Basic Economic Problems in Countrys

BASIC
ECONOMIC
PROBLEMS IN
THE SOCIETY
BASIC ECONOMIC PROBLEMS IN
THE SOCIETY
 All societies are faced with basic questions in
the economy that have to be answered in order
to cope with constraints and limitations. These
are:
 1. What to produce and how much – society

must decide what goods and services should be
produce in the economy. Having decided on the
nature of goods that will be produce, the
quantity of these goods should also be decided
on.
 2. How to produce – is a question on the
production method that will be used to produce
the goods and services. This refers to the
resource mix and technology that will be 2
BASIC ECONOMIC PROBLEMS IN
THE SOCIETY
• 3. For whom to produce – is about the market for

goods. For whom will the goods and services be
produced? The young or old, the male or female
market, the low-income or the high-income groups.
3
ECONOMIC SYSTEM
• Is the means through which society determines
the answers to the basic economic problems
mentioned.
TYPES OF ECONOMIC SYSTEM
1.Traditional Economy
- decisions are based on traditions and
practices upheld over the years and
passed on from generation to
generation.
4
TYPES OF ECONOMIC
SYSTEM
- Methods are stagnant and therefore not
progressive.
- Traditional societies exist in primitive and
backward civilizations.
2. Command economy
- this is the authoritative system where in
decision-making is centralized in the
government or a planning committee.
- decisions are imposed on the people who do
not have a say in what goods are to be
produced.
- this economy holds true in dictatorial,
5
TYPES OF ECONOMIC
SYSTEM
socialist, and communist nations.
3. Market economy
- this is the most democratic form of
economic system.
- Based on the workings of demand and
supply,decisions are made on what goods
and service to produce.
- People’s preferences are reflected in the
prices they are willing to pay in the
market and are therefore the basis of the
producer’s decisions on what goods to
produce.
6
SCIENTIFIC APPROACH IN THE
EMPIRICAL TESTING OF AN
ECONOMIC THEORY
• 1. State the propositions or conditions that are
taken as given and do not need further
investigation, as a basic starting point of
investigation. These propositions will serve as
the premises upon which theory is established.
• 2. Observe facts in connection with the activity
that we want to theorize.
• 3. Apply rules of logic to the observed facts to
determine causal relationships between
observed factors and to eliminate facts that
are unnecessary and irrelevant.
7
SCIENTIFIC APPROACH IN THE
EMPIRICAL TESTING OF AN
ECONOMIC THEORY
4. Established a set of principles such that
formulated hypotheses may be tested as to
whether they are valid or not.
5. Use statistics and econometrics as empirical
proof
in testing the hypotheses.
8
POSITIVE ECONOMICS VERSUS
NORMATIVE ECONOMICS
Positive economics
– deals with what is – things that are actually
happening such as the current inflation rate,
the number of employed labor, and the level
of the Gross National product.
- is an overview of what is happening in the
economy that is possibly far from what is
ideal.
9
POSITIVE ECONOMICS VERSUS
NORMATIVE ECONOMICS
Normative economics
- refers to what should be – that which
embodies the ideal such as the ideal rate of
population growth or the most effective tax
system.
10
MEASURING THE ECONOMY
 We always get to read in the newspapers

how our economy has grown in recent years.
 Before we go in the essence of applied
economics, it is beneficial that the students
get to learn first how the growth of the
economy is actually measured.
 The national government is always happy to
inform the people that the country’s Gross
Domestic Product (GDP) has grown in rates,
much higher than in the previous
administration.
11
Counting All through GNP
 GROSS NATIONAL PRODUCT ( GNP)

- is the market value of final products,
both sold and unsold, produced by the
resources of the economy in a given
period.
 MARKET VALUE
- is determined by supply and demand
while the company’s resources are those
belonging to Filipino citizens and
corporations.
12
GNP/GDP: Expenditure Approach
 One way to account GNP and classify its

components is by end-use expenditure.
 Products are final when they have reached the
highest levels of processing the economy for
different uses in the given period;
 (C) they are household and individual
consumption
 (G) government expenditure on goods and
services including labor
 (X) exports
 (unused) products regardless of production stage
13
GNP/GDP: Expenditure Apporach
are also considered final when

basically stocked.
 (I)Classified as investments, they
are stock of values for future use and
therefore, have reached the highest
possible production stages for the
given period.
14
GNP/GDP: Expenditure Approach
(M) Their import components are

excluded since import products are
produced in other economies.
To restate the GNP equation:
GNP = C + I + G + (X - M)
15
GROSS DOMESTIC PRODUCT
 GROSS DOMESTIC PRODUCT (GDP)

- is defined as the market value of final
products produced within the country.
- it is a better indicator of domestic
employment opportunities.
Net Inflow = Inflow – Outflow to – Net Inflow = - Inflow + Outflow
16
Describe the type of economic system
characterized in each of the following
sentences.
_______ 1. Prices are based on demand and supply.
_______ 2. The government decides on what goods
should be produced.
_______ 3. Ancient methods are used in deciding
what goods to produce.
_______ 4. People enjoy freedom of choice in
arriving at decisions on what to buy.
_______ 5. People have no freedom of choice in
arriving at decisions on what to buy.
_______ 6. Economy is stagnant, making use of
practices in the olden times.
17
Describe the type of economic system
characterized in each of the following
sentences.
_______ 7. Economy is backward because no new
technology or production methods are
introduced.
_______ 8. It is the most democratic form of economic
system.
_______ 9. People’s preferences are reflected in the
prices they are willing to pay in the
market.
______ 10. It exists in primitive and backward
civiliztions.
18
ACTIVITIES
1. Cut out a news item that is related to any

economic issue. Decide if the issue is related to
scarcity.
2. On the piece of paper, using a pie chart, show
your regular allowance for the week and how you
buget this for your school and personal expenses.
3. If you were to advise the President of the
Philippines on how to cope with the issues on
poverty and unemployment to improve the lives of
the Filipino people, what would you tell him and
why?
19
REGULAR ALLOWANCE FOR THE
WEEK
20

Basic Economic Problems in Countrys

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BASIC

 1. What to produce and how much – society

• 3. For whom to produce – is about the market for

TYPES OF ECONOMIC SYSTEM

 We always get to read in the newspapers

 GROSS NATIONAL PRODUCT ( GNP)

 One way to account GNP and classify its

are also considered final when

(M) Their import components are

 GROSS DOMESTIC PRODUCT (GDP)

Net Inflow = Inflow – Outflow to – Net Inflow = - Inflow + Outflow

1. Cut out a news item that is related to any

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