Economics - social science that studies how people, businesses, governments, and societies
make choices when faced with scarcity of resources; study of how people use limited
resources to satisfy their unlimited human needs and wants.
● Microeconomics - behavior of individuals (how consumers decide what to buy).
● Macroeconomics - economy as a whole (national income, inflation, unemployment,
economic growth).
Division of Economics:
1. Production - the process of creating goods and services to satisfy human needs.
4 Factors of Production:
● Land - all natural resources used to produce goods and services. It includes
not only physical land but also everything that comes from it.
● Labor - Refers to all human effort (physical or mental) used in production.
● Capital - goods used to produce goods; refers to all man-made tools,
machinery, buildings, and equipment used to produce other goods and
services. It is not money, but the productive assets that money can buy.
● Entrepreneurship - a person who combines the other three factors to produce
goods.
2. Consumption - the use of goods and services
3. Distribution - the way income or output is shared among people who helped in
production
4. Exchange - the process of trading goods and services between buyers and sellers.
National Income - total value of all the final products produced by the country in a given
year.
● GNP (Gawa ng Pilipino) - produced by the citizens of the country.
● GDP (Gawa Dito sa Pilipinas) - within the country
Formula of Per Capita Income:
𝑁𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒
Per Capita Income = 𝑇𝑜𝑡𝑎𝑙 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛
Economic Systems - framework by which the economy tells a country what to produce, how
to produce, how much to produce, and for whom to produce (4 Basic Economic Questions).
Different Economic Systems
● Capitalism - an economic system where private individuals or businesses own and
control the factors of production; the government shouldn’t intervene in the economic
system.
❖ Adam Smith - Father of Classic Economics; proponent of capitalism.
● Communism - “highest form” of the economic system because of equality. It is the
public sector (government) who determines movement both in the economic and
government system).
● Socialism or Mixed Economy - combination of both; essential goods are produced
only by the government, while non-essential goods can be produced by the private
sectors.
Economic Policies - actions that governments take to influence their country's economic
performance.
1. Fiscal Policies - refers to how the government earns, allocates, and spends its
income to influence the economy.
Main Components:
● Taxation – The major source of income for the government.
● Borrowing – The government may borrow money through bonds or loans to
finance budget deficits or large projects.
● Government Spending – Used to stimulate economic growth (expansionary
policy) or control inflation (contractionary policy).
2. Monetary Policies - government controls money in circulation through interest rates;
helps curb inflation.
3. Commercial and/or Trade Policies - regulates the country’s imports and exports
Economic Growth - is the long-term increase in the capacity of a nation to produce a
diversity of goods and services to its population. Growth is conventionally measured by the
increase of per capita GNP/GNI.
Features of Economic Growth
1. Sustained increase in output per head.
2. Increased population (in-migration).
3. Sustained technological progress.
4. Sustained capital accumulation.
5. Rising wages.
6. High rates of change of economic structure.
7. Transformation in social and other non-economic sectors.
Stages of Economic Growth (by Colin Clark)
Stage 1: Agriculture is the principal source of employment and income.
Stage 2: Manufacturing industry becomes the major economic activity.
Stage 3: Service industry becomes the dominant feature of the economy.
Development - the act or process of growing or causing something to grow or become larger
or more advanced; the act or process of creating something over a period of time; the
process of economic and social transformation that is based on complex cultural and
environmental factors and their interactions. (dictionary definition)
3 Core Values of Development (according to Denis Goulet)
1. Life Sustenance – the ability to provide basic necessities.
2. Self-Esteem – a sense of worth and self-respect; not being used as a tool by others
for their own ends.
3. Freedom from Servitude – emancipation from alienating material conditions of life
and freedom from the social servitudes of men to nature, ignorance, other men,
misery, institutions, and dogmatic beliefs.
3 Objectives of Development
1. To increase the availability and widen the distribution of basic life-sustaining goods to
all members of society.
2. To raise levels of living, including in addition to higher incomes, the provision of more
jobs, better education, and more attention to cultural and humanistic values.
3. To expand the range of economic and social choices to individuals and nations by
freeing them from servitude and dependence not only in relation to other people and
nations, but also to the forces of ignorance and human misery.
Development Economics - the study that deals not only with the efficient utilization and
allocation of scarce resources, but also with the institutional, political, and economic
mechanisms needed in effecting specific, rapid, and large-scale improvements in the levels
of living of the broadest segments of the population.
Other Definitions:
● the reduction or elimination of poverty, inequality, and unemployment within the
context of a growing economy. (Michael Todaro)
● It is a process whereby the people of a country can come to utilize the resources
available to bring about a sustained increase in per capita production of goods and
services.