Nature and Scope of

Economics

By Engr. Ma. Nerissa P. Sangalang, RCE,LPT,MBA

 Two kinds of analysis
• Positive Economic Analysis – simply
describes what exists and how thing s
work.
• Normative Economic Analysis – looks atht e
outcome of economic behavior thorugh
judgements and prescriptions for courses
of action.

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 Theories and Models
• Theories are prepositions about certain
related variables that scientifically expalkin
a certain phenomena.

• Models re used to illustrate,d emostrate

and represent a theory or parts of it
( Baumol, 2009)

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 Fallacies in making Models
and Theories
• Post hoc fallacy – relates two evetns as if
the first event causes the second one to
happen. (“A “occurred immediately before
“B”. Therefore A caused B.)
• Ceteris Paribus –means all things being
equal or held constant
• Fallacy of composition- what is true for a
component is also true for the entire thing.

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 Four Basic Economic Questions

• What goods or services should be

produced?
• How much of each good or service
should be produced?
• How to produce?
• For whom to produce?

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 Opportunity Cost or Trade-off
It is the computed value of the next best
alternative that is given-up when a choice is
made given a set of choices

Opportunity Cost is subjective to the value

one holds for the different options he/she
faces

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END