Chapter 1- Introduction to Economics PDF

Chapter 1- Introduction to Economics Definition Economics: The study of how society chooses to allocate its scarce resources in order to satisfy unlimited wants. the branch of knowledge concerned with the production, consumption, and transfer of wealth. Greek word of economics - 'Oikos'...

Chapter 1- Introduction to Economics Definition Economics: The study of how society chooses to allocate its scarce resources in order to satisfy unlimited wants. the branch of knowledge concerned with the production, consumption, and transfer of wealth. Greek word of economics - 'Oikos' means household and 'Nomous' means management. OIKONOMIA referred to "household management" Chapter 1- Introduction to Economics Definition Economics is the scientific study of the ownership, use, and exchange of scarce resources – often shortened to the science of scarcity. Economics attempts to explain economic behaviour, which arises when scarce resources are exchanged. Chapter 1- Introduction to Economics Adam Smith: Scottish Economist (1723-1790) The Invisible Hand Theory “It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest Chapter 1- Introduction to Economics Definition Basic Economic Concepts Scarcity Unlimited Human wants and needs Economic Resources and Factors of Production Chapter 1- Introduction to Economics Definition Scarcity is the limited availability of a commodity, which may be in demand in the market or by the commons. Scarcity also includes an individual's lack of resources to buy commodities. The opposite of scarcity is abundance. Chapter 1- Introduction to Economics Unlimited Human wants and needs A basic condition of human existence which means that people are never totally satisfied with the quantity and variety of goods and services the consume. It means that people never get enough, that there's always something else that they would want or need. Chapter 1- Introduction to Economics Definition Unlimited Human wants and needs Needs Essential for human survival. Needs are best thought of as physiological or biological requirements for maintaining life, such as the need for air, water, food, shelter, and sleep. Chapter 1- Introduction to Economics The Basis of Human Wants Hierarchy of needs 1. Physiological needs 2. Safety needs 3. Social needs 4. Esteem 5. Self-actualization Chapter 1- Introduction to Economics Hierarchy of needs 1. Physiological needs – refers to the needs associated with our basic bodily functions. 2. Safety needs – involve protection against danger, threat and deprivation. 3. Social needs – include the need of acceptance, association, belongings, and giving and receiving of love and friendship. Chapter 1- Introduction to Economics Hierarchy of needs 4. Need for esteem – involves our self- confidence, feeling for authority and independence, status and recognition, and respect. 5. Self-actualization or self-fulfilment – realizing our own potential. Chapter 1- Introduction to Economics Definition Unlimited Human wants and needs Wants Those that are desired but not essential for survival. Three categories of Wants 1. Personal factors – includes sex, race, age, and other demographic factors 2. Psychological factors – involve a person’s motivation, perception, ability and knowledge, attitude, personality and lifestyle. 3. Social factors – include roles and family influences, social class and culture. Chapter 1- Introduction to Economics Definition Chapter 1- Introduction to Economics Scarce Economic Resources Factors of Production (FOP): The resources used to create goods and services Land: Any natural resource provided by nature. Labor: The mental and physical capacity of workers to produce goods and services. Capital: Any physical man-made good used to produce other goods. Entrepreneurship: Vision, skills, and risk-taking needed to create and run a business. Chapter 1- Introduction to Economics Definition Economic Resources and Factors of Production Land refers to all natural resources that exists without man interventions. It encompasses all things derived from the forces of nature such, as air, forests, vegetation, and minerals. Chapter 1- Introduction to Economics Definition Economic Resources and Factors of Production Labor refers to human inputs such as manpower skills that are used in transforming resources into different products that meet our needs. The mental and physical capacity of workers to produce goods and services. Chapter 1- Introduction to Economics Definition Economic Resources and Factors of Production Capital man-made factor of production used to create another product. Chapter 1- Introduction to Economics Definition Economic Resources and Factors of Production Entrepreneurship is the creation or extraction of value. With this definition, entrepreneurship is viewed as change, which may include other values than simply economic ones. Vision, skills, and risk- taking needed to create and run a business. Chapter 1- Introduction to Economics Definition Economic Resources and Factors of Production Entrepreneur a person who organizes and operates a business or businesses, taking on greater than normal financial risks in order to do so. Chapter 1- Introduction to Economics Problem of Scarcity Scarcity: The condition in which human wants are forever greater than the available supply of time, goods, and resources. 