Economics Basics

1. ECONOMICS
 a social science concerned with man’s
problem of using scarce resources to satisfy
human wants
 a scientific study on how individuals and the
society generally make choices
 a study that attempts to explain how an
economy operates

2. 3 Es IN ECONOMICS
- EFFICIENCY
- EQUITY
- EFFECTIVENESS
Need. A human need is a state of felt deprivation.
Examples include the need for food, clothing,
warmth and safety.
Wants. Wants are how people communicate their
needs (expressed need). A hungry person may
want a hamburger, noodles, or cheese and
bread.
Demands. Wants backed by buying/purchasing
power.

3. SCARCITY.
(the limitations that exist in
obtaining all the goods and
services that people want)
LIMITED RESOURCES VS UNLIMITED WANTS
Opportunity Cost - The value
given up for choosing an
alternative

4. FOUR BASIC ECONOMIC QUESTIONS
 What to produce?
 How to produce?
 How much to produce?
 For whom to produce?

5. TOOLS OF ECONOMICS
Logic. It pertains to valid reasoning and
drawing of conclusion
Mathematics. It means conceptualizing and
quantifying economic principles
Statistics. It means describing behaviors
quantitatively and testing hypothesis in
making inferences

6. SUB-CLASSIFICATION OF ECONOMIC ANALYSIS
 Positive Economics. It deals with the causal
relationships that exist in economics. There
is no value judgment and deals with “what is”
 Normative Economics. It deals with the way
economic relationships ought to be. Value
judgments play an integral part in the ranking
of possible objectives and the choice to be
made among them. It deals with “what ought
to be”

7. SCIENTIFIC APPROACH
 Observation
 Definitions and Assumptions
 Deductions
 Empirical Testing

8. Goods – anything that yields satisfaction to someone
Economic Good - a good which is both useful and
scarce
Utility – (usefulness) is the ability of something to satisfy
needs or wants
Economic Resources - inputs used in the production of
goods and services (factors of production)
Land – natural resources
Labor – any form of human effort
Capital – man-made goods
Entrepreneur – the economic good that commands
price
 Wealth – anything of value owned
 Rent – payment for the use of land
 Wages – payment for the use of labor
 Interest – payment for the use of capital
 Profit – income of entrepreneur

9. CLASSIFICATION OF GOODS
 According to form
 Tangible goods
 Intangible goods
 According to use
 Consumer goods
 Capital goods
 According to need
 Essential goods
 Luxury goods
 According to means of
production
 Manufacturing
 Agriculture production

10. TYPES OF ECONOMIC SYSTEMS
TRADITIONAL ECONOMY
 Family or Community
based Economic
System that relies on
custom and ritual to
make its choices.
 Examples:
 Aborigines
 Amazon Tribes

11. TYPES OF ECONOMIC SYSTEMS
MARKET ECONOMY
 Individual or Consumer
based Economic
System that relies on
the consumption
choices of consumers.
 Examples:
 *The U.S.A.
 *Japan
 Any Capitalist
Economy

12. TYPES OF ECONOMIC SYSTEMS
COMMAND ECONOMY
 Centrally Controlled
Economy where the
Government makes all
decisions.
 Examples:
 Cuba
 China
 Any Communist
Country or Dictatorship

13. TYPES OF ECONOMIC SYSTEMS
MIXED ECONOMY
 Economic System that
incorporates some
Governmental
involvement into a Market
Based Economy.
 Examples:
 *The U.S.A.
 *Japan
 Most “Modern”
Economies

14. MODELS OF ECONOMIC SYSTEM
 Capitalism. It refers to a free enterprise or
laissez faire economy (no government
intervention)
 Communism. When the government controls
the economy
 Socialism. It is a mixture of capitalism and
communism. It contains the characteristics of
both capitalism and communism

15. STOCK AND FLOW VARIABLES
 Production – the use of economic resources
in the creation of goods and services
 Employment – the use of economic
resources in production
 Consumption – the use of economic
resources
 Flow – a quantity measured over a particular
period of time
 Stock – a quantity measured as of a given
point in time

16.  Monetary policy – that which affects savings,
investment, and money supply
 Fiscal supply – that which controls taxes and
government expenditures
 Trade policy – that which affects a country’s
exports and imports
 Inflows – income that go inside the economy
like investment, government expenditures,
exports which expand the flow of goods and
services
 Outflows – incomes that go out of the economy
like savings, taxes, and imports, which constrict
the flow of goods and services
 Multiplier – the number of times income is
generated by an original inflow

17. THE CIRCULAR FLOW
ECONOMIC MODEL

18. CIRCULAR ECONOMIC MODEL