Economics.pdf

Economics - Social science that deals with the proper allocation of scarce resources for the production of goods and services to satisfy unlimited wants and needs. UNDERSTANDING ECONOMICS Wealth - Economics is all about wealth and how this wealth is being used by individuals and society at large f...

Economics - Social science that deals with the proper allocation of scarce resources for the production of goods and services to satisfy unlimited wants and needs. UNDERSTANDING ECONOMICS Wealth - Economics is all about wealth and how this wealth is being used by individuals and society at large for material survival, stability and development. Decision-making - We make decisions and these decisions are based on alternative choices. Allocation - The study of allocation of limited resources to answer unlimited human wants. SCARCITY - Refers to the state of being short on resources in order to satisfy the limitless needs and desires of a citizen. NEED - It is something that you must have in order to survive. For example, basic needs like air, food, water, shelter, sleep etc. WANT - It is something that we desire but unimportant in daily life, an extension of our needs. For example, mobile phone, laptop, jewelries, car etc. OPPORTUNITY COST - Refers to the foregone benefit or value that would have been obtained by choosing an alternative over another. RESOURCES - Products of nature, qualities of individuals and man-made things which are used in producing goods or services Three types of Resources/Wealth LABOR - Physical and human effort exerted to be used in making the product or providing services. CAPITAL - Consists of human-created assets utilized in producing commodities LAND - Refers to the real estate and property, comprises of geographic area. Resources are LIMITED. Limited in the sense of length of time and difficulties in production. This limitation is further intensified by the competition for their use. Proper use of resources implies the need to maximize the benefits from these resources and minimize its corresponding opportunity costs. SHORTAGE - A condition when the supply of a good, service or resource is not enough to meet the demand. Similar to scarcity. SURPLUS - Amount supplied is greater than the amount demanded. Similar to wastage. WAYS TO TREAT THE PROBLEM OF SCARCITY 1. Temper the expansion of human wants in the light of limited resources. 2. Hasten the expansion and production of limited resources available. 3. Combination of the two alternatives: tempering human wants and hastening expansion. The fundamental problem in economics is the satisfaction of limitless wants and needs and dealing with the scarce resources. Because of scarcity, there will be constant opportunity costs where we forego benefits when choosing one alternative. THREE BASIC ECONOMIC QUESTIONS What to Produce? Society should arrive to a decision on the kinds of products to be created. How to Produce? Refers to selection of techniques that will be employed by the society to create products and services. For Whom to Produce? Refers to the target market of society as to who will buy or use the goods and services. ECONOMIC SYSTEM This is how the society responds to the basic economic problems. There are three (3) main economic systems: Traditional, Market, and Command. TRADITIONAL ECONOMY Normally observed and practiced in indigenous communities. A system where decision relies on conventions, observances, history and practice of beliefs. Tradition is the model in executing economic choices including manners or methods on producing, allocating and distributing products like goods and services. MARKET ECONOMY Most commonly seen in capitalist states.  This is the kind of system where the choices on what to produce, how to produce or whom to produce is weigh on the shoulders of the consumers and producers. The basic economic problems are answered by making a decision that is in accordance to the workings of demand and supply. COMMAND ECONOMY Often used in totalitarian and socialist states. The state or agency of government maybe in charge in the allocation of resources by using its political power in answering the basic economic problems. Sometimes the government declares authoritative system in times of calamities, disasters, or national emergencies