 The effective management of scarce resources to

satisfy unlimited human wants and needs.

 A social science that studies the means by which
individuals, groups, and societies produce,
distribute, and consume products and services.
 The origin of the study of Economics is traced to
Adam Smith who wrote the book “An Inquiry Into
the Nature and Causes of the Wealth of Nations“ in
1776 and started the idea of Economics as
separate source of knowledge from Philosophy.
1.) SCARCITY – the limitation of
resources, particularly economic
resources such as land, labor,
capital, and entrepreneurship.
- results in challenges with
regard to properly allocating
these resources to all sectors
of the economy.
2.) UNLIMITED HUMAN WANTS
AND NEEDS
- the concept of scarcity is coupled with
the fact that human wants and needs are
unlimited.

NEEDS- things that are desired which are

essential for human survival.

WANTS- those that are desired but are not

essential for survival.
* All of our daily actions are defines by
meeting a series of needs and wants.
3.) ECONOMIC RESOURCES AND
FACTORS PRODUCTION
a. LAND – refers to all natural
resources that exist without man’s
intervention
- it encompasses all things derived
from the forces of nature such as
air, water, forest, vegetation, and
minerals.
- the payment for land is called
RENT.
b. LABOR – refers to human
inputs such as manpower
skills that are used in
transforming resources into
different products to meet our
needs.
- The payment for labor is
called WAGES and SALARIES.
c. CAPITAL – a man-made
factor of production used to
create another product.
- the payment for capital
is INTEREST.
d. ENTREPRENEURSHIP – the factor of
production that integrates land, labor, and
capital to create new products.

ENTREPRENEUR- an individual who makes

the decisions with regards to the
production and utilizing the other factors
of production.
- A successful entrepreneur not only
creates new products-he or she also
innovates by improving an old ones.
 Since the scarcity of resources is the
central to the study of economics, it is
necessary to properly allocate these
resources to meet people’s unlimited
wants.
1. What to produce?
- a society determines the kind and
quantity of products it will produce
depending on what the consumers
want to buy or are willing to pay for.
2. How to produce?
-A society decides who will produce
goods and what process of
production will be used.
- Goods may be produced by
corporation, small business-owners,
or the government itself.
- The process of producing goods may
be addressed depending on the cost
and the availability of resources
needed.
3. For whom to produce?
- The question revolves around the
issue of who will benefit from the
goods and services produced.
- This depends on the distribution of
wealth in a particular society.
- A consumer who has the capacity to
pay for certain goods and services is
more likely to benefit than one who
cannot afford them.
 answers for what, how and for
whom to produce are influenced by
this structure of societies system.
 Characterized by the type of
institution responsible for the
management and allocation of
resources used in the production of
goods and services.
1. Market Economic System
- where all economic resources are owned by
private entities.
- This system proposes the following answers to
the 3 economic questions:
1. produce goods that yield high profits
2. produce at maximum efficiency with
minimum cost
3. distribute the goods to those who can
afford to buy them
1. producing more public goods like
roads, public schools, and public
hospitals
2. employing all possible laborers and
using available machinery and
equipment
3. producing for the public
3. Mixed Economic System
- where all three questions are answered
by both the government and private
entities in consideration of their
natural benefit.
- Economic resources are owned by
both.
4.) DECISION-MAKING AND
RATIONALITY
- The reality of scarcity means that people
have to make choices with regard to the
resources that they wish to use or avail of.
Decision Making- determining how
individuals or groups of individuals will
behave given certain changes in the
economy.

Rationality- the assumption that individuals

are consistent and logical in their decision-
making, and that they seek an outcome that
is most beneficial to them.
TRADE-OFF
Opportunity Cost- refers to the cost of
giving up an alternative by selecting the
second best choice.
- When resource are scarce or limited,
consumers are compelled to choose how to
manage them efficiently and decide how
much of their wants or needs will be
satisfied and how much of them will be left
unsatisfied.
Trade-off- means once the
choice is made, you can no
longer go back and undo such
choices.
- This could result in either the
satisfaction of needs or a
failure to meet them.