Introduction to Economics

Goals of Economics

1. To strengthen economic freedom

2. To promote economic efficiency
3. To promote economic stability
4. To promote economic security
5. To attain a high level of growth in the
economy
Economics ?
- Is a social science that deals with the
proper allocation and utilization of
scarce resources to satisfy people’s
needs and wants.
 Economic Growth Versus Economic
Development
Development – Is a progressive and dynamic
process.

Growth - Is the result of a process.

Economic Growth
- It means that the capacity to produce goods
and services is increasing, and it is growing
more rapidly than the population.
Economic Growth is determined by 2 Factors:

1. Expansion in the resources available for

producing goods and services, such as larger
labor force and larger capital stock.
2. Improved skills and technology, including
managerial and entrepreneurial skills, so that
more goods and services can be produced
from given resources.
2 Basic Responsibilities of the Government in
Promoting Economic Growth:

1. To provide law and order that will create a

conducive investment climate, such as
enforcement of contracts and the
preservation of environment;
2. To provide public services that the private
sector cannot provide but are important for an
expanding economy.
Economic Development
- Is a progressive process of improving human
conditions, such as the reduction or
elimination of poverty, unemployment,
illiteracy, inequality, disease, and
exploitations.

- It involves both economic and non- economic

factors.
Economic Factors (Capital, Technology, Market)

Non-Economic Factors ( Culture, Religion,

Government, Education)
• The combination of Economic and Non-
Economic factors determines the extent and
nature of economic development.

• Non-economic factors have stronger influence

on the economic development of nations.
 Classification of Countries
• The economy of a country is measured by its
Gross National Product (GNP) or GNP Per
Capita Income (Income per person).

1. Highly-Developed Countries
2. Intermediate Countries
3. Less Developed Countries (LDC’s)
Philippine Development Objectives
1. The attainment of economic stability
2. The equal distribution of the fruits of
economic development
3. The achievement of total human
development for every Filipino.
 Obstacles to Development
1. Poor nations are deficient in capital. (Vicious
Cycle of Poverty)

2. Population Explosion(Malthusian Theory of

Population)

3. Man himself
 Stages Of Economic Growth
Stage 1 – Agriculture is the principal source of
employment and income in the agricultural
countries.
Stage 2 – Manufacturing industry becomes the
major economic activity as a country develops.
Stage 3 – Service industries grow to be the
dominant feature of the economy as a country
develops further.
The Doctrine of Rostow
Professor W. W. Rostow
- An American economic historian
- Author of the well-known book, Stages of Economic
Growth.
- Based on his doctrine, the transition of the economy of
one country from underdevelopment to development
passes through several stages such as:
1. Traditional Society
2. Pre-conditions to take-off
3. Take-off
4. Drive to maturity
5. Age of high mass consumption
How could a poor or underdeveloped
country take-off?
- Considering the shortcomings of such
countries in terms of capital, values and
institutions, they need a big push to
take-off.
- It requires huge amount of money and
the restructuring of values and
institutions to fit them for development.
• Domestic savings are not enough for significant
investments.
• Foreign loans are mere trickles in proportion to
their gigantic needs for national development.
• Their public administration is not only
inefficient but also corrupt.
• Population explosion has even made their
conditions worse.
* Spite of this, the rich countries still continue
to exploit them – their laborers, raw materials
and markets.
Proposals of the Socialists
Socialism ?
- is an economic system in which the
government owns and operates the major
industries of the country.
- It means that the government also decides in
those major industries the answers to the
three economic questions.
• The failure of the laissez faire economic
doctrine as advocated by the classical
economists during the 18th century,
challenge thinkers and philosophers to
fashion a theory that could promote the
welfare of the common people.
• It was experienced at that time that the
free market economy only favored the
capitalists who exploited the workers.

• Throughout Europe there were many

economic problems such as
unemployment, starvation and decline
of agriculture.
• In France, the French Revolution
ultimately became the victory of the
capitalists over the landlords.

• Babeuf, a French utopian(an imaginary

place in which the government, laws
and social conditions are perfect), said:
Every man has an equal right in the
enjoyment of all goods based on the
laws of nature.
• Large business corporations should be owned
by the state.
• Private property should be rationalized and
inheritance should be abolished.
• Production and distribution of goods are to be
managed by an elected government.
• No one could exercise his political rights if he
does not perform useful work.
• Food and clothing should be exactly the same
for all, except for differences in sex and age.
• Children are to be taught about the ways of the
new society.
- Several other great socialists proposed the
equality of wealth and the promotion of the
human welfare.
Example. Robert Owen crusaded for
cooperative societies.

- Karl Marx stressed the rights of the workers.

He claimed that the tools of production should
belong to them because these are part of labor.
• In his (Marx) theory of scientific social
evolution, he predicted the collapse of
capitalism due to competition and saturation
of the markets with goods.
Capitalism ?
- is an economic system in which most resources
are privately owned, people are free to choose
their occupation, the kind and amount of
production is determined by price and people
searching for a profit, and there is a substantial
amount of competition.
• In addition, Marx also stated that the
increasing miseries of the workers would force
them to unite.
- This would finally end the days of capitalism.
- The workers would control and manage the
new society.

*However, Marx failed to explain how the

workers will rule the new social and economic
system. Of course, his predictions did not
materialize.
A Good Economic System
- An economic system is responsible for
improving economic conditions of the people.
- Economic condition does not only mean
material sufficiency like money, food or
houses.
- It also includes economic freedom and justice.
For example. A person who has plenty of food to
eat and clothes to wear, but could not choose his
job or he has no freedom to choose how and
where to spend his income, is certainly not
happy.
• The effectiveness of an economic system is
measured by the following criteria:
- Abundance
- Stability
- Security
- Economic freedom
- Growth
- Efficiency
- Justice and equity
• The real test of a good economic system is
the welfare of the poorest of the poor.
- If the goods and services of the system have
touched their lives, and they are contented,
then it is a good economic system.
• The 1986 Constitution states

The goals of the national economy are more

equitable distribution of opportunities, income
and wealth; a sustained increase in the amount
of goods and services produced by the nation
for the benefit of the people; and an expanding
productivity as the key to raising the quality of
life for all, especially the underprivileged.
 Quiz 1
1 Whole yellow paper
Questions:
1. Define economic development. Explain one example
of economic development in agriculture.
2. Differentiate growth from development. Give
examples of economic growth in the Philippines?
3. Explain economic growth without economic
development. Give some disadvantages of such
situation. Do we have cases of growth without
development in the Philippines?
4. What are the three basic objectives of our Philippine
development? Can we attain these? Justify your
answers.
5. What are the obstacles to development? Do we
have these in our country? Why is man considered
as the greatest barrier to development?
6. Explain the different theories of the stages of
economic growth. Where do you think our country
belongs? Why?
7. Explain one case of man’s cruelty to his
fellowmen. Do we have similar abuses in the
Philippines? Cite examples.
8. What is your idea of a just society? What do you
suggest to improve our own society? It is good for
the rich to display openly their fabulous wealth in a
very poor society? Why?