Maria Vicenta C.

Magpantay
Associate Professorial Lecturer II
PUP San Juan Branch
COURSE OBJECTIVES
GENERAL:
 To examine the most up-to-date theoretical
knowledge and to illustrate the usefulness of
economic theory with wealth of applications.
 COURSE OBJECTIVES
SPECIFIC: At the end of the course, the students will be able to:
 acquire basic knowledge in economics

 demonstrate understanding in the relevant economic

issues of the day
 acquire basic skills in economic analysis

 develop favorable socio-economic attitudes.

 INTRODUCTION
WHAT IS ECONOMICS ALL ABOUT?

 Etymology of Economics
 Greek word OIKONOMIA which means household
management Microeconomics
 Eventually became state management when the Greek
society developed
Macroeconomics
2 BRANCHES OF ECONOMICS
MICROECONOMICS
 study of the behavior of the individual units in the
economy such as the household, firm or industry
MACROECONOMICS
 study of the economy as a whole or the basic sector or
aggregates namely: household, business sector,
government and the foreign sector GDP = C + I + G + (X-M)
Managerial economics
 a branch of economics that applies microeconomic concepts,
methods, and analysis to examine how an organization or
business can achieve its aims and objectives most efficiently
through decision-making.

 the purpose of managerial economics is to provide economic

method and scientific reasoning to solve managerial decision
problems.
ECONOMICS AS A SCIENCE
Recognized in year 1776

 Adam Smith
 known as the “Father of Economics”
 wrote the book “An Inquiry into the
Nature and Causes of the Wealth of
Nations”in 1776
ECONOMICS AS A SCIENCE
 part of social science
 deals with human behavior
 how society and individuals generally make choices
• choices among alternatives
• sacrifice one over the other
• limited resources
ECONOMICS DEFINED

 Economics is a social science that deals with

efficient allocation of scarce resources in order
to satisfy unlimited and insatiable human wants.
NEED VS. WANT
NEED
 is something that is necessary which you cannot live
without

WANT
is something desired and unlimited but subject to
limited resources
BASIC ECONOMIC PROBLEMS Basic Economic Assumption
- CETERIS PARIBUS
1. What to produce
decision on what type of goods and services that the society desires
2. How to produce
decision on how the entrepreneur will allocate and mobilize efficiently
the factors or production to produce the goods and services
3. For whom to produce
Decision on which segment of population the goods and services is
targeted to be produced
 4 FACTORS OF PRODUCTION
LAND – Natural resources, land, livestock,
LABOR – effort, skills, talents, human resource
SCARCITY CAPITAL – man-made resources, raw materials that can be turned into
other goods
ENTREPRENEURSHIP – the skill to take risk in mobilizing the 3 other
factors of production in appropriate proportions to produce goods and
services

resources are limited

efficiency vs. effectiveness
fundamental economic problem
WHEN DID THE PROBLEM OF SCARCITY STARTED?
OPPORTUNITY COST
the value or cost of choosing one alternative over the
other

 the cost associated with opportunities that are

foregone

 the marginal benefit from the change incurred by the

choice is greater than the expected marginal cost
IS MONEY CAPITAL?

Functions of Money
 medium of exchange
 standard unit of value
 standard ffor deferred payment
 store of value

Demand for money

 transaction demand
 precautionary demand
 speculative demand
ECONOMICS AS A SCIENCE
 systematized body of knowledge

 follows scientific approach in dealing with economic

issues

 uses or employs scientific method in coming up with

economic decisions and generalizations
SCIENTIFIC METHOD
• Identify the problem (know and understand)
• Formulate hypothesis
• Gather information and data
• Testing the hypothesis through experimentation and
observation, and
• Arriving at conclusion.
ECONOMIC METHODOLOGY
systematized body of knowledge using scientific
method in gathering and analyzing data and making
conclusions
 Primary data – collected for one’s present purposes using
direct observations, surveys and interviews
Secondary data – collected from statistical agencies like
data on domestic and international tourists, prices,
employment, interest rates, and national income or the
Gross Domestic Product
ECONOMIC PRINCIPLES, THEORIES AND MODELS
Economic principles
 generalizations relating to economic behavior or the
economy itself expressed as the tendencies of typical
or average consumers, workers, or business firms

Hypothesis
 educated guess based on certain assumptions on
relationship of variables
ECONOMIC PRINCIPLES, THEORIES AND MODELS
Economic Theory

 is a generalization based on variety of facts about why

or how economic events occur

 explains how economic variables generally behave

when certain conditions exist

 represented by models in the form of verbal

statements, graphs, numeral tables, or mathematical
equations.
ECONOMIC PRINCIPLES, THEORIES AND MODELS
Economic Policy
 economic theory put into action becomes an economic policy

 implemented through courses of actions based on economic

principles

 intended to solve specific economic problem and to achieve

economic goals
DESCRIPTIVE ECONOMICS

branch of economic inquiry that analyses and explains

economic phenomena as they are, without making any
statements about how they ought-to be.
POSITIVE AND NORMATIVE ECONOMICS
POSITIVE ECONOMICS
 focuses on facts and cause-and-effect relationships
 includes description, theory development, and theory
testing (theoretical economics)
 avoids value judgments
 tries to establish scientific statements about economic
behavior, and deals with what the economy is actually
like.
POSITIVE AND NORMATIVE ECONOMICS
NORMATIVE ECONOMICS
 incorporates value judgments about what the economy
should be like or what particular policy actions should be
recommended to achieve a desirable goal (policy
economics).
 looks at the desirability of certain aspects of the economy
 underlies expressions of support for particular economic
policies.
METHOD OF ECONOMIC ANALYSIS
INDUCTIVE OR EMPIRICAL METHOD

 applied when researches are conducted from facts to theory or

from specific observations to making generalized explanations
about the observed phenomenon

DEDUCTIVE METHOD

 proceeds from general behavior to particular behavior

APPROACHES IN ECONOMIC ANALYSIS
Functional or mathematical approach Graphical approach β = Q2-Q1
P2-P1
D = α - βP Demand curve 180-168
= 5-8
Demand function
Price
D = 200 - 4P = 12/-3
20
• D S
Tabular approach

Demand schedule = -4

Price Quantity Solution

Pe 15
• ME
10
Demanded •
0 200 = 200 – 4(0)
5
• S= Q2-Q1
P2-P1
5 180 = 200 – 4(5)
0
40

80 120 160 200
• 120-140
8 168 = 200 – 4(8) Qe = 20-15
Quantity
15 140 = 200 – 4(15) D= 200 -4P
= -20/5
20 120 = 200 – 4(20) = -4

PEMDAS
 S= Q2-Q1
S = α + βP
P2-P1
S= 50 + 6P
80-98
= 5-8
Price Quantity Quantity Solution = -18/-3
Demanded Supplied = 6
0 200 50 = 50 + 6(0)
5 180 80 = 50 +6(5)
S= 50 + 6P
8 168 98 = 50 + 6(8)
15 140 140 = 50 + 6(15) Market Equilibrium

20 120 170 = 50 + 6(20)

FUNCTIONAL/MATHEMATICAL APPROACH
D= 200- 4P S = 50 +6P

D=S D=S
200-4P=50+6P 200-4P=50+6P
200-50=4P+6P 200-4(15)=50 + 6(15)
150 = 10P 200- 60 = 50 + 90
150 = 10P 140 = 140 Equilibrium Quantity
10 10
15 = P Equilibrium price