Economics:

An Introduction
ESSENCE OF ECONOMICS
 ECONOMICS

• OIKONOMIA = OIKOS (HOUSE)

• + NOMOS = (CUSTOM/LAW/RULES)

• Greek OIKONOMIA- Management or

Administration of a household.
 Definition
• Study of how societies use scarce resources to
produce valuable commodities and distribute
them among different people.
-Samuelson Nordhaus, 2001
 Definition
• A social science dealing with two extremes:
Resources  factors of production
 Four (4) Main concepts
1. SCARCITY

2. CHOICE

3. EFFICIENCY

4. EQUITY
 QUESTION

What’s the difference between

WANTS
and

NEEDS?
 Scope of Econ
Microeconomics Macroeconomics
• Focuses on the particular • Deals with aggregates
unit of economy, like • Wider, entirety of the
consumers, producers & economy
specific markets • National or international
• Deals with economics of the
business firms (BF)
• Household (HH)
 Methods of analysis
• Positive economic “Taxes provide gov’t
analysis services to the people.”
– Simply describes what
exists & how things work

• Normative economic
“Gov’t should levy more
analysis
taxes to provide more
– Looks at the outcome of
econ behavior thru
services to the people.”
judgments &
prescriptions
• Theories
– Propositions about
certain related variables
that scientifically explain
a phenomena
– E.g. Population Theory of
Thomas Malthus
• Models
– Used to illustrate,
demonstrate &
represent a theory
– Graphs, diagrams,
mathematical formula
Fallacies in making theories & models
1. Post hoc fallacy
- Relates 2 events as if the 1st caused the 2nd
- “A occurred immediately before B, thus, A caused B.”

2. Failure to hold other things constant under

the ceteris paribus assumption
- Generalizing events as if they were all the same &
all results were predictable
Fallacies in making theories & models
3. Fallacy of composition
- What is true for a component is also true for the
entire thing

4. Sweeping generalization fallacy

- When a statement wraps up everything with no
exemptions to the rule, as if making it a general
statute.
Basic Economic Questions
 Economic system
- type of institutions responsible for the management &
allocation of limited resources used in the production

• Market economy
– producing goods  high profit w/ least costs
– Distributing goods to those who can afford

• Command economy
– All resources are owned by the gov’t

• Mixed economic system

– Gov’t + private entities  mutual benefit
 Opportunity Cost (OC)
• Cost of giving up an alternative by selecting the best
next choice

• When a particular need is pursued, all other

alternatives are foregone
• The more we have of this good, the more we
sacrifice those other things
• P (price) • What are the good points
• Q (quantity) we get in exchange of
giving up the other?
e.g. P of ice cream = – Benefit of giving up the
money?
Php25

What is the OC of
buying 1 ice cream? 2
ice creams? Trade-of
Production Possibility Frontier (PPF) &
Opportunity Cost
• PPF • e.g.
– Graph showing the Available input:
greatest sum of output
given the accessible
P(orange soda)
inputs or factors of P(cola)
production
 Opportunity Cost and Comparative
Advantage
• Example:
 SEATWORK
1. Write 5 experiences where you experienced
giving up something for something else.
1.1Identify the
– A. opportunity cost
– B. trade-off
Answer the following:
2. Give example of a post hoc fallacy and explain
why it is considered fallacious.
3.
 Lecture and Group Reports
• Introduction
• Demand and Supply
• Group 1 – Elasticity and Applications, pp. 31-48
• Group 2 – Consumer Behavior Theory, pp. 49 – 64
• Group 3 – Production Theory – 65 – 76
• Group 4 – Theory of Costs – 77 – 88
• Lecture: Market Structures
• Group 5 – Intro to Macroeconomics
• Group 6 – National Income Analysis
 Guide on Reporting
• No reading
• Visual Presentation or Group Dynamics and
Hand outs
• Grading:
– Participation and cooperation – 10
– Content and Additional Information - 20
– Visuals and Group Dynamics- 15
– Prerogative and On the Spot Questions -
Guide on Journal and Other Papers
• Follow the ‘last name first’ policy
• Follow format
• Edit and be syntax conscious
• Organization and Flow of Thought
• Remember our HAU SAS Academic Integrity