Social Studies Lesson 1/2

It is the study of efficient allocation of available resources.

Economics

What is economics?

It is the study of efficient allocation of available resources.

Branches of Economics:

-Microeconomics

-Macroeconomics

It is the branch of economics that deals with the study of individuals, households and businesses.

Microeconomics

It focuses on individuals and smaller segments of the population.

Microeconomics

It is the study of aggregate or much bigger scale than what is covered in microeconomics, such as national and global economics.

Macroeconomics

Microeconomics deals with the study of:

-Individuals

-Households

-Businesses

Macroeconomics deals with the study of:

-National Economics

-Global Economics

Economic Schools of Thought:

-Classical Economics

-Keynesian Economics

-Neoclassical Economics

-Developed during the late 18th to 19th century

-Advocated by Adam Smith, David Ricardo, Jean-Baptiste Say, Thomas Malthus, and Stuart Mill

Classical Economics

Classical Economics was advocated by:

-Adam Smith

-David Ricardo

-Jean-Baptiste Say

-Thomas Malthus

- Stuart Mill

He was a Scottish political economist and the lead advocate of classical economics.

Adam Smith

Adam Smith delved into what thoery?

The Theory of Division and Labor

This theory talks about higher productivity, which means that output is higher when the individual workforce focus on a specific task rather than to be involved in all stages of production.

The Theory of Division and Labor

-Adam Smith’s concept

-It is the foundation of the classical theory of the free market system

Invisible Hand

Explain: Theory of Free Market System

According to Adam Smith, markets are believed to be self-regulating and work best if there is no or minimal government intervention.

This theory states that the value of a good is determined by the cost of production.

Theory of Value

According to Jean-Baptiste Say, which proposes that:

Supply creates its own demand.

This law grounded on a classical thought that production drives consumption.

Law of Markets

Facts about Law of Markets:

-This grounded on a classical thought that production drives consumption.

-When a product or service is produced, workers get paid for their work. The money that they receive is what they use for consumption.

Law of Markets’ Circular Flow:

• Households

-Factors and Spending

• Firms

  -Incomes and Goods

It is based on the ideas of John Maynard Keynes. (1883-1946)

Keynesian Economics

Keynesian Theories primarily focuses on:

Macroeconomic Concepts

Keynes proposed that economic output is:

Driven by aggregate demand

The government should have active role in the management of the economy.

Keynesian Economics

The involvement of the government in the form of fiscal and monetary policy would stabilize the economy during the recession and depression.

Keynesian Economics

What is Neoclassical Economics?

• Developed during the 19th century.

• Neoclassical approach is centered on microeconomics.

• Notable neoclassical economists include William Stanley Jevons, Leon Walras and Irving Fisher.

-Some individuals are willing to pay more for a good than how much it is valued at.

-Also states that individuals will maximize their satisfaction.

Utility Maximization

Theory of the Firm (Definition)

They are naturally profit maximizing

• This theory claims that collective individuals decisions drive the aggregate social behavior.

• If presented with two choices, you would choose the most preferable option given the information available.

Rational Choice Theory

It is one of most influential contributions of neoclassical economics.

Demand and Supply (determined by factors such as income distribution and individual behavior)

Four Factors of Production:

• Land

• Capital

• Labor

• Entrepreneurship

It is used to explain the idea that economic resources are limited.

Scarcity

All resources are scarce, especially:

Nonrenewable Resource

It is the result of the interaction between demand and supply in the market.

Shortage

Scarcity:

• The economic problem occurred because of limited availability of resources.

• A gap between available resources and people’s need

• It is a natural phenomenon

Shortage:

• A condition of deficiency where supply cannot fulfill demand.

• A gap between supply and demand of products and services.

• It is a market phenomenon.

It is the value of the next best alternative that is forgone when a choice is made.

Opportunity Cost

It is a situation where choosing one option means losing out on another.

Trade Off