LEARNING OBJECTIVES:

1. Define economics.
2. Discuss the importance and goals of economics.
3. Explain the ten principles of economics.
What is
Introduction 4. Differentiate microeconomics from macroeconomics.
5. Discuss the methodologies of economics.
ECONOMICS?
to Economics 6. Identify the fundamental economic problems using the concept of
economics as a basis.
7. Differentiate various economic systems being practiced in different
countries; and
ECON 23 8. Discuss the circular flow of the economy and its components.

Economics Economic Goals Economic Goals

“the science of constrained choice”

TRADE-OFF
A trade-off (or tradeoff) is a situational decision that involves diminishing or losing one
quality, quantity or property of a set or design in return for gains in other aspects.

OPPORTUNITY COST
The costs or value of the choice NOT taken Lower Favorable Economic Security
when you choose to do ONE thing.
Economic Efficiency Economic Growth Economic Freedom
Unemployment Rate International Trade

The principles of The principles of

Ten Principles of Economics A. How People Make Decisions B. How People Interact

1. People Face Trade-offs 5. Trade can Make Everyone Better Off

2. The Cost of Something is What You Give Up to Get It
6. Markets are Usually a Good Way to Organize
A. How People Make Decisions Economic Activity
3. Rational People Think at the Margin
*Adam Smith made the observation that when households and
*Economists generally assume that people are rational. firms interact in markets guided by the invisible hand, it will
B. How People Interact result to society’s economic well-being.
4. People Respond to Incentives
*Because rational people make decisions by comparing 7. Governments can Sometimes Improve Market
C. How the Economy Works as a Whole costs and benefits, they respond to incentives. Outcomes
 MICROECONOMICS
The principles of Branches of Economics
C. How the Economy Work as a Whole ✓ The prefix micro is derived from the Greek word mikros, which means “small”.
✓ Microeconomics therefore studies the economic behavior of individual
8. A Country’s Standard of Living Depends on its economic decision makers, such as a consumer, a worker, a firm, or a
Ability to Produce Goods and Services manager.
✓ It also analyzes the behavior of individual households, industries and markets.
9. Prices Rise when the Government Prints Too
Much Money
Examples:
10. Society Faces a Short-Run Trade-off between
o Individual income and saving decisions of the consumer.
Inflation and Unemployment
*Most economists believe that the short-run effect of a monetary o Sari-sari store
injection (injecting/adding money into the economy) is lower
unemployment and higher prices. o The housing market of a particular city/neighborhood.
o Individual firm’s output.

MACROECONOMICS POSITIVE ECONOMICS

Methodologies of Economics
✓ By contrast, the prefix macro comes from the Greek word makros, which ✓ It is the approach that tells us what it is. It is factual, objective and is used to
means “large.” describe the occurrence of a phenomenon. It is an economic analysis that
explains what happens in the economy and why, without making any
✓ Macroeconomics thus analyzes how an entire national economy performs. A
recommendations to economic policy, or in simple idea, it deals with how the
course in macroeconomics would examine aggregate levels of income and
economy works.
employment, the levels of interest rates and prices, the rate of inflation, and
the nature of business cycles in a national economy.
Examples:
Examples: o A fall in incomes will lead to a rise in demand for own-label supermarket foods.

o Gross Domestic Product o The rising price of crude oil on world markets will lead to an increase in cycling
to work.
o Unemployment Rate
o If the government raises the tax on beer, this will lead to a fall in profits of the
o National Savings brewers.

