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Adamson University Social Sciences Department Basic Principles of Economics with Taxation and Land Reform Kevin Jamir

F. Pigao Introduction What is Economics? commercial problems affecting individual and national life. our

Economics comes from the Greek word oekonomia which means running a household. Is a Social Science that deals with the proper allocation and utilization of scarce resources in order satisfy the unlimited human wants and needs.

5. A knowledge of economics is needed to face the problems of modern life and to prepare for the future. 5 Economic Goals 1. To strengthen economic freedom Economic freedoms include consumer choice, freedom of occupational choice, freedom to consume or save freedom to own properties and freedom of enterprise.

Scarcity (Limited resources) Refers to the condition that all resources are available only in limited supply. When there are not enough resources available to meet the needs and wants of everyone.

2. Promote economic efficiency Efficiency is producing more output with the use of fewer resources An efficient economy responds to both consumer demand and relative scarcity of resources.

Why we should study Economics? 1. The study of economics tells us about the activities or forces which influence our daily life in our family, community and nation. 2. Knowing economics will make us better citizens who can make decisions wisely about economic activities for all of us. 3. Through economics we will learn more about how to be a good worker, a good producer of goods, the value of saving money, and the need to give and spend wisely. 4. Economics will teach us about the problems concerning agricultural and

3. Promote economic stability Stability means there is no violent ups and downs in the economy. The goal is a consistent growth in a changing world, thus the movement of output of the economy, employment and prices of goods and services should be kept at reasonable range.

4. To improve economic security

To increase individual security has been an important goal of economics. Continued existence of the market economy depends of the economic security, because incomes are established in the market place.

4 Basic Economic Problems 1. What to produce? 2. Whom to produce? 3. How to produce? 4. How much to produce? Limited Resources (Scarcity) Unlimited needs & wants Natural resources Human resources Capital resources

5. Attaining a high level of growth in the economy Economic growth means that the capacity to produce goods and services is increasing, and it is growing more rapidly that the population.

Growth is determined by two factors: 1. Expansion in the resources available for producing goods and services, such as larger labor force and larger capital stock.

Relationship of Economics with other Subjects: Anthropology It studies every aspect of human society including social structures, aesthetics, language and the system as well. Political Science A systematic study of the state government. Sociology It studies the society by means of analyzing human groups, institutions and social relationships. Psychology Scientific study of human behavior. History - a systematic recording of past events. Mathematics - "the science that draws necessary conclusions" What is Economic System? It refers to a set of economic institutions that dominate a given

2. Improved skills and technology,


including managerial skills and entrepreneurial skills, so that the more goods and services can be produced from given resources. Government have two basic responsibilities in promoting growth: 1. To provide law and order that will create a conducive investment climate, such as enforcement of contracts and preservation of the environment. 2. Provide public services that the private sector cannot provide but are important for an expanding economy.

economy with the main objective solving the basic economic problems. 4 Economic systems or Categories:

of

d.) Only the government plays the role in setting legal framework for economic life production and distribution of goods and services. e.) the products or needs of the people are distributed based on priorities set by the committee. 3. Market Economy is a type of economic system where individual consumers and businesses interact to solve the economic problem. The price of commodity dictates what goods and services will be produced, how and for whom it will be produced. It means that the determination of Price of a particular good depends on the interaction between the buyers and sellers.

1. Traditional Economy is a type of economic system whose economic decisions are 006Dade with great influence from the past. It finds answers to the three economic questions by copying or duplicating the decisions made by precious generations.

A traditional economic system is a system whose past experiences which were handed down from generation to generation are used as bases for economic decisions.

2. Command Economy a type of economic system where the factors of production and distribution are owned and managed by the state. Decisions in answering the basic economic problems are planned, done and dictated by the government. A command economy operates like a military where the decisions are made from the top authority and whatever decisions made are relayed to the majority of the people in the economy. Citizens under a command system have a little or no political and economic freedom. of a

Essential Characteristics of a Market economy or system:

The private sector owns and manages the means of production. The price system in a market structure applies to determine how much will be paid for a certain commodity or service. it is also known as laissez faire or free enterprise. There is minimum government interference on decisions pertaining to the management of the economy (Protection of the society against internal and external aggression). Existence of competition results to monopoly. often

Essential characteristics command economy:

a.) resource allocation is done by the government b.) presence of central planning of all economic activities c.) there is no free competition (the government is the only seller)

There is presence of economic power.

