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Nature of Economics


ECONOMICS is a study of how

individuals and society generally
make choices that involve the use of
scarce resources from among
alternative wants that need to be
These resources – and the goods
that are produced from them – are
not freely available for they require
using up other resources to obtain

One dimension of these choices

includes the management of their
present as against their future use
The use of these resources brings
corresponding benefits and costs
Concern with benefits and costs
requires efficiency in resource use
Efficiency means the highest gains
for the least cost
ECONOMICS is concerned with all
of the following:
The behavior of individuals or
groups of individuals when
managing the use of their available
The use of resources either for
consumption (the satisfaction of
human wants) or for production (the
creation of material goods)
The values – or the prices – of
resources as determined by the
relative degree of their scarcity and
the intensity of wants for them
through a process of interaction
among the users and suppliers or
resource owners
The improvement of the standard of
living over time, or the process of
economic growth of output and
The movement of output and prices
over time
The distribution of income or of
output, in the present and over time
among the income recipients or
among those factors contributing to
the production process
An explanation about how or what
causes a certain event to happen
May attempt to predict as yet
unobserved facts
An unproved proposition tentatively
accepted to explain certain factors or to
provide basis for further investigation
Economics as a
Social Science
Advantages over other Social
The economic motives of human
beings may be observed to occur in a
regular, almost persistent fashion that
are also more predictable
Economic decisions are recorded in
statistics; which help in the testing and
verification of alternative economic
Normative vs. Scientific Statements:
(Urban resident): The price of rice
ought to be low to improve the well-
being of workers
(Farmer): The price of rice should be
high enough to make farmers
After a good harvest, the price of rice
will fall. But after a bad harvest, the
price of rice will increase
Normative statement: based on a
value judgment; cannot be refuted
through reasoning or appeal to facts
Scientific statement : aka positive
statement; follows from the
predictions of the economic theory
of markets; can be refuted
Normative vs. Scientific Statements:
(Gadget boy): They shouldn’t have set
the price of Apple I-Pad too high so I
can afford it!
(Apple Mgt): Apple I-Pad ought to be
sold at the highest price possible so we
can earn a decent profit this year
When demand for Apple I-Pad is high,
its price will increase; if only a few want
to buy it, its price will fall
“It is true in theory
but not in
Human Wants
Resources economic

Technique of Production
Why economic problems arise:
Human beings have many wants that
can be satisfied only at the sacrifice of
other wants or resources
There is a price for obtaining or
satisfying those wants: giving up some
other resource

E.g. clean air

Basic Economic Problems:
What to produce?
How much to produce?
How to produce?
For whom to produce?
Problems of Economic Activity

Inequality in income distribution Unemployment

Type of economic Problems Economic Instability


Political setting Low levels of growth

What’s in a name?

X √
Developed Low-income
Terms of
Underdeveloped development Middle-income

Backward High-income

Developed and Developing

Review of commonly-used terms:
Basic needs – required for survival
Luxury goods – goods that man can do
Economic resources – inputs used in
production of goods and services
Land – natural resources, not man-
made; including forests, minerals and
Review of commonly-used terms:
Labor – human effort expended in
Capital – materials used in the
production of goods and services,
including money
Variable – a factor subject to change of
Review of commonly-used terms:
Macroeconomics – the branch of
economics that studies the economy as
a whole, aka National income analysis
Microeconomics – the branch of
economics that deals with parts of the
economy such as the household and
the business firm, aka the Price theory
Gerardo Sicat, The Nature of Economics, Economics,
National Bookstore
Pagoso, Cruz, Naybe, Why Study Economics,
Philippine Economics (Micro Approach), Nelson