FM-AA-CIA-15 Rev.

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Study Guide in (Course Code and Course Title) Module No._1_

SSE 107 - Macroeconomics

STUDY GUIDE FOR MODULE NO. 1

An Introduction to Economics

MODULE OVERVIEW

Module Outline
A. Nature, Methods and Tools of Economics
B. The Problem of Scarcity
C. Division of Economics
D. Importance of the Study of Economics

Introduction
This module will cover a discussion of the basic concepts in economics focusing on the different views
and notions on Economics, to include its nature, methods and tools as well. The problem of scarcity,
considered as the central economic problem confronting every society is likewise discussed; it, being the
heart of the study of economics. The importance of Economics is emphasized as it deals with phenomena that
surround and affect people in their daily lives.

MODULE LEARNING OBJECTIVES

At the end of the module, students are expected to:

1. Explain the various definitions, notions and views on Economics;
2. explain the nature, methods and tools of Economics;
3. cite examples to show the difference between exact and inexact sciences;
4. explain the overwhelming problem of scarcity; and
5. appreciate the importance of Economics.

LEARNING CONTENTS (title of the subsection)

ECONOMICS: Its Meaning, Nature and Importance

Meaning
The study of how societies choose to use scarce productive resources that have alternative uses, to
produce commodities of various kinds, and to distribute them among different groups. (Samuelson)
- Deals with the study of the choices made by people who are faced with scarcity.
- Concerns both the way in which a society uses its resources, and the way in which it distributes the
fruits of production to individuals and groups in the society. (Lipsey, Sparks and Steiner)
- The study that deals with how scarce resources are allocated to maximize the unlimited wants that
individuals and societies want to fulfill. (Hashim Ali)

Notions:
• Political Economy – concerned with the relationship between politics and economics with emphasis on the
role of power in economic decision-making.
• Positive Economics – deals with facts and avoid value judgment. It is concern with WHAT IS.
• Normative Economics – involves someone’s value judgment about what the economy should be liked. It is
concern about WHAT OUGHT TO BE.

Nature of Economics
1. It is a social science
2. It is related to the other sciences and cannot be divorced from them.
3. It is an inexact science.
• There are no universal laws and universal truths in Economics, there can only be tendencies.
• Laws in Economics are relative to time, places and circumstances.
• Economic problems are not purely economics in nature; they are also created by non-economic factors.
Thus, it is not advisable to solve an economic problem with economic solutions alone.

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Study Guide in (Course Code and Course Title) Module No._1_

• To qualify the validity of economic laws, economists make used of an assumption – CETERIS PARIBUS,
which means “All other things being constant.”

Division of Economics:
1. Microeconomics – deals with the economic behavior of individual units such as the consumers, firms and
the owners of the factors of production.
- that branch of economics concerned with individual decision units – firms and
households – and the way in which their decisions interact to determine relative prices of goods and
factors of production and how much of these will be bought and sold.

2. Macroeconomics – deals with the economic behavior of the whole economy or its aggregates such as
government, business and household.
- that branch of economics which considers the relationships among broad economic
aggregates such as national income, total volumes of saving, investment, consumption expenditure,
employment, money supply etc.

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Study Guide in (Course Code and Course Title) Module No._1_

LEARNING ACTIVITY 1

Direction: Identify a word/words that would show the relationship between economics with the identified field
of study. Write your answers inside the box and provide a brief explanation.

RELATIONSHIP

HISTORY POLITICAL SCIENCE

____________ ____________ ____________ ____________
____________ ____________ ____________ ____________

ECONOMICS

BIOLOGY CHEMISTRY
_____________ __________ ____________ _____________
_____________ __________ ____________ _____________

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LEARNING CONTENTS (title of the subsection)

Approaches and Methods in Economics

The Methodology of Economics

- model building in Economics
Model – is a theory. It is composed of a number of assumptions from which conclusions or predictions are
deduced.
1. To be useful, a model must simplify the real situation.
2. The purpose of the model is to make predictions about the real world; and in many respects the most
important test of a model is how well it predicts.
3. A person who wants to predict the outcome of a particular event will be forced to use the model that
predicts best even if the model does not predict very well.

