Nature and Scope of

Economics

By Engr. Ma. Nerissa P. Sangalang, RCE,LPT,MBA

 Opportunity Cost or Trade-off
It is the computed value of the next best
alternative that is given-up when a choice is
made given a set of choices

Opportunity Cost is subjective to the value

one holds for the different options he/she
faces

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 Economic Systems
• Is a system of production, resource allocation and
distribution of goods and services within a society or a
given geographic area
• Each economic system answers the four basic
economic questions

Types of Economics Systems

• Traditional Economy
• Common/Centrally Planned Economy
• Market Economy
• Mixed EconomyMicroeconomics module by Engr. N. Sangalang
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 Production Possibility Frontier
(PPF)and Opportunity cost
The concept of trade off is illustrated in
economics by the PPF . It is a graph which
shows the greatest sum of output given the
accessible inputs.

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 Table :
Trade off between Orange Soda
and Cola
Point Number of Hours Cola Orange Soda
A 1 0 40
B 2 20 30
C 3 25 25
D 4 35 10
E 5 40 0

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 Table :
Trade off between Orange Soda
and Cola

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 Traditional Economy
• One whose economic decisions are made
with great influence from the past
• Usually used to describe the system that
allows a peasant or tribal economy to
function
• Exchange is usually associated with ritual
obligations that observe customary laws
• Also called subsistence economy
• South America, Asia, Africa, Indians, Peru

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 Command Economy
• Factors of production and distribution are
owned and managed by the state
• Have little or no political and economic
freedom
• There is no free competition among firms
• The products and needs of people are
distributed based on the priorities set by a
committee
• Also called centrally planned economy
• Former Soviet Union, Cuba, North Korea
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 Market Economy
• “Market” as used in Economics refers to a
set of conditions that allows buyers and
sellers to freely interact to facilitate
exchange
• The price of the commodity dictates what
goods and services will be produced, how,
and for whom
• Relies within the majority: interaction occurs
between buyers and sellers in determining a
price of a particular good

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 Market Economy
• The private sector owns and manages the
means of production
• There is no government influence in the
market

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 Mixed Economy
• Both private (households and firms) and
public (government) institutions exercise
economic control
• Private sector exercises market mechanism
• Public sector exercises regulatory command
• The Philippines has a mixed economic
system

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END