Lesson 1 Intro TO Economics PDF

Preview

Summary

Economics Lecture for SHS...

Description

ECONOMICS  

The word economics comes from a Greek word “oikos” – meaning household and “nomus” – meaning system or management. Oikonomia or oikonomus therefore means the management of household. Is a social science concerned with using scarce resources to obtain the maximum wants of the unlimited wants of society. Society and Scarce Resources: The management of society’s resources is important because resources are

scarce. SCARCITY means that society has limited resources and therefore cannot produce all the goods and services people wish to have.  

With the growth of the Greek society until its development into city-states, the word became known or was referred to as state management. Consequently, the term “management of household” now pertains to the microeconomic branch of economics, while the phrase “state management” presently refers to the macroeconomic branch.

MICROECONOMIC - studies the decision and choices of the individual units and how these decisions affect the prices of goods in the market. It is concerned with the behavior of individual entities such as the consumer, the producer and the resource owner. It is more concerned on how goods flow from the business firm to the consumer and how resources move from the resource owner to the business firm. PRICE THEORY – process of setting prices of goods. Decisions and choices of the individual units and how these decisions affect the prices of goods in the market. It examines alternative methods of using resources in order to alleviate scarcity. It does not focus on aggregate levels of production, employment, and income. MACROECONOMIC - a division of economics that is concerned with the overall performance of the entire economy. -

It studies the economic system as a whole rather than the individual economic units that make up the economy. It focuses on the overall flow of goods and resources and studies the causes of change in the aggregate flow of money, the aggregate movement of goods and services, and general employment of resources. It is about the nature of economic growth, the expansion of productive capacity and growth of the national income. CONCERNS OF ECONOMICS

1. Production is the use of inputs to produce outputs; society have to decide what outputs will be produced and in what quantity Inputs are commodities or services that are used to produce goods and services. Outputs are the different goods and services which come out of production process. [GOODS – tangible products such as cars, clothing and machinery. SERVICES – things that people do for you] 2. Distribution is the allocation of the total product among members of society. It is related to the problem of for whom goods and services are to be produced. 3. Consumption is the use of a good or service. Consumption is the ultimate end of economic activity. When there is no consumption, there will be no need for production and distribution. 4. Exchange – refers to the buying and selling of goods and services, either through barter or the medium of money. 5. Public Finance is concerned with government expenditures and revenues. Economics studies how the government raises money through taxation and borrowing. RESOURCES OF ECONOMICS (FACTORS OF PRODUCTION) 1. LAND – soil and natural resources that are found in nature and are not man-made. Owners of lands receive payment known as rent. 2. LABOR – physical and human effort exerted in production. It covers manual workers like construction workers, machine operators, and production workers, as well as professionals like nurses, lawyers, and doctors. The term also includes jeepney drivers, farmers, and fishermen. The income received by labors is referred to as wage. 3. CAPITAL – man-made resources used in the production of goods and services, which include machineries and equipment. The owner of capital earns an income called interest.

BASIC ECONOMIC QUESTIONS 1. What to produce? Society must have to decide what goods and services should be produced in the economy. Given the limited resources of labour, raw materials, and time, economic agents have to decide what to produce. 2. How to produce? Production method that will be used to produce the goods and services. Resource mix and technology

that will be applied in production.

LABOR-INTENSIVE PRODUCTION - Uses more human resource or manual labor in producing goods and services than capital resources. This is advisable to a society with large population. (ex. Philippines, China, Indonesia, Thailand) CAPITAL-INTENSIVE PRODUCTION - Employs more use of technology and capital goods like machineries and equipment in producing goods and services rather than the use of labor resources. (ex. Japan, Germany, USA) 3. How much to produce? Production method that will be used to produce the goods and services. Having decided on the nature of goods that will be produced, the quantity of these goods should also decide on. Identify the quantity of goods and services to be produced in order to address the demand of man and society as a whole. UNDERPRODUCTION (shortage) results to a failure to meet the needs and wants of society. OVERPRODUCTION (surplus) results to excess supply of goods and services which may just go to waste. 4. For whom to produce? Market for goods; for whom will the goods and services be produced MARKET SEGMENTATION - A process of dividing the market of potential customers into different groups and segments on the basis of certain characteristics. The member of these groups shares similar characteristics and usually have one or more than one aspect common among them. Type of Market Segment

Shared Group Characteristics

Demographic Segment

Measurable statistics such as age, income, occupation, etc. Based on the variables like age, gender, marital status, family size, income, religion, race, occupation, nationality, etc.

