Lesson 7: Scarcity and Economic System
Resources are limited and wants are unlimited; thus
the economic problems exist.
Scarcity is the shortage or insufficient amount of
economic resources
Opportunity costs are costs of benefits foregone in
the alternative use of resources.
The connection of possible combinations is the
“consumption possibilities line” (this is a
downward sloping line that reflects the inverse
relationship between two things)
Man’s basic economic activity of efforts is to satisfy
human wants with the use of goods and resources.
Three elements involved in this objective
of satisfaction
1. Human wants-they are unlimited
desires. Wants are the things you
want to have, while needs are things
need to have.
2. Use of resources-basic economic
resources of a nation land, labor,
capital and entrepreneurship, which
are limited and where man needs to
allocate them properly in order to
maximize the wants.
3. Technique of production-shows how
resources are used and combined in
production. (Production: either
capital-intensive or labor-intensive,
depending on what factor is
predominantly used)
Consumption
The household is the basic consuming unit of
the economy. Human wants are unlimited; satisfaction
is maximized through proper allocation or mixture of
expenditures within the context of budget limitations.
Business firm serves as the economy’s producing
unit to satisfy human wants with goods and services,
The use of resources generates income for the
resource owners.
The owners of a land on which a factory is
constructed charges rent for the use of his property.
Interest: owner of capital earns income for its use.
Profit: income that is earned
Problems of economic activity
1. unemployment
2. economic instability
3. low levels of growth
4. income inequality
5. type of economic system to adopt
Unemployment: leads to the exercise of idle
resources; income is foregone on resources. Poor
countries suffer from low levels of economic growth
and development
The base of the pyramidal structure in the
economy is made up of populations which are the
low-income earners who can only afford to satisfy
their basic needs.
Economic analysis is the process of directing
economic relationships by examining economic
behavior and events, and determining the casual
relationships among the data and activities observed.
Tools of economics:
Logic-learns how to draw conclusion
Statistics-to quantitatively describe economic
behavior and serve as a basis in hypothesis testing
Hypothesis: a principle or theory once
empirically validated.
Purposes of economic policy
1. aid in understanding how an economy
operates
2. it permits prediction of the results of changes
in economic variables
3. it serves as basis for policy formulation
Economic policy consists of intervention or courses
of action taken by the government or other private
institutions to manipulate the results of economic
activity. Adopted by the government (monetary, fiscal
or trade for the purpose of achieving economic
welfare)
Lesson 8: Economic Problems and Systems
Countries have to find answers to the ff. questions:
 What to produce?-refers to the types of
goods society desires.
 How much to produce?-refers to the quantity
of each good that will have to compose the
total output.
 How to produce?-a question on the
technique of production and the manner of
combining resources to come up with the
desired output.
 For whom to produce?-refers to the market
to which the producers will sell their products.
It refers to how much of the wants of each
consumer are to be satisfied
Economic system: function of determining what
goods services to produce. Has to perform the task of
organizing productive efforts to produce the selected
goods and services
Types of Economic system:
1. Traditional economic system-production
decisions are made according to customs and
traditions
2. Command economic system-the answers to
the aforementioned questions are dictated by
the government. Works under the principle
that the interests of society should prevail
3. Market system-deals with the economic
problems by considering consumers’ and
producers’ choices. Indicators are
consumers’ demand in the market
The problem of production is, therefore solved by the
price mechanism.
The market system is best characterized by free
enterprise where individuals enjoy the right of private
property.
Economy operates on a system of voluntary
exchange and cooperation among private individuals
and organizations.
Under a free enterprise system, an individual is
free to do the ff.:
Individuals are free to offer his resources to
people by:
1. he may decide to render services as an
employee in a big firm and earn wages or
salaries
2. the owner of a big space of land may lease
the property and earn rent income
3. the owner of idle capital may lend it to an
investor and earn interest
4. the owner may earn profits for deciding to
gather and organize resources
Rent, salaries and interests-will depend on the
amount made available by the resource owners
The Philippine economy is a mixed economy since it
applies a mixture of the three forms of decisionmaking.
Scarcity is relative. Task of economics is to allocate
scarce economic resources as efficiently as possible.
Productive Filipinos produce products both for
domestic and export markets.
The task of development
To overcome scarcity:
 in 60’s, the biggest problem of the
three sectors (producer, consumer
and government) was the rice
problem
Vicious cycle of poverty: Low production=low
income=low consumption=low savings.
It is the task of the government to provide our people
at least the basic needs of life.
How to overcome scarcity
 In the 80’s, the rice problem was
solved. The International Rice
Research Institute (IRRI) was born.
From this institute, research on how to
increase rice productivity was
undertaken and came the “miracle
rice”
Productivity refers to increase in output or
production given the same level of input
Land is our fixed input and production is our output.