3 Economic Questions What will be Produced? How will it be Produced? For whom will it be produced? Chapter 1- Introduction to Economics Problem of Scarcity 3 Economic Questions What will be Produced? – Prioritize goods which we deem to be the most important. How much to Produced? – Product should be identified due to the limited resources. How will it be Produced? – Technique and machineries should be used identified. For whom will it be produced? – Since the resources are scarce, the economy has to decide for whom it will produce goods. The goods are produced according to the paying capacity of the people. Chapter 1- Introduction to Economics BUSINESS - an organization or enterprising entity engaged in commercial, industrial, or professional activities. Here are some of the things that consumer bring in view of the business. 1.They create demand. 2.Their consumption leads to create additional jobs. 3.They are source of information for product’s development and/or innovation. Chapter 1- Introduction to Economics Basic Types of Business Activities Manufacturing is defined as the creation of new products, either from raw materials or components. Merchandising businesses are companies that buy products and then resell them to end consumers. Service companies primarily sell services rather than tangible goods. Chapter 1- Introduction to Economics Chapter 1- Introduction to Economics Definition Types of Economics Microeconomics: Branch of economics that studies decision-making by a single individual, household, firm, industry or level of government. Macroeconomics: Branch of economics that studies decision-making for the economy as a whole. Chapter 1- Introduction to Economics Economic Systems is a means by which societies or governments organize and distribute available resources, services, and goods across a geographic region or country. Economic systems regulate the factors of production, including land, capital, labor. Chapter 1- Introduction to Economics Three (3) Economic Systems Market Economic System Command Economic System Mixed Economic System Chapter 1- Introduction to Economics Market Economic System is where all economic resources are owned by private entities. It propose the following answers to economic questions. 1. product goods that yield high profits 2. produce at maximum costs 3. distribute the goods who can afford to buy them Chapter 1- Introduction to Economics Command Economic System is where all resources owned by the government. The question “what to produce'' is answered by producing more public goods like roads, schools, hospitals The question ''how to produce'' is answered by employing all possible laborers and using available machinery and equipment. Answer the final question, by producing to the public. Chapter 1- Introduction to Economics Mixed Economic System is where all questions are answered by both the government and private entities in consideration of their mutual benefits. Chapter 1- Introduction to Economics Opportunity Cost and Trade-off One of the evident of scarcity if Opportunity Cost. Opportunity cost refers to the giving up an alternative by selecting the second-best choice. Example: Buying can of soda (fruit juice or mineral water) Chapter 1- Introduction to Economics Opportunity Cost and Trade-off Trade off result in either the satisfaction needs or a failure to meet the needs. Example: Buying can of soda Chapter 1- Introduction to Economics Economic Development Economic Development is the creation of wealth from which community benefits are realized. It is more than a jobs program, it's an investment in growing your economy and enhancing the prosperity and quality of life for all residents. Economic development means different things to different people Chapter 1- Introduction to Economics Economic Development Economic Development is the sustained elevation of an entire society and social system toward a better and more human life. Development defined by the following core values: Sustenance Self-esteem Freedom Chapter 1- Introduction to Economics Economic Development Sustenance, refers to ensuring that society is able to provide for basic needs like food, shelter, health and protection. Self-esteem, refers to self-respect, reputation, pride and acknowledgement. Freedom, involves providing for a wide variety of choices for societies as well as maximize in external limitations. (Political freedom, extended leisure, ability to acquire more goods and services.) Chapter 1- Introduction to Economics Aspect pf Economics study and Analysis Positive Economics Normative Economics Chapter 1- Introduction to Economics Aspect of Economics study and Analysis Positive Economics, principle in economic analysis which describes what exist and how things work. It focuses on facts and cause-and-effect behavioural relationships and includes the development and testing of economic theories. Chapter 1- Introduction to Economics Aspect of Economics study and Analysis Normative Economics, focuses on the outcome of economic behaviour, evaluates and makes judgements, and proposes courses of action. is a part of economics whose objective is fairness or what the outcome of the economy or goals of public policy ought to be. Economists commonly prefer to distinguish normative economics from positive economics Chapter 1- Introduction to Economics Chapter 1- Introduction to Economics Theories and Model A good theory is simple enough to be understood, while complex enough to capture the key features of the object or situation being studied. Explain certain phenomenon, deemed scientifically acceptable. Theories are scientifically acceptable explanations of the events happening. A model is more applied or empirical representation, describe how the variables are related. Models are usually in forms of graph, diagram or mathematical formulae.