Economics 231

Economic Perspective
 Lesson Exam Upon Take Seats
Test 1. Matching Type. Write the letter of the correct answer to the space provided.

_______1. It is a social science concerned with the A.Utils

production, distribution, and consumption of goods and B. Economics
services. C. Ceteris Paribus
______2. Founder of Western Modern Economics D. Positive Economics
______3. Utility is measured in a unit called? E. Microeconomics
______4. Other-things-equal assumption F. Opportunity Cost
______5. Branch of economics that study the individual G.. Adam Smith
consumer, firm, or market H. Macroeconomics
______6. Branch of economics that study the entire economy I.Normative Economics
______7. A benefit, profit, or value of something that must be J. Francis Hutcheson
given up to acquire something else K.. GDP, monetary
______8. Topics under macroeconomics policy
______9. Statements can be tested using scientific methods
______10. Statements cannot be tested

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 Lesson Exam Upon Take Seats

Test II. Identification. Write the correct answers to the space provided.

_________________1. Employs the other factors of production

_________________2.
________________3. Economic Resources
_________________4.
_________________5
_________________6.
_________________7. Concerns of economics
_________________8.
_______________(9) cost of an action should not exceed its marginal ___________(10)
________________11. Name of your Instructor 1-3
 Lesson Exam Upon Take Seats

Test III. Essay. Discuss one (1) out of the four (4) main reasons to study economics and relate it to your
profession as military leaders. (Minimum of 5 sentences)
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 Economics 231
Economics Perspective
What is Economics

• A social or behavioral science

concerned with making optimal
Economics
choices under conditions of scarcity
• Economic wants exceed society’s
productive capacity

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What is Economics

• Economics is a social science concerned with

the production, distribution, and consumption
Economics
of goods and services. It studies how
individuals, businesses, governments, and
nations make choices on allocating resources to
satisfy their wants and needs, trying to
determine how these groups should organize
and coordinate efforts to achieve maximum
output.
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 Understanding Economics

• One of the earliest recorded economic

thinkers was the 8th-century BC Greek
farmer/poet Hesiod, who wrote that labor,
materials, and time needed to be allocated
efficiently to overcome scarcity. But the
founding of modern Western economics
occurred much later, generally credited to the
publication of Scottish philosopher Adam
Smith's 1776 book, An Inquiry Into the Nature
and Causes of the Wealth of Nations.
LO1 1-8
 Understanding Economics

• The principle (and problem) of economics is

that human beings have unlimited wants and
occupy a world of limited means. For this
reason, the concepts of efficiency and
productivity are held paramount by
economists. Increased productivity and a
more efficient use of resources, they argue,
could lead to a higher standard of living.

LO1 1-9
 The Economic Perspective

A viewpoint that envisions individuals

and institutions making rational decisions
by comparing the marginal benefits and
the marginal costs of their actions
• Scarcity and choice
• Opportunity cost
• Purposeful behavior to increase
utility
• Marginal analysis
LO1 1-10
 Scarcity and Choice

• Resources are scarce

• Choices must be made

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 Opportunity Cost

• The cost of any good, service or activity is the

value of what must be given up to obtain
something else

There’s no free lunch

• A benefit, profit, or value of something that must

be given up to acquire or achieve something else.
Since every resource (land, money, time, etc.) can
be put to alternative uses, every action, choice, or
decision has an associated opportunity cost. 1-12
 Purposeful Behavior

• Rational self-interest
individuals make decision to achieve
maximum utility
utility is the pleasure or satisfaction
obtained from consuming a good or service.
utility is measured in a unit called “utils”
 Rational self interest is not the same as
selfishness
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Purposeful Behavior (Rational Behavior)

• individuals behave/make choices/decisions that

maximize their satisfaction, pleasure or utility
• They are purposeful because they weigh the
cost and benefits in deciding what is the best
way to increase their utility
• People make decisions based on some desired
outcome in mind
• Eg: People donate to charities because they
derive pleasure from doing so.
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 Marginal Analysis

• Comparison between marginal benefit

and marginal cost. (When making decisions or
choices, people compare the marginal benefit with the
marginal cost of a decision.)

• Marginal means “extra” or “added” or a

“change in”
• Marginal cost of an action should not
exceed its marginal benefits
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 Economic Principle

• Principles are used to explain and/or predict

the behavior of individuals and institutions
• Generalizations about economic behavior
• Other-things-equal assumption
• Ceteris paribus
• Graphical expression – many economic
relationships are quantitative, and are
demonstrated efficiently with graphs.

