Introduction to Microeconomics

Week 1: Introduction to Economics

 Definition of Economics
 Microeconomics vs. Macroeconomics
 The Economic Problem: Scarcity and Choice
 Factors of Production

Introduction to Economics

Economics is a social science that studies how individuals, businesses, and governments make choices about the
allocation of scarce resources to satisfy unlimited wants and needs. It explores the production, distribution, and
consumption of goods and services, and how people interact within markets to make decisions about what to
produce, how to produce it, and for whom to produce it.

Definition of Economics

Economics is often defined as the study of how people use scarce resources to satisfy their unlimited wants.
This definition highlights two key concepts:

1. Scarcity: Resources are limited in comparison to the wants and needs that people have. This scarcity forces
individuals, firms, and governments to make choices about how to allocate resources effectively.
2. Choices: Since resources are scarce, individuals and organizations must make decisions about what to produce,
how to produce it, and how to distribute the goods and services produced. These decisions are made based on
trade-offs, as choosing one option often means giving up another.

Microeconomics vs. Macroeconomics

Economics is broadly divided into two main branches: microeconomics and macroeconomics.

1. Microeconomics: This branch focuses on the behavior of individual economic units, such as consumers,
firms, and households. It examines how these entities make decisions to allocate their resources, how
they interact in specific markets, and how they respond to changes in prices and other economic factors.
Key topics in microeconomics include demand and supply, elasticity, production, costs, and market
structures.
2. Macroeconomics: This branch looks at the economy as a whole, analyzing aggregate measures such as
national income, total employment, inflation, and economic growth. Macroeconomics seeks to
understand broad economic trends and policies that affect an entire economy, including fiscal and
monetary policies, unemployment rates, gross domestic product (GDP), and international trade.

The Economic Problem: Scarcity and Choice

The economic problem arises from the fundamental issue of scarcity. Since resources (such as time, money,
labor, and raw materials) are limited, but human desires and needs are virtually infinite, individuals and
societies must make choices about how to allocate resources most effectively.
 1. Scarcity: Refers to the basic economic problem that arises because resources are finite, while human
wants are infinite. Scarcity forces individuals and societies to prioritize and make decisions about how to
use resources efficiently.
2. Choice: Because of scarcity, every decision involves a trade-off, meaning that choosing one option
results in giving up another. These choices are influenced by factors like preferences, costs, and
available alternatives. Economists study how these choices are made and how they impact the overall
allocation of resources in society.

Factors of Production

Factors of production are the resources used to produce goods and services. They are typically classified into
four categories:

1. Land: Refers to natural resources that are used in production, such as land itself, water, minerals, and
forests. These are resources that are not created by human effort but are essential for production.
2. Labor: The human effort that is used in the production process, including both physical and mental
work. Labor is a crucial factor as it directly contributes to the production of goods and services.
3. Capital: Refers to man-made resources that are used in the production of other goods and services. This
includes machinery, tools, buildings, and technology. Capital is an essential factor as it enhances
productivity and efficiency.
4. Entrepreneurship: The ability to combine the other factors of production (land, labor, and capital) to
produce goods and services. Entrepreneurs take on the risks and rewards associated with starting and
running businesses. They innovate, make decisions, and coordinate the production process.

Each of these factors plays a vital role in the production process, and their availability and quality can
significantly impact the efficiency and output of an economy.

Activity: Exploring the Foundations of Economics

Objective:

To understand the basic principles of economics, including the concepts of scarcity, choice, factors of
production, and the distinction between microeconomics and macroeconomics.

Instructions:

1. Introduction (10 minutes):

o Begin with a brief review of the key concepts: scarcity, choice, microeconomics vs. macroeconomics, and
factors of production.
o Discuss real-world examples that illustrate these concepts.
2. Group Activity (30 minutes):
o Divide the class into small groups (3-5 students per group).
o Assign each group one of the following tasks. Each task is based on a specific topic covered in the
introduction:

Task 1: Scarcity and Choices

o Scenario: Imagine you are a local government official in a small Philippine town with a limited budget.
You must decide how to allocate your resources between building a new school, improving healthcare
facilities, and enhancing public transportation.
 o Questions to Address:
1. What factors will influence your decision?
2. What are the trade-offs involved in each choice?
3. How does this scenario illustrate the concepts of scarcity and choice?

