ECONOMICS - the study of how individuals, governments, businesses and other organizations make

choices that effect the allocation and distribution of scarce resources

ADAMS SMITH – THE FATHER OF ECONOMICS

THE ECONOMIC PROBLEM

 NEEDS – The essentials of life, such as food and shelter.

 WANTS – Desires for non-essentials items.
 ECONOMIC PROBLEM – The problem of having unlimited wants, but limited resources to satisfy
them.
 SCARCITY – The limited nature of resources, which underlies the basic economic problem.
 ECONOMIC RESOURCES – Basic items that are used in all types of production, including natural,
capital, and human resources.

TWO MAIN BRANCHES OF ECONOMICS

 MACRO ECONOMICS – Is a branch of economics which deals with the performance, structure,
behavior, and decision-making of an economy as a whole.
 MICROECONOMICS - is a branch of mainstream economics that studies the behavior of
individuals and firms in making decisions regarding the allocation of scarce resources and the
Interactions among these individuals and firms.

FUNDEMENTAL QUESTION OF ECONOMICS

 FOR WHOM?
 WHAT TO PRODUCE?
 HOW TO PRODUCE?

FOUR DIVISION IN ECONOMICS

1. PRODUCTION - the process of making or manufacturing goods and products from raw materials or
components. Factors of Production - The inputs needed for creating a good or service, which include
land, labor. entrepreneurship, and capital. Factors of production activity:

 LAND : natural resources

 LABOR: anyone who works and the work they do.
 CAPITAL: property used to make other goods and services.
 ENTREPRENEURSHIP: individuals' ability to start new businesses and take risk at financial
capital.

2. DISTROBUTION - Distribution is the activity of both selling and delivering products and services from
manufacturer to customer. Transport Products to Distributor Wearhouse and last Retailer Shop.

3. EXCGANGE - In exchange, we give one thing and take another.

 Barter: Trading goods or services between two or more parties without the use of money.
 Money: A system of value that facilitates the exchange of goods in an economy.

4. CONSUMPTION- Is the process of buying / using goods and services.

UTILITY – the ability of a good or services to satisfy a human need. Types of Utility:

 FORM UTILITY - The most common materials for shoes are leathers, textiles, synthetics, rubber,
foam, and plastic.
 PLACE UTILITY - Purchase location is convenient.
 TIME UTILITY - his type of utility occurs when a company provides goods and services when
consumers demand or need them.
 POSSESSION UTILITY - How easy it is to purchase a product.

HOUSEHOLD – A home and its occupants regarded as one unit. There are many types of households:

 MOTHER, FATHER AND CHILDREN.

 ADULTS SHARING A HOME.
 NUCLEAR FAMILY AND GRANDAD.
 SINGLE PARENT FAMILY
 PERSON LIVING ALONE.

FINAL GOOD – A good that the final consumer consumes.

INTERMEDIATE GOODS – The ingredients/components of finished goods.

RAW MATERIALS – Materials or substances used in the manufacturing of goods.

SCARCITY – A limited amount of resources to meet unlimited wants and needs.

WHY DO WE HAVE SCARCITY?

 PERSONAL PERSPECTIVE: your own feelings of what is needed or wanted and/or how do you
manage of consuming the resources. (Not wasteful)
 RAPID INSCREASE IN DEMAND: A sudden rush to use resources can cause a shortage.
 INCREASES IN DEMAND IS A DECREASE IN SUPPLY
 POOR DISTRIBUTION OF RESOURCES

3 BASIC QUESTIONS

 WHAT TO PRODUCED?
 HOW IS IT PRODUCED?
 WHO GETS WHAT IS PRODUCED?

THE ECONOMIC PROBLEM (Scarcity and Choice):

 CAPITAL: Things that are themselves produced and that are then used in the production of
other goods and services.
 FACTORS OF PRODUCTION: The inputs into the process of production. Another word for
resources.
 PRODUCTION: The process that transforms scarce resources into useful goods and services.
 INPUTS OR RESOURCES: Anything, provided by nature or previous generations that can be used
directly or indirectly to satisfy human wants.
 OUTPUTS: Usable products.
TRADE OFFS - When you choose between two possible uses for a resource, giving up one alternative for
another.

