Cavite State University – CCAT Campus

Department of Management Studies

Bachelor of Science in Business Management

Chapter 1:
Revisiting Economic
Approaches and Principles

Prepared by:

Mr. Richard P. Perez

ECONOMICS
- Is a social science which deals with the proper allocation and efficient
use of scarce resources for the maximum satisfaction of human wants
(Fajardo, 1990)
• Economy – “oikonomus” or oikonomia
(Greek)
“One who manages a household”
Scarcity - limited nature of society’s
resources
Divisions of Economics:
1. Microeconomics = Deals w/ the problems and
analysis of behavior of individual economic
unit such as the consumer (household), seller
(firm), and owners of factors of production
2. Macroeconomics = Deals w/ the problem of
the whole economy and how aggregated
economic units or sectors such as consumer,
business, government and foreign sectors are
interrelated
Human Wants
- are the goods and services needed by human
beings.
Goods and Services
- are those that yield satisfaction (tangible and
intangible)
Classification of Goods
1. Consumer Goods – Those that yield direct
satisfaction
2. Capital Goods – Those that are used in the
production of other goods (and services)
3. Essential Goods – These are the “basic” needs of
man
4. Luxury Goods – These are those that contribute to
mans comfort and wellbeing
Resources
Refer to the factors or inputs of production.
They are those which are needed to produce
goods and services.

Classification of resources:
1. Land – natural resources, not man-made.
2. Labor – physical and mental
3. Capital –anything that is used to produce other
goods and services.
4. Entrepreneurship- ability to organize and
coordinate land, labor and capital
Basic Economic Problems:
1. What goods and services to
produce?

2. How to produce the goods

and services and how
much?

3. From whom are these

goods and services?
Models of Economic System:
1. Capitalism/Market economy – It refers to the
free enterprise or laissez faire economy
2. Communism/Command economy –This is the
opposite of capitalism wherein the government
controls the economy
3. Socialism – It s a mixture of capitalism and
communism.
 Factors in decision making
1. People face tradeoffs.
2. Opportunity cost.
3. Making decisions at the margin.
4. People respond to incentives.
How individual decisions affect others
5. Trade (exchange) can benefit everyone.
6. Markets are often a good way to organize exchange.
7. Government can sometimes improve on markets.
The Circular Flow/Economic Model
Product Markets
resource payments such as wages, rents, interest & profit

Land, Labor, Capital, Entrepreneurship

Households Business
Consumers Firms

Goods & Services

Consumption and Expenditures

Resource or Factor Markets

MICROECONOMIC AGENTS
Firms
– Produce and sell goods and services
– Buy inputs (labor, capital & raw materials)
Consumers/ Households
– Buy goods and services
– Sell inputs (labor services, loanable funds)