 Economics - A social science concerned with man's problem of issuing

scarce resources to satisfy unlimited wants.

 Basic needs - man's needs required for his survival.
 Luxury goods - goods that man can do without.
 Economic Resources - inputs used in the production of goods and
services.
 Land - natural resources, not man-made.
 Labor - human effort expended in production
 Entrepreneur - organizes all other factors of production to be used in
the creation of goods and services.
 Capital - materials used in the production of goods and services
including money.
 Theory/Hypothesis - an unproven proposition tentatively accepted to
explain certain facts.
 Variable - a factor that is subject to change or variations.
 Macroeconomics - the branch of economics that's study the
economy as a whole also known as National Income Analysis.
 Microeconomics - the branch of economics that deals with parts of
the economy such as the household and the business firm. It is also
known as Price Theory.
 Normative economics - an analysis of economics which deals with
what should be.
 Positive economics - an analysis of economics which deals with what
actually is.
 Empirical validation - the use of statistical evidence to prove the
validity of the hypothesis.
 Economic system - the means by which an economy reaches
decisions.
 Free enterprise system - a system in which all economic resources
are privately owned.
 Right to private property - the right of private individuals and
enterprises to own things of value.
 Market - context in which buyers and sellers buy and sell goods,
services and resources.
 Economic system - the framework in which a society decides on its
economic problems.
 Wants - the various desires and needs of consumers that have to be
satisfied through the use of goods and services.
 Function - depicts the relationship between two or more variables.
 Major definition of Economics (Samuelson and Nordhaus')
 studies how prices of land, labor and capital are determined and how these prices are used to
allocate scarce resources.
 looks into the behavior of financial market and how it allocates capital to the rest of the economy.
 looks into the distribution of income and into ways of helping the poor without causing harm to
the country's economic performance.
 studies the impact on growth of government spending, taxes, and budget deficits.
 examines the movements in income and employment during the different stages of the business
cycle with the goal of developing government policies that will improve economic growth.
 looks at trade patterns among nations and analyzes the impact of trade barriers.
 examines growth in developing countries and suggests ways to encourage the efficient use of
resources.
consists of effort to satisfy human wants with the use of goods and
services. 3 elements ae involved in this objective of satisfaction.
Human wants
- vary from the needs for survival otherwise known as basic
needs. ( food, clothing, and shelter)
Use of resources
- the basic economic resources of a nation consist of land, labor,
capital, and entreperneurship.
Technique of production
- shows how resources are used and combined in production.
*in effect, the basic activities of man also constitute the
basic exchange that takes place between the business firm
and the consumers.
 CONSUMPTION

HOUSEHOLD
-is the basic consuming unit in the economy.
OPPORTUNITY COST
-defined as the value of a foregone alternative of a
specific resources.
BUSINESS FIRM
- serves as the economy's producing unit to satisfy
human wants with goods and services.
 CONSUMPTION

PROFIT
- the income that is being earns.

ENTREPRENEUR
- Basically makes desicion as to how production resources
should be best conbined in order to come up with the desire
output.
• Unemployment of labor and other resources.
• Economic stability that causes highs and lows in
production and investment levels.
• Low levels of growth and development.
• Inequality in income distribution resulting in the
concentration of the nation's wealth in the hands of a few.
• Determination of the type of economic system to adopt to
fit the country's peculiar conditions and needs.
 Purposes of Economic Analysis

- is an aid in understanding how economy operates

because it explains how economic variables are
related to one another.
- it permits prediction of the results of changes in the
economic variables.
-it serves as basis of policy formulation.
Economic Policy
- consists of intervention or courses of action taken by
the government.
- adopted by the government may be moneytary, fiscal, or
trade for the purpose of achieving economic welfare.
METHODOLOGY
- consists of sets of principles or causal relationshipls
among the important “facts” or variables that sorround and
permeate economic activity.
Any sets of principles, or theory must have a bedrock starting
point consisting of propositions or conditions that are taken.
Steps in the Construction of a Theory;

1st step- Specification and definition of its postulates.

2nd step- Observations of “facts” concerning the activity about which

we want to theorize.

3rd step- application of the rules of logic to the observed facts.

• Microeconomics

• Macroeconomics
1. looks at the decisions of individual units.
2. looks at how prices are determined.
3. is concerned with social welfare.
4. has a limited focus.
5. develop skills.
a) Microeconomics helps you develop your logical reasoning.
b) Microeconomics will help you develop skill in the construction and
use of models.
c) Microeconomics employs optimizing techniques that are useful for
making decisions in a variety of situations.
d) The concepts studied in microeconomics are applicable to
personal resource allocation decisions.
• the best known economic model is that of competitive
market, or “ supply and demand”.

• The relationships of demand and supply could be

expressed in three different forms:
i. verbal (logical)
ii. mathematical
iii. graphical
• Supply is a shedule of prices and quantities that a suppliers would be
willing to offer for sale at each price per period of time.
• The verbal explanation of the law of supply can be expressed in
mathematical notations.
• Mathematical notations are shortcut representations of verbal
explanations. It can be expressed succintly in an equation.
Qs = 500P
The equation Qs = 500P means that if the price is, say P1 quantity
supplied (Qs) would be P500 (500 x 1 = 500 ); if the price is P3 quantity
supplied would be P1,500 (P500 x 3 = P1,500 ); if the price is P6 quantity
supplied would be P3,000 (P500 x 6 = P3,000 ).
 TABLE 1
Supply Schedule
Price Quantity Supplied
1 P 500
2 1,000
3 1,500
4 2,000
5 2,500
6 3,000
Price Supply curve

6
5
4
3
2
1 Quantity Supplied
0 500 1,000 1,500 2,000 2,500 3,000
 Models are Abstractions

• we can say that microeconomics is concerned with three

types of models.
1. There are models to explain the resource allocation or
“choice” decisions of individual household, producers and
firms.
2. There are models to explain how prices and quantities
exchanged are determined in various types of market
sructures.
3. There are models to examine the market economy as an
interrelated system. (general equilibrium model).
An example of a Model