The basic and central economic problem confronting every society
It is the heart of the study of economics and the reason behind its establishment.
a commodity or service being in short supply, relative to its demand.
in quantitative terms, it is said to exist when at a zero price there is a unit of demand.
it pertains to the limited availability of economic resources relative to society’s unlimited demand for good and services
If limited resources fall short to meet the unlimited wants of the society, it will eventually create a problem, which is called “_______”.
a science that deals with the management of scarce resources.
It is also described as a scientific study on how individuals and the society generally make choices.
Study of the problem of using available economic resources as efficiently as possible so as to attain the maximum fulfillment of society’s unlimited demand for goods and series.
simply scarcity and choice
assist individuals and societies in making proper choices –-- that is, the allocation and utilization of economic resources, with the end in view of satisfying human wants for goods and services.
When limited resources fail to meet the unlimited wants of the society, ______ comes into play in order to effectively and efficiently allocated resources.
(T/F) The problem of scarcity gave birth to the study of economics. Their relationship is such that if there is no scarcity, there is no need for economics.
The study of economics was essentially founded in order to address the issue of _________ __________ and _______, in response to scarcity.
resource allocation and distribution
Two Greek roots of the word economics are ______ meaning household and _______ meaning system of management.
“management of household.”
Oikonomia or oikonomus
With the growth of the Greek society until its development into city-states, the word became known as _______
The term, “___________” pertains to the microeconomic branch of economics while “__________” refers to the macroeconomic branch of economics.
management of household, state management
means “all other things held constant or all else equal.”
Ceteris Paribus Assumption
This assumption is used as a device to analyze the relationship between two variables while the other factors are held unchanged.
Ceteris Paribus Assumption
_______ saw its birth during the mid 1700s and 1800s.
Father of Economics
Adam Smith's book, _________, became known as “the bible in economics” for a hundred years.
Wealth of the Nations
His major contributions was his analysis of the relationship between consumers and producers through demand and supply, which ultimately explained how the market works through the invisible hand.
________ was the heir to David Ricardo, who developed the basic analysis of the political economy or the importance of a state’s role in its national economy.
John Stuart Mill
Applies management to an entire polis (state).
A German, is much influenced by the conditions brought about by the industrial revolution upon the working classes.
Karl Marx's major work, ________, is the centerpiece from which major socialist thought was to emerge.
Believed to have transpired around the year 1870. Its main concern was market system efficiency.
Introduced the general economic system. Also developed the analysis of equilibrium in several markets.
Most influential economist because of his book Principles in Economics.
Alfred Marshall is the most influential economist because of his book ______
Principles in Economics
Alfred Marshall developed the analysis of equilibrium of a particular market and the concept of ________
an English economist, offered an explanation of mass unemployment and suggestions for government policy to cure unemployment in his influential book: The General Theory of Employment, Interest and Money
John Maynard Keynes
He argued that there is no assurance that savings would accumulate during a depression and depress interest rates, since savings depend on income and with high unemployment incomes are low
John Maynard Keynes
Recognized for his analysis of the IS-LM model, an important macroeconomic model.
goods market for a given interest rate (in John Hicks analysis)
money market for a given value of aggregate output or income (in John Hicks analysis)
Theoretical construct that integrates the real, IS (investment saving), and the monetary, LM (demand for, and supply for money), sides of the economy simultaneously to present a determinate general equilibrium position for the economy as a whole.
Saw the development of the rules and regulations of different private and public institutions.
Post-Keynesian Economics introduced major post-Keynesian, neoclassical economists, whose views known as the post-Keynesian _______.
Highlighted the importance of adherence to national expectations hypothesis and analysis, includes various economic phenomena in formulating different kinds of studies and new theories in economics.
New Classical Economics
It is applicable to concerns of developing countries, and was largely an outcome of concern for the growth of developed countries.
New Classical Economics
An economic analysis that considers economic conditions “as they are”, or considers economics “as it is”.
Uses objective or scientific explanation in analyzing the different transactions in the economy.
It simply answers the question ‘what it is’.
Economic analysis which judges economic conditions “as it should be’. Concerned with human welfare.
Deals with ethics, personal value judgments and obligations analyzing economic phenomena.
It answers the question ‘what should be’.
Referred to as policy economics because it deals with the formulation of policies to regulate economic activities.
Four Basic Economic Questions
What to produce?
How to produce?
How much to produce?
For whom to produce?
Considered the “queen” of all social sciences because it covers almost every activity of man in relation to the society
Relationship of Economics to other Sciences:
Importance of Studying Economics
To understand the Society
To understand Global Affairs
To be Informed Voter
3 Es in Economics
Refers to productivity and proper allocation of economic resources. Also it refers to the relationship between scarce factor inputs and outputs of goods and services.
justice and fairness
attainment of goals and objective
Anything that has a functional value (usually money), which can be traded for goods and services.
