11/04/2013

Introduction: Basic Concepts

& Historical Overview

EC 102. Basic Economics,

Agrarian Reform, and Taxation

Economics, Queen of Social Sciences

-Economics encompasses various fields of the
Social Sciences
-Economics has a certain sophistication by using
scientific methods for creation of models and
analyses as well as the use of data and statistics
(i.e. Econometrics)
Prisoners of the Queen
-Economics is part of everyday life.
-People are Rational Economic Beings.

Lecture 1
Introduction, Basic Concepts & Historical
Overview

NAS Cabiles

NAS Cabiles

Introduction: Basic Concepts

& Historical Overview

Introduction: Basic Concepts

& Historical Overview

Formal Definition:
How societies use scarce resources to
produce commodities and distribute them
among different people.
Note: The allocation has to be Efficient
Economics is the efficient allocation of scarce
resources.

2 vital points of Economics

a. Scarcity
-if everything is abundant, the price is zero
and there is no need for allocation and no
such a thing as Economic Goods (i.e.
Economics becomes useless!)
b. 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)

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NAS Cabiles

11/04/2013

Illustration of Scarcity:
Production Possibilities
Frontier
Food
Q

.D

Illustration of Scarcity:
Production Possibilities
Frontier

Points on the PPF:

A,B efficient
C-inefficient/unemployment
D-infeasible

Opportunity Cost

Food
F4

F3
.C

F2

Opportunity Cost is
increasing as more and
more of the alternate
good is produced.

F1

Clothing

Illustration of Scarcity:
Production Possibilities
Frontier
Food

.F

C4

C3 C2 C1

Clothing

Introduction: Basic Concepts

& Historical Overview

PPF Expansion
a. Discovery/Increase of
resources
b. Investment
c. Technological
Advancement

Clothing

2 Branches of Economics
a. Microeconomics
-behaviour of individual entities (i.e. firms and
households) and their interactions (markets)
b. Macroeconomics
-overall performance of the economy
(national income/output, price levels,
employment)
NAS Cabiles

11/04/2013

Introduction: Basic Concepts

& Historical Overview

Introduction: Basic Concepts

& Historical Overview

Fallacies on Economic Reasoning

a. post hoc fallacy
-assumes that because one event occurred
before another, the previous one caused the
succeeding event

not true
b. failure to hold things constant (ceteris paribus
assumption)

always take note to hold other things
constant

Fallacies on Economic Reasoning

c. fallacy of composition
-assumes that what holds part of the system
applies for the entire system

not all the time

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NAS Cabiles

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