The Economics

Economics is the study of how societies efficiently use scarce resources to produce valuable commodities and distribute them to satisfy the need and wants of their members. It is also defined as the proper allocation and use of available resources for the maximum satisfaction of human wants.

The Branches of Economics

• Macroeconomics which deals with the economic behavior of the whole economy or its affricates such as government, business and the like. It is concerned about the gross national product, level of production, unemployment rate, etc.

• Microeconomics deals with the economic behavior of individual units or specific segments of the whole economy such as firms, consumers, price of commodities and the like.

The Divisions of Economics

• Production is the process of manufacturing goods needed by the people to satisfy their needs.

• Consumption is the proper utilization of economic goods.

• Distribution is the marketing of goods and services to different economic outlets for allocation to individual consumers.

• Exchange is the process of transferring goods and services from one person to another in exchange for something.

• Public Finance is the activity of the government regarding taxation, borrowings and expenditures

The Factors of Production

Factors of producing are economic resources that are necessary to produce economic goods. They are the following:

• Land – natural resources

• Labor – human resources or manpower

• Capital – manmade physical productive capacity such as plants, machine tools and the like.

• Entrepreneur – the person who organizes and coordinates all the other factors of production to produce economic goods.

• Foreign Exchange – the foreign currency reserve used for importing goods and services in the process of production.

The Law of Diminishing Returns

If states that when successive unit of a variable input (like farmers) work with a fixed input (like one hectare of land) beyond a certain point, the additional product (output) produced by each additional unit of a variable input decreases (Fajardo,1986)

• Supply is the flow of goods and services which the firms are willing or can make available in the market at a given price structure.

• Demand is the relationship between market price and the quantity demanded, expressing how much of the same commodity or services one consumer or all consumers would buy at a given real price schedule.

• Price is the value of a product or service

The Law of Supply and Demand

It states that when the supply is greater than the demand, the price of goods or services decreases; whereas, if the demand is greater than the supply, the price increases, and if the supply is equal to the demand, the price remains constant.

The Market Models

• Market is an impersonal set of pressures bringing together supply and demand. The different market models are the following:

• Pure competition – a market situation where there is a considerable number of sellers offering the same products

• Pure monopoly – a market situation where there is only one seller of a particular good or service

• Monopolistic competition – a market situation where there is a relatively large number of small sellers offering where similar but not identical products.

• Oligopoly – a market situation where there are few firms offering standardized differentiated goods and services.

The Economic Systems

An economic system is a set of economic institutions that dominates a given economy (Fajardo, 1986). The following are the major economic systems in the world today

• Capitalism. In this economic system, the factors of production and distribution are owned by the private individuals or corporations.

• Socialism. It is the bridge between capitalism and communism. It is a combination of capitalism and communism. Under this system, the major factors of production distribution and industries are owned and managed by the state, while the minor industries are owned by the private sector.

• Communism. It is exactly the opposite of capitalism, where all the factors of production and all the industries are owned and managed by the state. It is also known as command economy, where private property ownership is not allowed.