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Lesson 1: Economics as a Social Science 3. SICAT - Economics is a scientific study

which deals with how individuals and
ECONOMICS society make general choices
● Study of what constitutes rational 4. WEBSTER - Economics branch of
human behavior in the endeavor to knowledge that deals with production,
fulfill needs and wants distribution and consumption of goods and
● Understanding how society allocates services
its scarce resources 5. MARSHALL - Economics studies about
● Almost always, human activities wealth getting and wealth using activities of
involve economics man.

ECONOMIC ACTIVITIES
● Earning money
● Buying goods and services
● Depositing and withdrawing money
in bank

SCIENCE - it collects scientific data; it is

“If you are born poor it's not your fault. But if
based on the formulation of theories and
you die poor it's your fault.” - Bill Gates
law
SOCIAL SCIENCE - study of societies and
the relationships among individuals within
Economics From Different Perspective
those societies.
ECONOMICS - is the study of how people
1. FAJARDO - Economics is the proper
use their scarce resources to satisfy their
allocation and efficient use of available
unlimited wants.
resources for the maximum satisfaction of
human wants
2. NORDHAUS - Economics – is the
science of choice. It studies how people
choose to use scarce resources to produce
various commodities
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ECONOMICS is the study of how people THE ESSENCE OF STUDYING

use their scarce resources to satisfy their ECONOMICS
unlimited wants.
1. To understand the world better
● Applying the tools of economics can
help you understand global and
cataclysmic events such as war,
famines, epidemics and depression.

2. To gain self-confidence and become wise

decision maker
● Mastery of economics

MACROECONOMICS
● Deals with the economic behavior of
the whole economy or its aggregates
(composed of individual units)
● Aggregates business, government
and households
● Discusses the following:
(1) Gross National Product
(2) Level of Employment
(3) National Income
(4) General level of prices
● “EMPLOYMENT and INCOME
ANALYSIS”

MICROECONOMICS
● Deals with the economic behavior of
individual units such as: consumer,
firms, landowners
● Discusses the following:
(1) Price of rice
(2) Numbers of workers in a
certain firm
(3) Income of Mr. Fu
(4) Expenditures of PLDT
● “PRICE THEORY”
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Lesson 2: The Economic Problem LESSON 4: Productive Resources

ECONOMICS IS EVERYWHERE PRODUCTIVE RESOURCES - It is also

called factors of production, inputs, or
What is the Economic Problem? simply resources, sort into three broad
categories:
SCARCITY - exists when the economy are
not enough to meet the wants or needs of 1. Human Resources
people or the society. ● are people who work to produce a
good or service. Examples of human
TYPES OF SCARCITY resources are a truck driver,
plumber, teacher and nurse.
1. Physical Scarcity - When resources ● LABOR = the effort the human
needed to satisfy wants and needs are not contribute
available ● ENTREPRENEURSHIP = combines
land, labor and capital in new ways
2. Physiological Scarcity - When resources
are available but cannot be used by the 2. Natural resources
person or entity to satisfy their wants or ● are things that occur naturally in the
needs. world and can be used to produce a
good or service. These resources
POINTS TO REMEMBER: To attain wants are gifts of nature and are present
and needs, people must make use of wise without human intervention.
economic decisions to prevent SCARCITY. ● We can classify our resources as
This can only be achieved by a renewable and non renewable.
comprehensive understanding of the basic ● RENEWABLE = air, water, trees,
principles of ECONOMICS. plant
● NON-RENEWABLE = minerals, oils,
gas, energy
Lesson 3: GOODS AND SERVICES
3. Capital Resources
GOODS - are items that you can see, feel ● are goods produced and used to
and touch that require scarce resources to make other goods and services.
produce and satisfy human wants. Examples of capital resources are
an office building, computer, oven,
TYPES OF GOODS and wrench

1. Free Goods - Goods that has no

opportunity cost “There is no such thing as a free lunch.”
2. Private Goods - a product produced by a
privately owned business and purchased to There is no free lunch in economics, which
increase the utility, or satisfaction, of the means that everything comes with a price.
buyer. The price may not always be money. If you
3. Public Goods - it refers to a commodity get something for free, there is a cost that
that is made available to all members of a has to be paid somewhere in the wider
society. Paid by the government. economic system.

SERVICES - something not physical that

requires scarce resources to produce and
satisfy human wants.
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LESSON 5: Economic Theory MAJOR ASSUMPTIONS IN ECONOMICS

1. Rationality - Economists assume that

ECONOMIC THEORY - A simplification of individuals act in a logical and predictable
economic reality used to make predictions manner and pursue goals which will benefit
about the real world. them.

