Social Science | Q1LQ1

Economics

Economics

The social science that studies how individuals, governments, firms, and societies make choices about allocating scarce resources to satisfy unlimited wants.

Economics as a Social Science

• studies human behavior and decision-making

• uses observation, data, theories, and models.

  • it examines how people interact with resources, policies, and institutions.

Scientific approaches in economics

• hypothesis

• data gathering

• analysis

• prediction

Microeconomics

involves individual behavior, markets, consumers, and producers

Macroeconomics

involves the national economy, government policy, inflation, and GDP

Famous economists

• Adam Smith

• David Ricardo

• Karl Marx

Adam Smith

Father of Modern Economics

Laissez-faire

Wealth of Nations

David Ricardo

Law of Comparative Advantage

Diminishing Marginal Returns

Karl Marx

Communism

Class Struggle

Das Kapital

Sociology

Studies social structures and behavior that affect economic decisions.

Anthropology

Looks at cultural practices related to production, exchange, and consumption.

Political Science

Examines how government decisions influence the economy.

Psychology

Explains individual decision-making and cognitive biases.

Geography

Studies physical space and environment affecting economic activities.

Economic Goal

A specific objective or target that a country aims to achieve to improve the well-being of its people and ensure a stable, thriving economy.

Purpose of Economic Goals

• guide government policies and programs

• set national priorities

  • measure progress and development

Common Economic Goals

1. Economic Growth

2. Full Employment

3. Price Stability

4. Equitable Distribution of Wealth

5. Sustainable Development

6. Economic Freedom

7. Balance of Trade

Economic Growth

An increase in the production of goods and services in an economy over a given period, as measured by a county’s Gross Domestic Product (GDP).

Full Employment

Refers to how everyone who is willing and able to work can find a job. It doesn’t necessarily mean zero employment, but rather minimal levels.

Price Stability

Avoids high inflation or deflation to maintain the purchasing power of money.

Equitable Distribution of Wealth

Aims to reduce the gap between the rich and the poor, ensuring a fair distribution of income and opportunities.

Sustainable Development

Refers to pursuing economic growth while protecting the environment and conserving resources for future generations.

Economic Freedom

The right of individuals and businesses to choose how to produce, sell, and use their resources with minimal government interference.

Balance of Trade

Refers to how a country’s exports must be enough to pay for its imports, to avoid excessive foreign debt.

Economic Reasoning

The process of making decisions by comparing the costs and benefits of different choices using logical, data-based, and objective analysis.

Features of Economic Reasoning

• involves trade-offs, opportunity cost, and incentives.

• avoids emotional or biased decision-making.

  • Helps in understanding and predicting the behavior of the economy

Pitfalls in Economic Reasoning

The mistakes or Fallacies in applying logic to economic problems

Common Pitfalls in Economic Reasoning

1. Post-hoc Fallacy

2. Correlation is not Causation

3. Zero-Sum Thinking

4. Oversimplification

5. Appeal to Emotion

6. Hasty Generalization

7. False Dichotomy

8. Ad Hominem

9. Appeal to Authority

Post-hoc Fallacy

Assuming cause because of sequence.

Correlation is not Casusation

Misreading patterns.

Zero-sum Thinking

Believing one gain = one less.

Oversimplification

Ignoring complexities.

Appeal to Emotion

Using feelings over facts.

Hasty Generalization

Making a broad claim from limited data.

False Dichotomy

Presenting two extreme options as the only choices.

Ad hominem

Attacking the person instead of addressing the argument.

Appeal to Authority

Treating a claim as true because a notable person/office said it, without relevant evidence.

Positive Economics

Deals with objective, fact-based statements that describe and explain economic phenomena.

Features of Positive Economics

• Describes what is

• Can be tested or proven true/false

• Based on empirical evidence and data

Normative Economics

Involves value judgements and opinions about what the economy should be like or what policies ought to be pursued.

Features of Normative Economics

• Describes what ought to be

• Based on personal or societal values

• Cannot be proven true or false

Uses of Positive Economics

• Analyze cause-and-effect

• Make forecasts and models

• Provide data to support decision-making

Uses of Normative Economics

• Shape public policy

• Justify government interventions

• Argue for ethical and social goals

Concepts in Economics

1. Efficiency

2. Scarcity

3. Opportunity Cost

4. Goods and Services

Efficiency

Refers to getting the maximum benefit from available resources without waste.

It doesn’t always mean “fast” or “cheap” — it means best use of resources to meet needs and wants.

