INTRODUCTION

TO
ECONOMICS
MODULE 1
OVERVIEW
Economics impacts every aspect of our life.
It is not merely about money. It is about making choices.
It is about confronting our wants so that we can allocate scarce resources and
value human needs.
This module discusses the basic concepts of Economics and underscores its
applicability in daily life.
 OBJECTIVES
1. Define economics;

2. Differentiate between economics as a social science and as an applied science;

3. Differentiate microeconomics and macroeconomics;

4. Apply the concept of opportunity cost when evaluating options and making economic decisions;

5. Explain the importance of economic resources;

6. Differentiate positive and normative Economics and

7. Explain the importance of studying economics.

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What is
ECONOMICS? the study of how resources are utilized and properly allocated,
the study of making decisions, and the study of scarcity.

the efficient allocation of the scarce means of production toward

the satisfaction of human needs and wants.

“Scarce means of production” refers to our economic resources

such as land, labor, and capital, which we use to produce all the
goods and services that we need and want.
Economics is the study of social behavior guiding in the allocation of
scare resources to meet the unlimited needs and desires of the
individual members of the given society. Adam Smith is the Father
of Modern Economics

Economics as defined by authors of Economics Books

Paul Samuelson (Economics) – the study of how people and society end up choosing, with or with the
use of money, to employ scare resources that could have alternative uses to produce various
commodities among various persons and groups in society.

Hall and Loeberman (Macroeconomics: Principles and Applications) the study of choice under
scarcity.

Economics is the study of proper allocation and efficient use of available scare resources in the
production of goods and services for the maximum satisfaction of human needs and wants (Feliciano
R. Fajardo).
ECONOMICS AS A
SOCIAL SCIENCE
is linked to human behavior.

Social science is the study or discipline that aims to explain

human behavior, these are the social interactions happening
among people living in a certain environment.

Understanding of social science as the study of society and the

manner in which people behave and influence the world around
them.
Example:
 This creates a situation wherein he would have
to interact with other people who might be able
to give him a job or help him secure it.
 He needs to get a job to address his basic
needs.
 This shows the economic aspect of human
behavior where people behave according to
human needs and wants and the desire to
sustain them.
 Economics can apply a theory behind our
everyday decisions and actions.
 ECONOMICS AS AN APPLIED SCIENCE
.
• the discipline that utilizes scientific
knowledge to develop practical
solutions to society’s problems

• the study of economics relative to

real-life situations. This is done by
observing how theories work in
practice.

For example, when we buy goods and services, we have the tendency to choose what will give us the
highest satisfaction for the price we are willing to pay. In this instance, we experience economics in
our regular routine.
TWO BRANCHES OF
ECONOMICS
MICROECONOMICS
• 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
MACROECONOMICS
from the business firm to the consumer and
• a division of economics that is concerned with the
how resources move from resource owner to
overall performance of the entire economy.
the business firm.
• study the economic system as a whole rather than the
• study the decisions and choices of the
individual economic units that make up the economy.
individual and how these decisions affect
• is about the nature of economic growth, the
the prices of goods in the market.
expansion of productive capacity, and the growth of
national income.
SCARCITY:
THE CENTRAL PROBLEM OF ECONOMICS
• A commodity or service being
in short supply, relative to its
demand (Kapur, 1997).
• It can also be seen as the
limited availability of
economic resources relative to
a person or society’s
unlimited demand for goods
and services.
 Figure 1.1 Problem of Scarcity

Limited Resources Unlimited Wants

Figure 1.1 Problem of Scarcity

Limited Resources Unlimited Wants

Scarcity
Scarcity

Figure
Figure 1.11.1 illustratesthe
illustrates the interaction
interaction ofoflimited resources
limited available
resources and the
available andunlimited wants wants
the unlimited
of individuals and society. If limited resources fail to meet the unlimited wants of society,
of individuals and society. If limited resources fail to meet the unlimited wants of society,
this will eventually lead to a problem. That problem is scarcity.
this will eventually lead to a problem. That problem is scarcity.
 Figure 1.2: Economics
Figure 1.2: Economics
Limited Resources Unlimited Wants
Limited Resources Unlimited Wants

Allocation
Allocation
Figure 1.2 illustrates the relationship between available limited resources and the unlimited
Figure of
wants 1.2individuals
illustrates the
andrelationship
society. Itbetween available
shows that when limited resources
limited and the
resources fail unlimited
to meet the
unlimited wants of society,
wants of individuals economics
and society. It showsis that
brought
wheninto play resources
limited to effectively
fail toand efficiently
meet the
allocate resources.
unlimited wants of society, economics is brought into play to effectively and efficiently
allocate resources.
 THE CONCEPT OF
OPPORTUNITY COST
• Refers to the foregone value of the next best alternative.

