ECONOMICS: An Introduction

Economics deals with the problem of scarcity. If

society’s resources are abundant and unlimited rather
than scarce, then there would be no problem to
study. Society would simply produce anything and
everything it needs at any point in time and everyone
would have as much of everything he desires. But this
is not the case, for there is a basic and continuing
problem of scarcity that man and society are
confronted with. Scarcity alone does not explain
completely the economic problem. Paired with a
shortage of resources are the multiple wants and
desires of human beings.

Human beings have multiple wants and desires,

resources have alternative uses. Scarce resources
need to be allocated among different needs. If human
beings have only one requirement (say food), coping
with scarcity would require only how to get the most
food out of existing resources. However, since men
need many more material items other than food,
there arises the problem of determining the optimum
use of resources to satisfy competing needs.

To summarize, scarcity of resources plus

multiplicity of human wants equals economics.
It is obvious to anyone that, at any given time, at
least some resources (e.g. land or capital) are scarce
and that human wants are almost unlimited. Thus, it
is hard to deny the importance of economics both
today and in the future.

DEFINITION
1. Economics is the study of how societies use scarce
resources to produce valuable commodities and
distribute them among different people.

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2. Economics may be defined as a science that deals
with the activities of man in obtaining wealth for
the satisfaction of his wants.

3. Economics is the art of making a living.

4. Economics is the proper allocation and efficient

use of available resources for the maximum
satisfaction of human wants.

5. Economics is the branch of social science that

deals with the production and distribution and
consumption of goods and services and their
management.

6. Economics is the science that deals with the

production, distribution, and consumption of
wealth, and with the various related problems of
labor, finance, taxation, etc. (Webster's New
World)

7. Economics is the study of choice and decision-

making in a world with limited resources.

8. Right and prudent administration of assets, Public

wealth, set of services and economic interests.

9. The study of the choices people make to cope with

scarcity.

10. Economics is the study of how to use our limited

resources to satisfy our unlimited wants as fully as
possible.

DIVISION OF ECONOMICS

Microeconomics is that branch of economics that

deals with the economic behavior of individual units
such as consumers, firms and the owners of the
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factors of production, for example, the price of rice,
the number of workers of PLDT, the income of Mr.
Dorig, etc. Micro means small, thus microeconomics
deals with the study of the small units of the
economy.

Macroeconomics is that branch of economics that

deals with the economic behavior of the whole
economy such as government, business and
household. Examples of macroeconomic studies are
national income, employment and inflation.

Microeconomics and macroeconomics are closely

related, for example, compared with the human body,
the microeconomic units are the heart, kidney, lungs
and other parts. The macroeconomic unit is the
human body. A defect in part of the human body
affects the whole body. The same is true in the
operation of economics.

HISTORY OF ECONOMICS
It has started to be known when Adam Smith’s book
Wealth of Nations was published in 1776. Prior to
that, economics has been integrated into other fields
such as religion, philosophy and political science. That
book became the bible of economics for more than a
century. Adam Smith was responsible for the
recognition of economics as a separate body of
knowledge. Economics have been as old as mankind.
It started when God drove Adam and Eve away from
the Garden of Eden. Economic thoughts appeared in
biblical teachings, philosophy and politics. The
primitive people invented ways and means of food
gathering and hunting. Such art of making a living
among the ancient tribes represented a form of
economics.

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The word “economics” has been derived from the
Greek word oikonomia. It means household
management. The housekeeper has to see to it that
there is enough food, clothing and shelter; that the
house is kept in order; that the necessary duties and
responsibilities are performed by the members of the
household; and that their products are distributed
according to necessity. To the ancient Greeks, the
term oikonomos applied more on the proper
management of the city-states. As a science,
economics emerged only in 1776

BASIC ECONOMIC PROBLEMS

1. What goods and services to produce and how

much?
A society must determine how much of each of the
many possible goods and services it will make, and
when they will be produced. Will we produce
frozen pizzas or shirts today? A few high-quality
shirts or many cheap shirts? Will we use scarce
resources to produce many consumption goods
(like frozen pizzas)? Or will we produce fewer
consumption goods and more investment goods
(like pizza-making machines, which will boost
production and consumption tomorrow.

2. How to produce the goods and services?

It has to do with production and technology. As a
general rule, goods and services must be produced
in the most efficient manner. This means
maximum output with minimum input without
sacrificing quality. The application of modern
technology has increased output and decreased
cost of production. The use of advanced
technology will create more unemployment.
3. For whom are the goods and services?
One key task for any society is to decide who gets
to eat the fruit of the economy’s efforts. How is the
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 national product divided among different
households? Are many people poor and a few rich?
Do high incomes go to managers or workers or
landlords? Do the sick or elderly eat well, or are
they left to fend for themselves?

ECONOMIC SYSTEM MODELS

What is meant by economic system?

Economic system is a set of economic institutions

that dominates a given economy.

An institution is a set of rules of conduct,

established ways of thinking, or ways of doing things.

The purpose of an economic system is to solve the

basic economic problems. The main goal of economic
system is high standard of living for all its citizens.

1. Capitalism
Here, the factors of production and distribution are
owned and managed by private individuals or
corporations. We can use different terms like
market economy, free-enterprise economy, or
laissez faire economy for capitalism. The essential
characteristics of capitalism are:
Private property free competition
Economic freedom profit motive

2. Communism
It is the opposite of capitalism. The factors of
production and distribution are owned and
managed by the state. It is also known as the
command economy or classless economy. The
essential characteristics of communism are:
No private property no free competition
No economic freedom no profit motive
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 Presence of central planning

3. Socialism
It is a combination of capitalism and communism.
The major industries are owned and managed by
the state while the minor industries belong to the
private sector.

HOW TO JUDGE AN ECONOMIC SYSTEM

The vital criteria to judge an economic system is as
follows:
1. Abundance
2. Growth
3. Stability
4. Security
5. Efficiency
6. Justice and equity
7. Economic freedom

THE GOALS OF ECONOMICS

1. Economic growth
2. Full employment
3. Price stability
4. Economic freedom
5. Equitable distribution of wealth and income
6. Economic security

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