ECONOMICS
SCARCITY
- greek word : oikinomia (household management) - central problem in economics
- part of the social sciences which analyzes human - Where the amount that people desire exceeds the
behavior amount available
- study of how people or society efficiently allocates - Forces people to make choices and when people
scarce resources to produce goods and services to make choices, opportunity costs are incurred
satisfy human unlimited wants
OPPORTUNITY COSTS
DIVISIONS OF ECONOMICS
- is the forgone value of the next best alternative
1. Microeconomics
- seeks to understand the behavior of individual MAKING A CHOICE
entities (consumer, producer, worker, a market)
as they respond to the changes in the economic - weigh the benefits and the costs.
environment - If the benefits exceed the costs of an alternative, then
you choose that alternative
2. Macroeconomics
- deals with the behavior of the aggregates of ECONOMIC MODEL
economic activity as a whole. (the country’s
production of all goods and services, total - the production possibility curve
consumption spending, unemployment,
inflation) 1. Purposes of model
- shows scarcity constraint
METHODOLOGIES OF ECONOMICS - illustrate economic efficiency
- introduce opportunity cost concept
1. Positive Economics
- uses economic theory and empirical analysis 2. Variables
to explain what is or what happened - quantities of goods that may be
- seeks to predict and explain economic produced
phenomena
- can be proven by reference to facts 3. Givens
- does not value economic judgment. - total amounts of inputs available
- technology of production
2. Normative Economics
- reflects an opinion or value judgments which PPF
can’t be shown to be true or false by reference
to facts - production possibility curve (frontier)
- concerns what should be or what ought to - Shows maximum amount of good you can produce
happen given the amounts of other goods produced, and
- incorporated ethics about what particular given the total amounts of inputs available, and given
policy actions should be recommended to the technology of production
achieve a certain goal
OPPORTUNITY COST INCREASES AS MORE OF A
ECONOMIC RESOURCES GOOD IS PRODUCED
- inputs, means or factors of production used to 3 FUNDAMENTAL PROBLEMS IN ECONOMICS
produce the goods and services that human wants
1. What goods and services will bre produced?
1. Land - all natural resources 2. How will the goods and services be produced?
2. Labor - manpower 3. For whom will the goods and services be
3. Capital - all human creations used to produce other produced?
good
4. Entrepreneurial ability - talents and skills people ALLOCATION OF ECONOMIC RESOURCES
have in organizing the resources
1. How does the society allocate the resources?
2. How does the society answer the fundamental 2. Equity
problems in economics? - actions, treatment of others, or a general
condition characterized by justice, fairness, and
ECONOMIC SYSTEM impartiality
- has a significant role in the proper allocation of CIRCULAR FLOW OF ECONOMIC ACTIVITY
resources
- Refers to a set of economic institution that dominates - diagram which shows the flow of resources, flow of
a given economy with the mai nobjective of solving goods and services, and the flow of payments for the
the basic economic problems resources as well as the payments for goods and
services
TYPES OF ECONOMIC SYSTEM
1. Free market system
- characterized by private ownership of
resources
- the price of goods and services serves as a
signal to the society regarding what products
will be produced, how and for whom it will be
produced
2. Command system
- the factor of production, distribution, and
allocation of resources are owned and managed
by the state
- decisions in answering the basic problems are
planned, done, and dictated by the government.
3. Mixed system
- the problem of allocation and distribution of
resources are determined through a
combination of the market system and
governmenr laws and policies
BEST WAY TO ALLOCATE RESOURCES
1. Efficiency
- occurs when society is using its scarce
resources to produce the highest possible
quantity of goods and services
- 2 parts
a. Productive efficiency
- occurs when the economy uses the
least amount of resources to produce
certain goods and services at the lowest
possibble cost
- occurs when the economy is operating
on its production possibility frontier
b. Alternative efficiency
- the optimal amount of output is
produced given the underlying structure
of social benefits and costs
- manifested in an economy if there are
no resources being wasted
