BASIC

ECONOMIC
CONCEPTS
PREPARED BY:
LEEVAN D. CACERES
“
ECONOMIC DECISIONS

2
“
When a farmer chooses to grow
tomatoes instead of eggplants, he is
making economic decisions that may
result in either profits or losses.

3
“
When a high school graduate chooses to
enroll in education course rather than
science, he is also making decision that will
affect his future financial capability.

4
BASIC TERMS IN ECONOMICS
 “ NEEDS
”
 basic requirements for survival like food, water, and shelter. In recent
years, we have seen a shift of certain items from wants to needs like
telephone services, motor vehicles, and education.
MOSLOW’S HIERARCHY OF
“ NEEDS
 “ WANTS
”
 The various desires of man that must be satisfied with goods and
services.
 Are defined as something that a person would like to possesses: either
immediately or at a later time.
 Wants are not as important as needs, because a person can live without
wants.
 “ GOODS
”
 Things (tangible or intangible) that are produced, sold, bought,
and utilized which satisfy a person’s needs and wants.
 “ SERVICES ”
 The efforts rendered by someone for a price such as haircuts,
doctor’s visits, legal consulting, etc. which also satisfy human
needs and wants.
 Non-physical, intangible parts of the economy, as opposed to
goods which we can touch or handle.
 “ CONSUMER
GOODS ”
 goods that are intended for final use by the consumer like milk,
soft drinks, and food.
 “ CAPITAL GOODS ”
 goods that are used in the creation or production of
other goods like buildings, machinery, and
equipment.
“ ESSENTIAL OR NECESSITY
GOODS ”
 goods that are used to satisfy the basic needs of
man such as food, clothing, shelter, and medicine.
 “ LUXURY GOODS ”
 goods that man may do without but are used to
contribute to his comfort and well-being, such as
chocolates, perfumes, and expensive cars.
 “ DURABLE GOODS ”
 goods that last more than 3 years when used on a
regular basis.
 “ NON-DURABLE GOODS ”
 goods that last less than 3 years when used on a
regular basis.
“ HUMAN WANTS ARE
UNLIMITED WHILE
THE MEANS TO
SATISFY THOSE
WANTS ARE LIMITED.

17
SCARCITY AND TRADE-
OFF
 SCARCITY

 a situation that arises from the assumption

of unlimited needs and wants and the fact
that resources to obtain goods and services
are limited.

 One of the key concepts of economics

 It means that the demand for good or

services is greater than the availability of
good and resources.
 What does scarcity imply?

 Scarcity implies that we cannot have all

that we want; hence, we need to make
the best use of scarce resources to satisfy
our wants as much as possible.
 TRADE-OFF

 Scarcity limits our options and forces

us to make hard choices which mean
that in order to get something, we
must give up something else. There is
always a trade-off to be able to satisfy
unlimited wants with limited
resources.
“ SCARCITY
is the reason why people
must “economize”

22
WHAT IS ECONOMICS?
ECONOMICS
▪ is a study of how we manage our scarce resources.
▪ is the proper allocation and efficient use of available resources
for the maximum satisfaction of human needs and wants.
▪ is concerned with production, distribution, and use of material
goods and services, and the study of human efforts to satisfy
unlimited needs and wants with limited resources.
▪ helps us understand and predict price changes, and how the
economy as a whole works.
WHY DO WE NEED TO
STUDY ECONOMICS?
Reasons for studying Economics:
1. Economics helps us understand the marketplace and economic
system.
2. Whether we are workers, employers, or the owners of a firm,
economics is relevant to us.
3. As ordinary citizens, we can influence the public sector to make
intelligent decisions about how much money should be spent on
basic services like education or health services.
 FUNDAMENTALS OF
ECONOMIC
Production
ACTIVITIES
Exchange
Distribution Consumption
PRODUCTION

• the process of transforming raw materials to a finished

product.
DISTRIBUTION
• the physical apportionment of goods and services from
the producers to the consumers; it is simply called
marketing distribution or trade.
EXCHANGE
• the transfer of ownership over goods and services from
one person to another and this is usually accomplished
using money or credit.
 CONSUMPTION

• the process of using goods and services in the direct

satisfaction of human needs and wants.
 FACTORS
OF PRODUCTION
▪ LAND
▪ LABOR
▪ CAPITAL
▪ ENTREPRENEURSHIP
 LAND
includes all the natural resources, including mineral deposits,
water, air, trees, poultry, livestock, and all other forms of these
raw materials used in production of goods and services.
 LABOR
any form of human effort like physical or mental, which is
exerted in the production of goods and services.
 CAPITAL
• refers to the machinery, tools, equipment, and structures used
in the production of goods and services.
• Physical capital and Human capital
 ENTREPRENEURSHIP
the ability of an individual to provide the right kind of good or
service at the right place and time, to the right people at the
right price.
DIVISIONS OF ECONOMICS
MICROECONOMICS
It studies the economy in
parts. It deals with the
economic behavior of
individual units such as the
consumers, firms, and owners
of the factors of production.
MACROECONOMICS
It deals with the economic
behavior of the whole
economy or its aggregates
such as government, business,
and household, and how they
grow and fluctuate.
THANK YOU FOR YOUR
PARTICIPATION!

GOD BLESS!