INTRODUCTION to ECONOMICS

Time allotment : 1 hours

Objectives:
Trace evolution of the word economics through
several languages
Give standard definition of the term economics
Explain the history behind household
management in detail
Summarize the reasons why students have to
study the course in modern times
Explain various approaches to economics thinking
American Heritage Dictionary : ECONOMICS
oikonomia or oikonomos - management of a
household: oikos (house) + nomos (managing)
Modern economics
The careful or thrifty use or management of resources
as of income, materials, or labor
The management of the resources of a country,
community, or business


Evolution of the word:
Greek : oikos + nomia
Latin : oeconomia
Spanish : economia
English : economics
Filipino : ekonomiya / ekonomya


Economics is a social science that
deals with the efficient allocation
scarce resources to satisfy mans
unlimited wants and needs.
The history behind the word
Approx
Period
Significance of the Period Household Managing Activity
11,000
B.C. (and
beyond)
(Ice Age) polar ice caps
started to melt; earliest
known start of the creation of
bodies of water in the world
I d of the most important resources to
survive; water guaranteed survival of
the species
9,000 B.C. Earliest traces of nomadic
activity
Men made weapons; hunted for food and looked
for viable shelters; women took care of children,
prepared food, made clothing & maintained
shelter; nomadic activities were minimized &
tribal leaders were elected to manage household
needs; self-sufficiency was the main objective of
tribes
6,000 B.C. Earliest known civilization
(China, Yang Tze River)
Nomads settled near fresh water, built
more permanent shelters, had
livestock activities; early traces of
agricultural technology-cultivation &
irrigation: signs of early govt. &
civilization
3,000 B.C. Next known civilization (India,
Indus River)
Civilization flourish with the
settlement of people in the
communities; sustainability was the
main objective
2,800 B.C. Midlle East civilization (Tigris
& Euphrates)
Significance of rivers for economic
activities like trading and agriculture
Characteristics of civilizations are the
following :
A more or less permanent territory
Food production through field cultivation
(ager cultura) or agriculture
Early practices of specialization (food
producers, hunters, fishing, soldiers,
warehouse and granary keepers, blacksmith,
pottery, etc.)
Early system of government


They form intrinsic part of our everyday living
Basic and evident in our everyday life, and yet
not too many appreciate it or understand it
Why study economics ?
1. Economics helps you understand the
marketplace and the economic system in
general. All people are consumers; the
course helps you as a consumer to
understand the impact of economic and
political events (both domestically &
internationally) to your decisions of
spending, saving and even borrowing
2. The course is also essential in the sense that it
allows you to understand the signals from the
marketplace, the nature of the cost of products,
and the process of making decisions especially
those with quantified values.
3. Economics interacts with almost all other
academic disciplines, thereby allowing you to
better understand how the world and its people
function and behave
4. It is intimately intertwined with current
events and has a profound impact on political
events, thereby allowing you to fully
participate in the policies of running the
economy (election and legislative processes)
The economic method; how is it
studied
Economics uses a standard method of
analysis, which one must know to fully
comprehend and appreciate its concepts
and discussions. The methods is based
on both the scientific method and policy
analysis
Scientific method
The process by which scientists, collectively and
overtime, endeavor to construct an accurate
(reliable, consistent and non-arbitrary)
representation of the world
Recognizing the personal and cultural beliefs both
our perceptions and our interpretations of
natural phenomena, we aim through the use of
standard procedures and criteria to minimize
those influences when developing a theory.
smart people (like smart lawyers) can come
up with very good explanations for a mistaken
points of view.
In summary, the scientific methods attempts
to minimize the influence of bias or prejudice
in the experimenter when testing a hypothesis
or theory
Scientific method has four steps:
1. Observation and description of phenomenon or group
of phenomena
2. Formulation of hypothesis to explain the phenomena
3. Use of hypothesis to predict the existence of other
phenomena or to predict quantitatively the results of
new observations
4. Performance of experimental tests of the predictions
by several experimenters and properly performed
experiments. If the hypothesis is supported by
experiments, it may come to be regarded as a theory
or law of nature
Policy analysis
A policy is a course of action or inaction
chosen by public authorities to address a
given problem or interrelated set of problems.
It is anchored on a set of values regarding
appropriate public goals and set of beliefs
about the best way to achieve those goals.
The idea of public policy assumes that an issue
is no longer a private affair
Policy analysis is basically an approach to
evaluate policies in the public sector.
Common approaches are:
First define the problem
Define the evaluation criteria
Identify alternatives
Evaluate alternatives and then choose the best policy

Policy analysis is similar to program evaluation
in trying to determine whether something
works, but the former looks at policy rather
than programs. Policy analysts can come from
many backgrounds including sociology,
psychology, economics, political science,
public policy, public administration or many
other areas.
3) Economic model will usually consist of but
not limited to graphs, charts, tables and
figures. These models help economists
analyze phenomena, generate abstracts and
try to simplify reality.
4) Identify solutions. This impt step deals more
on requiring the analyst to lists all possible
solutions to the given problem
The economic method; steps:
1. State the problem . This is a very important
step in economic thinking. Being able to
properly define the problem allows analysts
to narrow down and focus on the specific
aspect that needs to be solved.
2. Apply the relevant economic model. The
purpose of an economic model is to make
predictions of what will happen given the
phenomenon being studied
3. Identify solutions. This step deals with requiring the
analyst or economist to list all possible solutions to
the given problem.

4. Evaluate solutions. This step considers the various
advantages and disadvantages of the identified
solutions in item 3 above. It is in this stage that the
work of an economist overlaps to that of a
policymaker who also evaluates solutions. Some
considerations include costs versus benefits; possible
side effects and spillover effects of the solution/s
5. Select and implement a solution. In the
selection and implementation stage, it is the
policy maker and not the economist that
does these. Although the economist
sometimes also participates in this stage, he
is usually more of an adviser than an
implementer
Common pitfalls in using economics
methods:
1. Biases and preconceptions the use of personal
judgments in the analysis of the facts
2. Loaded terminologies- employing long definitions for
some concepts and emotionally loaded terminologies
3. Fallacy of composition assuming that what is true to
the parties is also true for the whole
4. Post hoc, ergo propter hoc fallacy presuming that if
one event precedes another, it necessarily is the
cause for the latter.
5. What is true for depression is true for prosperity
fallacy in using similar theories and policies in
dealing with varying economic situations.
Limitations to economic models
Although economics uses very scientific
approach and is considered the oldest (and the
queen) of social sciences, the models are not
perfect, thus having its own inherent limitations:
1. The liberal use of assumptions. All economic
models are simplified by assumptions. Although
these assumptions have solid bases, we cannot
guarantee that these assumptions are error-
free. It is possible that other factors were not
considered when the assumption was made
2. Ceteris paribus. A major assumption in all
economic models used by economists is
embodied in this Latin phrase, which means
everything stands still or everything is held
constant.