Types of Efficiency

1. Allocative Efficiency

2. Productive Efficiency

3. Dynamic Efficiency

Allocative Efficiency

Resources are used to produce the combination of goods and services most wanted by society.

Productive Efficiency

 Producing goods at the lowest possible cost with no waste of resources.

Dynamic Efficiency

Improving production methods over time to adapt to changes.

Scarcity

Refers to the fundamental problem of economics — there are not enough resources to satisfy everyone’s wants.

Types of Scarcity

1. Natural Resource Scarcity

2. Human Resource Scarcity

3. Capital Resource Scarcity

4. Time Scarcity

Natural Resource Scarcity

Land, water, minerals, forests.

Human Resource Scarcity

Skilled workers, teachers, doctors.

Capital Resource Scarcity

Machinery, tools, technology.

Time Scarcity

Everyone has only 24 hours in a day.

Opportunity Cost

Refers to the value of the next best alternative you give up when you make a choice.

It is not the sum of all things you give up — it’s only the value of the single best alternative you didn’t choose.

Goods and Services

Refers to the two main types of products that economies produce to satisfy needs and wants.

Goods

Refers to the:

• Physical, tangible items.

• Can be stored and owned.

  • Can be durable.

Services

• Intangible activities performed for someone else.

• Consumed at the same time they’re produced.

• Cannot be stored for later use.

Production

Refers to the process of creating goods and services by combining the factors of production (land, labor, capital, and entrepreneurship) to satisfy human wants and needs.

4 Factors of Production

1. Capital

2. Labor

3. Entrepreneurship

4. Land

Land

Refers to all natural resources available for production—not just soil, but everything nature provides.

Characteristics of Land

• Fixed Supply – Earth’s surface area is constant, though its use can change. 

• Free Gift of Nature – Not produced by human effort. 

• Immobility – Land cannot be moved from one place to another. 

• Quality Varies – Fertility and usefulness differ by location. Subject to Law of 

• Diminishing Returns – Overuse without rest reduces productivity.

Labor

Refers to all physical and mental effort exerted by humans in the production process.

Characteristics of Labor

• Human Element – Cannot be separated from the worker. 

• Perishable – Unused time is lost forever. 

• Heterogeneous – Skills, efficiency, and productivity vary across individuals. 

• Enhanceable – Training, education, and health improve labor quality. 

• Dependent on Motivation – Wages, working conditions, and job satisfaction affect productivity

Types of Labor

• Unskilled: manual laborers, helpers. 

• Semi-skilled: factory workers, drivers. 

• Skilled: nurses, technicians, teachers.

• Professional/Intellectual: scientists, engineers, managers.

Capital

Refers to all man-made resources used in further production. It is not money itself, but the tools, machines, and infrastructure purchased with money.

Characteristics of Capital

• Man-made – Created by human effort. 

• Productive – Used to aid production, not consumed directly. 

• Depreciates – Wears out and must be replaced. 

• Increases Efficiency – Multiplies productivity of land and labor

Types of Capital

• Physical Capital: factories, machines, tools. 

• Human Capital: skills, education, health. 

• Financial Capital: funds to acquire productive assets. 

• Social Capital: trust and networks facilitating cooperation.

Entrepreneurship

Refers to the initiative, skill, and risk-taking ability to combine land, labor, and capital to produce goods and services

Functions of Entrepreneurship

• Innovation: Develop new products, services, or methods. 

• Risk-bearing: Accept profit or loss from uncertain ventures. 

• Decision-making: Decide what, how, and for whom to produce. 

• Resource Coordination: Efficiently combine factors of production.

Importance of Land

• Source of food and raw materials. 

• Determines agricultural and industrial base. 

• Tourism and ecological balance depend on it

Importance of Labor

• Transforms natural resources into useful products. 

• Human capital development (education + health) drives long-term growth

Importance of Capital

• Essential for industrialization and modernization. 

• Improves productivity of land and labor. 

• Attracts investment and accelerates growth.

Importance of Entrepreneurship

• Driving force of economic growth. 

• Creates jobs, competition, and wealth. 

• Encourages innovation and technological advancement

Importance of Entrepreneurship

• Foundation of Production: No goods/services without them. 

• Employment Creation: Labor provides jobs. 

• Income & Growth: Entrepreneurship generates wealth. 

• Productivity: Capital boosts efficiency. 

• Sustainability: Land management affects future prosperity

Interdependence of the four factors

• Land provides raw materials. 

• Labor transforms raw materials into goods. 

• Capital provides tools to increase efficiency. 

• Entrepreneurship organizes and innovates