ECON 1

Lecture 1: Introduction to Economics

Definition of Economics

• Economics: A social science focused on the allocation of scarce resources to satisfy unlimited human needs and wants.

Scarcity

• Scarcity: The insufficiency of resources to meet all needs and wants of a population.

  • Relative Scarcity: Occurs when a good is scarce compared to its demand.

    • Example: Bananas are abundant in the Philippines, but a typhoon may destroy plants, making them relatively scarce.

  • Absolute Scarcity: Supply is limited regardless of demand.

    • Example: Oil in the Philippines is absolutely scarce, necessitating imports from oil-producing countries like Iran.

Trade-offs and Opportunity Costs

• Trade Off: Opting for one choice over others.

• Opportunity Cost: The value of the best alternative that is forgone when a decision is made; it represents the benefits that could have been gained from alternatives that were not selected.

Economic Resources

• Also known as factors of production; resources utilized to produce goods and services.

  1. Land: Includes soil and natural resources; landowners receive rent payment.

  2. Labor: Encompasses physical and human efforts in production, with wages as the income received.

  3. Capital: Man-made resources used in production, with interest as income.

Social Science

• Social Science: The study of society and human behavior in influencing the world.

Economics as a Social Science

• Economics examines individual choices in allocating scarce resources to satisfy unlimited wants, informed by social behaviors.

Two Divisions of Economics

1. Macroeconomics:

   • Focuses on the overall performance of the economy, including the flow of goods and resources, and the causes of changes in aggregate money, goods, and employment resources.

2. Microeconomics:

   • Concerned with the decisions and behaviors of individual entities (consumers, producers, resource owners); examines how goods flow from firms to consumers and resources to firms.

Basic Problems of Society

1. What to produce and how much?

2. How to produce?

3. For whom to produce?

Economic Systems

• Economic Systems: Mechanisms through which society answers basic economic problems.

  1. Traditional Economy:

     • Exists in primitive societies with stagnant methods; meets simple societal needs through self-production (e.g., indigenous communities).

  2. Command System:

     • Authoritative system where decision-making is centralized in the government or planning committee. Typically found in dictatorial, socialist, and communist countries. Actions taken in emergencies can include:

       • Rationing commodities

       • Imposing price control

       • Confiscating resources

       • Example: In response to typhoons affecting crops and businesses.

  3. Market Economy:

     • Most democratic economic system where consumer preferences influence prices which guide producers' decisions on goods.

     • Equilibrium price and output are established based on demand and supply.