APPLIED ECO REVIEWER BERNARDO VILLEGAS

(Guide to Economics for Filipinos):" A social science

Lesson 1 that studies and seeks to allocate scarce human and
non-human resources among alternatives in order to
ECONOMICS IS A SCIENCE BECAUSE IT USES satisfy unlimited human wants and desires."
SCIENTIFIC METHOD OF INQUIRY. IT ORGANIZED body
of truth, coordinated, arranged and systematized with GERARDO SICAT
reference to certain general laws and principles. (Economics):" A scientific study which deals with how
(Observation, Formulation of theories, Gathering of individuals and society make choices,"
data, Experimentation, Conclusion, Generalization)
ECONOMICS AS A HUMAN SCIENCE
ADAM SMITH
He is a FATHER OF ECONOMICS, he defined economics Economics is a human science. It is human science
as the science of wealth. According to him, economics because it involv people. Human needs and wants may
makes inquiries into the factors that determine the be related to foods, shelter, etc. It involves choices
wealth and the growth of the nation.
and decision-making on how to maximize the use of
ALFRED MARSHALL scarce resource to satisfy the wants of the people.
described economics as a study of mankind in the
ordinary business of life. It examines the part of Scarcity a condition where there are insufficient
individual and social action that is most closely resources to satisfy all the needs and wants of a
connected with the attainment and use of material population. These resources- labor, capital, land and
requisites of well-being. natural resources and entrepreneurship are used to
produce goods and services.
ARISTOTLE
According to Aristotle, economics comes from the Lesson 2
Greek word" Oikonomia" means household
management" in which we need to practice and be The scope of economics
wise in how to use money to run a household as well
as the whole nation if go further. The scope of economics includes the definition itself, it
points out as an art or a science; and positive and
PAUL SAMUELSON normative science. Economics is an art because
(Economics):" The study of how people and society end different theories and laws are explained with the help
up choosing, with or without use of money, to employ of numerical and statistical data like graphs, figures,
scarce resources that could have alternative uses to tables, and equation
produce various commodities among various persons
and groups in society." Economics is a science because it is systematized
body of knowledge in which economic facts are
ROGER LE ROY MILLER studied and analyzed. Economics just like science
(Economics, Today and Tomorrow):" Economics have laws and theories which are traced out a casual
concerns situations in which choices must be made relationship between two or more phenomena.
about how to use limited resources, when to use them
and for what purposes. There are four definition of economics; economics as
wealth, welfare, scarcity and growth
Resources can be defined as the things people use to
make the commodities they want." Father of Economics-ADAM SMITH

HALL AND LOEBERMAN in his book " Wealth of Nations 1776" defined
(Macroeconomics: Principles and Applications):" The economics is the study of wealth. J.B Say, J.S Mill,
study of choice under the condition of scarcity" Walker, B. Price all agreed that Economics is
concerned with wealth. In this definition wealth is
given first place, man has given second place.
Alfred Marshall in his book" Principles of Economic Branches of economic
Science-1890"
MICROECONOMICS
Defined Economics is the study of man kind in the - Microeconomics is a branch of economics that is
ordinary business of life. Economics is one side a study concerned with the behavior of individual entities such
of wealth; and on the other side more important side a as the consumer, the producer, the resource owner,
part of study of man. He made economics as a science prices and outputs. The word micro is derived from the
of human welfare. Mainly concerned with the study of Greek word micros meaning small.
man in relation to wealth.
It is more concerned on how goods flow from the
Alfred Marshall in his book" Principles of Economic business firm to the consumer and how resources
Science-1890" move from the resource owner. Microeconomics
studies the decision and choices of the individual units
First place to man, second place to wealth. It studies and how these decisions affect the prices of goods in
man not in isolation but as a member of a social the market.
group. Definition considered only material welfare,
ignored immaterial welfare • MACROECONOMICS
- Macroeconomics is a branch of economics that
Lionel Robbins focuses the impact of choices on the total o aggregate
level of economic activities. The word macro is derived
in his book Nature and Significance of Economic from the Greek word macros meaning large.
Science- 1932 given scarcity definition. Economic is
the science which studies human behavior as a Macroeconomics studies the economic system as a
relationship between ends and scarce means which whole rather than the individual economic unites that
have alternative uses." He points out the scarce make up the economy. It is about the nature of
resources and unlimited wants. economic growth, the expansion of product capacity,
and the growth of national income.
Lionel Robbins
Deductive and Inductive Method
Robbins included material and non-material goods,
widens the scope of economics. Means have To study economics, two methods are used: Deductive
alternative uses. He made economics a positive method & Inductive method. Deduction proceeds from
science general to particular while induction proceeds from
particular to general.
Economics as Positive and Normative Science
Deductive and Inductive Method Induction method
Economics is both a positive and normative science involves the process of reasoning from particular to
because positive economics deals with statements of " general. Deduction method deduces conclusions from
fact" that can either be refuted or supported while the truths established by other methods. It involves the
normative economics deals with value judgements, process of reasoning from certain laws or principles
often in the context of policy recommendation. which are assumed to be true, to analysis of facts

