multinational
companies.
3. Government/ the public sector – Attempt to maximize the well-being
of society
*The agents interact in the particular territorial, social, natural and/ or
cultural framework which determines their relationships within the
market.
BASIC TERMS TO BETTER UNDERSTAND ECONOMICS
Goods – anything used to satisfy your needs and wants.
*Tangible goods – a physical object or product that can be touch
*Intangible goods – a product that cannot be touched, like insurance
policy

Classification of Goods according to EXAMPLES

use
1. Consumer goods – those that yield
direct satisfaction to consumer

2. Capital/ industrial goods – are

those goods that help to produce
other goods that are directly or
indirectly meet consumers’ need.

3. Essential goods – goods that are

consumed to satisfy the basic needs
of man
4. Economic goods – goods that useful
and scarce; they need to be paid for
their use with value attached to them
and a price. If a good is so abundant,
and it can meet the needs of all
without anyone paying for it, then
that good is free. The air is free, but
the air-conditioned air is an economic
good.
5. Luxury goods – are goods that are
not necessary, but are highly valued
and kinked to people who are affluent
or rich. For several purposes, they are
purchased: to encourage self-worth
and status, or for the product’s quality
and craftmanship.
ECONOMIC RESOURCES
 Also known as factors of production
 Used to produced goods and services

CLASSIFICATION OF RESOURCES
1. Land – soil and natural resources found in the wild and not man-
made. Landowner get a lease known as rent.
2. Labor – physical human involvement in production.
*Example: Works in building, machine operators, and work in
manufacturing, nurses, lawyers, doctors, teachers etc.
*The income received is referred to as wage.
3. Capital – man-made commodities that are used to manufacture
products and services.
*The capital owner receives an income which is called interest.
4. Entrepreneur – transform an idea into a business. In order to add to
supply, an entrepreneur incorporates the other three factors. Innovation
and risk-takers are the most successful entrepreneurs.
*Profit are the money entrepreneurs receive.

CHARACTERISTICS OF RESOURCES
1. Scarcity – is the condition where there is an insufficient amount of
what is accessible to fulfill the demand for it.
*There are problems that economics will face in the development of
products and services: for land – insufficient land and natural resources;
contaminated areas; overcrowded spaces: land – unqualified workforce;
insufficient workforce: for capital – low equipment/ machine;
inadequate fund/ capital: and for entrepreneurship – inadequate
training of entrepreneurs; inadequate timely training; limited
opportunity; scarcity of great ideas but many competitors in the market.
2. Multiple usage – there can be more than one potential use of
resources. A plot of land can be used, for example, to plant coffee or to
build factory.
3. Partially Replaceable: in the production of a good or service one
resource may replace another (e.g., replace manual labor with
technology.

CHOICE AND DECISION-MAKING OPPORTUNITY COST

There is a need for a man to make choices in making optimize the
use of finite resources to fulfill as many wants as possible due to
existence of scarcity. For instance, a homemaker who has a monthly
budget has to determine how to use it top ay the rent, buy food, pay
tuition fees for children, and buy new clothes and shoes. If the budget
isn’t adequate, then some of these items have to be given up by the
homemaker. She has the decision to make. If the beginning of school,
she chooses not to buy a new shoe for her kids, then this is the option
she gave up on.
When you hear the phrase “opportunity cost,” you hear a fancy word
for “trade-off”. There is a trade-off to consider each time you make a
choice. You have to consider what you get as well as what you might to
give up. The most fundamental definition of opportunity cost – is the
cost of the next best thing you might have done if you hadn’t made your
first option. The cost of opportunity includes both overt and implicit
costs.

IMPORTANCE OF ECONOMICS IN OUR DAILY LIVES

Importance of Economics

Opportunity cost

How inflation affects us?