LAS WK2

• What to produce and how much – society must decide what goods and services should be

  produced in the economy.
• How to produce – is a question on the production method that will be used to produce goods and services. This refers to the resource mix and technology that will be applied in production.
• For whom to produce – is about the market for goods and services.
• Economics will help you understand why there is a need for everybody, including the government, to budget and properly allocate the use of whatever resources are available. I
• Economics is a study that attempts to explain how an economy operates and how the consumer attempts to maximize his/her wants within limited means.
• State the propositions or condition that are taken as given and do not need further investigation, as the basic starting point of investigation.
• Observe facts in connection with the activity that you want to theorize.
• Apply the rules of logic to the observed facts to determine causal relationships between observed factors and to eliminate facts that are unnecessary and irrelevant.
• Establish a set of principles such that formulated hypotheses may be tested as to whether they are valid or not.
• Use statistics and econometrics as empirical proof in testing the hypotheses.
• SCIENTIFIC APPROACH IN THE EMPIRICAL TESTING OF ECONOMIC THEORY

  • State
  • Observe
  • Apply
  • Establish a set of principles
  • testing the hypotheses.
• Positive economics deals with “what is” - things that are happening such as the current inflation rate, the number of employed laborers, and the level of the Gross National Product (GNP).
• Positive economics is an overview of what is happening in the economy that is possibly far from what is ideal
• Normative economics refers to “what should be” – that which embodies the ideal rate of population growth or the most effective tax system.
• Normative economics - focuses on policy formulation that will help to attain the ideal situation.
• The heart of the economy is a production whose value measures both resource input and output of people.
• Gross Domestic Product (GDP) is the total monetary or market value of all the finished products produced with a country’s borders within a period.
• Gross National Product (GNP) is an estimate of total value of all the final products and services turned out in each period by means of production owned by a country’s residents.
• Expenditure Approach To account GNP and classify its components. Products are final when they have reached the highest levels of processing in the economy for different uses in the given period.
• GNP= C+I+G+(X-M)
• Income Approach Another way to account GNP and classify components is by resource uses and contributions that make up the production stages.