Introduction to Economics 2.

Microeconomics
-​ Branch of economics that deals with
Economics behavior and decisions of smaller units
-​ According to Adam Smith, economics is like individuals and businesses.
concerned with the production and -​ Families, businesses, and communities,
distribution of wealth.. and Domestic economies
-​ Study of Wealth
-​ Study of Allocation Economic Resources
-​ Study of Decision Making Factors of Production or Input
-​ Opportunity Cost - the true cost of
choosing one alternative over the other. 1. Natural Resources (Land)
-​ Trade offs - giving up one thing in order -​ These resources consist of free gifts of
to obtain another. nature which includes soil, rivers, lakes,
-​ Economics comes from the Greek word oceans, forests, mountains, oil, timber,
“oikonomia”, which means “household and mineral resources
management”
-​ Economics is a social science that deals 2. Capital Resources
with efficient allocation of scarce -​ Manufactured aids to production, such
resources or the problem of scarcity and as tools, machines, equipments, and
satisfying man’s unlimited wants and factories
needs. -​ Things used in producing goods and
-​ Scarcity means insufficient or services and getting them to consumers
not enough resources -​ Capital can represent the monetary
resources used to purchase natural
Economics as a Social Science resources.
-​ Example: Companies use
1. Economics as Study of Wealth capital to buy land and other
-​ Economics is all about wealth and how goods
thus wealth is being used by individuals -​ Capital represents the major physical
and society at large for material survival, assets individuals and companies use
stability, and development. when producing goods and services.
2. Economics as Study of Making Choices -​ Example: buildings, vehicles,
-​ In everything that we do, whether we and equipments
produce or consume, whether it is
wealth-getting and wealth using, we 3. Human Resources (Labor)
make decisions and these decisions are -​ Mankind’s physical and mental talent
based on alternative choices. -​ Skills people have that are used to
3. Economics as Study of Allocation produce goods and resources
-​ In this section, the definition of -​ Labor refers to all human efforts, be it
economics will be explained further as a mental or physical, that help to produce
social science that deals with the study satisfying goods and services.
of allocation of scarce resources to -​ In return, he earns an income in forms of
answer the unlimited human wants wages and salaries.
4. Economics as an Applied Science -​ Labor is a flexible factor of production,
-​ Economics is a science of choosing an workers can be allocated to different
activity from alternative options that will areas of the economy for producing
yield the highest benefits to society in goods and services.
the context of competing uses and
opportunity costs. 4. Entrepreneur/ship
-​ The individual who combines the factors
Branches of Economics of production in order to produce a good
or service.
1. Macroeconomics -​ Risk taker, policy maker, and innovator
-​ Branch of economics that deals with
economic theory and the economic 5. Foreign Exchange
decisions of large bodies like the -​ Conversion of one country’s currency
government. into another.
-​ Theories of economics, Countries and
their governments, Trade between
countries
 Basic Economic Problems and 3. Exchange
Philippine Socioeconomic Development -​ Refers to the process of transferring
goods and services to a person in return
Poverty for something.
Poverty refers to the condition where the -​ Present medium of exchange - money
population is only able to meet its basic
subsistence needs. 4. Consumption
Absolute Poverty refers to the severe -​ Refers to the proper utilization of
deprivation of human basic needs. People who economic goods.
earn P50 or less per day are considered to -​ Goods and services could not be utilized
experience absolute poverty. unless you pay for it. Hence,
Unemployment consumption could also be spending
Unemployment refers to the portion of the labor money for goods and services.
force who are willing to engage in productive
activities yet fails to do so. Unemployment can 5. Public Finance
hinder economic development since the human -​ Pertains to the activities of the
resources of a country are not efficiently utilized. government regarding taxation,
borrowings, and expenditures.
Infrastructure
-​ It deals with the efficient use and fair
Infrastructure refers to the basic equipment and
distribution of public resources
structures that are needed for a country to
function properly. Three Major Concerns Of Macroeconomics
Income Inequality
Income is the money that an individual earned 1. Output Growth - GDP and GNP
from a work or business received from Output Growth of something such as an industry,
investments. organization, or idea is its development in size,
Income Inequality refers to the gap in income wealth, or importance.
that exists between the rich and the poor.
Inflation Gross Domestic Product (GDP)
-​ The ideal GDP growth rate is between
Inflation refers to the sustained and continual
2% and 3%.
increase in the prices of goods and services. -​ The growth signals continued expansion
Economic growth as indicated by increasing GDP, if the trend continues.
is the factor in bringing about inflation. -​ The GDP growth rate measures how
Hyperinflation or very high inflation has a healthy the economy is.
negative effect on the economy. Stagflation is
the period of high inflation, slow economic Gross National Income
-​ The total amount of money earned by a
growth, and high unemployment.
nation’s people and businesses, both
inside and outside the country or
Division of Economics region’s borders

