Basic Microeconomics Definition of Economics

Microeconomics – is the field of economics that § Science of choice/making choices,

looks at the economic behaviors of individuals, decisions
household, and companies. § How wealth is allocated (wealth of a
nation)
Example: specific like Dumaguete City § Wiser utilization of resources
§ Incentive analysis
§ Study of Scarcity
Macroeconomics – takes a wider view and Law of Scarcity
looks at the economics on a much larger scale –
regional, national, continental, or even global. § All resources are scarce

Example: Bigger like the Philippines than Luzon Scarcity of humans:

Economy – is an area of production, 1. Japan
distribution, and trade, as well as consumption 2. Europe
of goods and services. It is the process or system 3. America – first people to age
by which goods and services are produced, sold,
and bought in a country or region. 10 Basic principles of Economics
- Goods, services, bads
- Includes everything that human 1. People face trade-offs – The principle
creates/ made of trade-offs is quite simple. It states
- Everything is converted with value that every time a person acquires
from money something, it is at the cost of something
- Money is value/costs else. A common phrase which is used to
- Economy = people describe this concept is, “there’s no such
- Pension is from the economy thing as a free lunch.”

Economy 2. The cost of something is what you give

up to get it – Recognizing the principle
of trade-offs allows people to weigh cost
opportunities. Cost opportunities require
weighing the benefits and costs of a
Money – important element in the economy decision.
For example, weighing the decision to
go to college is not just about the cost of
tuition, but also the time spent in class
Resources and commuting which cannot be used
a. Natural
for making money at work.
Resources
b. Physical/ 3. Rational people think at the margin –
Artificial In business, one assumes that consumers
Natural Resources are rational. Rational decisions assure
resources: c. Human that consumers will try to choose a
Trees, water, Resources product or service which gives them the
land, animals, best price, opportunity cost, and benefit.
d. Time
livestocks, Consumers weigh the opportunity cost
and benefit of available products
mineral, air
4. People respond to incentives –
Because consumers use rational means
to make decisions. Companies often goods and services – There is a
need to supply reasons and incentives connection between a country’s standard
for consumers to choose their product or of living and productivity. The higher
service over others. This is done by the quantity of goods which a country
spelling out what the benefits include so produces indicates a higher standard of
that consumers have enough information living. The way that a country can
to make a decision. The principle of improve standards of living is by
incentives is a familiar approach in most encouraging higher levels of
marketing strategies. productivity through education, tools,
and access to opportunities.
5. Trade can make everyone better off
– Trade is a mutually beneficial process.
Ideally, a trade between two parties is a 9. Prices rise when the government
gain for both sides. In other words, prints too much money – This
economic trade, whether between principle is pretty simple: The more
individuals, companies and individuals, money a country prints, the less value
or even between countries, is not a the money has. This means that an
competition where one side wins and the increase in printing leads to an inflation
other loses, but rather, a win-win in prices.
scenario.
10. Society faces a short-run tradeoff
6. Markets are usually a good way to between inflation and unemployment
organize economic activity – A market – The short-run effect of printing more
economy has been shown to be very money can lead to higher rates of
effective compared to centrally planned employment along with the higher
economies. Centrally planned prices. Some economists believe that
economies, otherwise known as this short-run effect is still worth the
command economies, are economic cost of inflation and eventually evens
systems run by government or authority out over time, while other economists
decisions. A market economy, on the are not sure whether the relationship
other hand, functions through the between employment and prices exist.
decisions of consumers, businesses, and
firms. Conclusion
Economic principles are the complex
7. Governments can sometimes ways in which the economy runs (or
improve market outcomes – With this fails). These 10 economic principles by
said, governments can be effective in Gregory Mankiw demonstrate that our
helping during times of market failure. everyday decisions as businesses and
Market failure is a situation in which the consumers make a big difference in the
market fails to allocate resources economy.
properly. Examples of market failures
are situations in which bystanders are
harmed by the market (i.e. pollution) or
in which there are monopolies affecting
equal distribution. Different countries
and governments have different policies
when it comes to government
involvement in the market economy.