Direct utilization or usage of the available goods and services by the buyer or the consumer sector.
Defined as the formation by firms of an output (products or services).
Process of trading goods and/or services for money and/or its equivalent.
Process of allocating or apportioning scarce resources to be utilized by the household, business sector and the rest of the world.
Branch of economics which deals with the individual decisions of units of the economy- firms, households, and how their choices determine relative prices of goods and factors of production.
Microeconomics' ____ is its central concept. It focuses in two main players: ________, and their interaction with one another.
market, buyer & seller
Discussed the theories of demand and supply, individual decision making, theories of production, output, and cost of firm’s profit maximization objective, different types of business organizations and kinds of market structure.
It is a branch of economics that study the relationship among the broad economic aggregates like national income, national output, money supply, bank deposits, total volume of savings, investment, consumption, expenditure, general price level of commodities, government spending, inflation, recession, employment, and money supply
Implies that it seeks to understand the behavior of the economy as whole.
Macroeconomics focuses on the four specific sectors of economy:
The behavior of the aggregate household (consumption)
The decision making of the aggregate business (investment)
The policies and projects of the government (government spending)
The behavior of external/foreign economic agents, through trading (export and import)
Foregone value of the next best alternative. It is the value of what is given-up when one makes a choice
It is expressed in relative price.
Refers to all natural resources, which are given by, and found in nature, and are, therefore, not made by man. This includes the forest, mountain, rivers, oceans, minerals, air, and sunshine, light, etc.
Compensation for use of land.
Any form of human effort exerted in the production of goods and services. It covers a wide range of skills, abilities, and characteristics
Man-made goods used in the production of other goods and services. This includes the buildings, machinery, and other physical facilities used in the production process.
Part of person’s income, which is not spent on consumption.
reduction of productivity of capital
reward for the use of capital
an economic good that commands a price referred to as profit or loss
a person who organizes, manages and assumes the risks of a firm, taking a new idea or new product and turning it into a successful business
Basic Decision Problem:
Growth over Time
Types of Economic Systems
Market Economy or Capitalism
A subsistence economy. A family produces goods only for its own consumption. The decisions on what, how, how much, and for whom to produce are made by the family head, in accordance with traditional means of production.
Type of economy wherein the manner of production is dictated by the government. It is an economic system characterized by collective ownership of most resources, and the existence of central planning agency of the state. In this system, all productive enterprises are owned by the people and administered by the state.
Characterized by that the resources are privately owned, and that the people themselves make the decisions. Under this economic system, factors of production are owned and controlled by individuals, and people are free to produce goods and services to meet the demand of consumers who, in turn, are also free to choose goods according to their own likes.
Market Economy or Capitalism
Economic system wherein key enterprises are owned by the state. It recognizes private ownership. In this system, state has no control over a large portion of capital assets, and is generally responsible for production and distribution of important goods. The main emphasis of this system is on equitable distribution of income and wealth. It is considered as an economy bordering between capitalism and communism.
This economy is a mixture of market system and the command system. However, it is more market-oriented rather than command or traditional.
_____ is usually affected by the behavior of consumers.
_________ is usually affected by the conduct of producers.
(T/F) The consumers identifies his/her needs, wants, and demands. The producers address these by accordingly producing goods and services. The consumer gains satisfaction while the producer gains profit.
Where buyers and sellers meet. The place where they both trade or exchange goods or services and it is where their transaction takes place.
Where people usually buy vegetables, meat, etc.
Where people buy shoes, clothes or other dry goods.
It does not necessarily refer to a tangible area where buyers and sellers could be seen transacting.
Pertains as to the quantity of a good or service that people are ready to buy at given prices within a given time period.
Demand implies three things:
desire to possess a thing
the ability to pay for it or means of purchasing it
willingness in utilizing it.
The ________ states that if price goes UP, the quantity demanded will go Down. Conversely, if price goes DOWN, the quantity demanded will go UP ceteris paribus.
Law of Demand
The reason for Law of Demand is because consumers always tend to ________.
A table that shows the relationship of prices and the specific quantities demanded at each of these prices.
The information provided by a demand schedule can be used to construct a demand curve showing the price-quantity demanded relationship in graphical form.
A graphical representation showing the relationship between price and quantities demanded per time period.
Most demand curves slopes downwards because:
as the price falls, this serves to increase their real income allowing them to buy more products.
as the price of the product falls, consumers will tend to substitute this (now relatively cheaper) product for others in their purchases
as the price falls, this serves to increase their real income allowing them to buy more products
Shows the relationship between demand for a commodity and the factors that determine or influence this demand.
A ________ demanded is brought about by an increase (decrease) in the product’s price. The direction of the movement however is inverse considering the Law of Demand.
change in quantity
There is a _________ if the entire demand curve shifts to the right side resulting to an increase in demand. At the same price, therefore, more amounts of goods and service are demanded by consumer.
change in demand
Forces that cause the demand curve to change:
Taste or preferences
Occasional or seasonal products
Expectations of future prices
Quantity of goods or services that firms are ready and willing to sell at a given price within a period of time, other factors being held constant. It is a product made available for sale of firms.
