Every man of any distinction makes an economic decision everyday.

Deciding on
how much to spend and save, the kind of food to buy, the type of school to enroll, the
amount of time for work and leisure, and many more are only some situations where
one applies economics. Thus, it is very important to understand the various issues and
intricacies concerning economics.

Definition of Economics
Economics is concerned withhunmnity's uell-being or welfare. It encompqsses tlrc social
"
relationships or social organizations intolt,ed in nllocating scarce resources among rilternatiae
humqn wants and in using those tesources toward the end of satisfying ruants as fully as
p o s sible. " Richard Leftwich (197 9')

"Economics is the study of hott, societies use scarce rcsources to produce aaluable
commodities and distributes them afircfit tli.fferent groups." Palul Samuelson and William
Nordhaus (1989)
"Economics is the study of hott, people make their liaing, how they acquire the food,
shelter, clothing and other material necessities nnd comfort of this world. lt is a study of
the problems they encounter and of the u,nt/s in ruhich these problems can be reduced," Paul
Wonnacott and Ronald Wonnacott (1985)
"Economics is a scientific study ulticlt denls withhoru indiaiduals nntl society generally
make choices. lndioiduals and groups irt society haae innumerable rasnts. To stttisfy those
wants, there are resotffces that can be used. These resources, hozoeoer, are not freely aaailable.
They are scarce and furthermore Lta-oe otlrcr nlternatiae uses. Dimensions of choice include
present and future use of aaailable resources. Moreoaer, the uses of these resources carry zuith
them costs and correspondingbenefits. Concerns with costs andbenefits require efficiency in
resources use." Geratdo Sicat (1983)

Generally, Economics can be defined as a social science which deals with the
proper allocation and efficient use of available resources for the maximum satisfaction
of human wants (Fajardo, 1990).

Divisions of Economics
1. Microeconomics deals with the problems and analysis of behavior of
individual economic unit such as the consumer (household), seller (firm)
and owners of factors of production.

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 2. Macroeconomics dears with the problems of the whole economy and
how aggregated economic units or sectors such as consumer, buiiness,
govemment and foreign sectors are interrelated.

Human Wants
Human wants are the goods and services needed by human beings.
Goods and seraices are those that yield satisfaction. It may be tangible (i.e.
shoes,
and dresg pencils, food) or intangible (i.e. haircut, foot spa, dentaicare).

of Classification of Goods
1. Consumer goods as. Capital goods
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Consumer goods - Those that yield direct satisfaction.
Example: When we eat hamburgeq, we get immediate satisfaction.
Hence, hamburger is a consumer good.
Capital goods - Those that are used in the production of other goods (and
sbrvices).
Example: The frying pan used in the preparation of the hamburger
C does not give a direct satisfaction (instead an indirect
satisfaction because without whiclu the hamburger cannot
be prepared.)
Money is not considered a "capital" good because it is not used in the
production of other goods (and services). Instead, it provides a means to
buy (consumer or capital) goods.
2. Essential goods os. Luxury goods
Essential goods - These are the "basic,,needs of man.
Luxury goods - These are those that contribute to man,s comfort and well-
being.

Characteristics of Wants
1. Unlimited
2. Varied
3. Insatiable (over an aggregate period of time)

Origins of Wants
1 suruioal. People want food, clothing and shelter because they are
needed to survive.
2. Dictated by culture. The desire to have appliances such as televisiory
refrigerators and gas stoves are dictated uylhe culture where one lives.

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 3. Generated by actiaity necessary to satisfy other wants. The desire to
complete college education is not because one really wishes to spend
and sacrifice in coming to school but this activity is needed because it
is essential to satisfy the ultimate desire of getting a better job in the
future.

Resources
Resources refer to the factors or inputs of production. They are those which are
needed to produce goods and services. These include:
1. Economic resources. These are those with price tag because they are scarce.
2. Free resources. These are those that has no price (because they are abundant).
Classification of Resources
1.. Land. This pertains to the natural resources, not man-made. It
includes everything found on or under land, including mountains,
bodies of waters (like rivers, lakes, oceans), minerals, aiq, and sunlight.
2. Labor.It consists of labor power or the capacity for human being, both
physically and mentally, used in producing goods and services. This
applies not only to workers, farmers, or laborers but also to professionals
like accountants, economists, or scientists.
3. Capital.It is anything that is used to produce other goods and services.
4. Entrepreneurship.Itis the ability to organize and coordinate land, labor,
and capital.
Characteristics of Resources
1. Limited or scarce
2. Versatile
3. Can be combined in varying proportion to produce goods and
services.

Basic Economic Problems

1. What goods and services to produce?
2. How to produce the goods and services and how much?
3. For whom are these goods and services?

Economic System
A system is a structure. So an economic systemis the economic structure of qgiven
economy.

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 Models of Economic System
1. Capitalism. It refers to a free enterprise or laissez faire economy (no
goverrunent intervention).
2. Communism. This is the opposite of capitalism wherein the government
, controls the economy. This is also called a command economy.
3. Socialism,It is a mixture of capitalism and communism. It contains the
characteristics of both capitalism and communism
.
and A simplified model of a private enterprise economic system is presented in Figure
L below:
of
laries, Rent, lnterest, Profit
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Land, Labor, Capital, Entrepreneurship

Consumers Business Firms

Goods and Services

Gonsumption Expenditures

Figure 1. Economic Model

The lower loop of the figure shows the market for consumer goods and services.
The consumers are the buyers while the business firms are the sellers. The consumers
pay the business firms for the purchase of the goods and services. The purchase prices
of goods and services forms the connecting link between the consumers and the
business firms. The value of gogds and services is equal to the money that flows back
to the business firms.
The upper loop of the figure is the market for resources. The consumers provide
the business firms with resources (i.e. land, labot capital and entrepreneurship). The
business firms, on the other hand, pay for these resources in the form of wages / salariet
rent, interest and profit.

The Tools of Economics

Economic theories are used to explain the nature of economic activity and to
predict what will happen to the economy. The tools used in making these explanations
and predictions include:
1,. , Logic. It pertains to reasoning and drawing of conclusion.
2. Mathematics. It means conceptualizing and quantifying economic principles.

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 3. Statistics.It means describing behaviors quantitatively and testing hypo-
thesis in making inferences.
Economics, being a science, follows the scientific approach in arriving at a
conclusion. The stages in a scientific approach are:
1,. Observation
2. Specification and definition of the problem
3. Deduction
4. Empirical testing
Economic principles are formulated and derived through the scientific approach.
These principles are called generalization. This means they do not apply to all people.
They tend to be true to a large number of people under certain assumptions.
Economic principles or theories are useful because they explain certain economic
behavior or conditions. These are helpful in solving economic problems or serve as
guides in economic planning and formulation of economic programs. Theories or
principles are represented by models in the form of mathematical equations, set of
diagrams and flow charts.
In economic analysis, economics is sub-classified into:
1. Positiae economics. It deals with the causal relationships that exist in
economics. There is no value judgement and deals with "What is".
2. Normatiae economics.In contrast, it deals with the way economic relationships
ought to be. Value judgements play an integral part in the ranking of possible
objectives and the choices to be made among them. It deals with "what
ought to be".