Soc. Sci. 2 - Chapter 1

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Social Science 2 Principles of Economics
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Why Study Economics?

To understand the world better
Youll begin to understand the cause of many of the things that affect your life
To gain self-confidence
Youll lose that feeling that mysterious, inexplicable forces are shaping your life for you
To achieve social change

understand origins of social problems and design more effective solutions
To help prepare for other careers

Youll discover that a wide range of careers deal with economic issues on many levels
To become an economist
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What is Economics?
Social science concerned with the production, distribution, exchange, and consumption of goods and services Focused on the way individuals, businesses, and governments seek to achieve economic objectives Other fields of study also contribute to this knowledge Psychology, History, Sociology, Politics
Source: Funk & Wagnalls New World Encyclopedia - Persistent link http://search.epnet.com/login.aspx?direct=true&db=funk&an=EC009500
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What is Economics?
Economics is the proper allocation and efficient use of available resources for the maximum satisfaction of human wants. *The fundamental problem of unfair allocation of resources has been a global problem.
Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 2
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Nature of Economics
Economics is classified as a social science because it deals with the study of mans life and how he lives with other men. - Economics is interdependent with other sciences like sociology, political science, history, geography, etc. - Our economic problems are not purely economic in nature. These are also caused by non-economic factors which maybe cultural, educational, social or political.
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Methods of Economics
Economics is a systematic body of knowledge. Therefore, it uses scientific methods in gathering data, analyzing the data, and making conclusions. Data are obtained through observations and interviews. (Data Gathering) Empirical Method requires a careful study of the cause and effect relationships of various data. Economic principles are generalizations. This means they do not apply to all people. Economic principles or theories are useful because they explain certain economic behaviors or conditions. These are helpful in solving economic problems ; likewise they serve as guides in economic planning and formulating economic programs. Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 4
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Limitations of Economic Methods

It is true that economic uses scientific methods in gathering data, formulations, theories and principles, and making conclusions. However, there are limitations such as biases and values of those who get the facts, who make the analysis, and who make the conclusion. Rich and Poor Communism Capitalist and Worker income distribution Economics deals with the study of the behavior of individuals which are not the same because of the their different backgrounds. Assumptions should be close to realities. Economic terms should be clearly defined. Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 4
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Efficient Use of Resources

Economics deals with the efficient use of available limited resources. This means that we have to use our money wisely. We must make our farms productive. The idea of economic efficiency is only favorable in societies where the productive resources are fairly distributed among the members of society. What is the use of being efficient if you are just a slave or servant, and your master does not give you a fair wage? A just distribution of resources is the first step in achieving an efficient use of resources. Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 5-6
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Two Main Branches of Economics
1. Macroeconomics - The study of whole systems of production and distribution
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Two Main Branches of Economics
2. Microeconomics Focuses on individual economic entities, such as a single business or household, or specific economic phenomena, such as employment or prices
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Microeconomics
deals with the economic behavior of individual units such as the consumers, firms, and the owners of the factors of production. e.g. the price of rice, the number of workers of San Miguel Corporation, the income of Mr. Cruz, the expenditures of MERALCO.
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Macroeconomics
deals with the economic behavior of the whole economy or its aggregates such as government, business, and household. Macroeconomics is concerned with the discussion of topics like gross national product, level of employment, national income, total expenditures, etc.
Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 6-7
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Microeconomics vs Macroeconomics
Macro Macro comes from Greek word, makros, meaning large Macroeconomics Study of the economy as a whole Focuses on big picture and ignores fine details
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History of Economics
It has started to be known when Adam Smiths book Wealth of Nations was published in 1776. Wealth of Nations became the bible of economics for more than a century. Adam Smith Father of Economics The Babylonians had clear ideas about interests and mortgages. The Phoenicians had good knowledge about commerce and money . The word economics was derived from an ancient Greek word oikonomos which means household management.

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History of Economics
The Greek philosopher Plato recommended division of labor to improve production. Aristotle explained the functions of money. The Romans believed that agriculture was the only honorable industry.
Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 7 8
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The Basic Economic Problems
All countries have economic problems, including the richest countries. However, poorest countries have more far-reaching economic problems. Productive resources are not only scarce but also unjustly distributed among the members of society. On the other hand, the needs of people are increasing due to population explosion. Human wants are unlimited. The rapid population growth, inefficient government and maldistribution of wealth have made their citizens more miserable and hopeless.

