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Basic Micro Economics pay. A factory worker will work for 40 hours
MODULE No. 2 during the week for a rate of P 83.00 per hour.
Thus, he will receive a cash amounting to of Php
__________ (40 x Php 83),
Resource Utilization
Salary, however is compensation quoted on a
Economics monthly or annual basis. The manager of a
factory might earn a salary of Php 80,000.00 per
Economics has been discussed and described month.
by scholars by scholars in many ways.
According to The Economist website, the most Capital, in layman’s term is the money used by
concise definition of economics is the study of an entrepreneurs to run their business.
how society uses its scarce resources, defined However, in economics it is defined as human-
by Thomas Carlyle, a 19th – century Scottish made goods used to produce other goods and
philosopher and writer. services. A productive asset such as office
buildings, stores, factories, equipment and
Human desires are never ending whether it is a software that unlike the natural resources is
need or a want, especially now where different man-made and employed to generate income.
innovations has been taking the spot of
everyone’s attention. Nobody could deny the Entrepreneurial ability is the effort to recognize
fact that the world is on a fast pacing regime due the production process. The entrepreneurs are
to the advent of new technologies. The primary the people who are responsible in combining the
problem is, there are never ever enough three other economic resources.
resources to produce all of the goods and
services that people want. This is where Distribution
economy plays its role.

Scarcity is the imbalance between human needs Distribution is the allocation of the total product
and wants and the means of satisfying them. (money incomes) among factors of production.
While utility is the total satisfaction received from In general theory, each unit of output
consuming a good or service. corresponds to a unit of income.

The Concerns of Economics Land - RENT

Labor - WAGES
Since economics emphasizes on maximizing the Capital - INTEREST
scarce resources it concerns the production, Entrepreneurship - PROFIT
distribution and consumption of goods and
services. The idea of distribution is concerned with the
assessment of the services of the factors of
production. In this sense, the theory of
Production
distribution is most likely could be understood as
a theory of value. We determine the prices not of
Production is the creation or addition of utility-
the factors of production but of their services.
total satisfaction received from consuming a
For instance, it is not size of the land which is
good or service. In order to create production
traded, but rather the services it could offer.
there must be usage of economic resources.
Thus, rent is not the price of land but the value
Economic resources are the goods and services
of service or use of land, wages/salaries, the
available to produce valuable end user products,
value of the service of labor, interest, the value
also called the factors of production.
of the use of capital and profit, the return of
entrepreneur’s services.
Land, in economic term, is not only the mere
land we thought it was. It includes natural
resources such as minerals, oil, coal, soil, water
Consumption
and the ground in which these resources are
found. Consumption is the utilization of a good or a
service for one’s very own satisfaction. Without
Labor, is the work, time and human effort it, there would be no need for production and
included in the production. For example, a distribution since the goal of economics is to
manufacturing plant would hire their own suffice the consumer wants and needs. It deals
production team as well as staffs and with the concept of destroying utility.
supervisors, etc. so they could generate revenue
through processing raw materials to finished For example, when a student has eaten his
products. This people are being paid for their packed lunch, he has changed the form of the
work rendered via wages and salaries. product (food). In economic sense, he has
destroyed its utility by eating it, thus the food
Wage is a compensation based on the number has been consumed.
of hours worked multiplied by an hour rate of

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Opportunity Costs Law of Increasing Cost – As the output of one

good expands, the opportunity cost of producing
Our economic drawback is that we merely have additional units of this good increases.
limited resources to satisfy relatively unlimited
wants. There are enough resources to suffice Economic Growth is an increase in the
everything that everyone wants. Therefore, capacity of an economy to produce goods and
human wants make a choice. Opportunity cost services, compared from one period of time to
is the foregone value of the next best alternative another. Economic growth can be measured in
–the value of things we give up. nominal terms which include inflation or in real
terms which are adjusted for inflation.
If we prefer to hang out with our friends over
staying at home to study, the opportunity cost Summary
would be the value of the benefit we might get
for studying at home. We weigh the costs and Resource utilization is a system of economics
benefits of various options, including opportunity where the basic inputs to production are
costs through sometimes this cost cannot be equitably utilized. The objective to take full
expressed in terms of money. advantage of the scarce resources source or
supply from which benefit is produced.
Production Possibilities Curve
Economic resources (factors of production) may
Production Possibilities Curve is a curve that be classified as either, physical resources (land
illustrates the production possibilities for the and capital) or human resources (labor and
economy. A production possibilities curve entrepreneurial activity). These factors are
represents the frontier of the economy’s produced, distributed and consumed mainly for
production abilities. As a frontier, it is the the purpose of human satisfaction. However,
maximum production possible given obtainable despite the desire to suffice all human wants
resources and technology. The Production and needs, this would not be possible. Thus,
Possibilities Curve represents our economy at people must make a choice over the things he’s
full employment and full production. after.

The value of the foregone alternative is what we

Full Employment and Full Production call the opportunity cost. This cost could be best
demonstrated through Production Possibilities
Full employment is when a society’s available Curve (PPC) which shows how available
human resources are being maximized resources could be maximized and how choices
efficiently. It is a condition of an economy in affect our consumption. The curve also
which all qualified people who want to work can demonstrates full employment and full
find employment at customary wage rates. production. As long as we operate along the
However, it does not imply 100% employment curve, productive efficiency is a must.
since allowances must be made for frictional
unemployment and seasonal factors. Generally,
a 4% to 6% unemployment rate is considered
full employment.

Full production is when resources are being

allocated in the most efficient manner. All
employed resources are used so that they
provide the maximum possible satisfaction of
our material wants. Full production can include
physical resources (land and capital) and human
resources (labor and entrepreneurial ability).

Underemployment of resources lowers the

productive output of the nation as a whole.
Unemployment and low capacity utilization
mean that society is not allocating its resources
efficiently in order to maximize output.

Productive efficiency is an economic level at

which the economy can no longer produce
additional amounts of a good without lowering
the production level of another product. It is the
ability to produce a good using the fewest
resources possible. Thus, this is concerned with
production of a particular mix of goods and
services most wanted by society.