Goal of Economic Theory - To make Rational Self Interest

predictions for the real world. ● Why do people start their own
businesses?
GOAL OF ECONOMIC THEORY ● Why do companies donate to
charities?
1. Explain how interactions arise and create ● Why do you think companies give
costs and benefits bonuses instead of salary
● Economists try to explain the effects, increases?
or results, of economic transactions. ● Why do banks like to lend money?
11
2. Propose hypotheses, construct, and 2. Profit MAximization - It means you try to
apply ‘models’ to test these hypotheses. maximize the expected benefit achieved
● Like all scientists, economists with a given cost or to minimize the
develop hypotheses to why expected cost of achieving a given benefit.
economic behavior takes place, and
then construct models to test these 3. Perfect Information - In most markets, it is
hypotheses. assumed that consumers and producers
have complete and accurate information
3. Gather data and come up with a Theory about products, services, prices, utility,
● Theory must be tested against the quality, and production methods. This
real world, which means gathering assumption enables economists to study
statistical data about real events. In market processes and effects of policies on
this way, a model can be improved markets more accurately.
and revised when necessary.
4. Ceteris Paribus - Latin phrase which
4. Predict behavior based on these theories. means “all things being equal” or “other
● The ultimate goal of the economist is things held constant”, refers to the
to predict future behavior. assumption which controls the effects of
other variables apart from those that are
being analyzed in the study.
SIMPLIFY THE PROBLEM - A good theory
is simple enough to be understood. The
more detailed a theory gets, the more FALLACIES IN ECONOMICS
confusing it becomes, and the less useful it
may seem. 1. Failure to hold things constant under
ceteris paribus
Simplify Assumption - Assumptions aid us ● This is an error in analysis
in better understanding economic issues committed when aN individual
and make sense of the behavior of considers other extraneous variables
individuals, groups and institutions in an in studying an economic
economy. phenomenon. This results in invalid
conclusions since they are no longer
in keeping with the economic theory
or model being considered.
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2. Post hoc fallacy LESSON 6: Marginal Analysis

● This fallacy relates to the Latin
phrase post hoc ergo propter hoc MARGINAL
which describes how people make ● Incremental, additional, extra or one
the mistaken notion that since a more
change happened after an event, ● refers to a change in economic
then such change was caused by variable, or a change in the status
the event that came before it. quo.
● “Everytime I wash my car, it rains the
following day. Therefore, washing MARGINAL BENEFIT
my car caused the rain to come ● maximum amount a consumer is
down willing to pay for an additional good
● “After a black cat crossed my path, I or service.
failed my math test. That cat caused ● It is also the additional satisfaction or
me to fail” utility

3. Fallacy of composition MARGINAL COST

● This fallacy occurs when one ● the cost added by producing one
considers a trait of one part or additional unit of a product or
aspect of something as true and service.
applicable for the whole.
● Paradox Thrift: During an economic
recession, if everyone starts saving, MARGINAL ANALYSIS is an examination
the aggregate savings will reduce of the additional benefits of an activity
● One standing: If I stand, I can stand compared to the additional costs incurred by
better; All standing: If we all stand, that same activity. Companies use marginal
we can all see better analysis as a decision-making tool to help
11them maximize their potential profits.
4. Sweeping Generalization
● This fallacy refers to a statement Examples:
that oversimplifies a specific ★ Deciding whether to hire new
scenario presenting it as a general employees.
rule. ★ A company must decide whether to
add a new line of products.
★ Deciding whether to find side hustle.
POSITIVE ECONOMICS - seeks to ★ When you decide to go out to eat at
understand behavior without making an eat-all you can consider the cost
judgements of the outcome; it is measurable and benefit of that decision.
and can be proved.

Example: Law of Diminishing Marginal Utility

Does a currency devaluation fuel inflation? ● The law of diminishing marginal
Are oil prices contributing to a GDP utility states that all else equal, as
slowdown? consumption increases, the marginal
utility derived from each additional
NORMATIVE STATEMENTS - Analyzes unit declines.
outcomes of economic behavior, evaluates
them as good and bad, and sometimes
prescribes a course of action; it cannot be
measured or proved.

Example:
Higher education should be FREE.
We must try to boost disposable income.
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LESSON 7: Productive efficiency (or production

efficiency)
ECONOMIC EFFICIENCY is a state where ● is a situation in which the economy
every resource is allocated optimally so that or an economic system could not
each person is served in the best possible produce any more of one good
way. without sacrificing production of
another good and without improving
the production technology.
● means that, given the available
inputs and technology, it’s
impossible to produce more of one
good without decreasing the quantity
of another good that’s produced.
EQUALITY - resources are allocated
equally and everyone gets the same share PRODUCTION POSSIBILITY FRONTIER
● a curve that illustrates the variations
EFFICIENCY - resources are allocated in the amounts that can be produced
optimally and we have generated as much of two products if both depend upon
11satisfaction as possible the same finite resource for their
manufacture.
TRADE OFF - giving up of one thing in ● the point at which a country’s
return to another economy is most efficiently
producing its various goods and
services and, therefore, allocating its
resources in the best way possible.

