Microeconomics Introduction Chapter 1 Prelim
- 1. MICROECONOMICS Chapter 1 : Introduction
- 2. In your own understanding, is their a difference between economy and economics?
- 3. Economy is a system that helps to produce goods and services and enables people to earn their living.
- 4. Making a money and spending a money.
- 5. Economics is a social science which studies the way a society chooses to use its limited resources, which have alternative uses, to produce goods and services and to distribute them among different group of people.
- 6. The economy refers to the production, consumption, and distribution of goods and services in a specific region, while economics is the study of how individuals and societies allocate resources to satisfy their wants and needs.
- 8. Scarcity means there is not enough for everyone. How should we allocate our scarce resources?
- 9. 1. What goods and services should be produced? 2. How should these goods and services be produced? 3. Who consumes these goods and services? Every society must answer three questions:
- 10. end.
- 11. MICROECONOMICS Chapter 1 : Introduction
- 12. Adam Smith • He Is the Father of Economics. • His book, “The Wealth of Nations, published in 1776, became known as “the bible in economics”.
- 13. The two Greek roots of the word economic are “oikos” – meaning household and “nomus” – meaning system or management. Oikonomia or oikonomus therefore means the “management of household”. With the growth of the Greek Society until its development into city states the word became known or was referred to as “state management” . Consequently, the term, “management of household” now pertains to the microeconomics while the phrase “state management” presently refers to macroeconomics. Origin of the word Economics
- 14. Scarcity : THE CENTRAL PROBLEM OF ECONOMICS Authors define scarcity in different ways: • It is a commodity or service being in short supply, related to its demand. • Scarcity is said to exist when at a zero price there is a unit of demand, which exceeds the available supply.
- 15. What exactly are the resources that we have been referring to?
- 16. Factors of Production 1. Land 2. Labor 3. Capital 4. Entrepreneur
- 17. Land • In broad terms, land refers to all natural resources, which are God-given and found in nature so these are not manmade. • Land does not solely mean the soil or the ground surface. • It refers to all things and powers that are given to free to mankind by nature.
- 18. Labor • Labor is any form of human effort exerted in the production of goods and services. • Labor covers a wide range of skills, abilities and characteristics. • The supply of labor in a country is dependent on the growth of its population as well as the percentage of the population that is willing to join in labor force. • The compensation for labor rendered is called salary or wage.
- 19. Capital • It is a manmade product used in the production of other goods and services. • It includes the buildings, factories, machinery and other physical facilities used in the production process. • Accordingly, a nation’s capital stock is dependent on its level of saving. Savings refers to that part of person’s or economy’s income, which is not spent on consumption.
- 20. What first came to your mind when we talked about capital?
- 21. Capital • We have to emphasize that money is not actually considered as capital in economic as it does not produce a good or services but it is rather a form of assets that is used mainly as medium of exchange.
- 22. Entrepreneurship • An entrepreneur is a person who organizes, manages, and assumes the risk of a firm, taking a new idea or a new product and turning it into a successful business. • Often times, the entrepreneur is not presented as a separate factor of productions but it is classified as part of labor. However since they performs a special type of work which is the creation of goods and services, they are not be considered as part of labor.
- 24. end.
- 25. The concept of Opportunity Cost
- 26. Opportunity Cost • It refers to the foregone value of the next best alternative. • In particular, it is the value of what is given-up when one makes a choice. The thing thus given-up called the opportunity cost of one’s choice.
- 27. Opportunity Cost
- 29. Basic Decision Problems Consumption - determine what types of goods and services they want to utilize or consume and the corresponding amounts thereof that they should purchase and utilize.
- 30. Basic Decision Problems Production - The problem of production is generally a concern of producers. Producers determine the demand and how to allocate to meet these demands.
- 31. Basic Decision Problems Distribution - The problem is primarily addressed to the government. There must be a proper allocation for the benefit of the whole society.
- 32. Basic Decision Problems Growth Over Time - Societies continue to live on. They also grow in numbers. In short all the problems of choice, consumption, production and distribution have to be seen in the context of how they will affect future events.
- 34. 4 Basic Economic Questions 1. What to produce? 2. How to produce? 3. How much to produce? 4. For whom to produce?
- 35. 3 E’s in Economics 1. Efficiency 2. Effectiveness 3. Equity
- 36. Efficiency - refers to productivity and proper allocation of economic resources. Being efficient in the production and allocation of goods and services saves time, money and increase a firm’s output. - For instance, in the production of a commodity, a firm utilizing modern technology can improve the quantity and quality of its product, which ultimately translate into an increase in revenue and profit.
- 37. Effectiveness - It means attainment of goals and objectives. Economic therefore is an important and functional tool that can be utilized by other fields. For instance, with the use of both productions (through manual labor or through technological advancements), whatever the output is, it will be useful for the consumption of the society and the rest of the world.
- 38. Equity - It means justice and fairness. Thus, while technological advancement may increase production, it can also bear disadvantages to employment workers. Due to the presence of new equipment and machineries, manual labor may not be necessary, and this can result in the retrenchment or displacement of workers.
- 40. Positive Economics - is an economic analysis that considers economic conditions “as they are”, or considers economic “as it is”. It uses objective or scientific explanation in analyzing the different transactions in the economy. It simply answers that question “what is”.
- 41. Examples of Positive Statements The economy is now experiencing a slowdown because the world is experiencing a financial and economic crisis.
- 42. Normative Economics - is an economic analysis which judges economic conditions “as it should be”. It is that aspect of economics that is concerned with human welfare. It deals with ethics, personal value judgments and obligations analyzing economic phenomena. - it is also referred to as policy economic because it deals with the formulation of policies to regulate economic activities.
- 43. Examples of Normative Statements In order to minimize the effect of global recession, the Philippines government should release a stimulus package geared towards encouraging economic productivity.
- 44. Type of Economic System
- 45. Traditional Economy is basically a subsistence economy. A family produces goods only for its own consumption. The decisions on what, how, how much, and for whom to produce are made by the family head, in accordance with traditional means of production.
- 46. Examples of countries using a Traditional Economy 1. Brazil 2. Canada 3. Alaska
- 47. Command Economy - is a type of economy, wherein the manner of production is dictated by the government. The government decide on what, how, how much, and for whom to produce. - It is an economic system characterized by collective ownership of most resources, and the existence of a central planning agency of the state. In this system, all productive enterprises are owned by the people and administered by the state.
- 48. Examples of countries using a Command Economy 1. North Korea
- 49. Market Economy - the basic characteristics of market economy is capitalism’s basic characteristics, which means that the resources are privately-owned, and that the people themselves make the decisions. - Under this economic system, factors of production are owned and controlled by individuals and people are free to produce goods and services to meet the demand of consumers, who, in turn, are also free to choose goods according to their own likes.
- 50. Examples of countries using a Market Economy
- 51. Socialism - is an economic system wherein key enterprises are owned by the state. In this system, private ownership is recognized. However, the state has control over a large portion of capital assets, and is generally responsible for the production and distribution of income and wealth. As such, it is considered as an economy bordering between capitalism and communism.
- 52. Examples of countries using a Socialism Economy 1. California
- 53. Mixed Economy - this economy is a mixture of market system and the command system.
- 54. Examples of countries using a Mixed Economy 1. Korea 2. China
- 55. end.