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59 Cards in this Set
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is a social science which deals with the study of efficient allocation and utilization of scarce resourcesfor the satisfaction of unlimited human wants. |
Economics |
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is derived from the Greek word |
oikonomus “oikos” meaning household and “nomus”meaning system or management |
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The study of economics is essential due to the existence of two extremes |
scarce resources & unlimited human wants |
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is the basic and central economic problem |
Scarcity |
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can be looked into as the limited availability of economicresources relative to man’s or society’s unlimited demand for goods and services. |
Scarcity |
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Key elements in the objective of satisfaction |
Human Wants Resources |
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provide the driving motivating force and the fulfillment maybe thought of as the end or goal ofany economic activity; |
Human Wants |
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– also referred as the factors of production or inputs; these are the means available for producinggoods and services that are used to satisfy wants and needs. |
Resources |
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resources are scarce or limited in quantity relative to the desire for the product that they can produce. |
Economic Resources |
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resources are abundant in quantity and that they can be had for the taking; they command no price. |
Free resources |
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Classification of resources |
Land Labor/Human Capital Entreprenuership |
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covers all natural resources that exist without man’s intervention |
Land resources |
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-consist of labor power or the capacity for human effort both physically and mentally,used in producing goods. |
Labor/Human Resources |
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-manmade resources that is used to create another product |
Capital |
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includes the managerial abilities that a person brings to the organization. Entrepreneurs canbe owners or managers of firms |
Entreprenuership |
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–refer to how resources are used and combined or allocated in the production. |
Technique |
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Kinds of Technique |
Labor intensive Capital intensive |
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– production process that requires higher labor input than capital input in terms of cost. |
Labor intensive |
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- production process that requires higher capital input than labor input in terms of cost. |
Capital intensive |
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Ten Principles of economics |
1. People face tradeoffs 2. The cost of something is what you give up to get it 3. Rational people think at the margin 4. People respond to incentives 5. Trade can make everyone better off 6. Markets are usually a good way to organize economic activity 7. Governments can sometimes improve market outcomes 8. A country’s standard of living depends on its ability to produce goods and services 9. Prices rise when the government prints too much money 10. Society faces a short-run tradeoff between inflation and unemployment |
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Important Concepts related to scarcity |
Opportunity Cost Marginal Cost and Marginal Benefit |
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refers to the cost of giving up an alternative by selecting the best next choice. It is thevalue of foregone alternative; the more we get of something the more we sacrifice a unit of other alternative. |
Opportunity Cost - |
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looking at the additional cost and additional benefits whether theextra unit of time, money or other resources allocated in some courses of action is worthwhile; marginalbenefit must outweigh the marginal cost. |
Marginal Cost and Marginal Benefit |
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Branches of economics – two major divisions of economics |
Microeconomics Macroeconomics |
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concerns with the behavior of the sub units of the economy such as firms, individuals,government agencies; seek to understand and explain the behavior of the individual decision making units as theyrespond changes in their economic environment. |
Microeconomics |
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– is the study of the economy as a whole or aggregate; covers the total level of output,income, employment, consumption, investment, and prices for the economy as a whole. |
Macroeconomics |
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Economic Activity |
Production Distribution Exchange Consumption Public Finance |
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– an economic process of converting inputs (land, labor and capital) into outputs |
Production |
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the process of allocating or apportioning scarce resources to be utilized; the process of storing andmoving products to customer often through intermediaries (wholesalers & retailers) |
Distribution |
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the process of trading or buying and selling of goods and services for money or its equivalent. It alsoincludes the buying of goods and services either in the form of barter or through market |
Exchange |
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refers to direct utilization or usage of the available goods and services by the buyer (individual) or theconsumer (household). |
Consumption |
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the collection of taxes from those who benefit from the provision of public goods by the governmentand the use of those tax funds towards production and distribution of the public goods. |
Public Finance |
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Fundamental Economic Problems |
What to produce? How to produce? How much to produce? For whom to produce? |
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– characterized by the type of institutions responsible for the management and allocation ofresources used in the production of goods and services. |
Economic Systems |
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an economic system which run by individual players in the economy (seller andbuyer). |
Market/capitalist economy |
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all economics resources are owned by government or by the public; decisionmaking is centralized in the hand of government; the economy has no ownership, no private property |
Command/communist economy |
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the functioning of economy is governed by customs, belief, and traditions |
Custom or traditional economy |
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– a mixture of two systems. Counties may refer as socialistic or a private enterprisedepending on which sector is predominant |
Mixed economy |
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3 Es in Economics |
Efficiency Effectiveness Equity |
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refers to productivity and proper allocation of economic resources. |
Efficiency |
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means attainment of goals and objectives |
Effectiveness |
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means that the benefits of those resources are distributed fairly among society’s members. |
Equity |
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are the tool used by economist to verified and falsified economic phenomena or theories; asimplification of intricate relationship between economics agents and economic variables. |
Economic models |
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Common elements or characteristics of economic models |
Ceteris Paribus The assertion that economic agents are optimizer The distinction between Positive and normative economics |
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Kinds of Analysis in Economics |
Positive Economics Normative Economics |
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A visual model of the economy that illustrates how households and businessinteract through markets for product and markets for resources. A cyclical activities that show how theeconomy works |
Circular Flow diagram |
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–this shows the possible maximumcombination of goods and services that an economy can produce given the available resources and existingtechnology at a given time; it gives a menu of choices to produce goods in the most efficient way in terms ofresources use. |
Production Possibility Frontier (PPF) also called Transformation Curve |
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-place where trade between buyers and sellers (consumer and seller or producer take place). |
Market |
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refers to the willingness of the buyer/ consumer to pay for certain goods and services; represents theconsumer’s preferences and purchasing power |
Demand |
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refers to the willingness of the producer/seller to produce the goods that the consumer look for; capacity of thefirms to produce a commodity; settle in the market to trade or sell products in the hope of gaining profits. |
Supply |
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Law of demand |
if the price of a certain goods and services rise the quantity demanded will fall, and if the price decreasesthe quantity demanded for that good will increase thus the quantity demanded for a commodity or service is negativelyor inversely related to its own price, holding all other factors constant. |
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Reasons why Price and Qty demanded are inversely related |
• Concept of Opportunity Cost • Purchasing Power • Utility |
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Ways to present the demand and its determinants |
Demand Schedule or table Demand Curve Demand Function |
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a numerical tabulation of the quantity demanded (Qd) of a good or services at selectedPrice, holding all other factors constant |
Demand Schedule or table |
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a graph that obtains when price (one of the determinants of demand) is plotted against quantitydemanded; the characteristic of the curve is downward sloping |
Demand Curve |
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– an equation or mathematical representation of demand as a function of its many determinants. |
Demand Function – |
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Formula for Demand Function |
Qd = a – bp |
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Qd = a – bp |
Qd = Quantity demanded P =Price a = Intercept -b = Slope/ slope of the function |
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Factors affecting the Quantity demanded and the Shift in the demand curve |
1. Price of the product 2. Income 3. Consumer taste and preferences 4. Consumer expectation 5. Price of related goods 6. Population 7. Range of goods available in the market |
