MORA, JONATHAN A.

BSA-5A
IMPORTANT ECONOMIC TERMS
WEALTH
REFERS TO ANYTHING THAT HAS A
FUNCTIONAL VALUE (USUALLY IN
MONEY), WHICH CAN BE TRADED FOR
GOODS AND SERVICES. WEALTH,
THEREFORE, IS THE STOCK OF NET
ASSETS OWNED BY INDIVIDUALS OR
HOUSEHOLDS. IN AGGREGATE TERMS,
ONE WIDELY USED MEASURE OF THE
NATION’S TOTAL STOCK OF WEALTH IS
THAT OF THE MARKETABLE WEALTH,
THAT IS, PHYSICAL AND FINANCIAL
ASSETS WHICH ARE IN THE MAIN
RELATIVELY LIQUID.
CONSUMPTION
THIS REFERS TO THE
DIRECT UTILIZATION OR
USAGE OF THE AVAILABLE
GOODS AND SERVICES BY
THE BUYER OR THE
CONSUMER SECTOR. IT IS
ALSO THE SATISFACTION
OBTAINED BY
CONSUMERS FOR THE
USE OF GOODS AND
SERVICES.
PRODUCTION
IT IS DEFINED AS THE
FORMATION BY
FIRMS OF AN
OUTPUT (PRODUCTS
OR SERVICES). IT IS
THE COMBINATION
OF LAND, LABOR AND
CAPITAL IN ORDER TO
PRODUCE OUTPUTS
OF GOODS AND
SERVICES.
EXCHANGE
THIS IS THE PROCESS OF
TRADING GOODS AND/
OR SERVICER FOR
MONEY AND/OR ITS
EQUIVALENT. IT ALSO
INCLUDES THE BUYING
OF GOODS AND
SERVICES EITHER IN THE
FORM OF BARTER OR
THROUGH MARKET.
DISTRIBUTION
THIS IS THE PROCESS OF
ALLOCATING OR APPORTIONING
SCARCE RESOURCES TO BE
UTILIZED BY THE HOUSEHOLD, THE
BUSINESS SECTOR, AND THE REST
OF THE WORLD. IN SPECIFIC TERM,
HOWEVER, IT REFERS TO THE
PROCESS OF STORING AND
MOVING PRODUCTSTO
CUSTOMERS OFTEN THROUGH
INTERMEDIARIES SUCH AS
WHOLESALERS AND RETAILERS.
Aggregate Supply - The total supply of goods and services
that an economy produces at a given price level during a specific
time period. The aggregate supply curve describes the
relationship of prices and output that firms are willing to provide.
 Aggregate Demand - The total amount of goods and
services demanded in the economy at an overall price level
during a specific time period. The aggregate demand curve
shows the relationship between price levels and the quantity of
output that firms are willing to provide.
Liquidity
How much an asset or
security can be bought or
sold for without affecting
it's price. Liquidity often
means a high level of
trading. Assets or
securities that can be
easily bought or sold are
known as liquid assets.
Budget Deficits
The opposite of a surplus.
Excess spending over a particular
period of time. They can be used
as income for a government,
corporation, or individual. For the
federal government of the United
States are financed by Treasury
Bonds being issued. For
individuals that accumulate huge
debts must declare bankruptcy if
the debt cannot be serviced.
MICRO AND MACRO ECONOMICS
MICRO AND MACRO ECONOMICS

MICRO MACRO
MICRO ECONOMICS

• Micro has been derived from GREEK word

“MIKROS”which mean small .
• It is a study of the individual units of
economic system .
• In other words a small part of economy & not
the whole economy .
• “micro economics is a study of the specific
economic units and a detailed consideration
of the behavior of these individual units ” .

• “micro economics seeks to explain the working

of individuals,firms,households,individual
prices,wages,particular industries ” .
• It deals with determination of product prices and
factor of prices .

• In short , it is concerned with the determination

of prices like theory of production,theory of
rent,wages.Interest,profit & economic welfare .
MACRO ECONOMICS

• Macro is been derived from the Greek word

“MAKROS”which means LARGE.

• Macro economic is the study of large part of the economy

i.E.,The whole economy.

