(B) the Nature and Importance of Economics (Revised)

THE NATURE AND

IMPORTANCE OF ECONOMICS

By: Angelito D. Platino THE NATURE AND IMPORTANCE OF ECONOMICS 1

Objectives:

• At the conclusion of the session, you must

have been able to:

– Compare the various definitions of economics and

identify their common ground.

– Identify the basic economic problem addressed by

the concerns of economics.

– Relate economics with the other social sciences.


Objectives:

• At the conclusion of the session, you must

have been able to:

– Differentiate macroeconomics from

microeconomics as the two main divisions of

economics.

– Enumerate and discuss the significance of the

following: economic systems, economic resources,

and economic goals.


Economics Defined

• “…a social science concerned

with using scarce resources to

obtain maximum satisfaction.”

(Walstad and Bingham, 1993)


Economics Defined

• “…the study of how societies

use scarce resources to produce

valuable commodities and

distribute them among different

people.” (Samuelson and

Norhaus, 1992)


Economics Defined

• “…the study of production,

distribution, selling, and use of

goods and services.” (Collin,

1997)


Economics Defined

• “…the study of how people use

their limited resources to try to

satisfy unlimited wants.” (Parkin

and Bade, 1991)


Question:

•What is the common

ground of the

definitions?


The Common Ground:

•Resources

are scarce.

• Human

needs and

wants are

unlimited.


More Definitions:

• SCARCITY

– “the imbalance between our desires and the means

of satisfying those desires.” (Hyman, 1992)

– The condition wherein most things that people need

and want are available only in limited supply.”


More Definitions:

• WANTS

– “…refer to a person’s desires or preferences for

specific ways for satisfying a basic need.”

(Bannock, 1974)


More Definitions:

• OPPORTUNITY COST

– “…the cost of choosing to use resources for one

purpose measured by the sacrifice of the next best

alternative for using those resources.” (Hyman,

1992)


Question:

• From the foregoing

definitions, what do you

find to be the basic

economic problem?


The Fundamental Economic

Problem:

SCARCITY


The Decision Questions:

1. What goods and services must

be produced and in what

quantities?• Rice or weapons?

• If rice, how much of what type?



2. How shall these goods and

services be produced?• Who shall produce them?

• What resources and technologies shall be used?



3. For whom shall these goods

and services be produced?• Who shall consume them?

• What benefits from the results of the economic activities?


The Concerns of Economics:

• The PRODUCTION,

DISTRIBUTION and

CONSUMPTION of goods and

services.


Economics is Concerned with:

•PRODUCTION– The creation or addition of utility.

– Utility is the economic term for usefulness. It is the

ability of a good or service to satisfy a want.

• Form Utility

• Place Utility

• Time Utility

• Possession Utility



•PRODUCTION– Factors: (Economic Resources)

• Land – land and natural resources

• Labor – time and effort of human beings involved in the

production process.

• Capital – goods used to produce other goods

• Entrepreneurship – undertaking that combines the three

other factors in the production process.



•DISTRIBUTION– The allocation of the total product among the

factors of production.

– The distribution of money incomes among the

factors of production.

• Land – RENT

• Labor – WAGES

• Capital – INTEREST

• Entrepreneurship – PROFIT.



•CONSUMPTION– The use of a good or a service.

– Without it, there would be no need for production

and distribution.



•GOODS AND SERVICES– Characteristics of Economic Goods:

• Material

• Useful

• Scarce

• Transferable



•GOODS AND SERVICES– Economic Services – non-material activities that are

useful, scarce, and transferable.

– Give examples of economic services…


Economics and the Social Sciences

Economics is related to:

• POLITICAL

SCIENCE

Because:

• Government

has a role in

the economy.




• SOCIOLOGY

Because:

• Low standard

of living leads

to social

problems.




• PHILOSOPHY

Because:

• Economic

acts are

humans acts

(morality).




• HISTORY

Because:

• Economic

development

occurs

through time.


Divisions of Economics:

MICROECONOMICS

• Concerned with the

“behavior and activities

of specific economic

units – individuals,

households, firms,

industries and resource

owners.”

• Critical concept –

MARKET

MACROECONOMICS

• Deals with the behavior

of the economy as a

whole with respect to

output, income, the

price level, foreign

trade, unemployment

and other aggregate

economic variables.


Economic Goals:

1. Economic Growth

2. Full Employment

3. Economic Efficiency

4. Price Level Stability

5. Economic Freedom

6. Equitable Distribution of Income

7. Economic Security

8. Balance of Trade


Economic Goals:

1. Economic Growth– Society desires a higher standard of living

manifested by the production of more and better

quality goods and services.


Economic Goals:

2. Full Employment– There must be jobs for those who are willing and

able to work.


Economic Goals:

3. Economic Efficiency– The utilization of resources to derive the

maximum benefits for the society.


Economic Goals:

4. Price Level Stability– The economy should be able to avoid great

fluctuations in the general level of prices.


Economic Goals:

5. Economic Freedom– High degree of freedom to choose what economic

activity to undertake afforded to various sectors.


Economic Goals:

6. Equitable Distribution of

Income– The condition whereby the rich get richer and the

poor get poorer is prevented.


Economic Goals:

7. Economic Security– Enough provision must be accorded for those

who are not able to earn minimal income like the

aged, the chronically ill, the disabled, etc.


Economic Goals:

8. Balance of Trade– Balance between import expenditures and export

revenues must be maintained.


Main Reference:

• Principles of Economics by Roberto Medina,

Chapter 1.


(B) the Nature and Importance of Economics (Revised)

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