ECON REVIEWER.docx - AE 12 Economic Development Economics...

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AE 12: Economic Development Economics the study of how human beings coordinate their wants and desires, given the decision-making structures working together, social customs, and political realities of the society. can be defined as a social science which deals with the proper allocation and efficient use of available resources for the maximum satisfaction of human wants RESOURCES Resources refers to the factors or inputs of production. They are those which are needed to produce goods and services. These include: 1. Economic resources . These are those with price tag because they are scarce. 2. Free resources . These are those that has no price (because they are abundant). Classification of Resources 1. Land . This pertains to the natural resources, not man-made. It includes everything found on, above or under land. 2 . Labor. It consists of labor power or the capacity for human being, both physically and mentally, used in producing goods and services. 3. Capital. It is anything that is used to produce other goods and services. 4 . Entrepreneurship. It is the ability to organize and coordinate land, labor, and capital. HUMAN WANTS Human wants are the goods and services needed by human beings. Goods and services those that yield satisfaction. It may be tangible (i.e. shoes, dress, pencils, food) or intangible (i.e. haircut, foot spa, dental care). Classification of Goods 1. Consumer goods vs. Capital goods Consumer goods Those that yield direct satisfaction Example: When we eat hamburger, we get immediate satisfaction. Hence, hamburger is a consumer good. Capital goods Those that are used in the production of other goods (and services). Example: The frying pan used in the preparation of the hamburger does not give a direct satisfaction (instead an indirect satisfaction because without which, the hamburger cannot be prepared. 2. Essential goods vs. Luxury goods Essential goods There are the “basic” needs of man. Luxury goods These are those that contribute to man’s comfort and well- being. MICROECONOMICS VERSUS MACROECONOMICS Microeconomics Focuses on firms and individuals. Deals with the effects of economic policies (such as changing taxation levels) on microeconomic behavior and thus on the aforementioned aspects of the economy. Deals with the problems and analysis of behavior of individual economic unit such as consumer (household), seller (firm) and owners of factors of production. Macroeconomic Focuses on the sum total of economic activity, dealing with the issues of growth, inflation, and unemployment and with national policies relating to these issues. Deals with the problems of the whole economy and how aggregated economic units or sectors such as consumer, business, and government are interrelated. Microeconomics (from Greek prefix mikro- meaning small + economics) is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms.
Microeconomic Theories Consumer demand theory Consumer demand

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