Introduction to

Economics
Basic Economics with
Taxation and Agrarian Reform

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Scarcity
 The basic economic problem.
 A commodity or service bring in short
supply, relative to its demand (Kapur,
1997).
 Limited resources versus unlimited
wants

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Economics Defined
 Science that deals with the management
of scarce resources.
 Scientific study on how individuals and the
society generally make choices. (Fajardo,
1997)
 Study of the problem of using available
economic resources as efficiently as
possible so as to attain the maximum
fulfillment of society’s unlimited demand
for goods and services.
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Economics Defined
 Greek words:
oikos - household
nomus -system of management

Economics is the “management of

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Ceteris Paribus Assumption
 “all other things held constant or all
else equal.”
 Use to analyze relationship between
two variables while other factors
remain unchanged.
 Used to isolate relationships between
two variables.
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Brief History of Economics
 Adam Smith
 considered as “father of economics”
 Wrote “Wealth of the Nations”

 Analysis of consumers and

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Brief History of Economics
 John Stuart Mill
- Importance of the state in its national economy
(political economy)
Karl Marx
- German whose economic thoughts were
influenced by the effect of the industrial revolution
to the working class.
- His book Das Kapital is the centerpiece of
socialist thought.
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Brief History of Economics

Leon Walras
- developed the analysis of equilibrium in
several markets.

Alfred Marshall
- concept of marginalism
- analysis o equilibrium of a particular market

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Brief History of Economics

John Maynard Keynes

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Brief History of Economics

John Hicks
- analysis of the IS-LM curve, an important
macroeconomic model; which integrates the
real investment –savings (IS) the demand for
and supply for money (LM) sides of the
economy to determine the general
equilibrium for the economy as a whole.

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4 Basic Economic Questions
1. What to produce
- identify the products to be produced

2. How to produce
- identify the methods and techniques to
produce commodities.

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4 Basic Economic Questions
3. How much to produce
- identify the number of commodities to be
produced to answer the demand of the
society.
4. For whom to produce
- identify the people or sectors who
demand the commodities produced in the
society.
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Relationship of Economics to
other Sciences
- Economics - “queen of all social
sciences”
1. Business Management
2. History
3. Finance
4. Sociology
5. Psychology

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Importance of Economics
1. To understand the society
2. To understand global affairs
3. To be an informed voter
4. (Now, add your answer here….)

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Three Es of Economics
1. Efficiency
- productivity and proper allocation of
economic resources.
- relationship between scarce factors of
production and outputs of goods and
services.
- technological efficiency (physical terms)
- economic efficiency (cost terms)
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Three Es of Economics
2. Equity
- justice and fairness

3. Effectiveness
- attainment of goals and objectives

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Economic Terms to Remember
1. Wealth
- anything that has functional value (money
value)
- stock of net assets owned by individualsfor
2. Consumption
- direct usage of available goods and
services by the buyer
- satisfaction obtained by consumers for the
use of goods and services.
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Economic Terms to Remember
3. Production
- formation of producers of an output.
4. Exchange
- process of trading goods and services for
money or its equivalent.
5. Distribution
- process of allocating scarce resources

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Microeconomics
 deals with the individual decisions of units of
the economy- households and firms.
 Concerns with explaining how firms
maximizes profits and how consumers
maximizes satisfaction.
 Topics: theories of demand & supply,
elasticity of demand & supply, consumer
behavior, theories of production, firms profit
maximization, business organizations, kinds
of market structures
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Macroeconomics
 Studies the relationships among broad
economic aggregates ( national income,
national output, money supply, bank
deposits, savings, investment, consumption
expenditure, general price level, government
spending, inflation, employment)
 Concerns with the behavior of the whole
economy.

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Topics of Macroeconomics
 Consumption (behavior of aggregate
consumer)
 Investment (decision making of aggregate
business)
 Government spending (policies & projects
of the government)
 Trade ( export and import)

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Topics of Macroeconomics
 National measurements (GNP and GDP)
 Business cycle
 Money supply
 Monetary and fiscal policies
 Economic growth & development

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Opportunity Cost
 Value given up when one makes a
choice
 Foregone value of the next best
alternative.

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Factors of Production
1. Land
- all natural resources
- rent the general used for payment for the
use of land
2. Labor
- human effort exerted in the production of
goods and services
- dependent on population
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- salary or wage is the payment for labor 24
Factors of Production
3. Capital
- man-made goods used in the production
goods and services.
- dependent on level of savings
- interest is the payment for capital
4. Entrepreneurship
- person who organizes, manages and
assumes the risks of business.
- profit is the reward for entrepreneurs
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Basic Decision Problems
 Consumption
 Production

 Distribution

 Growth over Time

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Types of Economic Systems
1. Traditional
- subsistence economy
2. Command
- Manner of production is dictated by the
government.
- Collective ownership of resources
- existence of central planning agency of the
state.
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Types of Economic Systems
3. Market
- private ownership of resources
- most economic decisions are made by
private owners.
- factors of production are owned and
controlled by individuals
- people are free to produce goods and
services
- consumers are free to choose goods
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Types of Economic Systems

4. Socialism
- key enterprises are owned by the state.
- private ownership is limited.
- emphasizes on equitable distribution of
income and wealth
5. Mixed
- combination of market and command
system.
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