Task 2: Microeconomics vs. Macroeconomics

o Scenario: Consider the recent increase in fuel prices in the Philippines.

o Questions to Address:
1. How does this affect individual households and businesses (microeconomic perspective)?
2. How does it impact the overall economy, including inflation and GDP (macroeconomic
perspective)?
3. Discuss how the responses to these impacts differ between the microeconomic and
macroeconomic levels.

Task 3: Factors of Production

o Scenario: Assume you are starting a new business in the Philippines, such as a small-scale organic farm.
o Questions to Address:
1. Identify the specific factors of production (land, labor, capital, entrepreneurship) you would
need.
2. How would you obtain these resources?
3. Discuss the role each factor plays in the success of your business.
3. Presentation (20 minutes):
o Each group will present their findings to the class.
o Encourage other students to ask questions and provide additional insights during each presentation.
4. Individual Reflection (10 minutes):
o After the presentations, ask students to write a brief reflection on one of the following topics:
 How the concept of scarcity affects their daily lives.
 The difference between microeconomic and macroeconomic issues they’ve observed in the
news.
 The importance of the factors of production in starting a new business.

Assessment Criteria:

 Understanding of Concepts: Demonstrates a clear understanding of the economic principles discussed.

 Application to Real-World Scenarios: Effectively applies the concepts to the given scenarios.
 Clarity of Presentation: The group presents their findings clearly and thoughtfully.
 Individual Reflection: The reflection shows personal engagement with the material and insights into how
economics applies to real life.

Week 2: Demand and Supply

 Law of Demand and Supply

 Market Equilibrium
 Shifts in Demand and Supply Curves
 Elasticity of Demand and Supply
1. Law of Demand and Supply

Law of Demand: The law of demand states that, all else being equal, as the price of a good or service
decreases, the quantity demanded increases, and vice versa. This relationship creates a downward-sloping
demand curve.

Law of Supply: Conversely, the law of supply states that as the price of a good or service increases, the quantity supplied
also increases, and vice versa. This creates an upward-sloping supply curve.

Example: During the pandemic, there was a significant decrease in the price of rice due to government subsidies and
sufficient supply. As a result, the demand for rice increased among Filipinos, reflecting the law of demand. Similarly,
when onion prices surged in 2023 due to supply shortages, the supply increased as farmers and importers responded to
higher prices, demonstrating the law of supply.

2. Market Equilibrium

Market Equilibrium is the point where the quantity demanded by consumers equals the quantity supplied by producers.
At this point, the market-clearing price is established, meaning there is no excess demand or supply.

Example: In the Philippine telecommunications industry, the competition between service providers (like PLDT, Globe,
and DITO) led to a market equilibrium where the prices of mobile data plans stabilized. Consumers received better
services at competitive prices, balancing demand and supply.

3. Shifts in Demand and Supply Curves

Shifts in the Demand Curve: The demand curve can shift due to changes in factors other than the price, such as
consumer preferences, income levels, and the prices of related goods. An increase in demand shifts the curve to the right,
while a decrease shifts it to the left.

Shifts in the Supply Curve: The supply curve shifts due to factors such as production costs, technological advances, and
the number of suppliers. An increase in supply shifts the curve to the right, while a decrease shifts it to the left.

Example: The Philippine government's push for electric vehicles (EVs) resulted in increased demand for EVs, shifting the
demand curve to the right. On the supply side, the recent sugar shortage caused by bad weather conditions and import
delays led to a leftward shift in the supply curve, causing prices to spike.

4. Elasticity of Demand and Supply

Elasticity of Demand: This measures how sensitive the quantity demanded is to a change in price. If demand is elastic, a
small change in price leads to a significant change in the quantity demanded. If it is inelastic, the quantity demanded is
relatively unaffected by price changes.

Elasticity of Supply: Similarly, this measures how sensitive the quantity supplied is to a change in price. An elastic
supply indicates that producers can quickly increase or decrease output in response to price changes, while inelastic
supply means they cannot.

Example: In the Philippines, the demand for luxury goods like high-end smartphones is typically elastic because
consumers can easily forego such purchases if prices rise. On the other hand, the demand for basic necessities like rice is
inelastic; even if prices increase, the quantity demanded remains relatively constant. Supply elasticity can be seen in the
agricultural sector, where the supply of perishable goods like vegetables is often inelastic due to the time it takes to grow
them.

These concepts help understand the dynamics of markets and the impact of various factors on prices and quantities of
goods and services in the Philippines.