intro to economics 2013

8/13/2019 Intro to Economics 2013

1/28

An Introduction to Economics


2/28

Hierarchy of Wants

Here is how Maslows Ladder of Human

Wants looks like:

Personal Growth

Self Respect

Love and Belongingness

Safety and Security

Physical Needs


3/28

Fundamental Economic Concepts

Scarcity: when wants > resources

available to satisfy wants forces people

to make choices.

Resources: limited; Wants: unlimited.

Opportunity cost: value of next best

thingreal costs that are measurable in

terms of real value that is forgone when a

choice is made.


4/28

Consumption Satisfies Needs

and WantsThere are so many reasons why people consume certain goods and

services.

For example:

1. I like the color

2. I like the design3. I want a new shirt

4. I will wear it for a party

5. I have the money to buy it

6. Its price is reasonable

factors that affect peoples consumption behavior, the first four

answers given above may be lumped into the category of tastes and

preferences. The fifth answer refers to a persons purchasing

power. The last answer is an indication of relative price.


5/28

Human Wants

The main concern of economics is thefulfillment of human wants among thecompeting uses of resources.

Categories: Material

Nonmaterial

Aspects (characteristics to be considered):

Physicalinvolves certain mechanism of nerves, muscles,and sense organs programmed to respond to certainstimuli.

Subjectivebased on the consciousness of enjoyingpleasure and avoiding the unpleasant in anything that one

does.


6/28

Basic Terms in Economics1. Good

Anything that yields satisfaction

Anything used to satisfy a persons wantsand needs.

Need

is something you have to have, something youcannot live or do without and also things that are

necessary for survival.Want

is something you would like to have and thatprovides satisfaction. It is not absolutely

necessary, but it would be a good thing to have.


7/28

Basic Terms in Economics

Types/Classification:

1. According to formi. Tangible goods

Are material goods

Commodities

ii. Intangible goods

Services2. According to use

i. Consumer goodsyield satisfaction directly

ii. Capital goodsgoods used to produce other goods &services (ex.: building, machinery & equipments)

*luxury Goodsgoods that man may do without, providescomfort and well-being; may be expensive & may onlybe purchased/enjoyed by those who can afford.


8/28

Basic Terms in Economics

Types/Classification:

1. Economic good Is a good both useful & scarce

Has value attached to it & price to be paid for its use.

2. Free good A good which is abundant & enough to satisfy

everyones needs without paying for it.

Goods are created by means of production

1. Manufacturing or industry (goods & services)

2. Agricultural production

3. Exploration for oil, mineral and precious metals


9/28

Important concepts in EconomicsIn the context of having unlimited wants with the

available economic resources (factors of production,

we make Economic decisions wherein we make

choices.

Economic choice

Involves the attainment of desired endsthrough

the allocationof these scarce resources amongalternative uses

1. Desired ends

Whatever goal or objective is identified as urgentby the society

Example: Meeting of the wants of different sectors alsoinclude other social systemspolitics, ideology,religion & morality

*prostitutionlegalize, regulatecollect taxes, illegal,many still engage in it.


10/28

Basic Terms in EconomicsEconomic choice

Involves the attainment of desired endsthrough the al locat ionof these scarceresources among alternative uses

2. Allocation

Does not mean distribution where

everyone receives something means distributing resources so that

desired ends are satisfied; partiallysatisfied or not satisfied at all. It may be

that allocation decision is timed-determined.


11/28

Basic Terms in EconomicsEconomic choice

Involves the attainment of desired endsthrough the allocationof these scarce

resources among alternative uses

3. Alternative uses

Refers to many different choices which to

the mind of the individuals, groups or

societies are equally appealing.

Its concept brings the concept of theopportunity cost


12/28

Important concepts in Economics

Here are some examples of scarcity and the trade-

offs associated with making choices: You have a limited amount of time. If you take a

part-time job, each hour on the job means one less

hour for study or play.

A city has a limited amount of land. If the city

uses an acre of land for a park, it has one less acre

for housing, retailers, or industry.

You have limited income this year. If you spendP500 on a music CD, thats P500 less you have to

spend on other products or to save.


13/28

Concept of Scarcity

Scarcity Means more than limited, for everything in the

material world is limited but not everything is scarce.

The concept of scarcity arises because of certainqualities of resources and human wants.

Resources are prolific in that they can be substituted forcapital in the production of commodity.

Human wants are numerous and are multiplying as a resultof several factors.


