TENDENCY OF AN INDIVIDUAL TO IMITATE THE ACTIONS/ MANNERISMS OF OTHER INDIVIDUALS FOR WHOM HE HAS CERTAIN REGARD DEMONSTRATION EFFECT IN ADVERTISEMENT (INCREASE PATRONIZATION FROM CONSUMERS = INCREASE PROFIT)

EXPENSES SPENT? = FOOD OR NON-FOOD (CLOTHES, CARS, HOUSES, LUXURIES) INCREASE IN INCOME EXPENSES SPENT? = FOOD OR NON-FOOD (CLOTHES, CARS, HOUSES, LUXURIES)

AS INCOME INCREASES = EXPENSES ON FOOD DECREASES (OR REMAINS CONSTANT) AS INCOME INCREASES = EXPENSES ON NON-FOOD INCREASES ENGEL’S LAW (ERNST ENGEL)

2 ANALYSIS/ METHODS IN ECONOMICS POSITIVE ECONOMICS Objective (it only tells what is: results) Descriptive & illustrative (how things work) Not concerned with right or wrong NORMATIVE ECONOMICS Subjective (value-laden) What ought to be (prescriptive/ policy-oriented) Concerned with right or wrong

POSITIVE ECONOMICS

BRANCHES IN ECONOMICS: MACROECONOMICS & MICROECONOMICS MACROECONOMICS: DEALS WITH THE WHOLE AGGREGATES (EACH INDIVIDUAL UNIT: HOUSEHOLD, GOVERNMENT, CORPORATION) MICROECONOMICS: DEALS WITH A SINGLE AGGREGATE

SERVICES: INTANGIBLE (NON-CONSUMABLE) GOODS: TANGIBLE (CONSUMABLE)

CLASSIFICATION OF GOODS ACCORDING TO USE CONSUMER GOODS Ready for consumption CAPITAL GOODS Used in the furtherance of production

CLASSIFICATION OF GOODS ACCORDING TO NEEDS/ WANTS ESSENTIAL GOODS GOODS THAT ONE CAN’T LIVE WITHOUT (NECESSARY) LUXURY GOODS MAN CAN LIVE WITHOUT THESE (NOT NECESSARY) GIVES COMFORT AND PLEASURE

CLASSIFICATION OF GOODS ACCORDING ACCORDING TO ACCESSIBILITY ECONOMIC GOODS HAVE VALUES & PRICE ATTACHED TO IT FREE GOODS NEED NO PAYMENT

WHAT IS TRUE IN MICROECONOMICS MAY NOT BE TRUE IN MACROECONOMICS? FARMER/OWNER (CORPORATION) GETS GOOD HARVEST = PROFIT ALL FARMERS HAVE GOOD HARVEST? SURPLUS OF SUPPLY = PRICE?

TYPES OF ECONOMIC SYSTEM TRADITIONAL ECONOMY COMMAND ECONOMY FREE MARKET ECONOMY MIXED ECONOMY

PRODUCTION FOR OWN CONSUMPTION TRADITIONAL ECONOMY “SURVIVAL” ECONOMY PRODUCTION FOR OWN CONSUMPTION METHOD OF PRODUCTION: BASED ON TRADITIONS

FREE MARKET ECONOMY INVISIBLE HAND: PRODUCTIVITY DEPENDS ON THE GOOD RELATIONSHIP BETWEEN CONSUMERS AND PRODUCERS LAISSEZ-FAIRE

MAKING DECISIONS ON ECONOMIC PROBLEMS: WHAT TO PRODUCE? HOW TO PRODUCE? HOW MUCH TO PRODUCE? SCARCITY FOR WHOM SHALL GOODS AND SERVICES BE PRODUCED?

4) CONSUMPTION (UTILIZATION) 2) DISTRIBUTION (ALLOCATION) 3) EXCHANGE (MONEY) 4) CONSUMPTION (UTILIZATION) 2) DISTRIBUTION (ALLOCATION) 1)PRODUCTION (CREATION OF GOODS) DIVISIONS OF ECONOMICS 5) PUBLIC FINANCE (ACTIVITIES OF THE GOV’T ON TAXES & EXPENDITURES)

FINISHED MAN-MADE PRODUCT THAT CAN PRODUCE OTHER GOODS ORGANIZER (OWNER) OF ALL FACTORS OF PRODUCTION HUMAN RESOURCES: TRANSFORMING RESOURCES INTO ANOTHER PRODUCT NECESSARY FOR UNDERDEVELOPED COUNTRIES THAT CANNOT PRODUCE HIGH-END EQUIPMENTS FOREIGN EXCHANGE DOLAR RESERVES TO ACQUIRE EQUIPMENTS: INCREASE IN PRODUCTION NOT CREATED BY MAN

WHAT COMBINATION OF GOODS AND SERVICES CAN BE PRODUCED EFFICIENTLY? FRONTIER? EDGE/ LIMIT POINT AT WHICH AN ECONOMY IS EFFICIENTLY PRODUCING ITS GOOD AND SERVICES WHAT COMBINATION OF GOODS AND SERVICES CAN BE PRODUCED EFFICIENTLY? EFFICIENCY = IF PRODUCT A IS INCREASING THEN PRODUCT B HAS TO DECREASED ANSWERS 3 BASIC ECONOMIC PROBLEMS: WHAT, HOW, WHOM