• The study of economic behaviour of the economy as a

whole & not the individual economic units of the economy.
“ Marco economics deals not only with individual
quantities but with the aggregates of these
quantities , not with the individual incomes , but
with national income , not with individual prices ,
but with prices level , not with individual outputs
but with the national output ” .
• It deals with total consumption, total savings , total
investment , total output, total or national income,
inflation & deflation economic growth, etc.

• In other words it is concerned with the analysis of

income & employment in the economy as a whole .
Basis Microeconomics Macroeconomics
Meaning Microeconomics deals with the Macroeconomics is the study of
the economy as a whole.
behaviour of individual
economic units.
Tools Demand and Supply Aggregate Demand and Aggregate
Supply
Objective To determine the price of a To determine the income and
employment level of the economy.
commodity or factors of
production.
Other It is also known as ǮPrice theor It is also known as ǮIncome and
Name yǯ. Employment Theoryǯ

Example Individual income, National Income, national output.

individual
output.
Aggregation It involves limited degree of It involves the highest degree of
aggregation. aggregation.
CENTRAL PROBLEMS OF AN ECONOMY
Production, distribution and disposition of goods and services are the
basic economic activities of life. In the course of these activities, every
society has to face scarcity of resources. Because of this scarcity,
every society has to decide how to allocate the scarce resources. It
leads to following Central Problems of an Economy.
 WHAT TO PRODUCE
This problem involves selection of goods and services to be produced
and the quantity to be produced of each selected commodity
Guiding Principle: Allocate the resources in such a manner which
gives maximum aggregate satisfaction.
HOW TO PRODUCE
This problems refers to selection of technique to be used for production of
goods and services . Generally, techniques are classified as LIT & CIT.
Guiding Principle: Combine FOP in such a manner so that maximum
output is produced at minimum cost, using least possible scarce
resources.
FOR WHOM TO PRODUCE
This problem refers to selection of category of people who will ultimately
consume the goods, i.e. Whether to produce goods for more poor and less rich
or more rich and less poor.
Guiding Principle: Ensure that urgent wants of each productive factor are
fulfilled to the maximum possible event.
OPPURTUNITY COST
We make choices every day. We have to,
as we have limited resrouces but so many
wants. We therefore have to decide which
wants we will satisfy and those we will not.
All choices involve giving something up is
called Opportunity Cost.
Opportunity Cost is the cost of a decision in
terms of the best alternative given up to
achieve it. It is the best alternative forgone.
PRODUCERS
 Producers have to decide
what to make. In deciding
what to produce, private
sector firms will tend to
choose the option which will
give them the maximum
point.
GOVERNMENT
 Government has to carefully
consider, its expenditure of
tax revenue on various
things. To pay higher taxes,
people may have to give up
the opportunity to buy
certain products to save.
FACTORS OF PRODUCTION
CONCEPT OF PRODUCTION

Production is defined as the process of

converting the input (raw material) into
output. Production may be an activity
that generate income.
1)LAND

2) LABOUR

3)CAPITAL

4)ENTREPRENUER
 LAND

Land is that factor of production which is

available to us as a free gift of nature. It
not include not only the soil but also other
free gift of nature ( like forest, water,
natural resources etc.)
CHARACTERISTICS OF LAND

 Free gift of nature.

 Limited in supply.
 Differ in variety.
 Immobile.
 Passive factor of
production.
 Alternative uses.
 Indestructible.
 LABOUR

Labour is the human factor of

production and include all the physical
and mental activities which are
required in the process of factor of
CHARACTERISTICS OF LABOUR
 Human factor.
 Active factor.
 Cannot be separated from
labourer.
 Perishable.
 Labourers sell his labour
not himself.
 Difference in efficiency.
 Mobile.
 Weak bargaining power.
 More wages less work.
 CAPITAL

Capital is the stock of produced

means of production.
CHARACTERISTICS OF CAPITAL

 Man made
factor.
 Mobile and
transferable.
 Depreciates.
 Passive factor
of production.
 Entreprenuer
1)Entreprenuer is a person who brings in land, labour &
capital in one place & uses it for the production process.

2) He is the person who decides-

a) What to produce?
b) How to produce?
c) Where to produce?

3)The person who takes these decisions along with the risk
associated with them is known as ‘Entreprenuer’.
 Features of
Entreprenuer

1) He must be a good administrator.