1. Production National Income

-​ Refers to the process of producing or -​ Is a macroeconomic variable that helps
creating goods needed by the in determining the economic stability of
households to satisfy their needs. a nation.
-​ Factors of production - inputs -​ It represents the total income accrued to
-​ Goods and services - outputs a country from all the economic
-​ A good is something you can see, feel, activities in a year.
and use.
-​ A service is something done for
someone else. Gross Domestic Gross National
Product Product
2. Distribution
-​ Refers to the marketing of goods and Total worth of a Total worth of
services to different economic outlets. country’s production production and
and services, within its services, by citizens of
-​ A producer is a person or business that
boundary, by its a country, on its land or
makes goods or provides services.
nationals and on foreign land
-​ A consumer is a person or business that
foreigners
buys or uses goods or services.
 3. Inflation and Deflation
GDP = C + I + G + GNP = GDP + NR - NP
(X-M) Where, Inflation - an increase in the overall price level
Where, GDP = Gross Hyperinflation - a period of very rapid increase in
C = consumption Domestic Product the overall price level
I = investment NR = net income Deflation - a decrease in the overall price level
G = government receipts Stagflation - a situation of both high inflation and
spending NP = net outflow to high unemployment
X = exports foreign assets
M = imports
Microeconomic Issues
The value of goods The value of goods
and services and services 1. Poverty
produced within the produced by the Poverty is pronounce deprivation in well being. It
geographical citizens of a nation is the lack of monetary resources to specific
boundaries of a irrespective of the goods like food, assets, shelter, health, and the
nation in a financial geographical limits in
like.
year. a financial year.
Solutions: Create jobs (government projects,
It measures only the It measures only the encourage projects), raise the minimum wage,
domestic production. national production. promote pay equity, property allocate time and
resources (social programs), provide access to
It emphasises on the It emphasises on the healthcare, create micro-financing programs,
production that is production that is
provide an adequate social safety net, and
obtained achieved by the
domestically. citizens living in increase access to education
different nations.
2. Social Inequality
It highlights the It highlights the Social inequality refers to disparities and
strength of the contribution of the discrepancies in areas such as income, wealth,
country’s economy. residents to the politics, and social identity.
development of the
Solutions: Implement progressive income tax,
economy.
spend more on public/social services and
Local Scale International Scale infrastructure, and increase government
ownership of basic utilities
The goods and The goods and
services that are services that are 3. Monopoly
being produced produced by the Monopoly is a market structure characterized by
outside the company foreigners living in the
a sole seller in a particular market wherein the
are excluded country are excluded.
business entity may control the supply,
compromise the quality, and manipulate the
2. Unemployment Rate
price.
Unemployed rate - the percentage of labor force
that is unemployed
Underemployed - the condition in which people in 4. Environmental Issues
labor force are employed at less than full-time or Environmental Issues are harmful effects of
regular jobs or at jobs inadequate with respect human activities (usually economic activities)
to their training or economic needs, they are not
having enough paid work or not doing work that Macroeconomic Issues
makes full use of their skills and abilities.
Out of Labor Force - without work and looking for
1. Unemployment
work
Not in the Labor Force - those who do not meet Unemployment happens when a lot of people are
the criteria to be classified as either employed or jobless, cannot find work, or are losing jobs.
unemployed.
2. Inflation
Inflation is the consistent increase in the
average price level of goods and services, which
lowers the living standards. According to
experts, 2-5% of inflation is caused by the
phenomena
increase in the cost of production (cost-push
inflation), a high rise in inflation, too much money
How things are How things should be
supply in the economy.
Example 1: the Example 1: the level
3. Recession
current of unemployment rate
Recession is a period of temporary economic unemployment rate is must be 5% maximum
decline during which industrial and trade 2-%
activities in GDP in two consecutive quarters (6
to 18 months) wealth, politics, and social identity. Example 2: health Example 2: defense
spending is 25% spending cannot be
4. Trade Deficit greater than 10%
Trade deficit occurs when a country’s imports
exceed its exports during a given period. Is, was, will be Ought to, should

Economic System Can be proved Cannot be proved

Economic System is a means by which a society
determines the answers to the basic economic Connects cause and Makes
questions. It controls the factors of production. effects recommendations

Three Economic Questions Descriptive Prescriptive

1. What to Produce? Based on tested facts Not based on tested

-​ Since resources are limited, societies facts
must decide and prioritize what goods
and services and later followed by Tells you what is and Tells you should
determining the quantity (how many / what was be/have been
how much)
-​ Primitive economics (e.g., Basic Objective Subjective
necessities)
-​ Modern economics (e.g., Leisure and
Education)
hi
2. How to Produce?
-​ This is a method of production that has
the highest efficiency and yield the
highest output and shall be employed /
used.
-​ This should be the right combination of
resources and technology to be applied.

3. For Whom to Produce?

-​ Producers must also consider the target
market (target consumers)
-​ This includes how to distribute those
goods and services among the
population

Types of Economics
Positive Economics Normative Economics

Describes the facts Describes the facts

without making value and makes value
judgments or judgments
opinions

It’s responsible for Formulates and

understanding states the desirable
economic reality