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The Three Basic Economic Problems
1. What goods and services to produce and how much? 2. How to produce the goods and services? 3. For whom are the goods and services?
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Economic Systems
An economic system is a set of economic institutions that dominates a given economy. An institution is a set of rules of conduct, established way of thinking, or ways of doing things. (examples: taxation, economic planning, production, banking, etc.) The principal objective of an economic system is to solve the basic economic problems. They have varied concepts, strategies, and ways of improving the living conditions of their peoples.

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Economic System Models
Capitalism the factors of production and sitribution are owned and managed by private individuals or corporations. It has been known by similar terms like market economy, free enterprise economy, or laissez faire economy (no government intervention). The essential characteristics of capitalism are: Private property, economic freedom, free competition, profit motive.
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Communism is exactly the opposite of capitalism. The factors of production and distribution are owned managed by the state. It is also called a command economy or classless society. The essential characteristics of capitalism are: No private property, no free competition (the government is only the seller) , no economic freedoms, no profit motive, presence of central planning.

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Socialism is a combination of capitalism and communism. The major and strategic industries are owned and managed by the state while the minor industries belongs to private sector. Examples of Major Industries: transportation, electrification, mining, and production of essential products. Examples of Minor Industries: marketing of candies, toys, cakes, toys, etc. Karl Marx the Father of Modern Socialism

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Prevailing Economic Systems
At present, there are no more pure economic systems like pure capitalism, pure socialism, or pure communism. Both capitalist and communist countries tend to move forward to socialism. Thus, they have mixed economic systems. Economic depressions, unjust distribution of wealth and income, and deepening poverty have been some of the products of capitalism. CAPITALISM = COLONIALISM AND ECONOMIC IMPERIALISM
Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 12-13
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How to Judge an Economic System
All economic systems are basically intended for the good of their own citizens and societies. Vital Criteria to JUDGE the performance of the various economic systems: These are the following: 1. Abundance 2. Growth 3. Stability 4. Efficiency 5. Justice and Equity 6. Economic Freedom

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How to Judge an Economic System

1.
Abundance refers to the goods and services that individual members of society have received. 2. Growth is tangible, and is measurable in terms of the number of buildings, houses, schools, cars, hospitals in a given year. 3. Stability refers to the absence of inflation and unemployment. 4. Security generally depends on economic stability. 5. Efficiency - simply means productivity. 6. Justice and Equity - Essential Question: Is the distribution of wealth, income, and power among the members of society fair? 7. Economic freedom If a consumer is free to choose his food, style of his house, any kind of appliances, his recreation, his education, etc.
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Social Justice The Goals of Economics

The
fundamental role of economics had been focused towards the attainment of the following objectives: Economic growth, full employment, price stability, economic freedom, equitable distribution of wealth and income, economic security. The few rich families are getting richer while the many poor families poorer. There sis definitely something wrong with the allocation and use of available resources. It is obvious that the principal goals of economics have not yet touched or reached the poorest of the poor; it has always been the goal of the governments of poor countries to emancipate the poor from economic slavery. Social Justice remained just a dream for most of the poor.
Source:
Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 17-18
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Unlimited Needs and Wants
Need: something that is necessary for survival. Want: an item that we desire but that is not required for survival. B. Needs and wants are satisfied by goods and servicesthis it the basic formula in economics.
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Goods vs. Services
Goods: physical objects such as clothes or shoes. Services: actions or activities that one person performs for another.
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Economic Questions
What goods and services should be produced? How should these goods and services be produced? Who gets to consume these goods and services?
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Questions for Discussion
1. Why is Economics very important? 2. Solving an economic problem with economic solution only is not enough? Why? 3. Explain one basic economic problem
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Company LOGO

Social Science 2 Principles of Economics

Why Study Economics?

To achieve social change

To help prepare for other careers

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 2

Limitations of Economic Methods

Efficient Use of Resources

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 5

Two Main Branches of Economics

1. Macroeconomics - The study of whole systems of production and distribution

Two Main Branches of Economics

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 6

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 7

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 7 8

The Basic Economic Problems

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 8 9

The Three Basic Economic Problems

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 8 9

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 8 9

Economic System Models

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 12

Economic System Models

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 12

Economic System Models

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 12

Prevailing Economic Systems

How to Judge an Economic System

Source: Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 12

How to Judge an Economic System

Social Justice The Goals of Economics

Fajardo, F. (2001) Economics Third Edition, Rex Bookstore: Manila p. 17-18

Unlimited Needs and Wants

Goods vs. Services

Questions for Discussion

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