8. A country’s standard of living

depends on its ability to produce
Definition of Economics 3 Basic Elements of Economy
1. Study of Scarcity of Resource and 1. To produce
How society manages to fulfill 2. To consume
unlimited wants and needs 3. To distribute
o Without scarcity there will
be NO ECONOMICS 3 Basic Questions of the Economy
o Scarce – limited or fixed 1. What to produce?
amount and depleting 2. How to produce?
o If it is DEPLETING then it 3. For whom?
is not renewable
o Needs are what we need in Economic System
order to survive, we cannot 1. In a pure market economy, the basic
live without it and needs economic questions are answered by
can be fulfilled private individuals and businesses
o Wants are what we can live
without, it cannot be
freely interacting over time. Private
fulfilled, it has no limits property is protected, and
competition and negotiation are
2. Economics deal with the choices we encouraged.
make 2. In a pure command economy, the
o There are traders, sellers who basic economic questions are
keep supplies in a facility and answered by the government, which
will just let it all out if supplies owns the productive resources and
are no longer available, they try handles distribution of goods and
to manipulate services.
o Before making a decision, see 3. Mixed Socialist
first the cost and its benefits,
what would be the results?
3. Examines how individuals and

Command/Communist
societies manages resources
Free Market/ Open Economy/ Market System

1. Quality of resource each

economy has have different
ways
2. Can be used in many Mixed/ Socialist
different ways like
agriculture, infrastructure,
housing
3. Outweigh cost on the
benefits
Free market/ Mixed Command/ b. Voluntary exchange
Open economy/ Socialist Communist c. Freedom to compete in market
Market system d. Protection of persons/ property – No
protection since the owner of the
property makes the law which are
the congressman
Note: The voluntary exchange and freedom to
compete in market are more of monopoly
1.What to Led by Need whatever price of electricity, no objective since
produce? Private sector/ it has NO COMPETITION
Depends on the intervention 4. Full employment
price by the - people who are capable, willing
Impact: Poverty government should have jobs. Business owners
prefer low cost resulting to lack of
2.How to Government Resources jobs.
produce? Influence - There are lands who were not
Depends on the touched and planed with crops that’s
cost why there is shortage
Impact: 5. Economic Growth – economy is
Unemployment growing
6. Economic Security
3.For whom? Government Everybody – consistent ability to meet all needs
To those who Influence such as product and services AND
can afford wants
Impact: - Capacity
Unequal 7. Economic Stability
- Available to people without
interruption
Economic Goals/ Objectives - Interruptions such as:
1. Productivity – raise the level of a.) Unemployment
production of goods and services b.) Price
• Being productive is efficiency c.) Budget (Unemployment, Price,
• Efficiency is the least amount of cost Budget)
(resources) to generate the maximum
output Quality of Life
• We need to consider scarcity 1. Comfort
2. Equity – equitable distribution of the 2. Success
fruits of the economy, distributing the 3. Good governance
products of the resources 4. Economic indicators are met thru health,
Issue: widening gap between rich and poor education, income
• Requires fairness distribution
Two most important priorities of the whole
• Equity – fairness, justice VS
world
Equality is classic reality
1. Food
• Free market is more on equity
2. Weapon
• More equal distribution, the more
people suffer
3. Economic Freedom
Aspects of Economic Freedom or
Ingredients:
a. Personal choice
 Topic 1. Production

Production
- Manufacturing
- Relationship between inputs and outputs; mathematical or technological means of
knowing inputs and outputs

Inputs Conversion process Outputs

- which are the
- raw materials technology, - Final products
such as land procedure,
system/process or
(rent), labor
ideas
(salaries/wages),
Entrepreneurial
skills (profits),
and capital
(interest)

Technology
- Innovation, economic development of Machines, Equipment, System
- Associated with the idea when converted into something will result to a technology
- Idea of coming up to all procedures and processes, the finish product is the computers
and etc.