Introduction to Economics

Part of human behavior is the tendency to want/to

have as many goods and services as he can.

However, this ability to buy goods and services is

limited by his income and purchasing power. It is,
therefore, in his context that man has to practice
economics.
Economics, as a study, is a social science that
involves the use of scarce resources to satisfy
unlimited wants and needs.
 Scarcity is a condition where there are
insufficient resources to satisfy all the needs
and wants of a population.

Types of Scarcity

relative absolute
(happens when a good is (happens when supply is
scarce compared to its limited)
demand)
 Choice and Decision-making

Because of scarcity, there is a need for man to

make decisions on how to maximize the use of
scarce resources to satisfy as many wants as
possible.
 Opportunity cost

It refers to the value of the foregone

alternative. In making a choice, trade-offs are
involved.
 Economic Resources

Also known as factors of production, are the

resources used to produce goods and services.

- Land

- Labor

- Capital
 Economic Resources
Land – soil and natural resources that are found in nature
and are not man-made. Owner of lands receive a payment
known as rent.

Labor – physical and human effort exerted in production.

The payment received by laborers is called wage.

Capital – man-made resources used in the production of

goods and services, which includes machineries and
equipment. The capitalists earn an income called interest.
 As a social science, Economics deals with the analysis
on how members of the society interact with one another
on the creation and utilization of wealth.

In addition, economics has been described as the

allocation of resources to meet human wants.
 Branches of Economics

Macroeconomics is concerned with the over-all

performance of the entire economy. It 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 studies the decisions and choices of the individual units and

how these decisions affect the prices of goods in the market.
 Basic Economic Problems of Society

1. What to produce and how much?

2. How to produce?

3. For whom to produce?

How these questions are answered depends on the nature of

the economic system in place.
 Economic System

- is the means through which society determines the

answers to the basic economic problems mentioned.

The country may be under any of the following types

or even combination of the three economic systems:
1. Traditional Economy – decisions are made based on
traditions and practices upheld over the years and are
passed on from generation to generation.

Methods are stagnant and therefore not progressive.

Traditional societies exist in primitive and backward
civilizations.
2. Command Economy – is the authoritative system
wherein decision-making is centralized in the
government or a planning committee.

Decisions are imposed on the people who do

not have a say in what goods are to be
produced.
 3. Market Economy – is the most democratic form of
economic system. Based on the workings of demand and
supply, decisions are made on what goods and services to
produce.

People’s preferences are reflected in the prices they

are willing to pay in the market and are therefore the
basis of the producers’ decisions on what goods to
produce.
 Why is Economics Important?

⮚ It will help you understand why there is a need for

everybody, including the government, to budget and

properly allocate the use of whatever resources available.

⮚ It will help you understand how to make rational

decisions in spending money, saving part of it, and even
investing some of it.
⮚ On the national level, economics will enable the
students to take a look on how the economy operates
and to decide for themselves if the

Government officials and leaders are effective in trying to

shape up the economy and formulate policies for the good
of the nation.

The concept of scarcity and choice should encourage us

to help, in our own way, to provide solutions to the
country’s economic problems.
PHILIPPINE ECONOMIC PROBLEMS

- Unemployment
- Poverty
- Booming population growth
Leson 2: CIRCULAR FLOW OF ECONOMIC ACTIVITIES

This model shows the

interaction between two
groups of economic decision-
makers: households and
businesses; and two types of
economic markets: the
market for resources and the
market for goods and
services.
Four sector model
studies the circular
flow in an open
economy which
comprises of the
household sector,
business sector,
government sector,
and foreign sector.
 The circular flow model demonstrates how
money moves through society. Money flows
from producers to workers as wages and flows
back to producers as payment for products. In
short, an economy is an endless circular flow of
money.