PRODUCTION EFFICIENCY - the optimal

method of producing goods at the lowest
cost

ALLOCATIVE EFFICIENCY - the optimal

distribution of scarce resources
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LESSON 7: Absolute vs Comparative

COMPARATIVE ADVANTAGE
ABSOLUTE ADVANTAGE ● an economy's ability to produce a
● is where a nation is more efficient at particular good or service at a lower
making a product than another. In opportunity cost than its trading
other words, it requires fewer partners.
resources to make a final good or ● In his book On the Principles of
service. Political Economy and Taxation,
● The concept of absolute advantage David Ricardo argued that even if a
was developed by 18th-century country has an absolute advantage
economist Adam Smith in his book over trading many kinds of goods, it
The Wealth of Nations to show how can still benefit by trading with other
countries can gain from trade by countries if that have different
specializing in producing and comparative advantages.
exporting the goods that they can
produce more efficiently than other
countries.
● Countries with an absolute
advantage can decide to specialize
in producing and selling a specific
good or service and use the
generated funds to purchase goods
and services from other countries.
● Absolute advantage explains why it
makes sense for individuals,
businesses, and countries to trade
with each other. Since each has
advantages in producing certain ASSUMPTIONS
goods and services, both entities ● Both Smith's theory of absolute
can benefit from the exchange. advantage, anD Ricardo's theory of
● This mutual gain from trade forms comparative advantage, rely on
the basis of Smith’s argument that certain assumptions and
specialization, the division of labor, simplifications in order to explain the
and subsequent trade lead to an benefits of trade. Both theories
overall increase in prosperity from assume that there are no barriers to
which all can benefit. This, Smith trade: they do not account for any
believed, was the root source of the costs of shipping or additional tariffs
eponymous "Wealth of Nations." that a country might raise on
another's imported goods.
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● More crucially, these theories both THE BASIC ECONOMIC QUESTIONS

assume that a country's absolute
advantage is constant, and scales 1. WHAT TO PRODUCE
equally. In other words, it assumes ● A society determines the kind and
that producing a small number of quantity of products it will produce
goods has the same per-unit cost as depending on what the consumers
a larger number and that countries want to buy or are willing to pay for.
are unable to change their absolute
advantages. In reality, countries 2. HOW TO PRODUCE
often make strategic investments to ● A society decides who will produce
create greater advantages in certain goods and services and what
industries. process of production will be used.
● Goods may be produced by
corporations, small
business-owners, or the government
LESSON 8: Economic Systems itself.
● The process of producing goods
5 MAJOR DIVISION OF ECONOMICS may be addressed depending on the
costs and availability of resources
1. PRODUCTION - involves combining needed.
productive resources to produce goods
and services that could satisfy the needs 3. FOR WHOM TO PRODUCE
and wants of the people. ● The question revolves around the
issue of who will benefit from the
2. CONSUMPTION - the branch of goods and services. Therefore, a
Economics that is concerned with spending consumer who has the capacity to
by households and firms on goods and pay for certain goods and services is
services. more likely to benefit than one who
cannot afford them.
3. DISTRIBUTION - examines the allocation
of the national income among various inputs
or factors of production. Distribution can ECONOMIC SYSTEM
also refer to the distribution of income ● The answers for what, how and for
among individuals and households. whom to produce are influenced by
the structure of a society’s economic
system.
● An economic system is
characterized by the type of
institutions responsible for the
management and allocation of
resources used in the production of
goods and services.

TYPES OF ECONOMIC SYSTEM

4. EXCHANGE - refers to the buying and
selling of goods and services, either through 1. TRADITIONAL ECONOMY - Based on
barter or the medium of money. culture and rituals, and is focused on the
community as a whole.
5. PUBLIC FINANCE - is the division of
economics that studies taxation and 2. COMMAND ECONOMY - Relies on the
expenditures by governments and the government to make all economic
economic effects. decisions.
 – ECONOMICS NOTES –

Problems with pure command economy

● Consumers get low prioritY
● Little freedom of choice
● Central planning can be inefficient
● Resources are sometimes wasted
No role for Entrepreneurs

3. MARKET ECONOMY - driven by

consumers whose decisions determine how
the industries and financial markets will
operate. 1

Problems with pure market economy

● Difficulty enforcing property rights

● Some people have few resources to sell
● Some firms try to monopolize markets
● No public goods
● Economic Fluctuations

4. MIXED ECONOMY - utilizes government

involvement while also applying free market
concepts.