Lesson 1 In Comparative Economic Planning PDF

LESSON 1 INTRODUCTION What is Economics? It is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and  Economics focuses on the actions of human beings, based on assumptions that humans...

LESSON 1 INTRODUCTION What is Economics? It is a social science concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and  Economics focuses on the actions of human beings, based on assumptions that humans act with rational behavior, seeking the most optimal level of benefit or utility. The building blocks of economics are the studies of labor and trade.  What is Labor and Trade in Economics? Are two fundamental concepts in economics and business that are closely interconnected.  Labor – refers to the human effort, both physical and mental, that is used in the production of goods and services.  It encompasses all the work that people do in various industries, from manufacturing and agriculture to services and technology.  Labor can be divided into different categories, such as skilled and unskilled labor, and it can be influenced by factors like education, experience, and working conditions.  Trade, on the other hand, involves the exchange of goods and services between people or entities. This can occur within a country (domestic trade) or between countries (international trade).  Trade allows for the specialization of production, where different regions or countries focus on producing what they do best, and then exchange those goods and services to benefit from each other's strengths.  Together, labor and trade contribute to economic growth and development.  For example, labor contributes to the production of goods and services, while trade allows those goods and services to be exchanged, leading to more efficient resource allocation and economic interaction on a broader scale.  Since there are many possible applications of human labor and many different ways to acquire resources, it is the task of economics to determine which methods yield the best results.  The basic function of economics is to study how individuals, households, organizations, and nations utilize their limited resources to achieve maximum profit.  The study of economics is divided into two parts, namely microeconomics and macroeconomics.  Microeconomics Is a branch of economics that examines the market behavior of individual consumers and organizations. It focuses on the demand and supply, pricing, and output of individual organizations.  Macroeconomics It analyzes the economy as a whole. It deals with issues related to national income, employment pattern, inflation, recession, and economic growth. NATURE OF ECONOMICS  The nature of economics deals with the question that whether economics falls into the category of science or arts. Various economists have given their arguments in favor of science while others have their reservations for arts. a. Economics as a Science To consider anything as a science, first, we should know what science is all about?  In science, facts and figures are collected and are analyzed systematically to arrive at any certain conclusion. For these attributes, economics can be considered as a science.  However, economics is treated as a social science because of the following features: It involves a systematic collection of facts and figures. Like in science, it is based on the formulation of theories and laws.  It deals with the cause and effect relationship.  These points validate that the nature of economics is correlated with science. Just as in science, various economic theories are also based on logical reasoning.  b. Economics as an Art It is said that “knowledge is science, action is art.” Economic theories are used to solve various economic problems in society.  Thus, it can be inferred that besides being a social science, economics is also an art. IMPORTANCE OF STUDYING ECONOMICS  So, why do we study economics? Studying economics is important because it provides a deeper understanding of how our world works. Here are some reasons why: 1. Understanding the Economy: Economics helps us understand how the economy of a country or the world works. It provides knowledge about the principles that drive wealth creation, as well as the causes of poverty and inequality. 2. Understanding everyday decisions: Economics helps us understand the decisions we make every day, such as spending money, saving, and choosing products and services. 3. Understanding world events: Economics provides context for world events, such as changes in prices of goods, rising unemployment, and economic crises. 4. Making better investment decisions: Economics helps us understand the risks and opportunities in investments, and helps us make better decisions in allocating our money. 5. Understanding social issues: Economics helps us understand social issues, such as poverty, inequality, and the impact of government policies on the economy. 6. Making Political and Economic Decisions: Government decisions, such as taxation and spending, are based on economic principles. Understanding economics helps citizens better comprehend and evaluate the policies and laws being implemented. 7. National Development: Economics offers ideas on how to develop a country through improvements in infrastructure, education, and business policies. 8. Understanding the Global Economy: In a globalized world, knowledge of economics is essential for understanding the interactions between economies of different countries and the impact of global events on local economies. 9. Finding Solutions to Problems: Studying economics aids in identifying and addressing issues such as food scarcity, unemployment, and other social problems. 10. Becoming a more informed citizen: Studying economics gives us the skills and knowledge we need to be more informed citizens, and to participate in discussions on politics and the economy.  In short, studying economics provides us with the tools we need to understand the world around us and make better decisions in our lives.  OTHER IMPORTANT CONCEPTS Fundamental Concepts of Economics: Scarcity: The fundamental economic problem of having seemingly unlimited human wants in a world with limited resources.  Opportunity Cost: The value of the next best alternative that is foregone when a choice is made. It represents the benefits that could have been gained from choosing an alternative option.  Supply and Demand: The forces that determine prices in a market. Market Equilibrium: A state where supply and demand are balanced, resulting in a stable price.  Elasticity: The responsiveness of one variable to another, like how much demand changes with price changes. Economic Systems: Capitalism: An economic system where private individuals own and control the means of production. Socialism: An economic system where the government owns and controls the means of production.  Communism: A political and economic ideology that aims for a classless society with common ownership of the means of production. Mixed Economy: An economy that combines elements of both capitalism and socialism. Macroeconomic Indicators: Gross Domestic Product (GDP): The total value of all goods and services produced within a country over a specific period. It is a primary indicator of a country's economic health.  Gross National Product (GNP): The total value of goods and services produced by the residents of a country, regardless of where they are located. It includes GDP plus net income from abroad.  Inflation: The rate at which the general level of prices for goods and services rises, eroding purchasing power. It is typically measured by indices like the Consumer Price Index (CPI).  Unemployment Rate: The percentage of the labor force that is jobless and actively seeking employment. It is an indicator of the health of the labor market.  Monetary Policy: The process by which a central bank manages the money supply and interest rates to influence economic activity. Tools include adjusting interest rates and conducting open market operations.  Fiscal Policy: Government decisions regarding spending and taxation that influence economic conditions. It is used to manage economic growth, control inflation, and influence unemployment.  Trade Balance: The difference between the value of a country's exports and imports. A positive balance (surplus) occurs when exports exceed imports, while a negative balance (deficit) occurs when imports exceed exports.  Interest Rate: The cost of borrowing money or the return on savings. Central banks influence interest rates to control economic activity. Exchange Rates: The value of one currency in relation to another.  Budget Deficit/Surplus: A budget deficit occurs when expenditures exceed revenues, while a surplus occurs when revenues exceed expenditures. These are key indicators of a government's fiscal health.  Capital Investment: Expenditures on assets such as machinery, buildings, and technology that are used to improve production capacity and efficiency.  Gross Margin: The difference between sales revenue and the cost of goods sold, expressed as a percentage of sales revenue. It measures how efficiently a company is producing and selling its goods.  Economic Growth: An increase in a country's output of goods and services over time, typically measured by the growth rate of GDP.  Market Structure: The organizational and competitive characteristics of a market, such as perfect competition, monopolistic competition, oligopoly, and monopoly.  Externalities: Costs or benefits of economic activities that affect third parties who did not choose to be involved in those activities. Externalities can be positive (benefits) or negative (costs).  Consumer Confidence: A measure of how optimistic consumers are about the overall state of the economy and their personal financial situation. It can influence consumer spending and economic activity.