Introduction to Economics

• Economics is the study of wealth.
• Economics analyzes how people conduct business including consumption and production.
• Economics seeks to improve society and the possibility of human civilization.
• Economics centers on people and their earning, living, and enjoying everyday lives.
• Economics explores how individuals use limited resources to produce commodities.
• Economics considers how commodities are distributed among the members of society for consumption.
• Economics analyzes how prices of land, labor and capital are determined.
• Economics studies how prices are applied to allocate scarce resources.
• Economics examines the behavior of financial markets.
• Economics examines how financial markets allocate capital to the rest of the economy.
• Economics explores income distribution.
• Economics explores methods to aid the poor in such a way that it does not harm a country’s economic performance.
• Economics studies the impact on growth through government spending, taxes, and budget deficits.
• Economics examines the changes in income and employment during different stages of the business cycle.
• Economics seeks to develop government policies that will boost economic growth.
• Economics examines trade patterns among nations and analyses the impacts of trade barriers.
• Economics explores growth in developing countries and suggests techniques to promote efficient resource utilization.

Elements of Man’s Economic Activity

• It involves production and consumption.
• Focuses on efforts to address unlimited human needs and wants.
• It relies on the utilization of scarce resources.
• Includes various techniques of production.

Economic Analysis Aspects

• Economic analysis relies on mathematics and statistics.
• It serves the purpose of economic analysis.
• It involves economic policy formulation.
• It requires a specific methodology.
• It uses the construction of economic theory.

Purposes of Economic Analysis

• Economic analysis aids comprehension of how economies function by explaining the relationships of economic variables.
• Economic analysis allows predictions of the impact resulting from changes in economic variables.
• Economic analysis provides a base for policy formulation.

Economic Policy

• Economic policy features interventions and actions implemented by governments or private institutions.
• The goal is to influence the direction of economic activity.
• Government economic policies may involve monetary, fiscal, and trade strategies.
• The main purpose of these strategies is to boost economic welfare.

Methodology in Economics

• Economic theory ensures useful and systematic exploration of economic activity.
• Economic theory uses principles or causal relationships among significant facts and variables.
• These all relate and permeate economic activity.
• Methodology involves assessing the structure and functions of sets of economics.
• It is followed by examining the complete framework of the economic discipline.

Construction of Economic Theory

• Specification and definition of its postulates are necessary.
• Observation of "facts" regarding the activity about which we intend to theorize is needed.
• Existing facts need to have logic rules applied
• Hypotheses must be thoroughly tested once formulated.

Economic Resources

• Economic resources include land, capital and entrepreneurship.

Opportunity Cost

• Selecting one option means forgoing another.
• What is 'given up' when a choice is made is the opportunity cost.
• There is a fixed amount of resources available.
• A choice must be made on what goods to produce with the scarce resources.
• There are always alternative combinations of food and houses.
• With 1000 units of food.
• There is a max of 10 houses.
• Point D within the curve is not desirable because output is less than the maximum feasible output.
• Is it not feasible for the economy to operate at point E since it is outside the curve.
• Condition of full employment must be used within the available resources to produce the maximum possible output.
• Point D is below full employment capacity.
• It shows idle capacity and available resources are not used up.
• The curve shows that inverse relationship of food and houses is downward sloping.
• Giving up house production to increase production of food implies an opportunity cost.
• Subsequently, economic policies are formulated in consideration of the opportunity cost.

Economic Problems

• What to produce?
• How shall goods to be produced?
• For whom shall goods be produced?
• Where the goods be produced?

Economic Systems

• Traditional Economy: basic subsistence economy.
• Command Economy: production is owned by the government.
• Market Economy: the means and the property are privately owned by the people; the process of goods and services are determined, competition is supreme, there is freedom to buy what and how much, and anyone can enter the business competition.
• Socialist Economy: collective, common or public ownership of the means of production.
• Mixed Economy: a democracy with a pure form of market economy but there is also the socialist in nature; there is freedom to produce and sell but not absolute because of the government policies.

Tools of Economics

• Observations
• Definition & Assumption
• Deductions
• Empirical Testing

Macro and Micro Economics Characteristics

• Microeconomics: studies individual economic units of an economy, deals with individual income, prices, and outputs; its main problem is resource price determination and allocation; uses tools like demand and supply, helps solve production problems in order to maximize profits.
• Macroeconomics: studies an economy as a whole, deals with national income and price levels, its main problem is income and employment, uses aggregate demand and supply.