NORMATIVE ECONOMICS
✓ It is the approach which tells us what should be, or what ought to be. It is
more subjective and more judgmental than positive economics. It is a The Fundamental Economic Problem If we are going to closely analyze the three economic problems of
economics, these merely focus on the limitation of resources or the factors of
statement that makes recommendation to economic policy. This employed to
make value judgments about the economy and suggest solutions to economic production. There is also the question on how to undertake the choosing of
problems. some combination of labor, equipment, building, and land to produce the
1. What goods and services to produce and in what quantities?
Examples: goods and services that people want. All these components of production are
o The government should increase the minimum wage to P500 per day to reduce 2. How these goods and services should be produced and how much? called resources or factors of production which have an important role in
poverty. answering the three economic questions.
o In improving the lives of people in poverty-stricken areas, the BSP should 3. For whom should these goods and services be produced?
carefully manage the level of inflation in the country”
o Pollution is the most serious economic problem.
 Economic Resources also called as the factors of production. These are the things
needed to carry on production. The Economic System Traditional Economy
Factor Payment is the payment for the factors of production.

Economic system refers to a set of economic institutions that One whose economic
Factors of Production Corresponding Factor Payment
dominate a given economy with the main objective of solving the decisions is made with the great
Land Rent influence in the past. It finds
fundamental economic problems. answers to the economic problems
Labor Wages/Salaries by copying and duplicating the
The four economic systems or categories are traditional, decisions made by previous
Capital Interest generations.
command, free market, and mixed market.
Entrepreneurship Profit

Characteristics of Traditional Economy: Characteristics of Command Economy:

a) Communal land ownership; Command Economy/ a) Resource allocation is done by the government;
b) The leader decides on the management of agricultural production which is the b) Presence of central planning of all economic activities;
basis of the economy;
Communism
c) There is no free competition (the government is the only seller);
c) The production, distribution, and use of economic resources are based on
An economic system that d) Only the government plays the role in setting legal framework for economic life
traditional practices;
society uses in allocating the production and distribution of goods and services; and
d) New technologies are not welcome since they are in contrast with the traditional scarce resources is the command
practices of their ancestors; economy. In this economic e) The products or needs of the people are distributed based on priorities set by the
system, the factors of production committee.
e) The economy is only its third priority while culture and its religion are its are owned and managed by the
foremost priorities; and state.
f) Mines are used to gather raw materials for production.

Characteristics of Market Economy:

Market Economy/ a) The private sector owns and manages the means of production; Mixed Economy/
b) The price system in a market structure applies to determine how much will be
Capitalism paid for a certain commodity or service;
Socialism
c) There is minimum government interference on decisions pertaining to the
This economic system was management of the economy; It is a mixture of capitalism
different to the first two economic and communism. It contains the
systems. Here, individual consumers d) Existence of competition often results to monopoly; and characteristics of both economic
and businesses interact to solve the systems.
economic problems. e) There is a presence of economic power.
Characteristics of Mixed Economy:
The Circular Flow of Economy
a) The means of production are owned and controlled by the private sector as well
as the government;
b) The people decide on economic activities within the economy;
All human beings are using goods and services to satisfy their
c) The combinations of the best features of capitalist and command economies are
observable in the market; and need and wants. The act of making goods and services is called production,
d) The problem of distribution of goods and services and allocation of economic and the act of using them to satisfy human wants is called consumption.
resources are determined through a combination of the market system and
governmental laws and policies. Economists call such resources factor of production because they are used
to produce those things that people desire. And these things are called
commodities. These commodities may be divided as goods and services.

End of Presentation. References:

Thanks!
A. Reference Books Prepared by:
Colander, D.C. (2020). Microeconomics. 5th Edition. New York: McGraw-Hill. Cherlen J. Cayetano
Case, K.E., Fair, R.C., et al. (2013) Principles of economics. 10th ed., New York: McGraw-Hill. Instructor
Pagoso, C.M., Dinio, R.P., et. al. (2014) Introductory Microeconomics. Fourth Edition. REX Bookstore. Department of Economics, CEMDS
Cavite State University
B. Electronic References (E-books/Websites)
Mankiw, N. G. (2018). Principles of economics.8th ed. Cengage Learning. USA.

CREDITS: This presentation template was created by

Slidesgo, and includes icons by Flaticon and infographics &
images by Freepik