4.) Mixed economy is a type of economic system where the elements of traditional, command, and free market are present in varying degrees that is both private and public institutions exercise economic control. Essential characteristics of a mixed economy:

Communism in a communist state, everyone works at what he or she can do best. There is no system of wages or profits needed to spur people to work. Socialism is an economic system in which the government owns and operates the major industries of the country. It means that the government also decides in those major industries the answers to the three economic questions. 4 Types of Economics 1. Household Economics is a type of economics where the primary concern is on the economic activity of the family, or ordinary household. 2. Business Economics is a type of economics dealing with more people and more complicated things like rent, salaries, interest on Capital, profits, the business cycle. 3. National Economics is a type of economics dealing with the economic factors and problems affecting a whole nation. It also studies the total income of the population and the government and their expenses inside or outside the country.

The means of production owned and controlled by private sector as well as government.

are the the

The people decide on economic activities within the economy. The combinations of the best features of capitalist and command economies are observable in the market. The problem of distribution of goods and services and allocation of economic resources are determined through a combination of the market system and governmental laws and policies.

* The classification of different societies into traditional, command, market, and mixed economic systems spans the entire course of history, but in the last century the world has been divided into great economic and political systems representing socialism, communism and capitalism. Capitalism is an economic system in which most resources are privately owned, people are free to choose their occupation, the kind and amount of production is determined by price and people searching for a profit, and there is a substantial amount of competition.

Is also concerned with the total production and consumption activities in the nation.

4. International Economics is a type of economics where the highest stage of economic activity takes place where it involves the business of one country with other countries. One country is entering into international activity like trade, tourism, overseas contract workers remittances, and the exchange rate of peso.

The main actors in the International Economy: 1. Individuals Ex. (Tourists, Overseas Contract Workers (OCWs), Overseas Foreign Workers (OFWs), Domestic Helpers (DH) 2. Organization of Private Companies Ex. (Shell oil company, Caltex, Coca-cola, OPEC) 3. Government Ex. government, US government). (Philippine

abundant supply of it that satisfies everyones needs without the need for money and compensation. Ex. Air, water from the sea and sunshine

Economic goods that is both useful and scarce. These goods that requires effort and money to purchase it for use.

Goods according to Use

4. International Organizations Ex. (United Nations, UNICEF) 5. International Banks Ex. (ADB (Asian Development Bank), World Bank, International Monetary Fund (IMF). 2 Divisions of Economics 1. Macroeconomics the branch of economics that is concerned with the behaviour of the economy as a whole with booms and recessions, the economys total output of goods and services and the growth of output, the rates of inflation and unemployment, the balance of payments and exchange rates. It is also known as the National Income Analysis. 2. Microeconomics the branch of economics that deals with parts of the economy such as the household and the business firm and how they interact in markets. Also known as the Price theory. Goods and types of goods A good is anything that generates satisfaction to someone utilizing it. A good maybe both Tangible and Intangible. General classification of goods

Consumer goods that directly generate satisfaction just like foods and drink. Capital goods equipment and machineries are examples of goods used in production

Goods according to Needs

Essential Goods are goods that are used to satisfy mans basic needs and requirements Ex. Instance food, shelter, clothing.

Luxury Goods the type of goods that man can devoid of, but are used to play a part to his relief.

6 Different Parts of Economics 1. Production 2. Distribution of income 3. Consumption of goods and services 4. Exchange of goods and services 5. National Economy 6. International Economy 4 Basic Economic Elements

Free goods are those given and provided by nature. There is an

Production-----------Employment--------------Income-----------------Consumption Production the creation of goods and services to make new wealth. Consumption spending by households on goods and services, with the exception of purchases of new housing. Employment - Employment is an agreement between an employer and an employee that the employee will provide certain services on the job, and in the employer's designated workplace Income The revenue received of a certain individual in return of the labor that is rendered.

4. Entrepreneur the one who supervises the work and earns profit. One who organizes all other factors of production to be used in the creation of goods and services.

Comes from the French word entreprendre that means to undertake. of the

(Factor Payments) Income Factors of Production:

1. Rent the reward that goes to the land resources. 2. Wages the salary or income paid by the business firms to workers. 3. Interest The cost of borrowing or the price paid for the rental of funds (usually expressed as a percentage per year). 4. Profit the rewards of management or entrepreneur who take risks.

Factors of Production: 1. Land the natural or resources used to make wealth. material

2. Labor the people or workers who produce goods and services. 3. Capital the wealth used to produce new wealth. It is a physical good (a capital good) that are used to improve produced goods and services.

Comes from the Latin word caput which means head. The process of creating a capital good is called capital formation. The term capital formation in economics is Investment

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