• It is the value of what is given up when one makes a

choice.

The value of the thing that is given up is called the

opportunity cost of one’s choice.
 Figure 1.3: Opportunity Cost
Figure 1.3: Opportunity Cost
Savings (Firm/Economy)
Savings (Firm/Economy)

Credit (Interest) Investment (GDP Growth)

Credit (Interest)
Figure 1.3 illustrates the concept of opportunity cost. The savingsInvestment
of the firm (GDP Growth)
or economy is
subject to two choices: credit or investment. If the savings is put on credit, there is
Figure 1.3 illustrates
possibility of either the concept
earning of opportunity
interest cost.debt
or incurring bad The(i.e.,
savings of the the
not getting firmmoney
or economy
back.) is
On thetoother
subject two hand, whencredit
choices: the savings of an economy
or investment. is invested,
If the savings itis may
put either increase
on credit, the is
there
GDP or lower
possibility the production
of either of theor
earning interest economy.
incurringWith
badthese
debtin(i.e.,
mind,
notwhich do the
getting you money
think is back.)
the
Onbest
the choice or nextwhen
other hand, best alternative?
the savings of an economy is invested, it may either increase the
GDP or lower the production of the economy. With these in mind, which do you think is the
best choice or next best alternative?
ECONOMIC RESOURCES
• 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.
BASIC ECONOMIC PROBLEMS OF
SOCIETY
The question of what to produce tells us that an economy must identify which
goods and services should be produced for the utilization of society. A society
must also take into account the resources that it possesses before deciding
what goods or services to produce.

This question tells us that there is a need to identify different methods and
techniques needed to produce goods and services. In other words, society must
determine whether to employ labor-intensive production or capital-intensive
production.

This question identifies the people or sectors that demand the commodities
produced in a society. Economists must determine the target market of the
goods and services to understand their consumption behaviors and patterns.
POSITIVE AND NORMATIVE ECONOMICS

Positive economics is an economic analysis that considers economic situation “as they are” or consider
economic situation “as it is”. Its uses objective or scientific explanation in analyzing the different
transactions in the economy. It simply answers the question “what is?”

Normative economics is an economic analysis that judges the economic conditions “as it should be.” It
is the aspect of economics that is concerned with human welfare. It answers the question “what should
be?” It is also referred to as policy economics because it deals with the formulation of policies to
regulate economic activities.
QUESTIONS

1. Relate economics, people and government.

2. Give a situation wherein you are face between to alternative choices and you are
to decide economically? What did you do? What factors did you consider to help
you in making decision?
3. How does the study of economics help you as a student and a citizen of this
country?
Notes:
scientific knowledge is 'what you know'. For instance, you might understand how and why
the water cycle works, what part of a soundwave indicates how loud it is (hint: it's the height!),
how plants use the energy from sunlight to make their food on sunlight, and so on.

Scientific knowledge is a result of the practice of the method : Observation, abduction of a

hypothesis, careful observation, refinement of hypothesis, deduction of test for
hypothesis, testing and experimentation, confirmation or falsification of the hypothesis.
What do these four types of knowledge have in common?

A hypothesis is a proposed explanation for a phenomenon.

Scarcity means that there is a limited quantity of resources to meet unlimited wants and
needs. A naturally occurring limitation on the resource that cannot be replenished.

Shortage occurs whenever quantity demanded is greater than quantity supplied at the
market price. A market condition of a particular good at a particular price. Over time, the
good will be replenished and the shortage condition resolved. A situation where a good or
a service is temporarily unavailable.
Opportunity cost is the cost of opting one course of action and foregoing another opportunity,
a trade-off is the course of action given up to perform the preferred course of action.

If you trade in an old car or appliance, you give it to the person you are buying a new one
from so that you pay less.

Trade-in goods given in whole or, usually, part payment of a purchase: