Lesson I: INTRODUCTION TO APPLIED FIVE KEY ELEMENTS

ECONOMICS
1. SOCIAL SCIENCE
 Revisiting economics as a social science  Economics is primarily a social science and it utilizes
the scientific method of inquiry from identifying the
3 STRANDS IN THE DEVELOPMENT OF THE problem, proposing alternative tentative answers or
DEFINITION OF ECONOMICS hypotheses, testing the tentative answers to the question
through the conclusion.
a. Economics as study of WEALTH  It also pertains to the study on how society creates its
 It implies that the motivation of the process of material wealth, how it makes available to its people with
wealth accumulation is the utilization of wealth for minimum difficulties and how it expands its wealth.
the individual’s satisfaction and society’s welfare.
 The initial definition pertains to activities answering 2. RESOURCES
the two major economic problems in any society –  Resources or wealth can be defined as products of
PRODUCTION and CONSUMPTION. nature, qualities of individuals and man-made things
 Note: Thus, ECONOMICS is all about WEALTH which are used in producing good and services.
and how this WEALTH is being used by individuals  Coverage of RESOURCES: The characteristic of
and society at large for material survival, stability and RESOURCES is that they are limited.
development.
Two Major Factors:
 It pertains to the length of time as well as the
b. Economics as Study of MAKING CHOICES
difficulties in producing these resources.
 In everything we do, whether we produce or
 The limitation further intensified by the competing
consume, whether its wealth-getting or wealth-using,
uses for these resources.
we make decisions and these decisions are based on
alternative choices.  NATURAL RESOURCES - Used as raw
 When we make a choice from among these materials or intermediate inputs for the production of
alternatives, it implies that we are foregoing or other goods.
sacrificing the benefits that would have been derived  HUMAN RESOURCES - It includes the qualities of
from alternatives that were not selected. human beings. It gives the capacity to create value
 In making a decision we have to consider a major directly through the provision of services.
concept in the study of economics – OPPORTUNITY  PHYSICAL RESOURCES - Can be used to provide
COST. In everything that we do, there are costs and present and future satisfaction.
sacrifices that we have to carry.  Note: Because of the physical limitations and
 OPPORTUNITY COST refers to what you have to alternative uses of resources, the concept of opportunity
give up to buy what you want in terms of other goods cost becomes prominent in the study of economics.
or services.
3. HUMAN WANTS
c. Economics as Study of ALLOCATION  Resources are used to answer the human needs and
 The definition of economics will be explained human wants of a society.
further as a social science that deals with the study of  HUMAN NEEDS can be portrayed as basic
allocation of scarce resources to answer the unlimited necessities for material survival including food, clothes
human wants. and shelter.
 Note: Although the third definition concentrates on  HUMAN WANTS is based on human needs but
the allocation process, economics can be analysed differentiated or expanded by the influence of various
comprehensively in terms of its FIVE KEY factors.
ELEMENTS.
  Various Factors Of Human Wants
 Level of Income
 Environment
 Note: Because of marked difference between human Lesson II: ALLOCATION
wants from human needs people tend to view human  Allocation
wants as luxury or unnecessary compared with human - It can be defined as a social mechanism to respond to
needs.
the economic problem of scarcity to meet the expanding
 Since these factors can be influenced intrinsically and
human wants because of limited resources.
externally , it is possible that human wants can expand
and multiply and that is one of the reasons why we have
an economic problem. 3 MAJOR MECHANISMS OF ALLOCATION

4. SCARCITY 1. MARKET SYSTEM

 It can be defined as the limitation of resources to answer  MARKET is a state when buyers and sellers transact
the expanding human wants and the proper use of on the purchase or sale of goods & services.
resources becomes a societal problem.  We normally see market as a physical place like public
 Scarcity can be considered as a key economic problem market or supermarket or the stock market.
because of the limitations of resources.  The normal process of allocation utilized in many
 The limitation of resources arise primarily because of societies today is through the market system and it is
internal and external factors that differentiate simple considered not only a place but a state when transactions
human needs into human wants and it is the main reasons are made.
for the emergence of the problem of scarcity.  “The MARKET SYSTEM operates on the price
 Difference between SCARCITY and SHORTAGE mechanism provides incentives and disincentives to
 SCARCITY is a general characteristic of resources in consumers and producers.”
the light of its competing uses that may arise from the  The PRICE of a commodity is both an index of cost
rapid expansion of human wants. or sacrifice (for producers) and benefit or satisfaction (for
 SHORTAGE is a condition when the supply of a buyers).
good, service or resource is not enough to meet the  NOTE: A higher price reflects a higher value or utility
demand. or benefit that the consumer can derive from the
 A SURPLUS can also be associated with the problem of commodity while a lower price implies lower value or
scarcity. utility or benefit.
 SURPLUS - an amount that is more than the amount
that is needed.  Three Basic Economic Questions
 Various Ways Of Treating The Problem Of Scarcity a. What to produce?
a. Individuals may have to slowdown the expansion of - It is the commodities that are needed or wanted by the
their human wants in the light of limited resources. consumers that the producers need to be produced.
b. Hasten the expansion of limited resources in the light b. How to produce?
of expanding human wants. - Reflects the manner of production or technology that
c. Combination of the two alternatives. will be used by firms in producing those commodities
with high demand.
5. ALLOCATION c. For whom to produce?
- It refers to the allocating of higher proportion of output
 It can be defined as a social mechanism to respond to
to members of a society with high purchasing power.
the economic problem of scarcity to meet the expanding
human wants because of limited resources.
2. COMMAND SYSTEM
 The state or agency of the government may be in
charge in the allocation of resources by using its political
 power in answering the basic economic problems of
production and distribution.
 The Command System may be more orderly than the  The use of TRADITIONAL SYSTEM was not only
market system in times of Natural Calamities, Disasters or applicable in indigenous communities in the past but there
National Emergencies. are instances currently that make tradition a more effective
 The normal operations of a market may not be present allocation mechanism.
under such abnormal circumstances but the basic needs of  TIPPING is another phenomenon arising from the
the citizens have to be addressed. system of tradition and it is not a payment for service but a
 NOTE: In cases of shortages, the government can ration small token of appreciation for services.
basic commodities to those in need and to those whose
capacity to buy has been severely hampered by the natural
calamity.  In general, the choice of allocation mechanism will
 The COMMAND SYSTEM has been useful as a depend on the situation as hand and the effectiveness of
temporary alternative mechanism in abnormal times when the alternative in answering the needs of the people,
the market system cannot fully operate or the price tempering human wants and in the proper use of resources.
mechanism is inadequate for allocation.
 It has been used even in normal times by several
totalitarian and socialist states in the past to pursue GOODLUCK HEHE! <#3
national goals.
 The government promoted the Great Leap Forward as
a program to hasten the industrialization of the country by
increasing the production of industrial goods at the
expense of agricultural commodities.

3. TRADITIONAL SYSTEM
 The use of TRADITIONAL SYSTEM may be useful
in situations where the operation of the market may not be
appropriate or the power of an organized state has no
control over a certain community.
 This was normally observed and practiced in indigenous
communities in the past where life was less complicated
and the simple needs of the members of the society can be
provided by the society itself.
 The tempering mechanism of TRADITIONAL
SYSTEM is made through the formation of simple of
human wants which are shaped by social norms and
values.
 In the use of resources for production purposes,
technologies handed down from generations are utilized.
 In food preparation, the choice and sourcing of
ingredients as well as the manner of preparation are based
on long-established recipes.
 In the distribution of the community output, the concept
of SHARING is practiced.
 Even those that did not participate directly in the
production process are given an equitable share based on
the values set by the community.