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Introduction to

the Study of
Economics
EMERSON LACSON BERGONIO, MPA, LL.B.
Central Bicol State University of Agriculture
Calabanga Campus

Outline
Meaning of Economics
Significance of Studying Economics
Historical Background of Economics
Goals of Economics
Economics as Related to Other Social
Sciences
Scope/Branches of Economics
Methodologies of Economics
The Economic Systems and the Basic
Economic Questions
Opportunity Cost and Trade-Of

Introduction
The main goal of this discussion is to
provide the students an introduction
to the concept of economics that will
help them strengthen their working
knowledge of the subject

What is Economics
The study of how people and society
end up choosing with or without the
use of money to employ scarce
productive resources that could have
alternative uses, to produce various
commodities and distribute them for
consumption now, or in the future
among various groups in society.
It is concerned with the production,
distribution and consumption of
goods and services.

What is Economics
The study of the proper allocation
and efficient use of scarce resources
to produce commodities for the
satisfaction of unlimited needs and
wants of man.

A social science that deals


with scarce resources and
unlimited human wants.

Terms to Remember
Scarce/Scarcity resources are
available but either they are
improperly allocated or only limited
in supply
Needs - things which we cannot
live without. E.g. water, food &
shelter
Wants these are non-essential
things we can possibly live without

Four factors that are


identified with unlimited
human wants
Increase in population
Changes in tastes and preferences
Increase in income
Speculations of consumers

Why Study Economics?


To know how we can make our
standard of living for coming years
better than what we have now.
To know whether there will be jobs
available for us.
To know how best we can spend our
income.
To know the future of business and how
business can best meet the needs of
the citizen.
To know how our community will grow
and how best we can contribute to and

Why Study Economics?


To understand how our economy works
for us to plan better.
Economic knowledge enable us to
make the choices that will help us live
and plan better as individuals, as
communities, and as a collection of
nations

Historical Background
Started in ancient Greece which was the
beginning of civilization.
Early humans hunted all of the large
game in Central America over a period of
time, until there were no large animals
left. After that, they had to hunt smaller
animals in order to survive. When the
smaller animals wer gone, people had to
adapt or change to a diferent way of
living, or they would die.
In about 3,000 B.C., people learned to
plant corn and other crops. At this time,
people switched gradually from hunterer-

Historical Background
With farming came, people did not move
from one place to another in search for
food but they grew and harvested their
own foods.
Also, with the farming came the rise of
towns and villages and eventually cities.
People began to become more and more
interdependent. People began to have
diferent professions.

What Economists do?


Analyze prices and production costs.
Look into the activities in the market
Predict whether there will be a market for
particular products.
Concerned with getting resources needed for
production and using resources efectively.
Concerned with aggregate or totals, such as
total production national income and total
employment in the entire nation.
Study the monetary system and tax system and
their efects on peoples income, national output
and growth.
Predict the efects of borrowing, policies on
credit on national income and production.

Goals of Economics
1.
2.
3.
4.
5.

To strengthen economic freedom


Promote economic efficiency
Promote economic stability
To improve economic security
Attaining a high level of growth
in the economy

Economics vs. Other Social


Sciences
1.
2.
3.
4.
5.

Anthropology
Political Science
Sociology
Psychology
History

Scope/Branches of
Economics
1. MICROECONOMICS deals with the
economics of firms. It focuses on the
behavior of a particular unit of the
economy such as the consumers,
producers and specific markets.
Micro greek word which means
small
it often deals with terms like
consumers behavior, production
theory, cost and profit and market
structures
It studies the behavior/actions of

Scope/Branches of
Economics
1. MACROECONOMICS deals with
aggregates. Its scope is wider as it
studies the entirety of an economy,
whether national or international, as
it attempts to determine economic
changes.
Macro greek word which means
big
the initial discussion begin on how
growth and output are measured
and how the multiplier works
Labor, employment, and inflation

Method of Economics
1. Normative Economic Analysis looks at
the outcome of economic behavior
through judgments and prescriptions for
courses of action.
It has something to do with What ought
to be
It involves ethics and values judgment. it
values judgments of what is good and
bad, what is true and false.
It describes what is happening to the
economy and why, without making any
recommendation unless positive
economics is made

Method of Economics
2. Positive Economic Analysis simply
strives to describe what exists and how
things work. It has more objective
orientation.
It has something to do with What is
It describes facts and data in the
economy.
It gives policy recommendation as basis
for normative economics
E.g. Taxes provide government

services to the people

Basic Economic
Questions/Problems
What goods and services should be
produced?
the kind and quantity of products
How should these goods and services be
produced?
who will produce; what process of
production
For whom should these goods and services
be produced?
who will benefit

Factors of Production
Land covers all natural resources
like air, water, forests, vegetation, &
minerals
Labor human inputs such as
manpower, eforts, skills/talents
Capital investment, machinery,
equipment
Entrepreneurship resource that
integrates factors of production

Economic System
Refers to a set of economic institutions
that dominate a given economy with
the main objective of solving the basic
economic problems.
It is characterized by the type of
institutions responsible for the
management and allocation of
resources used in the production of
goods and services.

Categories of Economic
System
Traditional economy
Command/planning economy
Free market economy
Mixed market economy

Categories of Economic
System
Traditional economy is one whose economic
decisions are made with great influence from the
past.
It find answers to the three economic questions by
copying or duplicating the decisions made by previous
generations.
Production is carried on through methods used by
their forefathers and are therefore primitive.
Decisions made (e.g. what & how crops will be grown)
is made by imitating what the tribe has always done
Change is slow. Everyones role is quietly observed.
The task or responsibilities are assigned to members
of the tribe in the same way those tasks were
assigned in a previous generation.