1. purchase goods and services of his choice
2. Offer for sale his economic resources in
exchange for a financial remuneration
3. establish a business enterprise of his choice
Under the market economy, the consumer is free to
buy goods of his choice. This kind of economy is an
economy where individuals exercise free enterprise.
An increase in productivity means the ability to
produce more from the same level of resources.
Resources should not only be employed but be
efficiently employed.
Lesson 9: Wants and Needs
Economics is a study of allocating scarce resources
to satisfy a person’s wants and needs.
 Wants are things that a person greatly
desires.
 Need is a condition or situation in
which something necessary or
desirable is required or wanted.
Abraham H. Maslow’s Hierarchy of Needs
-explains why people are driven by particular needs at
a particular time.
Self Actualization
Esteem needs
Secondary
[status, recognition]
needs
Social needs
[love,sense of belongingness]
Security needs
[protection]
Basic
Physiological needs
needs
[basic needs]
People need peace of mind, peace and order,
freedom from fear and uncertainty.
Security services, banks, etc. provides security to
people.
(5) biggest banks in the Philippines
1. Metrobank
2. Bank of the Phil. Islands
3. Equitable PCI bank
4. Banco de Oro
5. Rizal Commercial Banking Corp.
Self actualization is a person’s aspirations,
ambitions, and dreams that have been realized.
Corporations can create needs and can profit by
satisfying these needs
The basic needs of man as basis of economic
progress and development
Abundance of material things
Freedom
[of choice, to own properties]
Dignity in life
P
D
I
C
- Philippine
- Deposit
- Insurance
- Corporation
1.
2.
3.
4.
5.
Factors affecting our needs
Age
Occupation
Lifestyle
Income
Taste & Preference Education
Lesson 10: Factors of production
Factors of production are inputs or resources used
to produce goods and services.
A firm or a nation’s production depends on its factors
of production.
Factors of production:
1. Land
Refers to all natural resources, including the
soils, fields, rivers, mountains, and mineral
deposits
It is scarce and people who own land and
offer it to others earn an income called rent.
The location of land determines its value.
2. Labor
Refers to any form of human effort exerted in
the production of goods and services. It is the
human face of production. It gives life to the
production.
The supply of labor in a country is dependent
on its population willing to join the labor force.
It is an important commodity. Wages are the
return on the use of labor.
3. Capital
Refers to manmade, durable goods used in
the production of goods and services.
A nation’s capital is dependent on savings.
Capital is an economic good and the owner of
capital earns income for its use. This income
is called interest.
4. Entrepreneur
An entrepreneur organizes and manages
resources for use in the production of goods
and services.
• Decides on the combination of land,
labor, and capital
• Innovates and take risks
Entrepreneurship is an economic good that
commands a price.
The income earned by the entrepreneur is
called profit.
The production Function
Contains the functional relationship between
output and inputs or factors of production
• TP= f(I)
• MP=change in TP/change in 5
• AP=TP/I
*Note: TP=Total product or output
MP=Marginal product
AP=Average product
Total product refers to the total output as the
producer hires workers.
Marginal product refers to the additional product
bought by hiring additional worker.
Average product refers to the amount of output per
unit.
The Law of diminishing returns refers to the
declining trend of the marginal product. It explains
that additional product or output starts to diminish at a
certain point even if input level increases.
Lesson 11: A profile of Filipino Entrepreneurs
Human Resources are the key to economic
development
Job
 Makes people important
 Makes people productive
 Provides economic needs
Qualities of a successful entrepreneur
1. Hardworking
He makes the most of the time given to him to
deliver the product or service needed by the
customers
2. Sensitive to customers’ needs
Providing goods and services needed by the
customer
3. Early start
Entrepreneurs imbibe the business habit early
4. Habit to thrift
They don’t want to waste money, goods or
time. They know how to spend their hardearned income.
5. passion to succeed
Loves what they do. They are thrilled with the
prospect of seeing their ventures succeed.
6. willingness to take the risks
It is where an entrepreneur grabs
opportunities as they come and capitalizing on
them.
Filipino Entrepreneurs
1. Socorro Ramos-National Bookstore
2. Leonardo Sarao- Sarao Motors
 Started to work as metal smith,
mechanic and kalesa driver.
3. Tony Tan Caktiong- Jollibee
 Started its business from an ice cream
store
4. John L. Gokongwei- J.G. Summit Holdings,
Inc., Sun Cellular
5. George S.K. Ty- Metrobank
6. Lucio Tan- Alied Bank, Asia Brewery
7. Henry Sy- SM group of companies
 he started to work at his father’s sarisari store at the age of 17.
 He started to create a shoe store.
