INTRODUCTION TO ECONOMICS

Cindy Quaile
Department of Social Sciences, SLA
Ateneo de Zamboanga University
Email: quailecinj@adzu.edu.ph
Part 1: The
Basics
Twin Problems in Economics:

unlimited human wants and needs

versus
limited resources = SCARCITY:
 WHAT IS ECONOMICS?

Economics – the study of

how individuals and
societies make decisions
(wise choices) on how to
use scarce resources to
fulfill wants and needs.
The Economic Problem
Unlimited Limited
Needs & Wants Resources

Scarcity

Choices

WHAT HOW FOR

to to WHOM
produce produce to
produce
Choices, Choices

Because ALL resources,

goods, and services are
limited – WE MUST MAKE
CHOICES!!!!

When we choose
we have to
give up something
= Opportunity cost
 First Economic Principle
We cannot have everything so we need to
make choices = Principle of Scarcity.
Resources are limited or “scarce” so
we need to trade off
Trade off – To have something we need
to give up another thing.
Opportunity Cost – the value of the next
best thing given up.
Versus
Opportunity Cost
The value of the next
best option given up.
Opportunity lost
Choices, Choices

The right choice is one

that give you more
satisfaction than the
one you gave up.
 Questions to Ponder

What choices did you make today?

What did you give up (opportunity cost)?

How do you know that you made a

rational choice?
 Rational Choice
People are assumed to be rational.
Signs of Rationality:
1. People can make choices
2. People can rank their preferences
3. People buy products that benefit or satisfy
them.
Best Choice = the option that gives you the
highest satisfaction/ value
Opportunity Cost = the option that gives you
the next highest satisfaction/ value
 Principle of Incentives
Rational people respond to incentives
Using incentives to help people make the
right choices
Economic incentives are what motivates you to behave in
a certain way… Economic incentives provide you the
motivation to pursue your preferences, needs, wants and
desires. Examples: cash rewards, bonuses, income, profits,
peer recognition, fame, social status and power
Economic disincentives discourage behavior. Taxes are a
prime example of disincentives because they make
products and services more expensive. Other examples:
imposing fines, charging penalties, demotion, etc.
What motivates you

to study harder?
 Seatwork by Pair: Write your
answer on a crosswise paper

I. Name 3 economic incentives that

will motivate students to study
harder.
II. Name 3 economic disincentives
that will penalize students who
don’t study hard enough.
Make sure your answers are clear, specific,
doable and in complete sentences.
Two Main Branches of Economics

Macroeconomics
– The big picture: growth,
employment, etc.
– Choices made by large
groups (like countries)

Microeconomics
– How do individuals make
economic decisions
 Basic Economic Questions
Society (we) must figure out

WHAT to produce (make)?

HOW to Produce it ?
(manufacture)

FOR WHOM to Produce?

(who gets what)
 Basic Economic Questions
Society (we) must figure out

1. WHAT to produce (make)? Refers to Consumption

and Production
2. HOW to Produce it ? Refers to Production
(manufacture)

3. FOR WHOM to Produce? Refers to

(who gets what) Consumption
 What are resources?
Definition: The things used to make other
goods; also known as INPUTS or Factors
of Production
 Production Process
Types of
Land PRODUCTS:

Goods
Labor
Production/
Manufacturing Consumers
“Factory”
Capital
Services

Entrepreneurship
 4 types Factors of Production
1. LAND – Natural Resources
Water, natural gas, oil, trees, medicinal plants, etc…
2. LABOR – Physical and Intellectual; nurses,
doctors, janitor, security guard, secretary, personnel
3. CAPITAL – Physical Capital
ex: tools, equipment, facilities
office, oven, truck, hammer
4. Entreprenuership - ability to combine
resources to produce products
Give your own examples
Example: Final Product is Bread
1. LAND or Natural Resources: wheat, water, eggs, milk, sugar
2. LABOR – baker, assistants, delivery boy, store keeper
3. CAPITAL – Physical Capital ex: tools, equipment, facilities
- Rolling pin, bread slicer, oven, mixer, delivery van, bakery store
4. Entrepreneur – businessman, manager

Seatwork (1/2 crosswise, By Pair)

1) Name one product (good or a service)
2) Give 5 examples of natural, labor and physical capital
resource = 15 points in all
Intermediate Products/ Goods
Are goods and services that can also be used
as resources.

Examples:
Stove – is a consumer good (for personal use)
and a resource (or capital good used for
business)
Others: mango, flour, car, knife, refrigerator,
calculator, sewing machine, etc
 Second Economic Principle

The choices we make should make things

more efficient.

Principle of Efficiency – making things

easier, faster and cheaper.
 Efficiency and Equity

1. Efficiency – is the economy getting the most

of out its scarce resources (or are they being
wasted)?
1. Technical efficiency – is production being
done at lowest unit cost?
2. Allocative efficiency – are resources
being used to make products that people
want?

Efficiency and Equity (c)

Andrew Tibbitt 2008 Slide 26
What Type of Efficiency is this?
 Efficiency and Equity

2. Equity – how fair is the distribution of

products between different members of society?
1. Horizontal equity – no discrimination
between people whose economic
characteristics and performance are
equal
2. Vertical equity – different treatment of
different people in order to reduce the
differences between people
Efficiency and Equity (c)
Andrew Tibbitt 2008 Slide 28
Assignment: Write your answers on a
Crosswise paper. Make sure your answers are
not identical with your classmates

Give two or more examples of each:

A. Technical Efficiency
B. Allocative Efficiency
C. Horizontal Equity
D. Vertical Equity

Answers must be in sentences.