Principles of Economics

MEANING, IMPORTANCE AND ITS ESSENCE

At the end of the chapter, the students are expected to: 1.

Know the importance of economics;

2.

Internalize the different concepts of economics as its relates to man’s daily grind;

3.

Determine the elements of economics;

4.

Identify the fundamental problems of economics;

5. Characterize the different economic system models; 6. evaluate the criteria of choosing the best economic system; 7.

internalize management resources;

the

importance of of economic

8.

know the reasons and government interventions;

basis

9. determine economic objectives;

of

WHAT IS ECONOMICS? Adam Smith, considered the Father of Economics, defines economics as an inquiry about the nature and causes of the wealth of the nations. According to Feliciano R. Fajardo, economics is the proper and efficient use of available resources for the maximum satisfaction of human wants.

Alfred Marshall view it as a study of mankind in the ordinary business of life. It studies on how man obtain incomes and how he uses this income. Cristobal M. Pagoso and his coauthors define it as a discipline that concerns with the production, distribution and use of material goods and services. Sicat considers it a scientific study that deals with how the society generally makes choices.

 From

all these definitions, how are we now to define economics? Economics is a social science that deals with the study of the proper allocation, utilization and effective use of scarce resources to satisfy the unlimited human wants.

Economics is a social science that deals with the study of the proper allocation, utilization and effective use of scarce resources to satisfy the unlimited human wants.

Since it is a systematic and organized body of knowledge, we can also say that it is also a science. As a science, it follows an orderly procedure of gathering data, analyzing facts and drawing conclusions from those existing phenomena. Unlike other sciences however, economics is not an exact science it is an applied science, a social science.

Like psychology, it deals with people’s interaction with others, an interaction that affects the utilization of material resources. It will be an advantage then to a student of economics to look at the field as it relates to other fields such as science, sociology, anthropology and others.

Economics, encompassing these fields, involves that hard-to-measure human motivation which is perpetually changing.

When economics theories and principles are utilized, this becomes applied economics.

MICROECONOMICS analyzes the details of economy. Typically, it deals with the economic behavior of individual units: consumers, firms and entrepreneurs. MACROECONOMICS, broader in scope, studies and analyzes the economy’s aggregates. It looks into employment, unemployment, money, supply, prices, and the output of goods.

GOODS AND SERVICES Goods are items designed to bring utility. It is also known as tangible goods or material goods. Services or Goodwill are intangible goods rendered by individual or groups.

Basic Goods are goods that seek to satisfy the gut-level needs of men such as food, shelter and clothing. ACCORDING TO AVAILABILITY

Economic Goods are those things which are useful but scarce. Free Goods are goods which are useful and abundant.

SCARCITY of resources is a problem that always confronts the production of wealth, goods and services while on the other hand human wants are unlimited. 1. what to produce and how much? 2. how shall goods be produced? 3. for whom shall goods be produced? These are the questions which economies seeks to answer.

Capitalism. In this model, the factors of production are owned and managed by private individuals. Also known as market economy or free enterprise economy. The following are the other characteristics: a. presence of religion (belief in God)

b. private property c. economic freedom d. profit motive e. free competition f. absence of central planning Communism. The factors of production are owned and managed by the state. It is the exact opposite of capitalism, also known as command economy. The essential characteristics of communism are:

a. absence of religion b. no free competition c. no economic freedom d. no profit motive Socialism. This is some what the combination of capitalism and communism. The major and strategic industries are owned and managed by the state while minor industries belong to the private sector.

Traditional Economy. The means and ways of production are generally based on customs, traditions and beliefs. A subsistence economy where one produces only the things he needs. Mixed Economy. The production and distribution of goods and services are clearly owned and managed by the private and government sector.

In choosing the best economic system to adopt, these are some criteria to be considered: Abundance. More than sufficient goods for a constituency's satisfaction. Growth. The level of improvement or increment in one’s production. Most of the world’s economies are measured in terms of what is known as the Gross National Product or GNP

Stability. Mostly referring to the absence or manageable levels of inflation and unemployment and relatively fee calamities. Security. The overall peace and order of a nation where business can thrive. Efficiency. Productive exploitation of an economy’s goods and services. The most optimum combination of appropriate technology, machine, material and other factors of production.

Justice and Equality. Fair distribution of wealth, income and power to the majority of the population. A narrowing gap between the rich and the poor. History shows a just distribution of wealth and income simulates innovation, investment and production which brings further prosperity. Progressive countries thus become more viable for they share the bounty equitably. Their employees and workers, recognized and rewarded for their work, are motivated to be more efficient.

MEDIUM TERM PHIL. DEV’T. PLAN 1. GDP growth accelerating to 7-8% by the years 2009 and 2010 2. An investment to GDP ratio nearing 28% by 2010 3. Exports exceeding $50 billion by 2006 4. A balanced budget by 2010 5. Annual job creation exceeding 1.7 million jobs by 2009 6. And poverty incidence reduced to below 20% by 2009

1. GDP growth accelerating to 7-8% by the years 2009 and 2010 Real GNP Growth rate% Real GDP Growth rate%

1999 3.7

2000 4.8

2001 3.5

3.4

4.4

3.0

2002 2003 2004 2005 2006 2007 4.3 5.6 6.1 5.5 6.2 7.3 4.3

4.7

6.1

5.7

6.3

2. And poverty incidence reduced to below 20% by 2009 2000 - 33% 2003- 30.4% SOURCE: NSCB 3. A balanced budget by 2010 2006- 970 B budget, budget deficit 62.2 B lowest in 8 years 2007-1.28 T budget, budget deficit 9.4 B lowest in 10 years SOURCE: NSCB

7.3

4. EXPORT TO EXCEED 50 B 2006 TOTAL TRADE STANDS AT $99.184 BILLION Total external trade in goods for 2006 reached $99.184 billion, representing an 11.9 percent increase from $88.673 billion in 2005. Total export receipts grew by 14.9 percent to $47.410 billion from $41.255 billion in 2005. Similarly, total imports rose by 9.2 percent to aggregate dollar expenditure of $51.774 billion from $47.418 billion in 2005. The balance of trade in goods (BOT-G) for the Philippines registered a $4.364 billion deficit in 2006, narrower than the previous years deficit of $6.163 billion. Figure 1 Philippine Trade Performance: 2005 and 2006

The successful implementation of the Plan rests on the support of all sectors of society - the Legislative, the Judiciary, the local government units, the business community, responsive civil organizations, the media, and all sectors of society. In the President’s words, everyone must share the responsibility of moving this country forward.

NEDA

Within the economy, basic economic activities take place. These include PRODUCTION, CONSUMPTION, EMPLOYMENT, AND INCOME GENERATION. They take place through the interrelationship that is existing between two economic units: the HOUSEHOLD and the FIRM.