FUNDAMENTAL

CONCEPTS AND
PRINCIPLES IN
UNDERSTANDING
ECONOMICS
• What is Economics?
ECONOMICS

• Paul S. Samuelson defines Economics as the study

of how people and society end up choosing, with
or without the use of money, to employ scarce or
limited resources that could be used in the
production of goods and services to satisfy human
wants.
• It is a science of making choices, in the present and over time.
• Economics is a scientific study concerned with human
behavior.
 ECONOMICS AS A SOCIAL SCIENCE
• Economics is a social science because it tries to understand
how members of a society behave and organize themselves to
meet their individual and communal material needs and
desires. It explains how the unlimited demands and desire of
man or consumer is given satisfaction by the goods and
services produced using the limited economics resources
available in the country
 ECONOMICS AS AN APPLIED
SCIENCE
• Applied science is the discipline that utilizes scientific knowledge to develop
practical solutions to society’s problems. Economics uses theories in
analyzing certain situation to help come up with answers. Economics is being
applied and put into practice once economic principles and theories are
applied to real-life situations, and outcomes are predicted because of this.
• Applied economics is thus the study of economics relative to real-life
situation
• Why study Economics?
• As a consumer you need to understand
the impact of economic events on your
spending, saving, borrowing, and tax
obligations.
• As a worker, employer, producer or owner of a firm
you need to be able to understand the signals from the
market place, the nature of costs, the process of making
decisions, the effects of competition on your income; to
understand the role of government in providing services
to your firm, setting the rules and regulations under
which you must operate, and creating (or reducing)
incentives to invest and develop new methods of
production and delivery.
• As a citizen you will have the opportunity to affect
public sector decisions about taxing and spending,
regulating and borrowing; to know price signals,
opportunity costs, and maximizing behavior in order to
make intelligent decisions about tax rates, funds for
education, ordinances, and farm price supports, etc.
Division of economics
DIVISION OF ECONOMICS

•Macroeconomics focuses on the behavior

of an entire economy. It introduces topics of
measuring income and expenditure, savings
and investment, general level of prices, etc.
• Microeconomics studies the decisions of individuals and
firms, how these decisions are made, how these
individuals interact, and how they influence the allocation
of society’s resources and the distribution of income. Our
interest here is in the behavior of economic agents
(households and firms or buyers and sellers).
 ACTIVITY
Identify the following as either under the realm of
MACROECONOMICS or MICROECONOMICS.
1. General food price levels
2. Price of a pack of noodles
3. Income of the father
4. National income
5. Nanay’s tabliya production
6. Philippine Copra Production
METHOD USED IN ECONOMICS

• Positive Economics
• Normative Economics
 POSITIVE ECONOMICS:
• focuses on causes and effects, behavior relationships, and facts
involved in the evolution and development of economic
theories. Often called “what is” economics.
• Example:
“House prices reduce once the interest rate on loans get
higher”
NORMATIVE ECONOMICS:

• expresses value or judgements about economic fairness or

what the outcome of the economy ought to be. Often called
“what should be” economics.
• Example:
“Import duties should be increased on goods coming from
nations with humble human rights record”
 ACTIVITY
Identify if POSITIVE or NORMATIVE
Economics
1. The desired rate of return on gambling stocks are higher compared to
others
2. Import duties should be increased on goods coming from nations with
humble human rights record
3. Investors ought to be more socially responsible and stop investing in vice
stocks
4. Car scrappage schemes can result in a fall in the prices of second-hand
cars
5. The government should implement strict wealth tax laws to decrease the
uneven distribution of wealth
QUIZ