Chapter 1

• Two major areas in the study of economics

  • Microeconomics
  • Macroeconomics
• Microeconomics -        Studies the behavior of the individuals and the firms.
• Economics are divided into two parts

  Utility maximization of Individuals

  Profit maximization and loss minimization of the firms.
• Two approaches used to describe the utility maximization of the individuals

  
  

  Cardinal approach

  Ordinal approach
• Profit Maximization and Loss Minimization of the firms

  -        Will be discussed using the market structure in perfect market and imperfect markets.
• Pure competition

  -        Is considered as a perfect market
• Imperfect markets

  -        Are composed of monopoly, monopolistic competition, and oligopoly
• Economics

  -        Is a social science that deals with the efficient allocation of scarce resources to satisfy the unlimited human wants and needs.
• Resources

  -        Are classified as capital, land, labor, and entrepreneurship.
• Land Resources – include natural resources such as land itself, mineral deposits, water, air, climate, and wildlife.
• Labor Resources – refer to the physical and metal capacity of man to work to produce goods and services.
• Capital Resources – include man-made goods that produce other goods such as buildings, tools, equipment, and machineries as well as improvements on that increase productive capacity to produce other goods and services.
• Entrepreneurship – involves human resource that performs the functions of organizing, managing, and assembling other factors of production and making business policy decisions. The Entrepreneur is a risk-taker and an innovator.
• Two major areas in the study of economics

  Microeconomics

  Macroeconomics
• Macroeconomics – concerned with the choices made by the larger subsectors of the economy – household sector, business sectors, government sectors, foreign sector
• Microeconomics – examines factors that influence individual economic choices and how the choices of various decision markers are coordinated by markets.
• Methodologies

  theoretical econ

  policy econ

  normative econ

  positive econ

  Inductive

  deductive
• Theoretical Economics – uses scientific method to build economic theories. This includes steps such as identify the problem, gather information and data, formulate hypothesis, testing hypothesis through experimentation and observation, and arriving at conclusion. is a process of making economic theories using the facts and the data available.
• Policy Economics – it is a process of making economic policies or laws using the economic theories.
• Normative Economics – used when someone considers his/her value judgement to answer “question what should be done” or “what ought to be”. Belongs to policy economics because it uses the policies or laws.
• Positive Economics – this belongs to theoretical economics because it uses the facts and data to answer the question “what is the problem looks like”
• Inductive reasoning – someone is analyzing the problem from a particular to general
• Deductive – when an individual analyzes things from general to specific.
• Economic Goals

  price level stability

  full employment

  balance of trade

  economic growth

  economic freedom

  economic security

  economic efficiency

  equitable distribution of income
• Price Level Stability. The economy is avoiding having an upswing of the general price which is called inflation and downswing of the general price which is called deflation.
• Full Employment. There should be suitable jobs for those people who are willing and able to work.
• Balance of Trade. Equal amount of exports and imports.
• Economic Growth. The increase capacity of the economy to produce goods and services. It promotes higher standard of living. This can be measured when there is an increase in real Gross Domestic Product (GDP).
• Economic Freedom. The economic actors in the economy can do their work freely.
• Economic Security. This ensures that the people who cannot earn even a minimal income can survive in everyday needs.
• Economic Efficiency. All the available owned resources were used at the maximum level to satisfy the needs and wants of the economy.
• Equitable Distribution of Income. It avoids that there is a group of people who are experiencing abundance and a group of people who are experiencing poverty. There is no rich and no poor.
• Two Fundamentals Of Economics

  ·        Economic resources

  ·        Economic wants
• Labor - includes all physical and mental abilities
• Entrepreneurs - have the capability to combine all the resources to be productive.
• Land - includes natural resources like mineral deposits, forests, raw materials, and others
• Capital goods - are used to produce another good. These are consumer goods that are ready for consumption.
• Money - is not considered as capital on the production side because it cannot produce consumer good.