Basic Microeconomics

Economics – is a social science that deals with the study of human decisions and activities in the face of scarce resources.

The two (2) attributes of the economy are the infinite wants of people and the scarcity of resources.

 Scarcity – the gap between the limitless wants of people and limited (scarce) resources. When human wants have exceeded the
available resources, there is scarcity.
 Resources - These include land, labor, capital, natural resources, and entrepreneurial skills.

Importance of Studying Economics

Economics – provides information about the systems and frameworks that can help analyze multifaceted social interactions

 It helps people make decisions and actions based on the observed and proven dynamics of supply and demand, scarcity, etc.
 It can aid in the proper allocation and efficient consumption of limited resources.
 It can provide ways to identify business opportunities.

Microeconomics
- choices made by individual agents
- it is also called price theory

Macroeconomics
- it focuses on the preferences and operation of the whole economy
- it is also called income theory

Agricultural Economics
- is also called agricultural production economics or simply agronomics
- it takes economic principles, theories, concepts, and tools in an application specific to farming
- the role of this is to involves maximizing crop production and rearing livestock for trading for economic development.
- it uses both micro and macroeconomics concepts to solve problems concerning agriculture.

Principles of Economic Reasoning

 People are required to make choices – the consumers are forced to make choices because of scarcity.
 People choose rationally – the consumers want to get the most out of goods or services they have paid for. Also called
economizing behavior.
 All choices would incur cost – the decisions made by the consumers and producers always entails cost.
 An economic theory is tested through its predictability – it refers to scientific thinking wherein theories are made from
assumptions that are tested by their consistency with real-life events.
 Optimal decisions are made at a margin – it refers to a condition when a consumer would consider the additional value of adding
another unit in comparison to the increment of the cost of obtaining it.
 Incentives are essential – it states that providing incentives or increasing personal costs positively and negatively affect decision-
making, respectively.
 The value of products depends on consumer preferences – states that the consumers don’t value goods and services at the same
level; thus, the value of a product is subjective.
 Choices are made through the available and limited information – it states that consumers come up with their decisions based on
the limited available information.
 Economic actions create a domino effect – states that any economic decision has both primary and secondary effect.

Arguments on Economic Reasoning

 Consumers, producers, and society don’t necessarily respond to what the economic reasoning says – explains that not everyone
will always act the way the economic approach presumes
 Consumers, producers, and society should not respond to what the economic reasoning says – it depicts self-interested people
who are always concerned about “What’s in it for me?”

Postive Economics
- it studies the behavior of the economy and its components as they exist
- real information based on the “what is” of the interaction among economic components
- objective, factual, and verifiable

Normative Economics
- economy based on the value of judgement.
- provides recommendation in consideration of “what ought to be done.”
- subjective, opinion-based, and unverifiable

Economic Issues (World Food Situation)

 Food Crisis
A. Internal and cross-border conflict causes extensive displacement - affects Syrian people who were displaced to neighboring
countries: Iraq, Yemen, South Sudan, Somalia, and Northeast Nigeria.
B. El Niño and other abnormal weather conditions - affects Somalia, Ethiopia, Madagascar, Malawi, and Zimbabwe
C. High prices of food - affects almost all countries

 Global Food Markets

The Challenges in Philippine Agriculture
1. Growth
2. Labor and Productivity
3. Income and Poverty
4. Human Capital

Opportunities in Agriculture
1. Both industry and service sectors are developing – shows the purchasing power of consumers.
2. Urbanization and increase in the population of the middle-class – This opens up opportunities for an increase in the production of
agricultural products.
3. New Markets – The emergence of new markets influences the behavior of the consumer.

Microeconomics Issues in the Philippines

 Externalities – it can be either positive or negative
 Market competition – it influences the price fluctuations of goods.
 Poverty – reducing poverty is an eternal issue in the country
 Unstable Prices – rising and failing prices of goods and services are major microeconomics issues in the country.

