TOPIC 1

There are 3 strands in the development of the 2. RESOURCES – Products of nature,

definition of Economics: qualities of individuals, and man-made
things which are used in producing
 Study of Wealth goods or services
Wealth-getting and wealth-using implies NATURAL RESOURCES – can
that the motivation of the process of directly provide goods for current
wealth accumulation is the utilization of consumption, or use as raw materials for
wealth for the individual’s satisfaction production of other goods
and society’s welfare. (Production and HUMAN RESOURCES –
consumption) qualities of human beings that may
 Study of Making choices include labor, intelligence, health,
Decisions based on alternative choices. education, talents, and many more.
Opportunity cost-foregoing or sacrificing PHYSICAL RESOURCES –
the benefits that would have been man-made resources that include
derived from alternatives that were not various types of buildings, equipment,
selected. technology, bridges, factory plants, and
 Study of Allocation other physical infrastructure that can
Allocation of scarce resources to answer provide present and future satisfaction
the unlimited human wants.
RESOURCES ARE LIMITED
There are 5 elements in the definition of - Difficulties in production
economics: - Competing uses of resources

1. SOCIAL SCIENCE – Study of the 3. HUMAN NEEDS AND WANTS

society and the manner in which people Human wants is a differentiated human
behave and influence the world around needs rather than luxuries. This is being
us accounted by the way consumers
answer their basic needs.
o SCIENTIFIC METHOD – A method of
inquiry from identifying a problem, 4. SCARCITY – Limitation of resources to
proposing alternative tentative answers answer expanding human wants.
or hypotheses, testing the tentative
answers to question or problems at Scarcity is a general characteristic of resources
hand, gathering and treating the data, in the light of its competing uses that may arise
and answering the question through the from the rapid expansion of human wants.
conclusion Shortage is a condition when the supply of
o HUMAN INTERACTIONS – aspire to good, service, or resource is not enough to
preserve group as a social unit, to make meet the demand.
it stable, promote growth, expansion and
development. 5. ALLOCATION – A mechanism of
o MATERIAL WEALTH – how this wealth distributing limited resources to meet
expanding human wants
available to people with minimum
difficulties, and its expansion.
o OTHER SOCIAL SCIENCES – Political,
behavioural and history
How can we treat the problem of scarcity?

o Temper or slowdown the expansion of

their human wants in the light of limited 3. Tradition Process
resources. - Practiced in indigenous communities
o Hasten the expansion of limited where life is less complicated and the
resources in the light of expanding simple needs of the society can be self-
human wants. produced
o Combination of two alternatives. - Roles of social structure, norms, belief,
and value system are important
MECHANISMS OF ALLOCATION

1. Market System ECONOMICS – A social science that deals

MARKET – A state when buyers and sellers with the allocation of scarce resources to meet
transact on the purchase or sale of goods and the unlimited human needs and wants.
services
ECONOMICS as an Applied Science
Consumer considers the PRICE as an indicator o Accountancy – useful in making
of his satisfaction/benefit/utility in the purchase business decisions in terms of wealth.
of a good or service. Therefore, a higher price o Marketing – understanding the
reflects higher utility while a lower price implies behaviour of consumers to expand
lower utility. market share
o Finance – formation of excess funds for
3 Basic economic questions: investment purposes through concept of
o What to produce? saving rooted on the opportunity cost of
o How to produce? present consumption.
o For whom to produce? o Management – optimal combination of
resources.
2. Command System
- The state or agency of government
maybe in charge in the allocation of
resources by using its political power in
answering the basic economic problems
- Temporary alternative mechanism in
abnormal times
- Used in times of calamities, disasters, or
national emergencies

Example:
Typhoon destroyed crops, damaged
houses and business establishments.
The government will:
o Ration commodities
o Impose price control
o Confiscate resources
 levels of satisfaction measurable

TOPIC 2 VARIATIONS IN BENEFITS AND COSTS DUE

ANALYSIS OF BENEFITS AND COSTS TO THE STAGE OF RECOGNITION
RECOGNITION
Decision Making Spatial Dimension Temporal Dimension
The decision maker The decision maker
Influenced by motivations may not be aware of may not be aware of
the social or public the proximity of
effects of his actions benefits and costs in
BENEFITS COSTS terms of time
Derived Incurred Level of his Level of his
awareness are more awareness are
Level of satisfaction Sacrificed money,
pronounced on readily realized on
time, resources, and
private benefits and present benefits and
other goods
costs costs
Implicit to others, Implicit benefits and
- We make sure that our net benefits be
explicit to him costs are future
positive and as much as possible will because he benefits and costs
yield to the highest net returns (surplus, experiences direct
net satisfaction, net returns, profit) satisfaction
- We aspire to have maximum net Social benefits –
returns/benefit spill over effects that
the entire community
MARGINAL BENEFITS AND COSTS – can enjoy
additional benefits and costs that will be the Social costs –
basis of whether to continue or not whatever spillover effects that
you are currently doing may put a burden on
the community at
large
Positive Marginal Benefit
Marginal Benefit > Marginal Costs
VARIATIONS IN BENEFITS AND COSTS DUE
(Meaning, benefits can still be increased
TO THE STAGE OF VALUATION
through increase in consumption)
VALUATION
Spatial Dimension Temporal Dimension
Negative Marginal Benefit
Individuals may Individuals may have
Marginal Benefit < Marginal Costs
have different different valuation of
(Meaning, benefits are declining) valuation of social present and future
impacts benefits
Maximum Net Benefit Some individuals Some individuals
(Optimal Decision) have low valuation have low valuation on
Marginal Benefit = Marginal Costs on social benefits future benefits and
(Since total benefits are no longer increasing, it and costs costs
implies it has reached its maximum level) Present benefits are
currently and directly
BENEFITS AND COSTS enjoyed that’s why it
EXPLICIT IMPLICIT is more significant
Obvious or showing Hidden than benefits that are
Expressed in No monetary yet to be realized in
monetary terms or expense, non- the distant future
TOPIC 3

