MICROECONOMICS LESSON

ECONOMIC ACTIVITY

Man’s Basic Economic Activity

 Man’s basic economic activity consist of efforts to satisfy human wants with
the use of goods and services.

3 Elements are involved in this objective:

1. HUMAN WANTS – they are unlimited and vary from the needs for survival, otherwise known
as basic needs e.g. ( food, clothing, and shelter )
 Man is subject to create wants, develop them due to the effects of consumption as
dictated by our culture.

Example: One may be influenced to buy a Ipad, Laptop, or Ipod only because others
have it.

 ECONOMICS is concerned with the satisfaction of many of these human

wants especially the basic ones.
2. USE OF RESOURCES – the basic economic resources of a nation consist of land, labor, capital
and entrepreneurship.
 Since these items are available in limited amounts, man has to learn to allocate
them properly in order to maximize the number of wants that can be maximize the
number of wants that can be satisfied.

 The economy should pay the owners of these basic factors of production for
the use of their resources such as LABOR, INTEREST for CAPITAL, and profit
for entrepreneurship.
3. TECHNIQUE of PRODUCTION – shows how resources are used and combined in production.
 Production is describe as capital-intensive or labor-intensive depending on what
factor is predominantly used.
 THE BASIC EXCHANGE that takes place between the business firm and the
consumers.

Resources Payment
Land Rent
Labor Wage/Salary
Capital Interest
Entrepreneurship Profit
CONSUMPTION
  The HOUSEHOLD is the basic consuming unit in the economy. Human wants
are unlimited, humans maximize their satisfaction through the proper
allocation or mix of expenditures within the context of budget limitations.
Example:
A student has an allowance to budget usually for a given week. Five
hundred pesos goes to transportation, sandwiches, soft drinks, and even an
occasional movie. However, a decision to buy a new T-shirt means giving up
some snacks at school as the satisfaction that will be gained from the
former will outweigh the satisfaction foregone from the latter. The
opportunity foregone is called OPPORTUNITY COST DEFINE as the value of
a foregone alternative of a specific resource. OPPORTUNITY COST –
defined as the value of a foregone alternative of a specific resource. It may
also be exemplified in the earning value of a university ground had it been
used as a commercial center instead of an educational institution.
 The BUSINESS FIRM – serves as the economy’s producing unit to satisfy
human wants with goods and services.
Example:
Production must take place in a factory before Shoemart can sell
beautiful high-heeled pairs of shoes. The Entrepreneur had to hire shoe
cutters and sewers and skilled workers; buy leather, thread, metals, paste,
shoe-making machineries; and work on all these material to come out with
different shoe designs and colors.
 The use of resources generates income for the resource owners. The
owners of land in which a factory is constructed charge rent for the use of
their property. The shoe cutters, pattern makers, dyers, and other workers
have to be paid wages for their efforts expended in production. The owner
of the business has to forego the alternative use of his money to invest in
the business for which he charges interest. Even the entrepreneur has to do
something out of pooling these resources for production to gain income or
profit. It is the entrepreneur who basically makes the decision as to how
production resources should be best combined to come up with the desired
output.

WHAT ARE SOME ECONOMIC PROBLEMS:

1. Unemployment
2. Economic instability that causes highs and lows in production and investment levels.
3. Low level of growth and development which make them more difficult for underdeveloped
and developing nations to rise from their low levels of income and employment.
4. Inequality in income distribution resulting in the concentration of the nation’s wealth in the
hands of a few; and
 5. Determination of the type of economic system to be adopted to meet the country’s peculiar
conditions and needs.

Explanation:

 UNEMPLOYMENT – is a problem because it leads to the existence of idle

resources. This means that income is foregone on resources which would
generate earnings to the owner if used.
 ECONOMIC STABILITY – in a nation makes it difficult for producers to make
accurate forecasts on demand and consumption levels. This would cause
fluctuations in their production and supply of goods and services resulting in
surpluses or shortage of goods.
 LOW LEVEL OF GROWTH AND DEVELOPMENT – poor countries especially
suffer from low levels of economic growth and development. They get
caught in the vicious cycle of poverty, making it difficult to get started on
their development. Their low levels of income deter them from channelling
funds to investments in order to propel economic growth.
 INEQUALITY INCOME DISTRIBUTION – exist when too many people in the
nation that belong to the low income group cause a pyramidal structure in
the economy. The base, which is made up of the majority of the population,
is the low income earners who can only afford to satisfy their basic needs.
The wealth of the nation is concentrated in a small number of families who
control the bulk of the country’s purchasing power.
 DETERMINING THE TYPE OF ECONOMIC SYSTEM –is vital to any country
because it determines the manner in which goods will be produced, the
quantities of each good that will be produced, and the distribution of these
goods and services.

ECONOMIC ANALYSIS – is the process of directing economic relationships by examining

economic behaviour and events and determining the causal relationships among the data and
activities observed.

Conclusion:

 A student of Economics who attempts to analyse relationships among

economic variables must learn to draw conclusions from the particular to
the general
( inductive reasoning ) or from the general to the particular ( deductive
reasoning ). This necessitates the use of the first tool of economics which is
LOGIC.

An Economic analyst uses STATISTICS to quantitatively describe economic behaviour and

therefore serves as a basis in hypothesis testing. A HYPOTHESIS becomes a principle or
theory when empirically validated.
 The 3rd tools of Economics is MATHEMATICS which enables an analyst to foresee and assess a
hypothesis for empirical validation.