OPPORTUNIT COST - The potential benefits that an individual, investor, or business misses out on
alternative over another. when choosing one. The opportunity cost is the cost of the second best
alternative given up to make a choice. The thing that is given up when given a choice.

THE ECONOMIC PROBLEM

 NEEDS - the essentials of life, such as food and shelter

 WANTS - desires for non-essential items
 ECONOMIC PROBLEM - the problem of having unlimited wants, but limited resources to satisfy
them.
 SCARCITY-the limited nature of resources, which underlies the basic economic problem.
 ECONOMIC RESOURCES - basic items that are used in all types of production, including natural,
capital, and human resources.
 NATURAL RESOURCES - the resources from nature that are used in production, including land,
raw materials, and natural process.
 CAPITAL RESOURCES - the processed materials, equipment, and buildings used in production;
also known as capital.
 HUMAN RESOURCES - the efforts of people involved in production, including labour and
entrepreneurship.

ECONOMIC SYSTEM - An economic system is a means by which societies or governments organize and
distribute available resources, services, and goods across a geographic region or country. Economic
systems regulate the factors of production, including land, capital, labor, and physical resources.

TYPES OF ECONOMIC SYSTEM

 TRADITIONAL SYSTEM - The traditional economic system is based on goods, services, and work,
all of which follow certain established trends. It relies a lot on people, and there is very little
division of labor or specialization.
 COMMAND ECONOMIC SYSTEM - In a command economy, the government determines what
goods to produce. The government also decides how much to produce and at what price.
 MARKET ECONONOMIC SYSTEM - an economic system in which economic decisions and the
pricing of goods and services are guided by the interactions of a country's individual citizens and
businesses.
 MIXED SYSTEM - A mixed economy is a combination of different types of economic systems.
This economic system is a cross between a market economy and command economy.

ECONOMIC GOALS

ECONOMIC FREEDOM - The goal is about the amount of choice people have in where they work and
live, the type of career they have, what they do whit their income and what they buy or sell.

ECONOMIC EQUITY - Economic equity is defined as the fairness and distribution of economic wealth, tax
liability, resources, and assets in a society.
ECONOMIC EFFICIENCY - The quality of economic activity in which resources are used and goods
distributed in a way that generates the greatest benefits to producers and consumer.

ECONOMIC GROWTH - Economic growth is an increase in the production of goods and services in an
economy.

ECONOMIC STABILITY - Economic stability allows people the ability to access resources essential to life,
including financial resources, quality housing and food, and a job that provides a stable, living wage.

DEMAND AND SUPPLY

DEMAND - The desire, ability, and willingness to buy a product or service.

Demand depends on two variables:

 The price of a product

 Quantity available at a given point

QUANTITY DEMANDED - is a term used in economics to describe the total amount of a good or service
that consumers demand over a given interval of time.

LAW OF DEMAND

 As PRICE increases, DEMAND decreases

 As PRICE decreases, DEMAND increases

NON-PRICE DETERMINANTS OF DEMAND

 BUYER’S INCOME - Man buy greater goods and services when their income becomes higher.
 PRICE OF SUBSTITUTES - Goods or services that can be used instead of other goods or services,
causing a change in demand.
 MARKET SIZE -
 CONSUMER TASTES - Goods or services that can be used instead of other goods or services,
causing a change in demand.
 CONSUMER EXPECTATIONS - What you expect prices to do in the future can influence your
buying habits today.
 COMPLEMENT GOODS - When the use of one product increases the use of another product.

DEMAND SCHEDULE - A table that shows the quantity demanded of a good or service at different price
levels.

DEMAND CURVE - A graph that illustrates the demand for a product. It shows how much consumer
desire for a product changes as the price changes.

DEMAND FUNCTION - The demand function shows the relation between the quantity demanded of a
commodity by the consumers and the price of the product.