W2: Economic Theory

• Basic needs – man’s needs required for the survival.
• Capital – materials used in the production of goods and services including money.
• Economic resources – inputs used in the production of goods and services.
• Economic system – the framework in which society decides on its economic problems.
• Economics – a social science concerned with man’s problem of issuing scarce resources to satisfy unlimited wants.
• Economics – a social science concerned with man’s problem of issuing scarce resources to satisfy unlimited wants.
• Empirical validation – the use of statistical evidence to prove the validity of a hypothesis.
• Entrepreneur - organizes all other factors of production to be used in the creation of goods and services.
• Free enterprise system – a system in which all economic resources are privately owned. Individuals are free to engage in a business of their choice.
• Function – depicts the relationship between two or more variables. it shows how one variable, called the dependent variable, depends on another variable or variables, called the independent variables.
• Labor – human effort expended in production regarding basic economic problem.
• Land – natural resource, not man-made, covering anything found on or under land, water, forests, minerals, and animals.
• Luxury goods – goods that man can do without.
• Macroeconomics – the branch of economics that studies the economy as a whole; also known as national income analysis.
• Market – context in which buyers and sellers buy and sell goods, services, and resources.
• Microeconomics – the branch of economics that deals with parts of the economy such as the household, and the business firms; also known as price theory.
• Normative economics – an analysis of economics which deals with what should be.
• Positive economics – an analysis of economics which deals with what actually is.
• Right to private property – the right of private individuals and enterprises to own things in value.
• Theory/hypothesis – an unproven proposition tentatively accepted to explain certain facts or to provide a basis for further investigation.
• Variable – a factor that is subject to change or variation.
• Wants – the various desires and needs of consumers that have to be satisfied through the use of goods and services.
• Samuelson and Nordhaus define economics
• Human wants – the best description that can be made of human wants is that they are unlimited and vary from the needs for survival, otherwise known as basic needs to higher needs for a comfortable and more meaningful life.
• Use of Resources – The basic economic resources of nation consist of land, labor, capital and entrepreneurship.
• Techniques of Production – it shows how resources are used and combined in production. Thus, production is described as capital-intensive or labor-intensive.
• The man's basic economic activities are human wants, use of resources, and techniques of production
• The household is the basic consuming unit in the economy.
• The business firms serves as the economy’s producing unit to satisfy human wants with good and services.
• The two types of consumption are household and business firms
• Unemployment is a problem because it leads to the existence of idle resources. This means that income is foregone on resources which would generate earnings to the owner if used.
• Economic Instability

  in a nation makes it difficult for produces to make accurate forecasts on demand and consumption levels. This would cause fluctuation in their production and supply of goods and services resulting in surpluses or shortage of goods.
• Low level of growth and development

  Poor countries tend to get caught in the vicious cycle of poverty, making it difficult to get started on their development. Their low level of income deter them from channeling funds to investments in order to propel economic growth.
• Inequality in income distribution

  Unequal income distribution exists when too many people in the nation that belong to the low income group cause a pyramidal structure in the economy.
• Determination of the type of economic system

  The choice of economic system is vital to any country because it determines the manner in which goods will be produced, the quantities of each good that will be produced, and the distribution of these goods and services.
• Economic Analysis

  It is the process of directing economic relationship by examining economic behavior and events and determining the causal relationships among the data and activities observed.
• Tools in Economic analysis

  • Logic
  • Statistics
  • Mathematics
• Economic Analysis is an aid in understanding how economy operates because it explains how economic variables are related to one another. It permits prediction of the results of changes in the economic variables. It serves as a basis for just policy formulation.
• Economic Policy

  it consists of intervention or courses of action taken by the government or other private institutions to manipulate the results of economic activity. The economic policy adopted by the government may be monetary, fiscal, or trade for the purpose of achieving economic welfare.
• Methodology

  To make it useful, systematic study of economic activity, one must use economic theory.