1 Fundamentals Of Economics.ppt 1k6m50

Fundamentals of Economics ECON1E: Principles of Microeconomics University of St. La Salle

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Economics • This is the study of proper allocation and efficient use of available resources for the maximum satisfaction of human wants. • The study of how individuals and societies choose to use the scarce resources that nature and previous generations have provided.

Economics • The term “economics” comes from the Ancient Greek word oikonomeia (“oikos” – house; “nomos” – custom or law), literally “management of the household” or “rule of the house”.

Economics • 'Political economy' was the earlier name for the subject, but economists in the late 19th century suggested "economics" as a shorter term for "economic science" to establish itself as a separate discipline outside of political science and other social sciences.

Nature of Economics • Economics is classified as a social

science because it deals with the study of man’s life and how he lives with other men.  e.g. household budgeting, paying taxes

• It is also considered as the “Queen of

Social Science”.

Nature of Economics • Our economic problems are not purely economic in nature. • These are also caused by noneconomic factors which may be cultural, educational, social, or political.

Nature of Economics • Therefore, we need not only economic solutions but also political, social and cultural reforms.  e.g. poor farmer, who is given land, has several bad habits like heavy drinking and gambling

Concept of Economics • Scarcity • is the fundamental economic problem of having seemingly unlimited human wants in a world of limited resources. It states that society has insufficient productive resources to fulfill all human wants and needs.

Concept of Economics • Scarcity • if everything is abundant, the price is zero and there is no need for allocation and no such things as economic goods (i.e. economics becomes useless!)

Concept of Economics • Efficiency • when resources are used in such a way that people can get as much as they can get (specific to their wants and needs)

Division of Economics • Microeconomics  The branch of economics that examines the functioning of individual industries and the behavior of individual decision-making units — that is, business firms and households.  e.g. price of rice, number of workers in San Miguel Corporation, income of Mr. Sy

Division of Economics • Macroeconomics  The branch of economics that examines

the economic behavior of aggregates— income, employment, output, and so on —on a national scale.  e.g. gross national product, level

of employment, national income

Division of Economics • Microeconomics looks at the individual unit —the household, the firm, the industry. It sees and examines the “trees.” Macroeconomics looks at the whole, the aggregate. It sees and analyzes the “forest.”

Division of Economics • When we study the income or expenditure of a family savings bank, we are dealing with microeconomics; • When we deal with the total income or total expenditure of the whole banking industry, then we are involved in the study if macroeconomics.

Fallacies on Economic Reasoning • Post hoc fallacy  assumes that because one event

occurred before another, the previous one caused the succeeding event  e.g. The rooster crows immediately

before sunrise, therefore the rooster causes the sun to rise.

Fallacies on Economic Reasoning • Failure to hold things constant (ceteris paribus assumption)  always take note to hold other things constant

Fallacies on Economic Reasoning • fallacy of composition • assumes that what holds part of the system applies for the entire system • e.g. If someone stands up out of his seat at a basketball match, he can see better. Therefore, if everyone stands up they can all see better.