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:

Unlimited
Scarce
human
resources
demands
 Resources  factors of production
• All natural resources existing without man’s intervention
land • Air, water, forests and other forces of nature

• Human input
labor • Manpower & skills

• Man-made factor of production

capital • e.g. machines, equipment

Entrep-
• Integrates land, labor & capital to produce new products
reneurship
 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

What to • Kind & quantity of products to

be produced based on what
produce? buyers want & are willing to pay

How to • Process of production

• Based on costs & availability of
produce? resources

For whom • Who will benefit from the goods

& services produced
to produce?
 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-off
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