ECONOMICS

- scarcity and choices

 ECONOMICS
Samuelson and Nordhaus: The study of
how societies choose to use scarce
productive resources that have
alternative uses, to produce commodities
of various kinds and to distribute them
among different groups.
 ECONOMICS
Gerardo Sicat: The study of how
individuals and society in general
make choices that involve the use of
scarce resources from among
alternative wants that need to be
satisfied.
 Science of choices

You must let go of

choices to make the

right decision.

4 #hugot
SCOPE of 1. MICROECONOMICS
ECONOMICS
- LOOKS AT HOW INDIVIDUAL MARKETS WORK

- FOCUSES ON HOW INDIVIDUAL HOUSEHOLDS

AND FIRMS MAKE THEIR CHOICES

Examples: deals with the factors that

determine the price of rice and how much
of it is produced and sold
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SCOPE of 2. MACROECONOMICS
ECONOMICS
- LOOKS AT THE ECONOMY AS A WHOLE
- LOOKS AT AGGREGATE PRICES, PRODUCTION
AND INCOME

Examples: analysis of gross national

income and total employment;
economic growth; inflation,
unemployment, economic
6 fluctuations, etc.
 WHAT to produce
5 ECONOMIC
(make)
QUESTIONS HOW MUCH to
produce (quantity)
HOW to Produce it
(manufacture)
FOR WHOM to
Produce
7 (who gets what)
4 CATEGORIES
OF ECONOMIC
RESOURCES
1.LABOR
2.LABOR
3.CAPITAL
4.ENTREPRENEU
8
R
 Includes all natural resources
that we use in the
LAND production process.
The income received from
these resources in
rent/rental income.
Ex. Arable land, forests,
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mineral and oil deposits,
water resources
 refers to all the physical and mental
talents of individuals available and
LABOR usable in producing goods and
services.
The income realized to those who
supply labor is called wages that
include salaries and all wage and
salary supplements such as bonuses,
commissions and royalties.

10
Ex. Teachers, engineers, factory
workers, physicians, professional
 includes all produced goods
CAPITAL
used again to produce
consumer goods and
services.
The income received from
using capital is interest
income.
11 Ex. Tools, machinery,
equipment
ENTREPRENEUR

an individual who combines

land, capital and labor to
produce goods or service.
The entrepreneurial income
is called profit.
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ECONOMIC
SYSTEMS
A system of production, distribution and consumption
A mechanism which deals with the production,
distribution and consumption of goods and services in a
particular society.
ECONOMIC SYSTEMS

MARKET COMMAND MIXED

ECONOMY ECONOMY ECONOMY
FREE SOCIALIST
ENTERPRISE ECONOMY
COMMUNIST
ECONOMY

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 An economic system where the
1. MARKET
individual consumers and
ECONOMY businesses interact to solve the
(Capitalism) economic problem
An economic system in which the
means of production of goods and
services are privately owned
and operated for a profit
Often called the free enterprise
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system
2. SOCIALIST An economic system in
ECONOMY
which the government
manages the economic
resources for the society
Ex: Cuba, Russia

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3. An economic system
COMMUNIST
ECONOMY where the factors of
production and
distribution are owned
and managed by the state

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4. MIXED
A system where both the
ECONOMY private and public
institutions exercise
economic control
Public and private
ownership of the means of
production
18
Here people are allowed to
 Law of Demand
as price increases, quantity
demanded decreases; and as
price decreases, quantity
demanded increases, if other
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factors remain constant.
Price goes UP
Demand goes DOWN

Law of Demand

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Price goes DOWN
Demand goes UP

Law of Demand

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 Law of
Supply
as price increases, quantity supplied
increases; and as price decreases,
quantity supplied decreases, if other
factors remain constant.

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SURPLU
S
a situation wherein
quantity supplied
is greater than
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demanded.
SURPLU
S

At price P30, there is an excess supply

of 80 units. With such large surplus,
the seller has no choice but to roll
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back the price toward its equilibrium
point.
SHORTAGE

a situation
wherein quantity
demanded is
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greater than
SHORTAG
E

At price P10, there is an excess demand of P70

units. When the price is below the equilibrium
price, the sellers may not supply as much of a
good or service as consumers want.
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 Market Equilibrium
The price attained when
quantity demanded equals
quantity supplied.

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Whenever quantity demanded exceeds
quantity supplied, price INCREASES;

Whenever quantity supplied exceeds

quantity demanded, price DECREASES.

28 Law of Demand and Supply

 SUBSTITUTE
GOODS
(or competing goods) are goods
which are used in place of other
goods. For example, butter and
margarine.
The price of one good and the demand for the other are directly
related.
COMPLEMENTARY GOODS
are goods that go together.
For example, car and
gasoline. If you buy a car you
must buy gasoline.
The price of one good and the demand for the other are inversely related.
COMPLEMENTARY GOODS
Price of Gasoline Demand for car will
Increases Decrease
Decreases Increase
NORMAL GOOD
If demand for a good increases
when incomes rise and
decreases when incomes fall,
the good is called a normal
good.
INFERIOR GOOD
if demand for a good decreases
when incomes rise or if demand
increases when incomes fall, the
good is called an inferior good.
NORMAL VS. INFERIOR
GOOD
Example:
If peoples incomes rise and they increase
their demand for movie tickets, we say that
movie tickets are a normal good. But if
peoples incomes fall and they increase their
demand for jeepney rides, we say jeepney
rides are an inferior good.
 MACROECONOMICS
GDP \ GNP
(Gross Domestic (Gross National Product)
Product)
A measure of the total
A measure of the expenditures made on
value of commodities final goods and services;
produced within the the market value of the
countrys borders in final goods and services
a given period. produced by a countrys
citizens in a given period.
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 MACROECONOMICS
GDP \ GNP
(Gross Domestic Product) (Gross National Product)

Basis: Basis:
Territory Citizenship
Total income earned by (Ex: OFW income)
domestically-located factors of Total income earned by the nations
production, REGARDLESS OF factors of production, REGARDLESS OF
NATIONALITY WHERE IT IS LOCATED
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 UNEMPLOYMENT
A CONDITION OF PEOPLE WHO ARE ABLE AND
WILLING TO WORK BUT CANNOT FIND JOBS.

Those who are 15 years old and over who have NO job
or business, available for work and actively looking for
work.

37 Labor force = employed + unemployed

 UNDEREMPLOYMENT
Include ALL employed persons who express the desire
to have additional hours of work in their present job or
have an additional job

CASES: 1. mismatch of skills

2. part-time employees
3. employed full-time but the work does not
maximize the employees skills
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 OPPORTUNITY COST
The next best thing that you forego in order to
make/choose one.
The value of what you give up in order to have
that good.

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 Law of Diminishing
States Returns
that all other
factors held
constant, additional
units of an input will
yield less and less
output.

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 Law of Diminishing Returns

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 MONOPOLY OLIGOPOLY MONOPSONY
A market A market A market
structure in which structure in situation in
LETS REVIEW
there is only ONE which there are which there is
SOME SELLER of a good a FEW only ONE
CONCEPTS or service SELLERS BUYER

PERFECT IMPERFECT COMPETITION

COMPETITION A form of market structure
A form of market in which INDIVIDUAL
structure in which BUYERS and SELLERS
MANY SMALL are such a big part of the
PRODUCERS sell market that they can
an IDENTICAL affect the market price by
product with easy their actions.
42 entry
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