14/28

LAW OF SCARCITY AND

OPPORTUNITY COSTScarcity

is the reason why people economize

Refers to the limitations that exist inobtaining all the goods and services thatpeople want.

Economic scarcity exists when the

productive resources of the economy arenever enough to meet all the wants of thepeople in the society.


15/28

Concept of

Economizing and Efficiency

There is a need to choose among the competinguses of resources in order that each scarcecommodity will yield the highest level of

satisfaction to the individual and to society. Thisinvolves the process called allocation.

Allocation

A process of choosing among competing endswhich resources are going to be employed forthe production of commodities chosen to satisfythe human wants that have a higher value in thepriority system.


16/28

To economize is to choose something withthe minimum costs or to choose that which

will give maximum benefit to the individual

and to society.

Efficiency is the proper use of resources to

get the maximum benefit to society.

There is no unique way of allocating or choosinghow resources should be utilized to meet humanneeds.


17/28

Definition

Economics: science of personal and group decision-making.

Greater difference between benefits and cost of adecision easier to make a choice.

Marginal Decision Making: choices that are a matter ofdegree.Margin: difference between costs of 2alternatives or difference between 2 benefits.

Positive Economics: what is-analyzes facts or data toestablish scientific generalizations about economicbehavior.

Normative Economics: what ought to be-involves valuejudgments about what economy should be like; includesgoals.


18/28

Macroeconomics vs. Microeconomics

Microeconomics: study of individual parts

of economy and actions of individuals and

firms.

Macroeconomics: study of economy as a

whole: focus on aggregate behaviors of

producers and consumers.

THE ECONOMIC PROBLEM


19/28

19

THE ECONOMIC PROBLEM:SCARCITY AND CHOICE

Three basic questions must be answered in order to understand an

economic system: What gets produced?

How is it produced?

Who gets what is produced?


20/28

Factors of production The resourcesused to produce goods and services;

also known asproduction inputs.

Typical taxonomy

land / natural resources

labor Capital

Entrepreneurial ability

Alternative view

Matter

Energy

Time

Technology20

ass ca on roa a egor es o e


21/28

1. Natural resources/Land

Resources provided by nature and used toproduce goods and services; gift of nature to ourproductive processes

Land used for farming for underpinning houses, factories,

roads Energy resources that fuel cars

Non energy resources like copper, iron ore and sand

*environmental resourcesclean air & drinkable water

2.Labor The physical and mental effort people use

to produce goods and services.

consist of human time spent in productionteaching in school,working in factories ; requires different skill levels.

ass ca on roa a egor es o eFactors of Production


22/28

Factors of production3. Human Capital resources

The knowledge and skills acquired by a worker through education

and experience.

4. Physical & Financial capital

*Physical capital

The stock of equipment, machines, structures, and infrastructure that

is used to produce goods and services. form the durable goods of an economy, produced in order to

produce yet other goods.

These goods include: machines, roads, computers, trucks,buildings

*Financial Capital - Input of funds5. entrepreneurship

The effort used to coordinate the factors of productionnatural

resources, labor, physical capital, and human capitalto produce

and sell products.

22


23/28

Why Study Economics?

1. Understanding the allocation process in an environment ofscarcity.

2. Knowing why the government collects taxes from ourincomes, from the things we buy, and from the things weown.

3. Knowing the basis for collecting taxes and the allocation ofgovernment revenues for various expenditures.

4. Understanding the economic explanation why thegovernment provides the people with such services aseducation, public utilities, roads, and national defense.

5. Role of money.6. Knowing the basis of commercial relations among nations.

7. Knowing how societies increase their resources in order togrow and to improve the welfare of their members.

8. Learning the importance of economizing.


24/28

Types of Economic System

Traditional/Subsistence Economy Self-sufficiency of most households

Some societies have used customs and traditional

beliefs as a basis for allocating the societyswealth and the fruits of its resources.

The Command Economy

Government hand visible There are societies where planning boards decidewhere resources are to be employed on the basis

of societal objectives and political orientations.


25/28

Types of Economic System

The Market Economy Main institution within which all economic

activities are situated in the market

Resources are privately owned& decisionsare made by the people themselves.

Mixed Economy

Mixture of the 3 forms of decision making In many societies today, the price or market

mechanism is used as a basis for allocation.