LO2 1-16
 Branches of Economics:
Microeconomics
• Looks at specific economic units
• The study of the individual consumer,
firm, or market
• Examines the functioning of individual
industries and the behavior of
individual decision-making units (firms
and households )

LO3 1-17
 Branches of Economics:
Microeconomics
• Focuses on how individual consumers and firm make decisions;
these individuals can be a single person, a household, a
business/organization or a government agency.
• Analyzing certain aspects of human behavior, microeconomics
tries to explain they respond to changes in price and why they
demand what they do at particular price levels.
• It tries to explain how and why different goods are valued
differently, how individuals make financial decisions, and how
individuals best trade, coordinate and cooperate with one
another.
• Topics range from the dynamics of supply and demand to the
efficiency and costs associated with producing goods and services;
• It also include how labor is divided and allocated, uncertainty, risk,
and strategic game theory. 1-18
 Branches of Economics:
Macroeconimcs
• The study of the entire economy or a
major aggregate of the economy
• Examines the economic behavior of
aggregates – measures of total output,
total employment, aggregate
expenditures and the general price
level

LO3 1-19
 Branches of Economics:
Macroeconimcs
• studies an overall economy on both a national and
international level.
• Its focus can include a distinct geographical region, a
country, a continent, or even the whole world.
• Topics studied include foreign trade, government fiscal
and monetary policy, unemployment rates, the level of
inflation and interest rates, the growth of total
production output as reflected by changes in the Gross
Domestic Product (GDP), and business cycles that result
in expansions, booms, recessions, and depressions.
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Positive and Normative Economics

• Economic statements • Analyzes outcomes of

that are factual economic behavior,
• Understand behavior evaluates them as good or
and the operation of bad, and may prescribed
systems without courses of actions… also
making judgments called policy economics
• It describes what (points argued about are
exists and how it normative points)
works. • Economic statements that
involve value judgments
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 Positive and Normative Economics

Basis for Comparison Positive Economics Normative Economics

A branch of economics based
A branch of economics based on
on values, opinions and
Meaning data and facts is positive
judgement is normative
economics.
economics.
Nature Descriptive Prescriptive
Analyses cause and effect
What it does? Passes value judgement.
relationship.
Perspective Objective Subjective
Study of What actually is What ought to be
Statements can be tested using
Testing Statements cannot be tested.
scientific methods.
It provides solution for the
It clearly describes economic
Economic issues economic issue, based on
issue.
value. 1-22
 Insight on Positive & Normative
Economics
• we can say that these two branches are
not contradictory but complementary to
each other, and they should go hand in
hand. While laying down laws and
theories, economics should be treated as
a positive science, but at the time of
practical application, economics should
be treated as a normative science.
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Example: Positive and Normative
Economics

Positive economics
Last month there were 11.2 million workers
unemployed

Normative economics
Many people today are too lazy to look for work
and that is why the unemployment figures are
so high.

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Positive and Normative Economics

Identify whether positive or normative statement

• The national economy grew at a 6.2 percentage rate
in the last quarter
• The minimum wage would be increased so low-
income workers can earn a living wage.
• The national government should increase income
taxes on the wealthy to reduce the budget deficit.
• The national government achieved a budget surplus
for the first time in thirty years.
• The unemployment rate fell to 5.7 percent this month
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 The Economizing Problem

• The need to make choices

• Limited income and unlimited wants

LO4 1-26
 Society’s Economizing Problem

• Scarce resources - economic resources are

limited relative to wants
• Economic resources also called factors of
production
• 4 categories of economic resources
• Land (rent)
• Labor (wage)
• Capital or investment goods (interest)
LO5
• Entrepreneurial ability (profit) 1-27
 Society’s Economizing Problem

• Entrepreneurs
• Employs the other factors of production
• Takes initiative
• Makes strategic business decisions
• Innovates
• Takes risk

LO5 1-28
 Why Study Economics?

• There are four main reasons to study

economics:
1. To Learn a Way of Thinking - also described as a
way to make decisions, the economic way of
thinking.
2. To Understand Society - Economic decisions
shape the physical environment and influence
the character of society.

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 Why Study Economics?
3. To Understand Global Affairs: No one can
understand how countries interact without
knowing something about economics.
Differences in the levels of material well-being
between countries is also better understood
using the tools of economics.

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 Why Study Economics?

4. To Be an Informed Citizen: Many political issues

that citizens vote for deal with economic issues.
Without a basic understanding of economics,
citizens are likely to vote for policies that are not
in their best interests.

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 Question?

POST TEST: Keep all notes

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 Lesson Exam Upon Take Seats
Test 1. Matching Type. Write the letter of the correct answer to the space provided.

_______1. It is a social science concerned with the A.Utils

production, distribution, and consumption of goods and B. Economics
services. C. Ceteris Paribus
______2. Founder of Western Modern Economics D. Positive Economics
______3. Utility is measured in a unit called? E. Microeconomics
______4. Other-things-equal assumption F. Opportunity Cost
______5. Branch of economics that study the individual G.. Adam Smith
consumer, firm, or market H. Macroeconomics
______6. Branch of economics that study the entire economy I.Normative Economics
______7. A benefit, profit, or value of something that must be J. Francis Hutcheson
given up to acquire something else K.. GDP, monetary
______8. Topics under macroeconomics policy
______9. Statements can be tested using scientific methods
______10. Statements cannot be tested

1-33
 Lesson Exam Upon Take Seats

Test II. Identification. Write the correct answers to the space provided.

_________________1. Employs the other factors of production

_________________2.
________________3. Economic Resources
_________________4.
_________________5
_________________6.
_________________7. Concerns of economics
_________________8.
_______________(9) cost of an action should not exceed its marginal ___________(10)
________________11. Name of your Instructor 1-34
 Lesson Exam Upon Take Seats

Test III. Essay. Discuss one (1) out of the four (4) main reasons to study economics and relate it to your
profession as military leaders. (Minimum of 5 sentences)
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
__________________________________________________________________________________________
1-35
 Question?

(Observe 5s’)

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