Psychographic Segment

Lifestyle preferences such as music lovers, city or urban dwellers, etc. Depends on personality, lifestyle and attitude. Personality and lifestyle influence buying decision and habits of a person to a great extent.

Behavioral Segment

Audience behavior, usage, preference, choices and decision making. Based on their knowledge of the product and usage of a product.

Geographic Segment

Location such as home address, business address, etc.

Society and Scarce Resources: The management of society’s resources is important because resources are scarce. SCARCITY means that society has limited resources and therefore cannot produce all the goods and services people wish to have. WHAT IS THE SOLUTION FOR SCARCITY? Individuals and countries should specialize in producing things in which they have a comparative advantage and then trade with other countries that specialize in something else. This trade is mutually beneficial.

10 PRINCIPLES OF ECONOMICS 1. People face tradeoffs. Making decisions requires trading off one goal against another. To get one thing, we usually have to give up another thing. FOOD VS. CLOTHING LEISURE TIME VS. WORK EFFICIENCY VS. EQUITY 3 E’s of Economics EFFICIENCY means society gets the most that it can from its scarce resources. EQUITY means the benefits of those resources are distributed fairly among the members of society. EFFECTIVENESS means attainment of goals and objectives.

2. The cost of something is what you give up to get it. Decisions require comparing costs and benefits of alternatives. Whether to go to college or to work? Whether to study or go out on a date? Whether to go to class or sleep in? The OPPORTUNITY COST of an item is what you give up to obtain that item. The opportunity of any choice we make is the value we place on the best opportunity that will have to be given up if that action is taken. 3. Rational people think at the margin.

Marginal changes are small, incremental adjustments to an existing plan of action. People make decisions by comparing costs and benefits at the margin. MARGINAL = ADDITIONAL 4. People responds to incentives. Marginal changes in costs or benefits motivate people to respond. The decision to choose one alternative over another occurs when that alternative’s marginal benefits exceed its marginal costs. 5. Trade can make everyone better off. People gain from their ability to trade with one another. Competition results in gains from trading. Trade allows people to specialize in what they do best. 6. Markets are usually a good way to organize economic activity. A market economy is an economy that allocates resources through the decentralized decisions of many firms and households as they interact in markets for goods and services. Households decide what to buy and who to work for. Firms decide who to hire and what to produce. 7. Governments can sometimes improve economic outcomes. Market failure occurs when the market fails to allocate resources efficiently. When the market fails (breaks down) government can intervene to promote efficiency and equity. Market failure may be caused by an externality, which is the impact of one person or firm’s actions on the wellbeing of a bystander; the market responds in accordance with what they observe from other people. MARKET POWER, which is the ability of a single person or firm to unduly influence market prices. 8. The standard of living depends on a country’s production. Standard of living may be measured in different ways: a. By comparing personal incomes. b. By comparing the total market value of a nation’s production. Almost all variations in living standards are explained by differences in countries’ productivities. PRODUCTIVITY is the amount of goods and services produced from each hour of a worker’s time. 9. Prices rise when the government prints too much money. Inflation is an increase in the overall level of prices in the economy. One cause of inflation is the growth in the quantity of money. When the government creates large quantities of money, the value of the money falls. 10. Society faces a short-run tradeoff between inflation and unemployment. The Phillips Curve illustrates the tradeoff between inflation and unemployment:

↓ Inflation →

↑ Unemployment

THREE ECONOMIC SYSTEMS 1. TRADITIONAL ECONOMY Each individual member produces whatever good or service he or his family needs or wants with no or little concern of the needs and wants of the other members of the economy. Decisions are based on traditions and practice. 2. COMMAND ECONOMY The manner of production is dictated by the government. The government decides on what, how, how much, and characterized by collective ownership of all resources. 3. MARKET ECONOMY The most democratic form of economic system. Decisions are made on what goods and services to produce. People’s preference is reflected in the prices they are willing to pay in the market and are therefore the basis of the producers’ decision on what goods to produce. Resources are privately owned, and that the people themselves make the decisions. The factors of production are owned and controlled by individuals, and people are free to produce goods and services to meet the demand of consumers, who, in turn, are also free to choose goods according to their own likes. Examples are Hong Kong, Singapore, Australia and the United States.  In a free market economy, the law of supply and demand, rather than a central government, regulates production and labor. ECONOMICS AS A SCIENCE  

Is a science because it is an organized body of truth, coordinated, arranged and systematized with reference to certain general laws and principles. (Observation, Formulation of theories, Gathering of data, Experimentation, Conclusion, Generalization) Economic analysis seeks to explain economic events using some kind of logic based on a set of systematic relations....