H th i i d? Ci l fl Di


26/28

Goods andservices

bought

Goods andservices sold

Inputs forproduction

Land, labor &capital

How the economy is organized? Circular-flow Diagram

(Mankiw,2010)

MARKETS FOR GOODS

AND SERVICES

FIRMS SELL

HOUSEHOLDS BUY

MARKETS FOR

FACTORS OFPRODUCTION

HOUSEHOLDS SELL

FIRMS BUY

HOUSEHOLDS

Buy and consume

goods and services

own and sellfactors of production

FIRMS

Produce and sell

goods and services

Hire and usefactors of production

SpendingRevenue

Wages, rent,

and profitIncome

Inputs and Outputs ( S l &


27/28

Inputsare commodities or services that are

used to produced goods and services.

Another term for this is factors of

production.

An economy uses its existing technology tocombine inputs to produce outputs.

Outputsare the various useful goods or

services that result from the production process

and are either consumed or employed in further

production.

Inputs and Outputs ( Samuelson &Nordhaus, 2010)


28/28

REFERENCES:

Samuelson & Nordhaus (2010) Introduction to EconomicsPagoso C., 2010, Introduction to Macroeconomics, Philippines: C & E Publishing House.

Villegas B.M. and Abola V.A. (2010) Basic Economics. Center for Research and Communication

Foundation, Inc. ISBN 971-91786-3-9

Villegas, B.M. (2010). Guide to Economics for Filipinos. Manila: Sinag-tala Publishers, Inc.SoCoase, R. H. (2009), Essays on Economics and Economists, Chicago/London: The University of Chicago Press.

Hausman, Daniel M. (2007), The Inexact and Separate Science of Economics, Cambridge: Cambridge University Press

Landsburg, Steven E. (2008), The Armchair Economist, New York: The Free Press

Melberg H.O. (n.d.) Definitions of economics: A short and uncritical draft of an introduction.

Fromhttp://www.geocities.com/hmelberg/papers/981123.htm

Mankiw 2010 fundamentals of Economics

*Internet sites:

http://ingrimayne.com/econ/Introduction/Defintns.html http://www.cr1.dircon.co.uk/pdffiles/1.1a.pdf+definitions+economics&hl=t&ct=clnk&cd=10&gl=ph

http://www.carleton.ca/vpac/20000105/

http://en.wikipedia.org/wiki/Economicshttp://ph.answers.yahoo.com/question/index?qid=20080522065504AAmrerG

http://wiki.answers.com/Q/What_are_the_branches_of_economics

http://www.investopedia.com/ask/answers/110.asp :

http://www.mcwdn.org/ECONOMICS/NeedWant.htmhttp://www.psychclassics.yorku.ca/Maslow/motivation.htm

http://www.cdli.ca/courses/econ2203/unit01_org01_ilo04/b_activity.htm

http://www.oswego.edu/~atri/e101ppc.html http://web.missouri.edu/~gc60f/oppcost.doc
http://www.geocities.com/hmelberg/papers/981123.htmhttp://www.geocities.com/hmelberg/papers/981123.htmhttp://ingrimayne.com/econ/Introduction/Defintns.htmlhttp://www.cr1.dircon.co.uk/pdffiles/1.1a.pdf+definitions+economics&hl=t&ct=clnk&cd=10&gl=phhttp://www.carleton.ca/vpac/20000105/http://wiki.answers.com/Q/What_are_the_branches_of_economicshttp://www.investopedia.com/ask/answers/110.asphttp://www.psychclassics.yorku.ca/Maslow/motivation.htmhttp://www.cdli.ca/courses/econ2203/unit01_org01_ilo04/b_activity.htmhttp://www.oswego.edu/~atri/e101ppc.htmlhttp://www.oswego.edu/~atri/e101ppc.htmlhttp://www.cdli.ca/courses/econ2203/unit01_org01_ilo04/b_activity.htmhttp://www.psychclassics.yorku.ca/Maslow/motivation.htmhttp://www.investopedia.com/ask/answers/110.asphttp://wiki.answers.com/Q/What_are_the_branches_of_economicshttp://www.carleton.ca/vpac/20000105/http://www.cr1.dircon.co.uk/pdffiles/1.1a.pdf+definitions+economics&hl=t&ct=clnk&cd=10&gl=phhttp://ingrimayne.com/econ/Introduction/Defintns.htmlhttp://www.geocities.com/hmelberg/papers/981123.htmhttp://www.geocities.com/hmelberg/papers/981123.htm

intro to economics 2013

Documents