Most people have a general idea of what economics is. They live with it. They practice it. Some will even be able to define it. Economics is concerned with the production distribution and use of material goods and services.
BASIC TERMS IN ECONOMICS
➔ It is essential that the student be familiar with the terms that will be used in the
➔ A Good is anything which yields satisfaction to someone.
➔ Goods may also classiﬁed according to use.
- Consumer Goods
- Capital Goods
- Luxury Goods
- Economic Goods
- The things which are needed to carry on the production of goods and services are
called Economic resources or factor of production.
- These resources are
- Land - refers to all natural resources.
- Labor - is any form of human effort exerted in the production of goods and
- Capital- refers to man-made goods used in the production of goods and
- Entrepreneur - the entrepreneur is not presented as a separate factor of
production, but is classiﬁed as part of labor.
THE NEED TO CHOOSE
SCARCITY - refers to the limitations that exist in obtaining all the goods and
services that people want.
1. What to produce and how much?
2. How shall goods be produced?
3. For whom shall goods be produced?
TYPES OF ECONOMIC SYSTEM
1. THE TRADITIONAL ECONOMY - This is basically a subsistence economy.
2. THE COMMAND ECONOMY - In this type of economy, the means of
production are owned by the government.
3. THE MARKET ECONOMY - The basic characteristics of this economy is that
resources are privately owned and decisions are made by the people
Demand for goods and GOODS MARKET Supply of goods and services
Peso Votes What? Cost of Production
Consumers How? Producers
Resources Owner For Whom?
Labor Resource Market Labor
THE MIXED ECONOMY
- It is seldom that an economic system exists in pure form.
- When one makes a choice, there is always an alternative that has to be given
Let us study a graphical presentation of this concept.
Let us say that you as a student have a weekly food allowance ₱
300.00. You decide this week to spend it on a combinations of
cola’s and sandwiches. In the school canteen, a chicken sandwich
costs ₱ 30.00 and a cola ₱10.00, giving you the following
Combinations of Colas and Sandwiches
Number of Colas Number of Chicken Sandwiches
SOCIETY’S TECHNOLOGICAL POSSIBILITIES
- Since a nation has limited resources, it has to cope by choosing different
potential bundles of goods.
- Existing technology is used to combine these different inputs.
Inputs consisted of
- refers to useful goods and services resulting from the
THE PRODUCTION POSSIBILITIES FRONTIER
- Since society faces limitations due to scarcity of resources, it has to
decide on the combinations of goods that are to be produced using a
given amount of input.
Let us use the following example to illustrate this.
Ten (10) units of capital can be used to produce Goods X and Y. Possible
output levels are as follows :
THE TOOLS OF ECONOMICS
- Economics is a positive science that means it deals with what it is. This is in
contrast to normative economics which deals with what should be.
- This scientiﬁc approach can be outlined in the following stages:
1. Observation - An analyst should be able to recognize conditions, behaviors,
and events in the environment.
2. Deﬁnitions and Assumptions - The analyst should describe the speciﬁc uses
of the study and the peripheral conditions which affect the economic
behaviors which are being studied.
3. Deductions - These are hypothesis or Theories presented for empirical
4. Empirical Texting- Deductions have to be tested as to their validity and