LESSON 1.

1 INTRODUCTION TO ECONOMICS
SCARCITY
IS THE REASON WHY PEOPLE HAVE TO PRACTICE ECONOMICS. ECONOMICS,
AS A STUDY, IS THE SOCIAL SCIENCE THAT INVOLVES THE USE OF SCARCE
RESOURCES TO SATISFY UNLIMITED WANTS.
SCARCITY
IS THE CONDITION WHERE THERE ARE INSUFFICIENT RESOURCES TO
SATISFY ALL THE NEEDS AND WANTS OF A POPULATION.

CHOICE AND DECISION – MAKING

because of the presence of scarcity, there is a need for man to make decisions in choosing
how to maximize the use of the scarce resources to satisfy as many wants as possible.

OPPORTUNITY COST
refers to the value of the best foregone alternative. The concept of opportunity cost holds
true for individuals, businesses, and even a society.
ECONOMIC RESOURCES
Economic resources also, known as factors of production, are the resources used to produce
goods and services. These resources are, by nature, limited and therefore, command a payment that
becomes the income of the resource owner.

LAND – soil and natural resources that are foundin nature and are not manmade.
Owners of lands receive a payment known as rent.
LABOR- physical and human effort exerted in production. It covers manual workers
like construction workers, machine operators, and production workers, as well as
professionals like nurses, lawyers, and doctors. The terms also include jeepney
drivers, farmers, and fishermen. The income receive by labors is reffered to as wage.
CAPITAL- man –made resources used in the production of goods and services, which
include machineries and equipment. The owner of capital earns an income called
interest.
ECONOMIC AS SOCIAL SCIENCE
Economic is different science from biology and chemistry as these are physical sciences. Economic is
A social science because it studies human behavior just like psychology and sociology. A social science is,
broadly speaking, the study of society and how people behave and influence the world around them. As a social
science, economics studies how individuals make choices in allocating scarce resources to satisfy their unlimited
wants.
MACROECONOMICS AND MICROECONOMICS
There are two branches of economics. These are macroeconomics and microeconomics.

MACROECONOMICS – is a division of economics that is concerned with the overall performance of the entire
economy. It studies the economic system as a whole rather than the individual economic units that make up the
economy. It focuses on the overall flow of goods and resources and studies the causes of change in the
aggregate flow of money, the aggregate moves of goods and services, and the general employment of
resources. Macroeconomics is about the nature of economic growth, the expansion of productive capacity, and
the growth of national income.

MICROECONOMICS- on the other hand, is concerned with the behavior of individual entities such as the
consumer, the producer, and the resource owner. It is more concerned on how goods flow from the business
firm to the consumer and how resources move from the resource owner to the business firm. It is also
concerned with the process of setting prices of goods that is also known as Price Theory.
BASIC ECONOMIC PROBLEMS OF SOCIETY
All societies are faced with basic questions in the economy that have to be
answered in order to cope with constraints and limitations. These are
1) WHAT TO PRODUCE AND HOW MUCH – society must decide what goods
and services should be produced in the economy. Having decided on the
nature of goods that will be produced, the quantity of these goods should
also be decided on.
2) HOW TO PRODUCE – is a question on the production method that will be
used to produce the goods and services. This refers to the resources mix
and technology that will be applied in production.
3) FOR WHOM TO PRODUCE- is about the market for the goods.For whom will
the goods and services be produced? The young or old, the male or female
market, the low – income or the high income groups?
ECONOMIC SYSTEMS
The economic system is the means through which society determines the
answers to the basic economic problems mentioned. A country may be
under any of the following types or even a combination of the three
economic systems:
1. TRADITIONAL ECONOMY- decisions are based on traditions and
practices upheld over the years and passed on from generation to
generation.
2. COMMAND ECONOMY- this is the authoritative system wherein
decision-making is centralized in the government or a planning
committee.
3. MARKET ECONOMY- this is the most democratic form of economic
system.
WHY ECONOMIC IS IMPORTANT?
Economics will help the students understand why there is a need for
everybody including the environment, to budget and properly allocate
the use of whatever resources are available. It will help one understand
how to make more rational decisions in spending money, saving part of
it, and even investing some of it.
SCIENTIFIC APPROACHIN THE EMPIRICAL TESTING OF AN ECONOMIC
THEORY
ECONOMIC is a study that attempets to explain how an economy
operates and how the consumer attempts to maximize his\her wants
within limited means. Using tools such as logic, mathematics, and
statistics, the student needs to approach the empirical testing of an
economic theory in a scientific manner
THIS SCIENTIFIC APPROACH INVOLVES THE FOLLOWING:
1. State the propositions or conditions that are taken as given and do not
need further investigation, as the basic starting point of investigation.
These propositions will serve as the premises upon which the theory is
established.
2. Observed facts in connection with the activity that we want to theorize.
3. Apply the rules of logic to the observed facts to determine casual
relationships between observed factors and to eliminate facts that are
unnecessary and irrelevant.
4. Use statistics and econometrix as empirical proof in testing the
hypotheses.