ECONOMICS- efficient or proper allocation of scarce means of production toward the

satisfaction of human needs and wants; from the two Greek words oikos meaning household
and nomus meaning management

Scarcity- a commodity or service being in short supply

FACTORS OF PRODUCTION

1. LAND- refers to all natural resources which are given by and found in nature and are
therefore manmade. It does not solely mean the soil or the ground surface, but refers to
all things and powers that are given free to mankind and nature, all the materials and
things which are available beneath the soil or above it. Includes forests, mountains,
rivers, oceans, minerals, air sunshine and light.
2. LABOR –any human effort exerted in the production of goods and services. It covers
wide range of skills, abilities and characteristics
3. CAPITAL- manmade goods used in the production of other goods and services including
buildings , factories, machineries and other physical facilities used in production
4. ENTREPRENEUR- a person who organizes , manages and assumes the risk of a firm;
possess all the managerial skills needed In building , operating and expanding a business
OPPORTUNITY COST – best alternative foregone; the value of what is given up when one makes
a choice
BASIC TERMS
1. Production – formation or creation by firms of an output (products or services;
conversion of inputs into outputs
2. Wealth- refers to any functional value usually in money which can be traded for goods
and services
3. Consumption – refers to the direct utilization or usage of the available goods and
services by the buyer (individual) or the consumer (household) sector
4. Exchange – the process of trading or buying and selling of goods and services for money
and its equivalent
5. Distribution- process of allocating or apportioning scarce resources to be utilized by the
household, business sector and the rest of the world
6. Efficiency – refers to the productivity and proper allocation of scarce resources
7. Effectiveness- means attainment of goals and objectives
8. Equity- means justice and fairness
9. Ceteris paribus- all other things held constant or all else equal
BRANCHES OF ECONOMICS
1. Microeconomics- deals with the individual decisions of units of the economy- firms and
households and how their choices determine relative prices of goods and factors of
production
2. Macroeconomics- studies the relationship of the economy as a whole;among broad
aggregates like national income, national output, money supply, bank deposits, total
volume of savings, investment, consumption expenditure, general price level of
commodities, government spending, inflation and employment

CLASSIFICATION
 1. Positive economics- an economic analysis that considers economic conditions “as they
are” or “as it is”
Ex. The economy is now experiencing a slowdown because of too much politicking and
corruption in the government.
2. Normative economics- economic analysis which judges the economic conditions “as it
should be”
Ex. The Philippine government should initiate political reforms in order to gain investor
confidence and consequently uplift the economy.
FOUR BASIC QUESTIONS:
1. What to produce – must identify what goods and services are needed to be produced for
the utilization of the society
Ex. An island nation like the Philippines which blessed with the agricultural resources
and which does not possess advanced technology should concentrate on its major
product like rice production and not on producing satellites because its resources are
incapable of producing the outputs.
2. How to produce- tells us the need to identify different methods and techniques in order
to produce goods and services in which the society must determine whether to employ
labor intensive or capital intensive.
a. Labor intensive- uses more of human resource or manpower than capital resources.
This kind of production is advisable only to a society with large population like for
instance Philippines, Vietnam and China
b. Capital intensive- employs more technology and capital goods like machineries,
equipments in producing goods and services rather than using labor resources like
Japan Germany and US
3. For whom to produce- identifies the people or sector who demand the commodities
produced in the society called target market of the goods and services which are to be
produced to understand their consumption and behaviour patterns. An understanding of
these results to higher sales of goods for profits.
4. How much to produce- identifies the number of goods and services needed to be
produced in order to answer the demand of the society. Underproduction is called
shortages and overproduction is called surplus
TYPE PF ECONOMIC SYSTEM
1. Traditional economy- basically a subsistence economy; a family produces goods only for
its consumption
2. Command economy- manner of production is dictated by the government. The
government decides on what, how, how much and for whom to produce. It is also
characterized by collective ownership of most resources and the existence of a central
planning agency of the state
3. Market economy- capitalism; resources are privately owned that the people themselves
make the decisions that is why they are free to produce what goods and services to
meet the demand of consumers
4. Socialism- key enterprises are owned by the state but private ownership is recognized
5. Mixed economy- mixture of market system and command system. Type of economy
system that the Philippine has

HISTORY OF ECONOMICS
CLASSICAL ECONOMICS
Adam Smith- father of Economics; he has his book entitled Wealth of the Nations which
is considered as the bible on economics published in 1977
John Stuart Mill- an heir to David Ricardo who developed the basic analysis of political
economy , an older English term which applies management to an entire polis which
means state
Karl Marx- major centrepiece “Das Kapital” which major socialist thought was to emerge

NEOCLASSICAL ECONOMICS
Main concern is market system efficiencies

KEYNESIAN THEORY
John Maynard Keynes- English economists who offered an explanation of mass
Unemployment and suggestions for government policy to cure unemployment to his
Influential book : The General Theory of Employment, Interest and Money (1936)

NON-WALRASIAN ECONOMICS
John Hicks- recognized for his analysis of the IS-LM model which is considered as an
important macroeconomic model. IS refers to investment saving and LM means demand
for and supply for money

POST-KEYNESIAN ECONOMICS
Development of rules and regulations of different private and public institutions

NEW CLASSICAL ECONOMICS

Importance of adherence to national expectations hypothesis and analysis which in
included various economic phenomena in formulating different kinds of studies and new
theories