 ECONOMICS is a science that deals with the management of scarce resources.

 The two Greek roots of the word economics are oikos-meaning household-and nomus-meaning
system or management. Oikonomiya or Oikonomous therefore means the “management of
household”.
 Scarcity is the basic and central economic problem confronting every society. -insufficiency of
resources
 Factors of Production are Land, Labor, Capital and Entrepreneurship
 Opportunity cost refers to the foregone value of the next best alternative. It is the value of what
is given up when one makes a choice.
 Basic decision problems: Consumption, production, distribution, growth over-time.
 Four basic economic questions are: what to produce, how to produce, how much to produce
and for whom to produce.
 Three important Es in economics are efficiency (refers to productivity and proper allocation of
economic resources), equity (means justice and fairness) and effectiveness (means attainment of
goals and objectives).
 Positive economics is an economic analysis that considers economic conditions “as they are”
while normative economics is economic analysis which judges economic conditions “as it should
be”.
 Ceteris paribus means “all other things held constant or all else equal”.
 Microeconomics is the branch of economics which deals with the individual decisions of units of
the economy-firms and households, and how their choices determine relative prices of goods
and factors of production.
 Macroeconomics is the branch of economics that studies the relationship among broad
economic aggregates.
 Types of economic system: Traditional (basically a subsistence economy. A family produces
goods only for its own consumptions), Command (the manner of production is dictated by the
government) Market (capitalism, which means that the resources are privately owned, and that
the people themselves make the decisions) Socialism (enterprises are owned by the state. State
has control over a large portion of capital assets) Mixed (mixture of market system and the
command system.
 Adam Smith is the father of Economics”.
 The wealth of Nations, published in 1776, became known as “the bible in economics”.
 Demand pertains to the quantity of a good or service that people are ready to buy/purchase at
given prices within a given time period when other factors besides price are held constant
( ceteris paribus)
 A market is where buyers and sellers meet.
 The Law of Demand states that if price goes UP, the quantity demanded will go DOWN.
Conversely, if prices go DOWN, the quantity demanded will go UP ceteris paribus.
 A demand schedule is a table that shows the relationship of prices and the specific quantities
demanded are each of these prices.
 The forces that cause the demand curve to change are taste or preference, change in incomes,
occasional or seasonal products, population change, substitute goods and expectation of future
prices.
 Normal goods can be defined as those goods for which demand increases when the income of
the consumer increases, and those goods that decline when income of the consumer decreases,
price of the goods remaining constant.
 Inferior goods are goods for which the demand decreases when the income of the consumer
increases.
 Supply is the quantity of goods or services that firms are ready and willing to sell at a given price
within a period of time, other factors being held constant.
 The Law of Supply states that if the price of a good or service goes up, the quantity supplied for
such good or service will also go up; if the price goes down the quantity supplied also goes
down, ceteris paribus.
 Supply Curve is a graphical representation showing the relationship between the price of the
product or factor of production (e.g. labor) and the quantity supplied per time period.
 The forces that cause the supply curve to change are optimization in use of factors of production,
technological change, future expectation, number of sellers, weather conditions and government
policy.
 Equilibrium generally pertains to a balance that exists when quantity demanded equals quantity
supplied.
 Surplus is a condition in the market where the quantity supplied is more the quantity
demanded.
 Shortage is a condition in the market in which demand is higher than supply.
 Floor price is the legal minimum price imposed by the government. - A price at or above the
price floor is legal; a price below it is not.( if a surplus in the economy persists)
 Price ceiling is the legal minimum price imposed by the government.-( below the equilibrium
price.)

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