Then added more varieties because of
the diminishing stocks of shoes.
8. Jaime Augusto Zobel de Ayala- the Ayala
group
9. Jose Ma. Concepcion- Concepcion Group
10. Victor Tan- Bobson
11. Dr. Rolando Hortaleza- Splash Corporation
 Started from selling of bottling acetone
 “Innovation seduces the customer with
quality products at a remarkable price”
12. Ben Colayco- Ragnarok game
 Ragnarok-is the first Phil.’s first
massively multiplayer online roleplaying game (MMORPG). Taken from
Myung-Jing Lee’s Manwha (Korean)
 Level Up!-is a global online game
publisher from the emerging market of
the Phil., India and Brazil.
13. Manuel Pangilinan- PLDT
 Focus was all he needed to hit the
bull’s eye of success.
14. Celestino “Les” Reyes- Reyes Haircutters
 his big innovation-he provided the
masa with an upscale mood and
quality services but with prices that
are affordable to everyone
15. Cecilio K. Pedro- Hapee toothpaste
 his three goals: compete head on with
the big players, look at the export
market, and go for a possible public
offering
Lesson 12: The Filipino consumers and
consumption
In 2002, the Philippines…
 Population: 82 M ( 2010: 94 M)
 % growth: 2.36%
 # of households: 16, 412, 822
 Ave. size of households: 5.0
 Life expectancy: 70 years
Population in the ASEAN
1. Indonesia
2. Philippines
3. Vietnam
4. Thailand
5. Myanmar
6. Malaysia
7. Cambodia
8. Singapore
215M
82M
79M
64M
48M
23M
13M
4M
Philippine population
Age
Population
Below 15
27 million
16-64
47 million
65 and above
3 million
Percentage
36%
60%
4%
NSCB-: National Statistics Coordination Board
Top 5 populations in NCR
1. Quezon City
2. Manila
3. Caloocan city
4. Taguig
5. Pasig city
Lowest population in NCR is Pateros
Top 5 with the biggest population in all REGIONS
1. CALABARZON-Region 4A
2. National Capital Region
3. Central Luzon-Region 3
4. Western Visayas-Region 6
5. Central Visayas-Region 7
Factors that can affect consumption
1. income: consumption is very much affected
by how much income individuals and families
have
2. Population: the bigger the population, the
bigger will be the consumption
3. Taste and preference: consumers patronize
products that fit their taste and preference
4. Price: affects demand or consumption for
products or services
5. Innovation: the process of producing new
goods and services to satisfy consumer needs
Advertising and promotion: a medium of
introducing new products in the market
Additional notes from the Handouts in Social Studies:
interests. Central institution is the free
(3) basic questions
market system
 What get produced?
 How it is produced?
Market: institution through which buyers and
 Who gets what is produced?
sellers interact
Factors of production
 Capital: things that are produced
themselves
 Labor: all physical and mental human
effort
 Land: all natural resources of the
earth
Production: process that transforms scarce
resources
 Inputs: factors of production
 Outputs: good and services of value
Free enterprise: individual producers must
know how to plan, organize and coordinate
Price: amount that a product sells for per unit.
Basic coordinating mechanism
Costs
Long run: the period of time taken to vary all
factors of production. The period of time
varies according to the firm
Short run: diminishing marginal returns,
adding successive quantities
Constrained choice and scarcity=basic concepts
Comparative advantage: it can produce that product
at a lower opportunity cost
Absolute advantage: it can produce that product
sing fewer resources
Theory of competitive advantage: specialization
and free trade will benefits all
Investment: process of using resources to produce
new capital
Capital goods: goods used to produce other gods
and services
Consumer goods: goods produced for present
consumption
Production possibility frontier: a graph, shows the
combinations of goods and services
Marginal rate of transformation: slope of the ppf
curve
Economic growth: increase in the total output of the
economy
 Main source: capital accumulation
and technological advances
Economic system: basic arrangements made by
societies
 Command economy: central
government either directly or indirectly
sets output
 Laissez-faire economy: individuals
and firms pursue their own self-
Total cost: sum of al costs
Average cost: cost per unit of output
Marginal cost: cost of one or more units
Ave. fixed cost: cost for every product that is
based on the total fixed cost
Ave. variable cost: total variable cost is
divided into the produced goods
Ave. total cost: total cost divided the total
product
Fixed costs: costs that are not related directly
to production
Variable cost: cost directly related to
variation in output
Revenue
Total revenue: total amount received
Average revenue: average amount received
Marginal revenue: amount received from
selling one extra unit
Profit: reward for enterprise, process of
directing resources
Normal: minimum amount required to keep a
firm
Abnormal or supernormal: profit made
over/above normal profit
Sub-normal: below normal profit