Prepared by:

RANDY JAMERA
Subject Teacher
APPLIED ECONOMICS

INTRODUCTION
TO
ECONOMICS
Learning Objectives:
1. Define economics;

2. Determine the importance of

economics; and

2. Describe the nature of economics.

What is Economics?
Economics is the study of what constitutes
rational human behavior in the endeavor to
fulfill needs and wants.

It comes from the Greek word “oikanomia”

meaning “household management.”
 Some of these definitions are as follows:
1. According to Fajardo, economics is the proper
allocation and efficient use of available
resources for the maximum satisfaction of
human wants.

2. Samuelson states that economics is the study

of how societies use scarce resources to
produce valuable commodities and distribute
them among different people.
3. Economics, according to Nordhaus, is the
science of choice. It studies how people choose
to use scarce resources or limited productive
resources (labor, equipment, technical,
knowledge) to produce various commodities and
to distribute these commodities fro
consumption.

4. Sicat defined economics as a scientific study

which deals with how individuals and society in
general make choices.
3. Castillo viewed economics as the study of how
man could best allocate and utilize the scarce
resources of society to satisfy his unlimited
want.

4. Webster defined economics as a branch of

knowledge that deals with the production,
distribution and consumption of goods and
services.
What is Economics?

To sum it up, economics covers all kinds of

topics, but at the core, it is devoted to
understanding how society allocates its resources.
What is Economics?
Since resources are generally scarce and
human wants tend to be unlimited, economics
encounters big problems.

The biggest is that these resources are not

freely available. At the very core, economics
lies the fact of scarcity.
Importance of Economics
People cannot live without production and
consumption.
Almost always, human activities involve
economics.
For instance, earning money, buying goods and
services, depositing and withdrawing money in
the bank, these are all economic activities.
Importance of Economics
It guides us how to make a living, how to use
our money wisely, how to run our business, how
to distribute properly our available scarce
resources, and how to maximize our profits and
consumer’s satisfaction.
Life for everyone is most likely better.
Importance of Economics
Furthermore, economics is important in order
to understand problems facing the citizen and
the family; to help government promote growth
and improve the quality of life while avoiding
depression and inflation and to analyze
fascinating patterns of social behavior.
The Nature of Economics
Economics is a Science. A science is a body of
systematic knowledge built upon conscious
efforts.
The body of knowledge is made up of different
explanations. An explanation of a certain event
is called a theory.
 Economics is classified as social science
because it deals with the study of man’s life and
how he lives with other men. Economics is
concerned with human beings and his behavior.

Obviously, it is interdependent with other

sciences like;
Psychology, the science of the mind;
History, the science that records and explains
past events;
 Obviously, it is interdependent with other
sciences like;
Sociology, the science that deals with the
development of society;
Political Science, the science of government;
Geography, the science that determines the
main resources of a region;

Religious traditions and belief can discourage or

encourage economic development.
 Of the social sciences, Economics has more
advantage as a scientific discipline for two
major reasons:
1. Economic motives of human beings may be
more regular and therefore persistent. They
can be more predictable.
2. There is more factual information in the
form of statistics. This gives a substantial
basis for the verification and formation of
alternative economic theories.
 Considering the nature of economics, it is not
advisable to solve an economic problem with
economic solution alone.

Our economic problems are not purely economics

in nature.

These are also created by non-economic factors

like culture, education, social, and political.
Macroeconomics and
Microeconomics
Macroeconomics deals with the economic
behavior of the whole economy or its
aggregates such as government, business and
households.
Macroeconomics is concerned with the
discussion of topics like gross national product,
level of employment, national income, general
level of prices, total expenditures, etc.

It is also known as employment and income

analysis.
Macroeconomics and
Microeconomics
Microeconomics deals with the economic
behavior of individual units such as the
consumers, firms, and the owners of the factors
of production.
Such specific economic units constitute a very
small segment of the whole economy.

For example, the price of rice, the number of

workers of a certain firm, the income of Mr.
Sajise, the expenditures of PLDT, etc.

Microeconomics is also known as the Price

Theory.
 However, what is true in Microeconomics may
not be true in Macroeconomics.

For example, a vegetable farmer gets better

harvest. This means more income for him, if all
vegetable farmers have increased their
harvests; it is not favorable for them. Because,
more supply reduces the price of vegetables.
Division of Economics
Economics has five major divisions.

1. Production – refers to the process of

producing or creating goods
needed by the households to
satisfy their needs.
2. Distribution – refers to marketing of goods
and services to different economic outlets
for allocation to individual consumers.
Division of Economics
3. Exchange – a process of transferring goods
and services to a person or
persons in return of something.

At present, the medium of exchanged used in

the market is money. This means, we can
exchange our money with goods and services.
Division of Economics
4. Consumption – refers to proper utilization of
economic goods. It is
spending money for goods and
services in order to yield
direct satisfaction.
Division of Economics
5. Public Finance – pertains to the activities of
the government regarding taxation,
borrowings, and expenditures. It
deals with the efficient use and fair
distribution of public resources in
order to achieve maximum social
benefits.
Tools of Economics
Most economists use different scientific
approaches and utilize different tools to be able
to formulate theories and principles.

Some of the major tools used by these

economists are the following:
Tools of Economics
1. Logic - it is a science that deals with sound
thinking and reasoning.
2. Mathematics – it is a science that deals with
numbers and their operations.
Mathematical tools used in economics include
matrix algebra, linear equations, econometric
models, optimization and differential equations.
Tools of Economics

2. Mathematics – it is a science that deals with

numbers and their operations.
The simplest application of mathematics for
economic analysis is found in the field of
Geometry, a science that explains relationships.
Tools of Economics

3. Statistics – a branch of mathematics engages

with analysis and interpretation of
numerical data.
Statistics, for example, help economists
calculate a nation’s GDP or allow them to better
configure a manufacturing process to reduce
costs.
The Economic Resources
Our economic resources are also known as
factors of production or inputs.

There are five major factors of production,

which are utilized in our economy.
The Economic Resources
1. Land - these resources consist of free gifts
of nature which includes all natural
resources.

2. Labor – refers to human efforts, be it

mental or physical, that help to
produce want satisfying goods and services.
The Economic Resources
3. Capital – has two economic definitions as a
factor of production.
- can represent the monetary
resources
- major physical assets
4. Entrepreneurs – a French word meaning
enterpriser.
The Economic Resources

4. Entrepreneurs – a French word meaning

enterpriser.
An entrepreneur is the organizer and
coordinator of the other factors of production:
land, labor, and capital.
The Economic Resources

5. Foreign Exchange – refers to the dollar and

dollar reserves that the economy has.