Essential Characteristics
of Traditional Economy
Communal land ownership
The leader decides on the management of
agricultural production w/c is the basis of the
economy
The production, distribution, and use of economic
resources are based on traditional practices
New technologies are not welcomed since they are
in contrast w/ the traditional practices of their
ancestors
The economy is only its third priority while culture
and religion are its foremost priorities
Mines are used to gather raw materials for
production.

Categories of Economic
System
Command economy is where all economic
resources are owned and managed by the
state/government.
Decisions in answering the basic economic
problems are planned, done and dictated by
the government.
It operates like a military where the decisions
are made from the top authority and
whatever decisions made are relayed to the
majority of the people in the economy.
Citizens under this system have little or no
political and economic freedom.

Essential Characteristics
of Command Economy
Resource allocation is done by the
government.
Presence of central planning of all economic
activities.
There is no free competition (the government
is the only seller).
Only the government plays the role in setting
legal framework for economic life production
and distribution of goods and services.
The products or needs of the people are
distributed based on priorities set by the
committee.

Categories of Economic
System

Market economy is where individual consumers


and businesses interact to solve economic problem.
the price of commodity dictates what goods and
services will be produced, how and for whom it will
be produced.
conferment of majority is necessary.
a good or service is purchased or sold for a price,
and the price helps to determine what kinds of
economic activity will take place in a market
system.
the decisions made by buyers and sellers help in
determining the price of a particular good. The
price in turn signals the ways our society decides
what, how and for whom to produce.
considered by some observers as auction.

Essential Characteristics
of Market Economy
The private sector owns and manages the means
of production.
The price system in a market structure applies to
determine how much will be paid for a certain
commodity/service.
It is also known as laissez-faire or free enterprise.
There is minimum government interference on
decision pertaining to the management of
economy
Existence of competition often results to
monopoly.
There is a presence of economic power.

Categories of Economic
System

Mixed economy is where both private and


public institutions exercise economic control.
The elements of diferent economy are
present in varying degrees.
Private sector works through the market
mechanism, and minor industries such as
production & distribution of
candies/cigarettes belong to them.
The public or government institution works
through regulatory commands and it owns
and manages major industries such as
transportation, electrification and others.

Essential Characteristics
of Mixed Economy
The means of production are owned and
controlled by the private sector as well as the
government.
The people decide on economic activities within
the economy.
The combinations of the best features of
capitalist and command economies are
observable in the market.
The problem of distribution of goods and services
and allocation of economic resources are
determined through a combination of the market
system and governmental laws and policies.

Selected countries
under various
economic
system Mixed
Tradition Comman Market
al
d
Econom
Econom Econom
y
y
y
Mongolia North
China,
Korea,
Peru,
Cuba
Philippine
s,
Singapor
e,
Mexico,
Canada,

Econom
y
Japan,
USA,
Sweden

The three ISMS


Capitalism (market economic system)
Communism
Socialism (command economic system)

The three ISMS:


Capitalism
An economic system in which most resources
are privately owned, people are free to
choose their occupation, the kind and
amount of production is determined by price
and people searching for a profit, and there
is substantial amount of competition.
It has three Aspects: 1) the institution of
private ownership is generally accepted; 2)
most people are free to pursue their own
economic self-interests, that is, to work for
personal gain; 3) people compete with one
another to get ahead, to make a better
product, to control markets in order to
maintain/obtain large profit.

The three ISMS:


Communism

It holds that the people themselves, not


the government, own the means of
production.
In a communist state, everyone works
at what he or she can do best. There is
no system of wages of profits needed
to spur people to work.
Everyone simply takes from what is
produced whatever he or she needs to
live comfortably.
No government or bureaucracy
supervises what the people do.

The three ISMS: Socialism


An economic system in which the
government owns and operates the
major industries of the country. The
government decides in those major
industries the answers to the three
economic questions.
There are also many variants of socialism
as there are countries. In France and Italy,
for example, many major industries are
nationalized. Sweden is another example
because of its extensive welfare
programs, although some properties are
privately owned.

The Circular Flow of


Economy
Circular Flow of Production and Payment

Law of Scarcity,
Opportunity Cost & TradeOf
Scarcity refers to the condition that all resources
are available only in limited supply
Law of Scarcity states that goods are scarce
because there are not enough resources to produce
all the goods that the people want to consume.
Opportunity Cost refers to the cost of giving up an
alternative by selecting the next best choice or
refers to the cost of using them in their best
alternatives
Trade-of the opportunity cost of selecting one
alternative rather than another. It is a situation in
which more of one good thing can be obtained only

Production Possibility
Frontier (PPF) a graph which shows
the greatest sum of output given accessible
inputs, or factors of production, in an economy.

Production Possibility
Frontier (PPF)

Groupings
MIDTERM EXAM COVERAGE
Introduction to the Study of Economics - ELB
Economic Models and the Flow of Production
Economic Strategies (Monetary & Fiscal Policy)
Tanael, Timajo, Azaa

Basics of Demand and Supply


Consumers Behavior Theory
Alviso, Baduria, Tantiado

Production Theory
Theory of Costs
Pait, Caon, San Andres

Market Structures Calomos, Combate, Rubio

Groupings
FINAL EXAM COVERAGE

Introduction to Macroeconomics - Calomos, Combate,


Rubio

Inflation, Labor & Unemployment


General Principles of Taxation & Taxes
Condes, Esmarin, Palma

National Taxes
Tax Administration and Procedure
Corporal, Rodriguez, Domalaza

Agrarian Reform and Comprehensive Agrarian Reform


Program - Narvato, Garayan, Padre