The document provides an overview of key economic concepts including: - Economics is the study of how scarce resources are used to satisfy unlimited human wants. It deals with scarcity and how producers make products with limited resources. - Scarcity exists when there is not enough of a product/service/resource to satisfy all needs and wants at zero price. - Microeconomics studies individual markets and entities like firms and households. Macroeconomics studies the overall economy. - Important economists who contributed major ideas include Adam Smith who advocated laissez-faire policies and John Maynard Keynes who argued the government should spend to boost employment during recessions.

1. ECONOMICS
CHAPTER 1
The Fundamentals of Economics
By:
Prof. Michael Angelo P. Battung, MBA

2. ECONOMICS
Comes from the Ancient Greek Word “oikos”
means house and “nomos” means custom or law

3. ECONOMICS
It is the study of the use of scarce
resources to satisfy unlimited human wants
and needs.
It deals on scarcity of resources on how
a producer makes a best quality product
with the use of limited raw materials.

4. ECONOMICS
Need – Is something that you have to
have.
Want – Is something you would like to
have.

5. Scarcity
Exists when there is not enough of
something (product / service / resource)
to satisfy everyone’s needs and wants
at a ZERO PRICE.

6. ECONOMICS AS A SOCIAL
SCIENCE
Positive Statements – Concern on what it
is, was or will be. It is the assertions,
statements, or theories may be simple or
complex, but basically about matters of
fact.
Normative Statements – Concern what
one believes ought to be

7. ECONOMICS AS A SOCIAL
SCIENCE
The well known tool use to determine
the exact prediction is by the use of
surveys and other statistical techniques.

8. ECONOMICS AS A SOCIAL
SCIENCE
Variable – is a magnitude that can take
on different possible values.

9. Important Roles of Economics:
1. Analyzes how a society's institutions and technology affect
prices and the allocation of resources among different uses.
2. Explores the behavior of the financial markets, including interest
rates and stock prices.
3. Examines the distribution of income and suggests ways that the
poor can be helped without harming the performance of the
economy.
4. Studies the business cycle and examines how monetary policy
can be used to moderate the swings in unemployment and
inflation.
5. Studies the patterns of trade among nations and analyzes the
impact of trade barriers.
6. Asks how government policies can be used to pursue important
goals such as rapid economic growth, efficient use of resources,
full employment, price stability, and fair distribution of income.

10. Inputs and Outputs
Inputs – are commodities or services that are used to
produce goods and services.
Outputs – are the various useful goods or services that
result from the production process.

11. Resources and Commodities
A society’s resources consist of natural gifts like land,
forests, and minerals, both mental and physical; and
manufactured aids to production such as tools, machinery
and buildings. Economists called it Factors of Production.
Commodity – The things produced from raw materials of
nature to sustain human wants.

12. FACTORS OF PRODUCTION
LAND
LABOR
CAPITAL

13. COMMODITY
GOODS SERVICES
Resources and Commodities

14. Goods vs Service
Characteristic
Output
Customer contact
Uniformity of input
Labor content
Uniformity of output
Measurement of productivity
Opportunity to correct
Goods
Tangible
Low
High
Low
High
Easy
High
Service
Intangible
High
Low
High
Low
Difficult
Low
quality problems
High

15. Resources and Commodities
Production – The act of making goods and services
Consumption – The act of using goods and services to satisfy wants
Efficiency – The use of a society’s resources in satisfying people’s
wants and needs.

16. Production Possibility Frontier
The maximum amounts of production that can be
obtained by an economy of inputs available.
How much different goods and services can be provided.

17. Production Possibility Frontier
d ManufacturedProduction
Combination
Farm
Products
(millions of
bushels)
Manufactured
Products
1
2
3
4
5
514
11
5
0
0
15
15
25
30

18. Production Possibility Frontier
Production
Combination
Farm
Products
(millions of
bushels)
9
15
30
12
6
3
252015105

19. Efficiency
The economy’s resources are being
used as effectively as possible to satisfy
people’s needs and desires.

20. Two Branches of Economics
Micro Economics – The branch of
Economics concerned with the behaviour
of individual entities such as markets,
firms, and households.

21. Adam Smith
- Father of Classical Economics
- In 1776 he created the book entitled “The Inquiry
in the Nature and the Causes of the Wealth of
Nations”.
- He emphasized the law of “laissez-faire”
meaning it is the natural process of the economy and
should not intervene the government to prevent
equilibrium.
- He also created the law of invincible hand. The
government will not intervene to commodity prices.

22. Two Branches of Economics
Macro-Economics – Concerned with the
overall performance of the economy.

23. John Maynard Keynes
- The government should spend money
on public works, infrastructures, and
economic programs to increased the
resurgence of business activity, and the
restoration of full employment.

24. Three Problems of Economic Organization
1. What to produce?
2. How to produce?
3. For whom to produce?

25. Economy
- A set of interrelated production and consumption activities.
Three types of economy:
1. Free – Market Economy – An economy in which the decisions of
individual households and firms exert the major influence over the
allocation of resources.
2. Command Economy – The major decisions about the allocation of
resources are made by the government and in which firms and
households produce and consume only as they are ordered.
3. Mixed – Economy – Combination of Command and Market
Economy.