Fundamentals

of
Economics
ECON1E: Principles of Microeconomics
University of St. La Salle

Economics
This is the study of proper allocation and
efficient use of available resources for the
maximum satisfaction of human wants.
The study of how individuals and societies
choose to use the scarce resources that
nature and previous generations have
provided.

Economics
The term economics comes from
the Ancient Greek word oikonomeia
(oikos house; nomos custom
or law), literally management of
the household or rule of the
house.

Economics
'Political economy' was the earlier
name for the subject, but economists in
the late 19th century suggested
"economics" as a shorter term for
"economic science" to establish itself as
a separate discipline outside of political
science and other social sciences.

Nature of Economics
Economics is classified as a social

science because it deals with the study

of mans life and how he lives with other
men.
e.g. household budgeting, paying taxes

It is also considered as the Queen of

Social Science.

Nature of Economics
Our economic problems are not
purely economic in nature.
These are also caused by
noneconomic factors which may be
cultural, educational, social, or
political.

Nature of Economics
Therefore, we need not only
economic solutions but also political,
social and cultural reforms.
e.g. poor farmer, who is given land,
has several bad habits like heavy
drinking and gambling

Concept of Economics
Scarcity
is the fundamentaleconomic problemof
having seemingly unlimited
humanwantsin a world of limited
resources. It states thatsocietyhas
insufficient productive resources to fulfill
all human wants and needs.

Concept of Economics
Scarcity
if everything is abundant, the price is
zero and there is no need for allocation
and no such things as economic goods
(i.e. economics becomes useless!)

Concept of Economics
Efficiency
when resources are used in such a way
that people can get as much as they can
get (specific to their wants and needs)

Division of Economics
Microeconomics
The branch of economics that examines the
functioning of individual industries and the
behavior of individual decision-making units
that is, business firms and households.
e.g. price of rice, number of workers in
San Miguel Corporation, income of Mr.
Sy

Division of Economics
Macroeconomics
The branch of economics that examines

the economic behavior of aggregates

income, employment, output, and so on
on a national scale.
e.g. gross national product, level

of employment, national income

Division of Economics
Microeconomics looks at the individual unit
the household, the firm, the industry. It
sees and examines the trees.
Macroeconomics looks at the whole, the
aggregate. It sees and analyzes the
forest.

Division of Economics
When we study the income or expenditure
of a family savings bank, we are dealing
with microeconomics;
When we deal with the total income or
total expenditure of the whole banking
industry, then we are involved in the study
if macroeconomics.

Fallacies on Economic
Reasoning
Post hoc fallacy
assumes that because one event

occurred before another, the previous

one caused the succeeding event
e.g. The rooster crows immediately

before sunrise, therefore the rooster

causes the sun to rise.

Fallacies on Economic
Reasoning
Failure to hold things constant
(ceteris paribus assumption)
always take note to hold other things
constant

Fallacies on Economic
Reasoning
fallacy of composition
assumes that what holds part of the
system applies for the entire system
e.g. If someone stands up out of his seat at
abasketball match, he can see better.
Therefore, if everyone stands up they can all
see better.