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1 Introduction To Economics

Economics is the study of how societies manage scarce resources. The central problem is scarcity - resources are limited and demands are unlimited. Economics aims to answer four questions about production: what to produce, how to produce, how much to produce, and for whom to produce. It also studies efficiency, equity, and effectiveness. Microeconomics looks at individual decision-making while macroeconomics examines broad aggregates like GDP. Factors of production are land, labor, capital, and entrepreneurship. Households, firms, and governments face decision problems about consumption, production, distribution, and growth over time under different economic systems.

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153 views17 pages

1 Introduction To Economics

Economics is the study of how societies manage scarce resources. The central problem is scarcity - resources are limited and demands are unlimited. Economics aims to answer four questions about production: what to produce, how to produce, how much to produce, and for whom to produce. It also studies efficiency, equity, and effectiveness. Microeconomics looks at individual decision-making while macroeconomics examines broad aggregates like GDP. Factors of production are land, labor, capital, and entrepreneurship. Households, firms, and governments face decision problems about consumption, production, distribution, and growth over time under different economic systems.

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jorolan.annabelle
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Introduction to

Economics
Jess Anthony Casagan, CPA
University of Mindanao Digos College
Department of Accounting Education
Why do we need to study economics?

• The reason and the heart of the study of economics is scarcity.


• Scarcity is the basic and central economic problem confronting every
society.
• Scarcity have been defined by authors in various ways.
• Kapur (1997) defines scarcity as a commodity or service
being in short supply, relative to its demand.
The Main • It implies constant availability of a commodity or
Economic economic resource relative to the demand for them.

Problem: • In quantitative terms, scarcity is said to exist when at a


zero price there is a unit of demand, which exceeds the
Scarcity available supply.
• Therefore, scarcity pertains to the limited availability of
economic resources relative to society’s unlimited
demand for goods and services.
Economics Defined

• Generally speaking, economics is a science that deals with the management


of scarce resources.
• Fajardo (1977) describes economics as a scientific study on how individuals
and the society generally make choices.
• Slavin (2005) further states that economics is simply scarcity and choice.
• To have an in-depth understanding of these two terms,
we must study their relationship.
• The problem of scarcity gave birth to the study of
Relationship of economics.
Scarcity and • The study of economics was essentially founded in order
to address the issue of resource allocation and
Economics distribution, in response to scarcity.
• Thus, no scarcity means no economics.
• Economics comes from the Greek words Oikos and
Nomus which literally means House and
Economics – Management/System, respectively.
The Past • Therefore it means Household Management.
• The assumption of “Ceteris Paribus” is important in the
study of economics.
• It means “all other things held constant or all else equal”.
Ceteris Paribus • This is used as a device to analyze the relationship
between two variables while the other factors are held
Assumption unchanged.
• It is widely used in economics as an exploratory
technique as it allows economists to isolate the
relationship between two variables.
Ceteris Paribus

• For instance, with the question: what is the impact of a change in the price
of rice on consumption behavior, ceteris paribus?
• If the price of rice increases by 20%, how much consumption will there be,
assuming no simultaneous change in other variables – that is assuming that
income, number of family members, population, laws, and so on remain
constant.
• After the Greeks, there are numerous philosophers who
have contributed to the development of economics. The
following periods have given significant contributions to
the study of economics.
• Classical Economics (1700 – 1800)
Economics – • Neoclassical Economics (1870s)

The Evolution • Keynesian Economis (1936)


• Non-Walrasian Economics (1939)
• Post-Keynesian Economics (1940 and 1950s)
• New Classical Economics
Positive and Normative Economics

• Positive economics is an economic analysis that considers economic


conditions “as they are”, or considers economics “as it is”. It uses objective or
scientific explanation in analyzing the different transactions in the economy.
It answers the question “what is”.
• Normative economics is economic analysis which judges economic conditions
“as it should be”. It is that aspect of economics that is concerned with human
welfare. It deals with ethics, personal value judgments and obligations
analyzing economic phenomena. It answers the question “what should be”.
• To address the problem of scarcity, the society must
answer four basic economic questions.

Questions in • What to produce?

Economics • How to produce?


• How much to produce?
• For whom to produce?
So why is it important to study economics?

• To understand society
• To understand global affairs
• To be an informed voter
• Efficiency
• Productivity and proper allocation of resources.
3 Es in • Equity

Economics • Justice and fairness.


• Effectiveness
• Attainment of goals and objectives.
• Economics has two major branches
• Microeconomics which deals with individual
Micro and decisions of unit of economy – firms and
households, and how their choices determine
Macro – David relative prices of goods and factors of production.
and Goliath • Macroeconomics studies the relationship among
broad economic aggregates like national income,
national output, money supply, etc.
• There are four factors of production which serve as
inputs to the production process.

Factors of • Land

Production • Labor
• Capital
• Entrepreneurship
• The following are some decision problems that
households, firms, the government and the society must
think about in order to manage their resources properly.
Basic decision • Consumption
problems • Production
• Distribution
• Growth over time
Types of economic systems

• Traditional Economy
• Command Economy
• Market Economy
• Socialism
• Mixed Economy

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