micro 1.pdf

BM2205 FUNDAMENTAL CONCEPTS OF MICROECONOMICS Definition of Economics Economics is a social science that deals with the study of human decisions and activities in...

BM2205 FUNDAMENTAL CONCEPTS OF MICROECONOMICS Definition of Economics Economics is a social science that deals with the study of human decisions and activities in the face of scarce resources. Since it is a science, it involves systematic structure and knowledge based on pieces of evidence verified by observation and in-depth studies. A nation’s economy covers all activities related to production, consumption, and trade of goods and services. The two (2) attributes of the economy are the infinite wants of people and the scarcity of resources. Scarcity: It is the gap between the limitless wants of people and the limited (scarce) resources. When human wants have exceeded the available resources, there is scarcity. Resources: These include land, labor, capital, natural resources, and entrepreneurial skills. These are all necessary to produce goods and services needed for daily living. Importance of Studying Economics Economics provides information about the systems and frameworks that can help analyze multifaceted societal interactions (i.e., consumers and firms). It helps people make decisions and actions based on the observed and proven dynamics of supply and demand, scarcity, etc. o Farmers can identify what crops to produce. o Poultry farmers can recognize which animals to breed. It can aid in the proper allocation and efficient consumption of limited resources. o Government can decide which departments would need bigger budget allocation. o Households can make decisions about where they could spend their money. It can provide ways to identify business opportunities. o Firms can determine consumer wants, giving them ideas on innovating their goods or service offerings. o Firms can also align their pricing based on the buying behavior of consumers. Microeconomics and Macroeconomics Microeconomics Macroeconomics It deals with the choices made by individual agents It focuses on the preferences and operation of the in the economy in the context of scarcity. whole economy. Example: The farmers are concerned with Example: The Department of Agriculture (DA) determining what price they would sell their crops. measures the production performance in agriculture of the country. It is also called price theory since its discussion It is also called income theory because it focuses on focuses on the effects of the dynamics of economic the national income of an economy and how it is components on the prices of goods and services. affected by various factors. The government’s role involves protecting society’s The government takes an active role in managing welfare and providing a public good. economic activities to achieve overall economic goals. It has a narrow scope. Topics include household, It involves a vast array of topics. Topics are related products to produce, the volume of production, to the level of economic activity, production number of workers to be hired, etc. performance of the country, and factors causing economic speed up or slowing down. 01 Handout 1 *Property of STI  [email protected] Page 1 of 2  BM2205 Though they have distinctions, microeconomics and macroeconomics are still interrelated. Microeconomic activities have direct effects on macroeconomic results. For example, gross domestic product (GDP) is largely influenced by the activities and behavior of producers and consumers. GDP is a macroeconomic issue, while consumer and producer behavior is an important area of microeconomics. Also, if there had been a wrong decision made on the macroeconomic level, it would negatively affect individual economic agents. In another sense, a positive outcome at the microeconomic level may adversely affect the macroeconomic environment. Take for example, an increase in employees' salary has a direct positive effect on the labor group at the microeconomic level. Still, a wage hike can have an opposing effect on the macroeconomic level. As the salary rises, the producers would incur additional costs passing it on to the prices of goods and services, harming the national level in the form of inflation. Economics versus Agricultural Economics Economics encompasses vast concepts of human behavior and scarcity. It is a general study of broad economic issues. As discussed earlier, economics is divided into two (2) fields: microeconomics and macroeconomics. However, it has another field specializing in applying economic principles, theories, and concepts to real situations to project possible outcomes; this is called applied economics. Applied economics is further divided into several fields such as demographic economics, business economics, education economics, health economics, and agricultural economics. Agricultural economics is also called agricultural production economics or, simply, agronomics. It takes economic principles, theories, concepts, and tools in an application specific to farming. The role of agricultural economics involves maximizing crop production and rearing livestock for trading for economic development. Agricultural economics uses both microeconomic and macroeconomic concepts to solve problems concerning agriculture. At the microeconomic level, it can be noted that it involves topics related to production functions and factors of production (i.e., labor, capital, and natural resources). It also deals with consumer behavior on agricultural produce and market power. At the macroeconomic level, it discusses the methods and policies that would aid the economic growth in agriculture. This also aims to develop ways to support and protect the farmers. References: Apun, M., Bidaswa, C., & Kirikkanat, M. (2014). The problem with rice. https://www.rappler.com/move- ph/issues/hunger/commentaries/73333-problem-rice-shortage-philippines. Boundless. (2016). The study of economics. https://courses.lumenlearning.com/boundless- economics/chapter/the-study-of-economics/ Cruz, M. A. (2017). Business economics. Mandaluyong City: Anvil Publishing, Inc. EDUCBA. (2014). Macroeconomics vs Microeconomics – Top 5 Differences [Infographics]. https://www.educba.com/macroeconomics-vs-microeconomics/. Greenlaw, S.A., & Taylor, T. (2017). Principles of microeconomics. https://openstax.org/details/books/principles-microeconomics. Investopedia. (2018). Scarcity. https://www.investopedia.com/terms/n/nonrenewableresource.asp. Market Business News. (2018). Applied Economics – Definition and Meaning. http://marketbusinessnews.com/financial-glossary/applied-economics/ 01 Handout 1 *Property of STI  [email protected] Page 2 of 2