Introduction to Economics

• Economics originates from the Greek words "oikanomia" or "oikonomus," signifying household management.
• Economics studies rational human behavior in fulfilling needs and wants, explaining economic operations and consumer efforts to maximize wants within limited needs.
• Economics studies the allocation of scarce resources to fulfill unlimited wants.
• Economics is the efficient allocation of scarce production means and the management of scarce resources.

The Three E's of Economics

• Efficiency involves the productivity and allocation of economic resources and the relationship between factor input and output.

• These funds can be used to buy the necessary goods and equipment that will aid the government officials in helping the affected families – i.e., boats, life-vest, relief goods, clothing, etc.

• Effectiveness is the attainment of goals and objectives.

• Examples include the government properly allocating the capital (monetary resources and capital goods), manpower, and available locations so they can bring the affected families to safety.

• Equity refers to justice and fairness, such as everyone receiving sufficient help.

• Economics as a Social Science aims to explain human behavior using the scientific method to address issues arising from human interactions.

• Economics studies how people make decisions to satisfy unlimited wants by allocating limited resources.

• Macroeconomics studies the economic behavior of the economy as a whole, focusing on the aggregate flow of goods and resources.

• It examines the causes of change in the flow of money, movement of goods and services, and resource use; it is also known as the analysis of employment and income.

• Topics include gross national product, employment level, national income, gross domestic product, general price level, and economic growth and development.

• Microeconomics studies economic behavior in specific markets, focusing on individual economic choices and how markets coordinate decisions.

• It concentrates on individual entities, product movement, and resource flow, and is known as the Price Theory, which concerns pricing.

• Topics include principles and elasticity of demand and supply, individual decision-making, and firm's costs and outputs.

Basic Decision Problems

• Consumption is a daily problem where people decide on products and services to use based on their wants.
• Production involves producers determining consumer needs and deciding how to distribute resources.
• Distribution is primarily addressed by the government to ensure appropriate allocation of resources benefiting all members of society.
• Growth over Time entails societies addressing problems of choice, consumption, production, and distribution in the context of future effects.

Tools of Economics

• Logic deals with sound thinking and reasoning, which requires facts and evidence.
• Mathematics deals with numbers and operations, helping economists solve concrete numerical problems.
• Statistics involves the analysis and interpretation of numerical data to validate specific hypotheses.

Economic/Production Resources

• Economic/production resources are inputs used to produce goods and services.
• Land is a fixed, finite resource provided by nature; rent is paid to landowners.
• Labor is the effort exerted by individuals, with supply depending on population growth and willingness to work; salary or wage is paid for labor.
• Labor is also known as human resources and reflects the human capital to turn raw materials into consumer products and services.
• Capital consists of man-made goods used in production and serves as a medium of exchange; interest is earned by the capital owner.
• Capital signifies monetary resources and physical assets and depends on the savings level.
• Entrepreneurship is an economic activity where an entrepreneur organizes, manages, and assumes business risks.
• Foreign Exchange includes the dollar and dollar reserves for international trade.

Opportunity Cost

• Scarcity occurs when insufficient productive resources cannot satisfy unlimited wants, creating a resource allocation dilemma.
• Opportunity cost is the value of the best alternative given up when making a choice.
• Relative price is how opportunity cost is perceived; the price of one item is relative to another item's price.
• "There is no such thing as a free lunch (TINSTAAFL)" explains that decision-making involves trade-offs and opportunity costs, as nothing is truly free.
• Examples include society paying the indirect costs for "free" gifts or shouldering responsibility for pollution.

Positive and Normative Economics

• Positive Economics considers economic conditions "as they are" using objective and scientific explanations.
• Examples include statements about the unemployment rate and the economy experiencing a slowdown.
• Normative Economics judges economic conditions "as these should be," focusing on policymaking to achieve ideal situations.
• Examples include statements on political reforms and releasing a stimulus package.

Ceteris Paribus Assumption

• Ceteris Paribus means "all other things held constant" when analyzing the relationship between two variables.
• Economic analysis may not consider all factors, so economists use Ceteris Paribus to simplify complex situations.
• Applied Science applies scientific knowledge to develop practical solutions.
• Applied Economics studies how economics relates to real-life situations by observing how theories work in practice.

Applied Economics

• Applied Economics is the application of economic theory and econometrics to analyze potential outcomes.
• Economic Theory (Economic Model) simplifies economic reality to make predictions.
• Econometrics applies statistical and mathematical theories to economics for testing hypotheses and future trends.
• Applied Economics is the application of economic theory and econometrics to analyze potential outcomes.
• It provides a powerful tool to unfold the real picture and determine actions, enhances the current economic situation, and teaches lessons to prevent or mitigate negative situations.

Economic Systems

• Economic System resolves questions of what, how, and for whom, reflecting how society responds to basic economic questions.
• Differentiation standards are the owner/s of resources, the decision-making process, and the incentives for economic decision-makers.
• Pure Market Economy has private firms accounting for all production and is known as the free market economy.
• Pure Command Economy has all resources government-owned, and central plans direct production.
• Mixed Economy mixes central planning with competitive markets and avoids issues with capitalism and socialist economies.
• Transitional Economy shifts from central planning to competitive markets.
• Traditional Economy is shaped by custom or religion, with decisions based on traditions and practices.

Basic Economic Problems

• Scarcity causes economic problems where people cannot have all the products and services they want.
• Individuals must answer basic economic questions to solve scarcity and guide decision-making.
• What to produce and How Much factors include the availability of resources, the physical environment, and people's customs and traditions.
• Society decides the quantity and quality of products and services to avoid overproduction and underproduction.
• How to Produce focuses on the quality of production first and corresponds to the combination of resources and technology used.
• For Whom to Produce identifies the individuals or sectors that demand goods, and economists identify the target market.
• The production system is considered inefficient if resources are not utilized.
• A universal goal is to attain growth in productive capacity, which allows for improved living standards if population growth is not excessive.

Applied Economics in the Philippines

• Applied economic principles help tackle the country's economic problems.
• Understanding scarcity helps optimize the use of limited resources.
• Understanding economic theories helps analyze prices and determine government actions to lower them.
• The poverty level is expected to rise, with an estimated increase of Filipinos falling into poverty.
• Employment, Unemployment, and Underemployment have been affected by the ECQ, cutting off income sources.
• Population Growth shows a steady increase in the population from 2015 to 2019.
• People prefer maximizing satisfaction for the prices they pay when purchasing.
• Applying economic theories involves data analyses and economic problem assessments to assist policymakers in decision-making, which will create solutions for specific problems.