Economics Scarcity

CONCEPTS TO REMEMBER ECONOMIC

Study of social behavior guiding in the allocation of scarce QUESTIONS
resources to meet the unlimited needs and desires of the ● Requires people to make choices when choosing
society 1. Unlimited Human Wants 1. How to the resources that they wish to own or utilize
- ADAM SMITH and Needs (concept of Produce? ● Uses the concept of Rationality to predict the
● As Social Science scarcity) 2. What to actions or behavior of people
- How societies tackle the fundamental 2. Economic Resources and Produce?
Factors of Production: 3. For whom
challenge of balancing the insatiable Opportunity cost
Land(natural occurrence to
desires of individuals with the scarce resources), Labor (human produce? - Evident effect of scarcity
resource available inputs), Capital(man-made - What you sacrifice in return for something
factor of production), - Compelled to choose between 2 options
● As Applied Science Entrepreneurship(all things - represents the value of the next best alternative
- Applying economic theories, models. combined) that must be sacrificed when a choice is made
Principles, and concepts to understand and - often expressed in terms of the benefits, profits, or
predict outcomes ECONOMIC SYSTEMS value that could have been obtained if the
Scopes of Economics resources were used differently
● Demographics Free Market — TRADE OFF - the idea that in order to gain
● Labor -No Intervention from the government something, you must give up something else
● Agricultural - Individual resources, and answers 3 economic question
● History - wide variety of products available ASSUMPTIONS
● Monetary - Competition and self-interest work together to regulate the
● Development economy Rationality
● Education - that individuals, firms, or economic agents make
● Engineering Command Economic System decisions that maximize their overall well-being or
● Financial Health - Centrally planned economy utility
● Public - Government owns all resources and responsible - expected to weigh the costs and benefits of their
for allocating it decisions and choose the option that maximizes
- Everybody gets the same thing their satisfaction
Approaches in Applied Economics: Profit Maximization
- Use of econometrics Mixed Economic System - goal of maximizing the financial profit through
- Input-Output Analysis - Economic questions are both answered by the production & pricing
- Historical Analogy government and private entities in consideration of – Individuals :: maximize UTILITY
- Common-sense or Vernacular their mutual benefit (satisfaction)
– Firms :: maximize PROFIT (financial
gain)

Althea N. Anastacio REVIEWER ST 1 ECON


PERFECT INFORMATION
- Consumers have access to complete and accurate
market info.
CETERIS PARIBUS
- Isolating the impact of one variable while assuming
all other relevant factors remain constant for
analysis
- ALL THINGS BEING EQUAL
- used to isolate the effect of a single variable while
keeping other relevant factors unchanged
FALLACY
Errors in judgment / conclusions due to faulty reasoning
1. Failure to hold thing constant under Ceteris
Paribus
- occurs when someone makes a faulty
argument by ignoring the principle of
ceteris paribus
- occurs when changes in one variable are
incorrectly attributed to another variable
without considering the influence of other
relevant factors that may have changed
simultaneously
2. Post Hoc (false cause)
- or post hoc ergo propter hoc, is a fallacy of
assuming that because one event occurred
after another, the first event must have
caused the second.
3. Fallacy of Composition
- occurs when someone erroneously
assumes that what is true for one part of a
whole must be true for the whole
- involves making generalizations about an
entire group or system based on the
Althea N. Anastacio REVIEWER ST 1 ECON
characteristics or behavior of individual COMPARATIVE ADVANTAGE(LOWER OPP.COST)
parts Ability of a country to produce goods/services for a lower
4. Sweeping Generalization opportunity cost than other
- overly general (simplified) statement about COMPETITIVE ADVANTAGE (BETTER VALUE)
a group, category, or situation based on refers to the unique strengths, attributes, or capabilities that
limited or insufficient evidence, presenting give a business or entity an edge over its competitors in the
it as a rule. marketplace
ABSOLUTE ADVANTAGE
UTILITY AND APPLICATION OF APPLIED ECONOMICS Anything a country does more efficiently than other
TO ECONOMIC PROBLEMS/ ISSUES countries.
● Production Possibility Graph (PPG) - E.g. Countries that are blessed with Natural
- illustrate the concept of opportunity cost Resources/ abundance of resources or something
and resource allocation innate to a business or country
● Production Possibility Frontier (PPF)
- the boundary of what an economy can
produce with its existing resources and
technology
● Production Possibility Curve (PPC)
- a graphical depiction of the PPF, showing
the trade-offs between two specific goods
or services
4 KEY ASSUMPTIONS
1. Only Two Goods Can Be Produced: focusing on
two allows for a clear and illustrative analysis of
trade-offs and opportunity costs
2. Full Employment of Resources: implies that all
available resources, such as labor, capital, and
land, are being used efficiently in the economy
3. Fixed Resources: the quantity and quality of
productive resources remain constant over the
period of analysis
4. Fixed Technology: technologies used for
production do not change during the analysis