Economic Flow (Economic Resources)

1. Land – it refers to the resources that can be renewable or non-renewable.

2. Labor – refers to the human capital that consists of mental and physical contributions from workers to produce goods and services.
3. Capital – involves equipment, tools, transportation, storage facilities, and machinery that are utilized in producing goods and
services.
4. Entrepreneurship – refers to a person’s skill to create goods and to facilitate the innovation of services or improve the production
process.

The two (2) Economic Models – it is a framework that represents simplified assumptions of economic aspects of the real world, analyzing
how the real world works based on assumed conditions.

Qualitative – measured by quality and expressed in words or diagrams

Quantitative – measured by figures or numbers and expressed in mathematical of graphical forms.

Circular Flow Model

- it refers to a diagram that illustrates the movement of goods and services through economic components
- 2 sectors are household and firms. Household refer to the consumers, while the firms are the businesses that supply goods and services.
- the two (2) opposing flows represent income and consumer spending input and output.
- input illustrates the movements of payments
- output shows the movement of goods and services from firms and households and economic resources from households to firms

The five (5) Basic Economic Question

1. What to produce? – firms should consider the goods or services that would satisfy consumers’ wants and needs.
- Consumer goods – the goods that are intended for end consumers
- Capital goods – these will undergo further processing to produce other goods
- Resource market – pertains to the marketplace of the firms where they can obtain economic resources and purchase raw materials
to produce goods and services

2. How to produce? – the firms should identify the optimum method for producing goods and services.
3. For whom to produce? – the firms must identify the persons who can pay.
4. How much to produce? – the firms must determine the correct quantity of goods and services to be produced, which is a crucial
decisions for any business.
5. How do attain and sustain economic growth? – the firms must formulate plans to manage change and sustain economic growth
considering consumers’ changing trends and behavior.

Economic Systems
- it refers to the system by which countries and governments allocate resources and distribute goods and services.

The four (4) major categories

1. Traditional economic system – the simplest and oldest category of economic system wherein decisions on producing goods and
services are dependent on traditions, beliefs, and customs.
2. Command economic system – this system, economic actions are dependent on the commands of a ruler or a ruling class.
3. Market economic system – it is the opposite of the command economic system since it implements a decentralized decision-
making structure.
4. Mixed economic system – this is the combination of market and command economies.

Opportunity Cost

Scarcity and Opportunity Cost – refers to the value of an alternative given upto acquire another. It represents the benefits an individual,
investor, or business misses upon choosing one alternative over another.

Production Posibilities Curve – is called Production Possibilities Frontier (PPF) or transformation curve.
- the following conditions
 Only two (2) goods or services are involved
 Economic resources are allocated to produce two (2) goods or services
 Economic resources are fixed and limited
 The resources are technically efficient and full employed.

Resources and Environmental Economics

The four (4) Basic Issues Concerning Resource and Environment

- Property rights – the legal terms that pertain to the ownership of property (i.e., physical or intangible property) by an individual,
the capitalist economy, or the government.
- Valuation – issues in economics involve externalities. These are the consequences of an economic decision affecting other parties
not involved in the cost analysis.
- Timing of economic decisions – environmental resources can be renewable or non-renewable.
- Substitutability – depletion of natural resources can greatly affect the sustainable development of an economy.

Central Themes on Economic Analysis of Environment and Natural Resources

The three (3) central themes in the economic analysis of the environment and natural resources.

- Efficiency – it describes a state of an economy wherein the resources are allocated for the benefit of the concernced households in the best
way while reducing inefficiency and waste.
- Optimality – it is the allocation of resources for the benfit of a particular society and also concerns the minimization of inefficiencies.
- Sustainability – the ability to continue a certain behavior indefinitely.
- Environmental Pillar – an economic decision or action can positively affect the environment.
- Social Pillar – encompasses the firm’s mutual relationship and employees.
- Economic Pillar – sustainable firm is profitable.