Positive economics deals with what is- things that are It is a descending process in which we proceed from a
actually happening such current inflation rate, the general to principle to particular. While, inductive is an
number of employed labor, and the level of the Gross 'ascending process'. This method involves four stages;
National Product. Normative economics, on the other observation, formation of hypothesis, generalization,
hand, refers to what should be-that embodies the ideal and verification. This method proceeds from particular
such as the ideal rate of population growth or the most to general, it is thus realistic. It helps in future
effective system. Positive economics is an overview of inquiries.
what is happening in the economy that is possibly far
from what is deal. Normative economics focuses on
policy formulation that will help to attain the ideal
situation.
Lesson 3

Demand, Supply, and Market Equilibrium

The Basic Decision-Making Units

• A firm is an organization that transforms resources

(inputs) into products (outputs). Firms are the primary
producing units in a market economy.

• An entrepreneur is a person who organizes,

manages, and assumes the risks of a firm, taking a
new idea or a new product and turning it into a
successful business.

• Households are the consuming units in an economy.

Input Markets and Output Markets

Output, or product, markets are the markets in which

goods and services are exchanged.

Input markets
Input markets are the markets in which resources-
labor, capital, and land-used to produce products, are
exchanged.

Input Markets

Input markets include:

• The labor market, in which households supply work

for wages to firms that demand labor.

The capital market, in which households supply their

savings, for interest or for claims to future profits, to
firms that demand funds to buy capital goods.

The land market, in which households supply land or

other real property in exchange for rent.

QUANTITY DEMANDED

Quantity Demanded is the amount (number of units) of

a product that a household would buy in a given time
period if it could buy all it wanted at the current
market price
Income and Wealth

Income is the sum of all households wages, salaries,

profits, interest payments, rents, and other forms of
earnings in a given period of time. It is a flow measure.

Wealth, or net worth, is the total value of what a

household owns minus what it owes. It is a stock
measure.

Principles of Economics,

Related Goods and Services

• Normal Goods are goods for which demand goes up
when income is higher and for which demand goes
down when income is lower.

• Inferior Goods are goods for which demand falls

when income rises.

• Substitutes are goods that can serve as

replacements for one another; when the price of one
increases, demand for the other goes up. Perfect
substitutes are identical products.

• Complements are goods that "go together"; a

decrease in the price of one results in an increase in
demand for the other, and vice versa.

• Demand for a good or service can be defined for an

individual household, or for a group of households that
make up a market.

• Market demand is the sum of all the quantities of a

good or service demanded per period by all the
households buying in the market for that good service
From Individual Supply to Market Supply

• The supply of a good or service can be defined for an

individual firm, or for a group of firms that make up a
market or an industry.

• Market supply is the sum of all the quantities of a

good or service supplied per period by all the firms
selling in the market for that good or service.