Economics Chapter 1

consumer goods

is intended for final use by individuals

applied economics

is the application of economic theory and econometrics in specific settings with the goal of analyzing potential outcomes.

Gross Domestic Product (GDP)

is the market value of final products produced within the country.

Gross National Product (GNP)

is the market value of final products, both sold and unsold, produced by the resources of the economy in a given period.

economics

is the social science that involves the use of scarce resources to satisfy unlimited wants.

applied economics

is the study of economics in relation to real life situations. Is is the application of economic principles and theories to actual situations, and trying to predict what the outcomes might be.

- microeconomics - macroeconomics

main branches of economics:

capital

man-made resources used in the production of goods and services.

- gross national product (GNP) - gross domestic product (GDP)

measuring the economy:

- consumerism - keynesianism - liberalism - monetarism - utilitarianism

modern economic theories:

labor

physical and human effort exerted in production.

John Maynard Keynes

popularized keynesianism

land

soil and natural resources that are found in nature and are not manmade.

"Economics is the study of given ends and scarce means,"

statement by Lionel Robins

Monetarism

states that variations in unemployment and the rates of inflation are usually caused by changes in the supply of money.

Economic system

the "medicine" used on how to solve economic problems.

economic system

the means through which society determines the answers to the basic economic problems mentioned.

Thomas Robert Malthus

an English cleric and scholar, examined the relationship between population growth and resources.

consumerism

an increasing consumption of goods is economically beneficial.

durable goods

any good that lasts for 3 or my years when used on a regular basis.

Positive economics

- deals what is - states the facts and evidences.

microeconomics

- deals with the behavior of individual components as an economic growth agent such as household, consumer, worker, etc. - also refers to study of choices by individuals, like how someone decides on the budget.

normative economics

- refers to what should be - states an opinion

Utilitarianism

-bases on moral worthoaction upon the number of people who derive happiness or pleasure from it. - it is used when making social, economic, or political decision for the betterment of the society. - based if moral and economic decisions.

The concept of opportunity cost:

-the one that got away -you sacrifice something atm because it is not good for you

- relative scarcity - absolute scarcity

2 types of scarcity:

normative economic statement

A statement that represents an opinion, which can not be proved or disproved nor shown to be true or false by reference to facts.

Laissez-faire

Centered on the belief that human beings are naturally motivated by self-interest and, when they are not interfered - within their economic activities, a balanced system of production and exchange based on mutual benefit emerges.

Laissez-faire

This is a doctrine that claims that an economic system should be free from government intervention and be driven only by market forces.

"Competition as an Invisible hand that guides resources to their most productive use."

Invisible hand

"Free and uncriticized market

Laissez-faire

"Labor becomes more productive as each worker becomes more skilled."

Productivity and Wealth

Adam Smith

a Scottish and philosopher, was a pioneer in political economy and modern economics.

needs

a basic requirement for survival

scarcity

a condition where there are insufficient resources to satisfy all the needs and wants of a population.

capital goods

a manufactured good used to produce other goods and services.

want

a means of expressing a need

Positive economic statement

a statement about realities that can be proved or disproved, supported or rejected by reference or facts.

service

a work that is performed for someone

Liberalism

advocates free competition and self-regulating market.

Keynesianism

advocates government monetary and fiscal programs intended to stimulate business activity and increase employment.

- what to produce and how much - how to produce - for whom to produce

basic economic problems of society:

macroeconomics

deals with the behavior of economy as a whole with the view to understand the interaction between economic aggregates such as employment, inflation, and national income or the country's gnp.

Free market economy

decisions are based on supply and demand. Refers to an individual consumer and business interact to solve economic problems. This takes place when a consumer and business determines the price of a particular good or commodity.

traditional economy

decisions are based on traditions and practices upheld over the years and passed on from generation to generation.

1. productivity and wealth 2. invisible hand 3. laissez-faire

economic ideas of Adam Smith:

capital = interest

economic output of capital

labor = wage

economic output of labor

land = rent

economic output of land

- land - labor - capital

economic resources:

mixed market economy

economic system featuring characteristics of all economic systems. That is both private and public institutions exercise economic control.

public goods

goods provided for public use (e.g. law inforcements)

Productive and Wealth

he believed that wealth was the sum of nations' goods produced by LABOR, regardless of who owned the goods.

Invisible Hand

he believed under competitive conditions, individuals acting naturally in their own self interest with minimum government intervention, would bring out the greater good for society as a whole.

Malthusian Theory of Population Growth

theory states that food production will not be able to keep up with growth in the human population, resulting in disease, famine, war, and calamity

command economy

this is the authoritative system wherein decision- making is centralized in the government or a planning committee.

- traditional economy - command economy - free market economy - mixed market economy

types of economic systems:

- consumer goods - capital goods - durable goods - public goods

types of goods

relative scarcity

when a good is scarce compared to its demand.

relative scarcity

when demand is higher at the moment.

absolute scarcity

when supply is limited.