ECONOMICS AS A SOCIAL

SCIENCE
 ECONOMICS AS A SOCIAL SCIENCE
Economics is classified as a social science because it studies
the way in which societies solve the fundamental problem of
reconciling unlimited wants of individuals with limited resources.
It uses scientific method by observing reality and addressing
questions and problems to explain and arrive at the formulation
of theories and models.

Social Science is the study of society and how people behave

and influence the world around them.
 We often encounter limitation in our daily
life because of scarcity. Insufficiency of
resources would lead to not being able to
meet the needs and wants of consumers. On
the part of producers, insufficiency of
resources could limit the production of
goods and services.
 In our country, we experience relative scarcity
when it comes to rice. We have abundant rice
production but because of our population the supply of
rice is insufficient to meet the needs of the people. We
also experience absolute scarcity on some of the
products and services that we need like cherries, it is
absolutely scarce in our country because we do not
have the ideal climate to grow them thus, we rely on
imports for supply of cherries making it very expensive
here in the Philippines.
Scarcity is a fundamental concept of
economics. It refers to the limitation of
resources particularly economic resources
such as land, labor, capital, and
entrepreneurship. Scarcity results in
challenges with regard to properly allocating
resources to all sectors of the economy.
Economics is the science of scarcity.
 ECONOMIC RESOURCES AND FACTORS OF
PRODUCTION
Land refers to natural resources that exist without man’s
intervention. It encompasses all things derived from the
forces of nature such as air, water, forests, vegetation,
and minerals. The payment for land is called rent.

Labor refers to human inputs such as manpower skills

that are used in transforming resources from different
products that meet our needs. The payment for labor is
called wages and salaries.
 ECONOMIC RESOURCES AND FACTORS OF
PRODUCTION
Capital is a man-made factor of production used to create
another product. Examples are machinery and equipment
used in manufacturing companies. The payment for capital is
interest.
Entrepreneurship is the factor of production that integrates
land, labor, and capital to create new products. An
entrepreneur is an individual who makes the decisions
regarding production and utilizing the other factors of
production. A successful entrepreneur not only creates new
products – he or she also innovates by improving on old ones.
Since the scarcity of resources is central to the study
of economics, it is necessary to properly allocate
these resources to meet people’s unlimited wants.
This process of allocation answers three economic
questions:

• How to produce
• What to produce
• For whom to produce
 How to produce?

A society decides who will produce goods and what

process of production will be used. Goods may be
produced by corporations, small business-owners,
or the government itself. The process of producing
goods may be addressed depending on the costs and
the availability o resources needed.
 What to produce?

A society determines the kind and quantity of

products it will produce depending on what
the consumers want to buy or are willing to
pay for.
 For whom to produce?

The question revolves around the issue of who will

benefit from the goods and services produced. This
depends on the distribution of wealth in a society.
Therefore, a consumer who has the capacity to pay
for certain goods and services is more likely to
benefit than one who cannot afford them.
 ECONOMIC SYSTEMS

• Market Economic System

• Command Economic System
• Mixed Economic System
Market Economic system (Free market system a.k.a.
Capitalism)
Characteristics of Free Market
❖ Little government involvement in the economy. (Laissez Faire =
Let it be )
❖ Individuals OWN resources and answer the three economic
questions.
❖ The opportunity to make profit gives people incentive to
produce quality items efficiently.
❖ Wide variety of goods available to consumers.
❖ Competition and Self-interest work together to regulate the
economy (keep prices down and quality up).
Example of how the free market regulates itself:
If consumers want computers and only one company is
making them, other businesses have the INCENTIVE to
start making computers to earn PROFIT. This leads to
more competition which means lower prices, better quality,
and more product variety. We produce the goods and
services that society wants because “resources follow
profits”.
End Result: Most efficient production of the goods that
consumers want produced at the lowest prices and the
highest quality.
Command Economic System
In a centrally planned economy
(communism) the government
❖owns all the resources
❖decides what to produce, how much to produce,
and who will receive it.
Examples: Cuba, China, North Korea, Laos
and Vietnam.
*China’s current system has been described as a socialist market
economy
ADVANTAGES AND DISADVANTAGES OF COMMAND
ECONOMIC SYSTEM

What is GOOD about Communism?

1.Low unemployment – everyone has a job
2.Great Job Security – the government doesn’t go
out of business
3.Equal incomes means no extremely poor people
4.Free health care
ADVANTAGES AND DISADVANTAGES OF COMMAND
ECONOMIC SYSTEM

What is BAD about Communism?

1.No incentive to work harder
2.No incentive to innovate or come up with good ideas
3.No Competition which keeps quality of goods poor.
4.Corrupt leaders
5.Few individual freedoms
Mixed economic system is where all three questions
are answered by both the government and private
entities in consideration of their mutual benefit.
Economic resources are owned by both. Today, most
countries apply this type of economy but in different
proportions – some countries employ economic system
which is more command-oriented than market-
oriented, while others have a more market-oriented
economic system.