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Principles of

Economics
Learning Units
 Introduction  National Income
 Nature of Economics Accountancy
 Methods and tools of  Business cycles,
Economic study unemployment and
 Economic Resources, inflation
Economic Sectors, Basic  Monetary and Fiscal
Economic Problems Policies
 Economic Systems  International Trade
 Concepts of demand and  Economics Growth and
supply Development
 Circular flow of Economic  Special Topic
Activities
Economics
 Economics is a social science concerned with
the production, distribution, exchange and
consumption of goods and services.
 Greek word “Oikonomia”=househols
management.
 Economics is the proper allocation and
efficient use of available resources for the
maximum satisfaction of human wants.
Proper allocation = budget
Scarcity = not enough
Related Subject
 Sociology – about daily living, budgeting
 Political Science – government policies
 History – study of past events
 Geography – study of location and land
 Physics – it provides machines and
electricity
 Religion – beliefs of certain groups
Definition of Terms
 Scarcity - When there is not enough
resources to meet the needs of everyone
who want to use it.
 Goods – tangible; anything which yields
satisfaction to anyone.
 Tangible – direct (material things)
 Intangible – form of service
 Services – yields of satisfaction intangible.
Methods of economics
 Empirical Method - scientific methods in
gathering data, analyzing and making
conclusions. (generalization)
 Economic Principles – are generalizations
 Ceteris Paribus – which means “another
things being equal” or “constants”; all other
things are equal or constant.
Two Divisions of
Economics
 Microeconomic – deals with the economic
behavior of individual units such as the
consumers, firm and the owner of factor of
production.
 Macroeconomic – deals with the economic
behavior of the economy or its aggregates
such as government business and
households.
Two Types of Goods
 Luxury – goods which you can live without
them (wants)
 Cell phones
 Essential – goods which you cannot live
without them (needs)
 Food
 Clothing
 Shelter
Basic Tools in
Production
 Land – consists of God-given natural
resources.
 Soil
 Water
 Air
 Food supply
 Fuel
 Raw materials
 It may also be the space or manmade structure
where a factory is built.
 Labor – the people who work for the
production of goods and services for the
community.
 Ordinary workers in farms
 Factories
 Offices
 Schools
 Capital – the material things used to produce
goods and services. (man made goods)
 It can be money or other goods which multiply into
new goods and services.
 Money
 Building
 Machineries
 Management – anyone who performs
the role of the organization is the manager-
entrepreneur. (entrepreneur)
 Government – where the goods and
services are produced.
Three Economic
Problems
 What are the goods and services to produce
and how much to produce
 How to produce the goods and services
 For whom are the goods and services
(distribution)
Two Types on How to
Produce

 Manual – unemployment
 Machine – quality and quantity
History of Economics
 1776 – Adam Smith (Wealth of Nation)
 Adam Smith – Father of Modern Economics
Economic System
 Economic System - set of economic
institution that dominates a given economy
 Institution – a set of rules of conduct
objective solve economic problems.
 Goal – give satisfaction to consumers and
promote high standard of living.
Economic System
Models
 Capitalism – owned and managed by private
individuals
 Market economy Laissez
 Free enterprise Faire
 Economic freedom – presence of religion
 Profit motive
 Free competition – private property
 No government – laissez faire
 Communism – the factor of production
and distribution are owned and manage by
the state.
 State – refers to the government
 Command economy and classless society
 Classless society
 No economic freedom
 No profit motive
 No free competition
 No private property
 Socialism – combination of capitalism and
communism.
 Transportation = LRT, MRT
 Electrification = NPC, Meralco, cooperatives
 Water = Maynilad, MWSS
 Food
 Clothing Private
 Services
Concepts of Demand &
Supply
 Market – interaction of different people.
 Interaction between buyers and sellers.
 Interaction of different people for trading and
exchange of goods.
Three Types of Market
 Good market
 Wet market – fish, meat
 Dry market – vegetables, rice and grocery
 Labor market – employee and employer,
involves services
 Workers offer services and employer will look for
workers to hire.
 Stock market – stock or securities of
corporation or market able security.
Three Basic Market
Models
 Perfect or Pure Competition
 A large number of independent sellers.
 Identical products.
 East for new firms or sellers to enter the market
and easy to leave the market.
 No single seller or no single buyers can influence
the change on market price of a product.
 There is no non price competition like advertising,
promotion and packaging.
 Pure Monopoly
 Single seller or producer
 Unique goods or service
 Ajinomoto – vetsin
 Meralco – electricity
 MWSS - water
 Difficult to enter the market (hindrance)
 Monopolist dictates the price
 There maybe or no extensive advertising or sales
promotion; no effort for advertisement.
 Natural monopolies – electricity and water.
 Monopolistic Competition
 Relatively large number of producers or sellers.
 Products are differentiated with location, services,
packaging, credit condition, advertising, quality,
physical features.
 There is limited control of the, market price
 Fuel and Oil companies
 Relatively easy to enter the market
 There is an aggressive non price competition.
 Oligopoly – there is a leader who
dictates the price.
 Few sellers/firms that dominate the market.
 Product are identical or they are differentiated.
 Price agreement among the producers to protect
their own products.
 Strong promotion and advertising techniques
used among those who produce different product.
 Petroleum products
 Difficult to enter the market
 San Miguel Beer – Cojuangco
 Beer na Beer – Lucio Tan