Economics being a science is a systematic body of knowledge. It uses scientific methods in gathering
data, analyzing the data and making conclusions.
1. Gathering of facts (sometimes called Descriptive or Empirical Economics as it is based on observable
and verifiable behavior). Data are obtained through observation and interviews.
2. Formulation of economic principles/theories – generalization about economic behavior. Data are properly
organized for analysis – requiring a careful study of the cause-and-effect relationships of the various
data. Out of this economic analysis, economic principles and theories are formulated or derived.
Generalizations are created through the following methods:
a. INDUCTIVE METHOD – the process of reasoning from the particular to the general. (Economists gather,
systematically arranged and generalized on facts)
b. DEDUCTIVE METHOD – the process of reasoning from the general to the particular. (Entails the
development of hypotheses which are then tested against facts)
3. Policies are formulated

Three Tools in Economics

1. Graphical – a graph is a diagram that shows relationships between numbers. Graphs arrange numerical
information into a picture from which it is often possible to see overall patterns or trends in the
information.
2. Mathematical – its application to economic analysis are found in the field of arithmetic and geometry
which are useful tools in explaining phenomena.
3. Statistical – provides the economists dependable estimators of the magnitude measuring the
relationships among economic variables as well as in making predictions. Also used to determine the
validity of economic hypotheses.

The Problem of Scarcity

Scarcity may be defined as the imbalance between our desires and the means of satisfying those desires
(Medina, 2003). Others view scarcity as a commodity or service being in short supply, relative to its demand
(Viray, et al. 2011).

The problem of scarcity has given birth to the science of economics; the science that studies how men
work to overcome scarcity. From the resources point of view, we may define economics as the study of
efficient allocation of scarce resources.

Importance of the Study of Economics:

1. To form the habit of accurate observation and correct interpretation of present economic trends and
development
2. To understand our country’s agricultural, industrial and commercial problems as they affect our economic
life and progress
3. To gain knowledge of how to conserve our individual and national wealth
4. To know how our government raises, controls and utilizes public money
5. To know what should be done to help make an independent Philippine economy sound

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LEARNING ACTIVITY 2

“Gear-up” Activity

Recall your childhood life and experiences and make a listing of things you considered as your needs and
wants during that period. Likewise, make a listing of things that you consider as your needs and wants at your
present age.

Consider the following study questions after you have listed down those needs and wants:
 How do you differentiate between a need and a want?
 What one word do you think best describes a need or a want?
 What one word do you think best describes a resource/resources?
 What do you think have your needs and wants to do with the problem of scarcity?

Recitation: Online Sharing

Prepare for an online sharing on the problem of scarcity, specifically by answering the study questions listed
under “Gear-up” Activity.

SUMMARY

Basically, when we talk about Economics, we speak of making decisions considering that economics is
defined as the study of choices that individuals and societies make. It was once known as political economy in
reference largely to the many economic problems as matters involving public policy.

Economics is both a positive and normative science. As a social science, it is related to the other
sciences and can never be divorced from them. As an inexact science, it can never claim universality of its
laws. The term “ceteris paribus” which means “other things being equal” is an assumption used by economists
to qualify the validity of economic laws.

Three important tools are utilized in economics namely: Graphical, Mathematical and Statistical.
The problem of scarcity is the central problems of economics and the reason why people economize. It
refers to the limitations that exist in obtaining all the goods and services that society wants.

REFERENCES

A. BOOKS

De Guzman, Rachele D., et al. (2013). General Economics, Taxation and Agrarian Reform. Meycuayan
City, Bulacan. IPM Publishing.

Mankiw, N. Gregory (2001). Principles of Microeconomics. 2 nd Edition. Hardcourt College Publishers:

Orlando, Florida.

Medina, Roberto G. (2003). Principles of Economics. Manila. Rex Book Store.

Nebres (2008). Economics: Concepts, Theories and Applications. Mandaluyong City: National Book Store.

Pagoso, Cristobal M. et al. (1999). Introductory Microeconomics. Manila. Rex Book Store.

Viray Jr. et al. (2011). Macroeconomics Simplified. Quezon City. National Book Store.

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B. ONLINE SOURCES

https://www.mbacrystalball.com/blog/economics/

https://www.economicsdiscussion.net/economics-2/nature-of-economics-economics-as-a-science-and-an-
art/1982

https://businessjargons.com/economics.html

https://www.investopedia.com/articles/economics/08/economic-thought.asp

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