Introduction To The Study Of Economics

Introduction to the Study of Economics EMERSON LACSON BERGONIO, MPA, LL.B. Central Bicol State University of Agriculture Calabanga Campus

Outline • Meaning of Economics • Significance of Studying Economics • Historical Background of Economics • Goals of Economics • Economics as Related to Other Social Sciences • Scope/Branches of Economics • Methodologies of Economics • The Economic Systems and the Basic Economic Questions • Opportunity Cost and Trade-Of

Introduction • The main goal of this discussion is to provide the students an introduction to the concept of economics that will help them strengthen their working knowledge of the subject

What is Economics • The study of how people and society end up choosing with or without the use of money to employ scarce productive resources that could have alternative uses, to produce various commodities and distribute them for consumption now, or in the future among various groups in society. • It is concerned with the production, distribution and consumption of goods and services.

What is Economics • The study of the proper allocation and efficient use of scarce resources to produce commodities for the satisfaction of unlimited needs and wants of man.

• A social science that deals with scarce resources and unlimited human wants.

Terms to Remember • Scarce/Scarcity – resources are available but either they are improperly allocated or only limited in supply • Needs - things which we cannot live without. E.g. water, food & shelter • Wants – these are non-essential things we can possibly live without

Four factors that are identified with unlimited human wants • Increase in population • Changes in tastes and preferences • Increase in income • Speculations of consumers

Why Study Economics? • To know how we can make our standard of living for coming years better than what we have now. • To know whether there will be jobs available for us. • To know how best we can spend our income. • To know the future of business and how business can best meet the needs of the citizen. • To know how our community will grow and how best we can contribute to and

Why Study Economics? • To understand how our economy works for us to plan better. • Economic knowledge enable us to make the choices that will help us live and plan better as individuals, as communities, and as a collection of nations

Historical Background • Started in ancient Greece which was the beginning of civilization. • Early humans hunted all of the large game in Central America over a period of time, until there were no large animals left. After that, they had to hunt smaller animals in order to survive. When the smaller animals wer gone, people had to adapt or change to a diferent way of living, or they would die. • In about 3,000 B.C., people learned to plant corn and other crops. At this time, people switched gradually from hunterer-

Historical Background • With farming came, people did not move from one place to another in search for food but they grew and harvested their own foods. • Also, with the farming came the rise of towns and villages and eventually cities. • People began to become more and more interdependent. People began to have diferent professions.

What Economists do? • Analyze prices and production costs. • Look into the activities in the market • Predict whether there will be a market for particular products. • Concerned with getting resources needed for production and using resources efectively. • Concerned with aggregate or totals, such as total production national income and total employment in the entire nation. • Study the monetary system and tax system and their efects on peoples income, national output and growth. • Predict the efects of borrowing, policies on credit on national income and production.

Goals of Economics 1. 2. 3. 4. 5.

To strengthen economic freedom Promote economic efficiency Promote economic stability To improve economic security Attaining a high level of growth in the economy

Economics vs. Other Social Sciences 1. 2. 3. 4. 5.

Anthropology Political Science Sociology Psychology History

Scope/Branches of Economics 1. MICROECONOMICS deals with the economics of firms. It focuses on the behavior of a particular unit of the economy such as the consumers, producers and specific markets. • Micro – greek word which means “small” • it often deals with terms like consumer’s behavior, production theory, cost and profit and market structures • It studies the behavior/actions of

Scope/Branches of Economics 1. MACROECONOMICS deals with aggregates. Its scope is wider as it studies the entirety of an economy, whether national or international, as it attempts to determine economic changes. • Macro – greek word which means “big” • the initial discussion begin on how growth and output are measured and how the multiplier works • Labor, employment, and inflation

Method of Economics 1. Normative Economic Analysis looks at the outcome of economic behavior through judgments and prescriptions for courses of action. • It has something to do with “What ought to be” • It involves ethics and values judgment. it values judgments of what is good and bad, what is true and false. • It describes what is happening to the economy and why, without making any recommendation unless positive economics is made •

Method of Economics 2. Positive Economic Analysis simply strives to describe what exists and how things work. It has more objective orientation. • It has something to do with “What is” • It describes facts and data in the economy. • It gives policy recommendation as basis for normative economics • E.g. “Taxes provide government

services to the people”

Basic Economic Questions/Problems • What goods and services should be produced? the kind and quantity of products • How should these goods and services be produced? who will produce; what process of production • For whom should these goods and services be produced? who will benefit

Factors of Production • Land – covers all natural resources like air, water, forests, vegetation, & minerals • Labor – human inputs such as manpower, eforts, skills/talents • Capital – investment, machinery, equipment • Entrepreneurship – resource that integrates factors of production

Economic System • Refers to a set of economic institutions that dominate a given economy with the main objective of solving the basic economic problems. • It is characterized by the type of institutions responsible for the management and allocation of resources used in the production of goods and services.

Categories of Economic System • Traditional economy • Command/planning economy • Free market economy • Mixed market economy

Categories of Economic System • Traditional economy is one whose economic decisions are made with great influence from the past. It find answers to the three economic questions by copying or duplicating the decisions made by previous generations. Production is carried on through methods used by their forefathers and are therefore primitive. Decisions made (e.g. what & how crops will be grown) is made by imitating what the tribe has always done Change is slow. Everyone’s role is quietly observed. The task or responsibilities are assigned to members of the tribe in the same way those tasks were assigned in a previous generation.