It states that “if the price of a good or services goes up, the quantity supplied for such good or service will also goes up; if the price goes down the quantity also goes down, ceteris paribus.”
Law of Supply
A schedule listing the various prices of a product and the specific quantities supplied at each of these prices.
Graphical representation showing the relationship between the price of the product or factor of production (e.g. labor) and the quantity supplied per time period.
A form of mathematical notation that links the dependent variable, quantity supplied (Qs), with various independent variables which determine quantity supplied.
A __________ if the movement is along the same supply curve. It is brought about by an increase (decrease) in the product’s own price.
change in quantity supplied
Forces that cause the supply curve to change:
Optimization in the use of factors of production
Number of sellers
Refers to the process, or methodology of making something as fully perfect, functional, or effective as possible.
The meeting of supply and demand results to what is referred to as _________
Understood as a “state of balance.” Pertains to a balance that exists when quantity demanded equals quantity supplied. It is the general agreement of the buyer and the seller at a particular price at a particular quantity.
There are always two sides of the story, the side of the buyer and that of the seller.
The price agreed by the seller to offer its good or service for sale and for the buyer to pay for it. It is also the price at which quantity demanded of a good is exactly equal to the quantity supplied.
Equilibrium Market Price
Two Conditions may happen when there is market disequilibrium
A condition in the market where the quantity supplied is more than the quantity demanded.
The tendency is for sellers to lower market prices in order for the goods to be easily disposed from the market.
There is a _________ to price when there is a surplus in order to restore equilibrium in the market.
A condition in the market in which quantity demanded is higher than supplied. There is a possibility of consumers being abused, while the producers are enjoying imposing higher prices for their own interest. It exists below the equilibrium point.
In shortage, there is an _______ to prices to restore equilibrium in the market.
The specification by the government of minimum and/or maximum prices for goods and services.
Price controls types:
Legal minimum price imposed by the government undertaken if a surplus in the economy persists. It is a form of assistance to producers by the government for them to survive business. It is imposed by the government on agricultural products especially when there is bumper harvest.
Legal maximum price imposed by the government, utilized by the government if there is a persistent shortage of goods in the economy. It is imposed by the government to protect consumers from abusive producers or sellers who take advantage of the situation.
Means responsiveness. It is a ratio of the percent change in one variable to the percent change in another variable.
It is a tool used by economist for measuring the reaction of a function to changes in parameters in a relative way.
It is a measure of the degree of responsiveness of quantity demanded of a product to a given change in one of the independent variable which affect demand for that product.
Elasticity of Demand
A responsiveness of consumers’ demand to change in price of the good sold.
Price Elasticity of demand
The responsiveness of consumers’ demand to change in their incomes.
Income Elasticity of demand
The responsiveness of demand for a certain good, in relation to changes in price of other related goods.
Cross Elasticity of demand
It is defined as the percentage change in quantity demanded caused by a 1 percent change in price.
Demand Price Elasticity
Demand for a product is said to be ______ if consumers will pay almost any price of the product.
Demand for a product may be ______ if the consumers will only pay a certain price, or a narrow range of prices, for the product.
Demand is _______ if the computed elasticity coefficient is less than 1(Ep< 1) and demand is ______ if the computed elasticity coefficient is greater than 1(Ep> 1).
An elastic demand/supply curve is ______ than a typical demand/supply curve. This is because a smaller change in price (broken line ab) calls forth a greater change in quantity demanded/supplied, (broken line bc).
An inelastic demand/supply curve is _______ than a typical demand/supply curve. This is because a large/any change in price (broken line ab) calls forth a smaller change in quantity demanded/supplied, (broken line bc)
It refers to the reaction or response of the sellers or producers to price changes of goods sold.
Elasticity of Supply
It is a measure of degree of responsiveness of supply to a given change in price.
Elasticity of Supply
It is a percentage change in quantity supplied given a percentage change in price.
Elasticity of Supply
Determinant of supply elasticity as producer responds to changes in prices from time to time in a given certain period.
Factors that Determines Supply Elasticity:
Time horizon involved with which production can be increase
Defined as a social science that deals with the study of the allocation of scarce resources among unlimited and competing uses to satisfy human needs.
Economics is a ________ because it tries to understand how members of a society behave and organize themselves to meet their individual and communal material needs and desires.
Natural, human, and man-made wealth that can provide satisfaction through the production of goods and services.
Three categories of resources:
The main concern of economics is the fulfillment of _________ among the competing uses of resources. Economics is primarily concerned with material __________.
A process of choosing among competing ends which resources are going to be employed for the production of commodities chosen to satisfy the human wants that have a higher value in the priority system.