Introduction to Economics: Basic Concepts and Areas

Economics Definition and Scope

• Economics is a social science that analyzes the production, distribution, and consumption of goods and services.
• The Greek word for economics is Oikonomia.
• Adam Smith is considered the Father of Economics.

Types of Economics

• 5 areas of economics:
  • Microeconomics: small-scale interaction, referring to households and firms interacting in the market for consumption of goods.
  • Macroeconomics: examines the economy as a whole.
  • International economics: analyzes the flow of goods and services between nations.
  • Theory: models derived and applied to current problems.
  • History: focuses on economic theory.

Categories of Economics

• 3 basic categories of economics:
  • Positive economics: studies criteria of what is (facts).
  • Normative economics: studies how things ought to be (opinions).
  • Applied economics: studies the relationship between positive and normative economics.

Economic System

• Refers to the way decisions about producing goods and services are made within a given society and the rules that govern distributions.
• 3 major types of economic systems:
  • Market economy: individual or consumer behavior drives production.
  • Command economy (planned economy): government drives production.
  • Mixed economy: combines elements of market and command economies.

Economic Problems

• 3 basic economic problems:
  • What to produce: allocation of resources.
  • How to produce: selection of appropriate production techniques.
  • For whom to produce: distribution of economic products to society.

Economic Problems in the Philippines

• 4 major economic problems in the Philippines:
  • Unemployment: situation where someone of working age is not able to get a job but would like to be fully employed.
  • Poverty: closely linked to unemployment.
  • Poor infrastructure: poor essential systems and facilities.
  • Heavy dependence on remittances: the country heavily relies on money sent from abroad.

Applied Economics

• Applies economic theories to solve economic problems.
• 4 approaches to applied economics:
  • Nationalism: building a sense of patriotism and loyalty.
  • Tracing history: understanding the background of economic problems.
  • Following other footsteps: learning from other countries' experiences.
  • Fiscal policy lags: addressing delays in recognizing and solving economic problems.

Supply and Demand

• Supply: total quantity of product or services that the market can offer.
• Quantity supplied: amount of product or services suppliers are willing to supply at a given price.
• Demand: quantity of a good that is desired by buyers.
• Quantity demanded: specific amount of a product buyers are willing to buy at a given price.
• Law of demand: higher price, lower quantity demanded; lower price, higher quantity demanded.
• Law of supply: higher price, higher quantity supplied; lower price, lower quantity supplied.
• Equilibrium: when supply and demand are equal.
• Disequilibrium: when internal and external forces prevent market equilibrium from being reached.

Market Equilibrium

• Excess supply: when price is set too high, excess supply is created, and allocative resources are wasted.
• Excess demand: when price is set below the equilibrium point, excess demand is created.
• Movement: change in both price and quantity demanded.
• Shifts: changes in quantity demanded and supplied, even though price remains the same.

Market Structure

• Refers to the nature and degree of competition in the market for goods and services.
• Forms of market structure:
  • Perfect competition: many buyers and sellers, homogenous products, and free entry and exit.