BUSINESS ECONOMICS L1-2

• Economics refers to the effective management of scarce resources to satisfy unlimited human wants and needs.
• Economics is a social science that studies the means by which individuals, groups, and societies produce, distribute, and consume products and services.
• Adam Smith developed a Theory of Absolute Advantage
• Adam Smith is a Scottish philosopher popularly the father of economics and authored of The Wealth of Nations in 1776.
• GDP means Gross Domestic Products
• Alfred Marshall study of mankind in the ordinary business of life.
• Alfred Marshall examines partly the individual and social action that is closely connected to the attainment and use of material requisites of well-being. Developed the theory of demand and supply
• Scarcity is a fundamental concept of economics. It refers to the limitation of resources, particularly economic resources such as land, labor, capital, and entrepreneurship. A condition where there are insufficient resources to satisfy all the needs and wants of a population.
• Examples of Scarcity: Availability of a products (fruits) in the market - Season (abundant) - not in season (scarce)
• TWO CLASSIFICATION OF SCARCITY

  1. Relative scarcity
  2. Absolute scarcity
• Relative scarcity is when a good is scarce compared to its demand (Ex. Banana and Coconut)
• Absolute scarcity is when supply is limited (Ex. Oil)
• WANTS- desired but are not essential for survival
• NEEDS- in economics defines as a thing that are desired which are essential for human survival.
• ECONOMIC RESOURCES AND FACTORS OF PRODUCTION

  1. Land
  2. Labor
  3. Capital
  4. Entrepreneurship
  5. Entrepreneur
• Land- refers to all natural resources that exist without man’s intervention. It encompasses all things derived from the forces of nature such as air, water, forest, vegetation, and minerals (payment for land is called rent).
• Labor- refers to human inputs such as manpower skills that are used in transforming resources into different products that meet our needs (payment for labor is called wages and salaries).
• Capital- is a man-made factors of production used to create another product. Examples are machinery and equipment used in manufacturing companies (payment for capital is interest).
• Entrepreneurship- is the factor of production that integrates land, labor, and Capital to create new products.
• Entrepreneur- is an individual who makes the decisions with regard to production and utilizing the other factors of production. A successful entrepreneur creates new products and innovates by improving on old ones.
• TWO BRANCHES OF ECONOMICS

  1. Microeconomics
  2. Macroeconomics
• Microeconomics - Study the market of goods and services, it focuses on the behavior of individual/industry in the market
• Macroeconomics - Study the economy as a whole, it focuses on aggregate indicators (GDP, unemployment rates, inflation).
• BASIC ECONOMIC QUESTIONS

  1. What to produce?
  2. How to produce?
  3. For whom to produced?
• What to produce? - a society determines the kind and quantity of products it will be produce depending on what the consumers want to buy or are willing to pay for.
• How to produce? - a society decides who will produce goods and what process of production will be used.
• For whom to produced? -who will benefit from the goods and services produced. It depends on the distribution of wealth in a particular society.

  • Consumer who has the capacity to pay for certain goods and services is more likely to benefit than one who cannot afford.
• Economic system - characterized by the type of institution responsible for the management and allocation of resources used in the production of goods and services.
• THREE KNOWN ECONOMIC SYSTEM

  1. Market economic system
  2. Command economic system
  3. Mixed economic system-
• Decision making- is an important aspect of economics to determine how individuals or groups of individuals will behave given certain changes in the economy.
• Rationality- defined as the assumption that individuals are consistent and logical in their decision-making, and that they seek an outcome that is most beneficial to them.
• Opportunity cost- best alternative forgone or cost of giving up an alternative by selecting the second best choice.
• TRADE-OFF- result in either the satisfaction of needs or a failure (unsatisfactory) based on the choices of a consumers decision.
• Market economic system- economic resources are owned by private entities. This system proposes the following answer to the three economic questions.

  -produced goods that yield high profits?

  -produced at maximum efficiency with minimum costs?

  -distribute the goods to those who can afford to buy the products?
• Command economic system- all resources are owned by the government. The question what to produced ? is answered by producing more public goods (roads, public schools, and public hospitals). This economy holds dictatorial, socialist, and communist nations.
• Mixed economic system- three questions are answered by both government and private entities in consideration of their mutual benefit.

  -economic resources owned by both

  -some countries employ an economic system which is more command-oriented than market-oriented vice versa