2) He must possess complete knowledge.
3) He must be a person of imagination.
4) He must be a man of action.
BASIC DECISION PROBLEMS
Consumption
Consumption,
in economics, the
use of goods and
services by
households. Consum
ption is distinct from
consumption
expenditure, which is
the purchase of
goods and services
for use by
households.
Production
The economic
problem of production is
one of producing goods
and services in their proper
proportions. Buyers
indicate how much of each
good or service they want
and in what quality by the
prices they are willing to
pay.
Distribution
This problem is primarily
addressed to the
government. There must be
proper allocation of all the
resources for the benefit of
the whole society. In a
market economy, though,
absolute equality of every
member, as to the
distribution of resources, can
never be achieved.
Growth over Time
This is the last basic decision problem
that a society or nation must deal
with. Societies continue to live on.
They also grow in numbers. On the
one hand, people have definite lives,
but societies (or nations) have longer,
if not infinite lives. All the problems of
choice, consumption, production and
distribution, have to be seen in the
context of how they will affect future
events.
TYPES OF ECONOMIC SYSTEMS
Traditional Economy
 Family or Community
based Economic
System that relies on
custom and ritual to
make its choices.
 Examples:
 Aborigines
 Amazon Tribes
 Any Substainance
Economy
 CHARACTERISTICS OF TRADITIONAL

 Are found in rural, non developed countries.

 Technology is not used in traditional economies.

Economic activities are usually centered
towards the family or ethnic unit.
 Men and women are given different economic roles and
tasks.
ADVANTAGES AND DISADVANTAGES OF
TRADITIONAL ECONOMIC SYSTEM.
ADVANTAGES DISADVANTAGES

 Clearly answers three economic questions.  They resist change.

 Little disagreement on economic goals.  Lower standard of living.

 Higher occupancy and better engagement of  Prevent people to do what they want.
people within the community.
 sense of pride.  Lack of progress lead to lower standard of
living.
 Self sufficiency.
Market Economy
 Individual or Consumer
based Economic System
that relies on the
consumption choices of
consumers.
 Examples:
 *The U.S.A.?
 *Japan?
 Any Capitalist Economy?
 * Indicates that the country
leans that way as there are no
wholly free market economies in
practice
CHARACTERISTICS OF MARKET
ECONOMY
Resources are owned by individuals.
Economic decisions are made by individuals competing to
make profit.

There is individual freedom

Economic decisions are determined by the demand and supply

ADVANTAGES AND DISADVANTAGES OF
MARKET ECONOMY.

ADVANTAGES DISADVANTAGES
 Freedom of choice.  Poverty still exist.

 Control of the economy.  Because of profit motive there is always self

interest.

 Monopoly power can be monitored and  Excessive government spending may results in

controlled. inefficiency.
Command Economy
 Centrally Controlled
Economy where the
Government makes all
decisions.
 Examples:
 Cuba
 China
 Any Communist
Country or Dictatorship
CHARACTERISTICS OF COMMAND
ECONOMY.
Government makes the decision.

Change can occur easily.

There is little individual freedom.

There is no competition.
ADVANTAGES AND DISADVANTAGES OF
COMMAND ECONOMY.

ADVANTAGES. DISADVANTAGES

 Equal distribution of income.  Shortage of consumer goods and services.

 There is no wastage caused by competition.  Lack of consumer choice because of lack of

competition by producers.
 The state provides all social services.  Low economic growth.
Mixed Economy
 Economic System that
incorporates some
Governmental
involvement into a Market
Based Economy.
 Examples:
 *The U.S.A.?
 *Japan?
 Most “Modern”
Economies
CHARACTERISTICS OF MIXED ECONOMIC

 Democracy and freedom exist.

 Competition exist between businesses.

Government intervene and passes laws to improve
the running of the economy.

 There is public and private ownership of businesses.

ADVANTAGES AND DISADVANTAGES OF
MIXED ECONOMIC SYSTEM.

ADVANTAGES. DISADVANTAGES.

 Freedom of choice.  Poverty still exist.

 There is control of the economy.  Because of profit motive there is always self
interest.
 Improved social welfare.  Excessive government spending may results in
inefficiency.