Essential Characteristics of Traditional Economy • Communal land ownership • The leader decides on the management of agricultural production w/c is the basis of the economy • The production, distribution, and use of economic resources are based on traditional practices • New technologies are not welcomed since they are in contrast w/ the traditional practices of their ancestors • The economy is only its third priority while culture and religion are its foremost priorities • Mines are used to gather raw materials for production.

Categories of Economic System • Command economy is where all economic resources are owned and managed by the state/government. Decisions in answering the basic economic problems are planned, done and dictated by the government. It operates like a military where the decisions are made from the top authority and whatever decisions made are relayed to the majority of the people in the economy. Citizens under this system have little or no political and economic freedom.

Essential Characteristics of Command Economy • Resource allocation is done by the government. • Presence of central planning of all economic activities. • There is no free competition (the government is the only seller). • Only the government plays the role in setting legal framework for economic life production and distribution of goods and services. • The products or needs of the people are distributed based on priorities set by the committee.

Categories of Economic System

• Market economy is where individual consumers and businesses interact to solve economic problem. the price of commodity dictates what goods and services will be produced, how and for whom it will be produced. conferment of majority is necessary. a good or service is purchased or sold for a price, and the price helps to determine what kinds of economic activity will take place in a market system. the decisions made by buyers and sellers help in determining the price of a particular good. The price in turn signals the ways our society decides what, how and for whom to produce. considered by some observers as auction.

Essential Characteristics of Market Economy • The private sector owns and manages the means of production. • The price system in a market structure applies to determine how much will be paid for a certain commodity/service. • It is also known as laissez-faire or free enterprise. • There is minimum government interference on decision pertaining to the management of economy • Existence of competition often results to monopoly. • There is a presence of economic power.

Categories of Economic System

• Mixed economy is where both private and public institutions exercise economic control. The elements of diferent economy are present in varying degrees. Private sector works through the market mechanism, and minor industries such as production & distribution of candies/cigarettes belong to them. The public or government institution works through regulatory commands and it owns and manages major industries such as transportation, electrification and others.

Essential Characteristics of Mixed Economy • The means of production are owned and controlled by the private sector as well as the government. • The people decide on economic activities within the economy. • The combinations of the best features of capitalist and command economies are observable in the market. • The problem of distribution of goods and services and allocation of economic resources are determined through a combination of the market system and governmental laws and policies.

Selected countries under various economic system Mixed Tradition Comman Market al d Econom Econom Econom y y y Mongolia North China, Korea, Peru, Cuba Philippine s, Singapor e, Mexico, Canada,

Econom y Japan, USA, Sweden

The three ISMS • Capitalism (market economic system) • Communism • Socialism (command economic system)

The three ISMS: Capitalism • 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 substantial amount of competition. • It has three Aspects: 1) the institution of private ownership is generally accepted; 2) most people are free to pursue their own economic self-interests, that is, to work for personal gain; 3) people compete with one another to get ahead, to make a better product, to control markets in order to maintain/obtain large profit.

The three ISMS: Communism •

It holds that the people themselves, not the government, own the means of production. • In a communist state, everyone works at what he or she can do best. There is no system of wages of profits needed to spur people to work. • Everyone simply takes from what is produced whatever he or she needs to live comfortably. • No government or bureaucracy supervises what the people do.

The three ISMS: Socialism • An economic system in which the government owns and operates the major industries of the country. The government decides in those major industries the answers to the three economic questions. • There are also many variants of socialism as there are countries. In France and Italy, for example, many major industries are nationalized. Sweden is another example because of its extensive welfare programs, although some properties are privately owned.

The Circular Flow of Economy • Circular Flow of Production and Payment

Law of Scarcity, Opportunity Cost & Trade•Of Scarcity refers to the condition that all resources are available only in limited supply • Law of Scarcity states that goods are scarce because there are not enough resources to produce all the goods that the people want to consume. • Opportunity Cost refers to the cost of giving up an alternative by selecting the next best choice or refers to the cost of using them in their best alternatives • Trade-of – the opportunity cost of selecting one alternative rather than another. It is a situation in which more of one good thing can be obtained only

Production Possibility Frontier (PPF) a graph which shows the greatest sum of output given accessible inputs, or factors of production, in an economy.

Production Possibility Frontier (PPF)

Groupings MIDTERM EXAM COVERAGE • Introduction to the Study of Economics - ELB • Economic Models and the Flow of Production Economic Strategies (Monetary & Fiscal Policy) Tanael, Timajo, Azaña • • •

Basics of Demand and Supply Consumer’s Behavior Theory Alviso, Baduria, Tantiado

• • •

Production Theory Theory of Costs Pait, Cañon, San Andres

•

Market Structures – Calomos, Combate, Rubio

Groupings FINAL EXAM COVERAGE •

Introduction to Macroeconomics - Calomos, Combate, Rubio

• • •

Inflation, Labor & Unemployment General Principles of Taxation & Taxes Condes, Esmarin, Palma

• • •

National Taxes Tax Administration and Procedure Corporal, Rodriguez, Domalaza

•

Agrarian Reform and Comprehensive Agrarian Reform Program - Narvato, Garayan, Padre