Basic Economic Problems Confronting the - Relative Poverty

Development of the Philippines in the 21st
Century  Refers to the structure on how the
national income is being distributed
among households in an economy
• Poverty and unequal distribution of  Measured in terms of Lorenz curve and
Income Gini coefficient

2 Categories of Poverty: Lorenz curve – shows the share of the

various household groups on the total
- Absolute Poverty national income
o Lack of income to buy the basic
needs for living Gini coefficient – a measure of income
o Measured in terms of Poverty inequality derived from the Lorenz curve
threshold and Poverty incidence

Poverty Threshold - income needed

to purchase minimum nutritional
• Demographic change
requirements and other basic
necessities for daily survival
• Low investment in Human Resource
development
Poverty Incidence – proportion of
households in the country with family
• Weak infrastructure
income lower than the poverty line
• Pursuing food security

• Slow adoption of modern technology

• Environmental sustainability and

country’s development thrust
TOPIC 4 INCOME EFFECT – refers to the modification
ANALYSIS OF DEMAND of the consumption of a commodity due to the
change in the purchasing power of the
DEMAND - is the willingness and capacity of a consumer resulting from a price change
consumer to buy a commodity at alternative
prices at a given point in time. SUBSTITUTION EFFECT – the decision of a
consumer to substitute an expensive good with
DEMAND SCHEDULE - Tabulation form of the cheaper goods when there is a price change
quantity demanded at a given price.
PRINCIPLE OF DIMINISHING MARGINAL
DEMAND CURVE – a schedule of willingness UTILITY – as a buyer continues to consume a
and capacity of a consumer to buy a good, his total satisfaction or utility increases,
commodity at alternative prices at a given point however, the additional or marginal satisfaction
in time other things held constant; Graphical decreases as a buyer consumes an additional
illustration of the demand schedule unit of good

LAW OF DEMAND – an economic law that OTHER FACTORS AFFECTING THE

states as the price of a good or service DEMAND OF A COMMODITY
increases, consumer demand for the good or (DETERMINANTS OF DEMAND)
service will decrease (inverse/indirect 1. Income – the income of the consumer
relationship), other things held constant influences the capacity to purchase
(ceteris paribus) 2. Prices of Other Commodities – the
influence of related goods
CETERIS PARIBUS – other things held a. Substitute
constant; other factors that may affect the b. Complementary
demand for the commodity are not changing 3. Expectation – prospect of what is going
and the only factor that influences the level of to happen to the price can influence the
demand is the price only demand of a commodity
4. Taste – preference that may influence
the demand for a commodity
Factors affecting taste:
a. Cultural values
b. Peer pressure
c. Power of advertising
5. Market – size and characteristic of the
population

CHANGES IN DEMAND CURVE

 Movement along the demand curve –
refers to the change in Quantity demand
resulting from the change in the Price of
the commodity
- Downward sloping demand curve
 Shift In the demand curve – changes
- Indirect relationship between the price of
caused by any of the other factors
commodity and the quantity bought in a
beside the price of the commodity.
demand curve
TOPIC 5 1. Price of Production Input – value
LAW OF SUPPLY added to raw materials through the
process of production
SUPPLY – refers to the quantity of goods that a. Intermediate Input – raw materials;
producer or seller is willing to sell at alternative these are still going to be processed
prices at a given point in time. or transformed into higher levels of
output
SUPPLY SCHEDULE - Tabulation form of the
b. Factor Input – processing or
different quantities of goods seller is willing to
transforming input
sell at various prices.
2. Taxes – monetary expense paid to the
SUPPLY CURVE – a schedule showing a government
direct or positive relationship between the price 3. Technology – the manner in which
of commodity and level of output that the seller factor inputs process intermediate inputs
is willing to supply at a given point in time other is done through technology.
things held constant. Graphical illustration of Improvement or discovery in technology
the supply schedule 4. Expectation – anticipation on what is
going to happen on the price of the
LAW OF SUPPLY – an economic law that commodity
states an increase in price results in an
increase in quantity supplied, other things held VARIATIONS IN THE UNIT COST OF
constant (Ceteris Paribus) PRODUCTION – All are competitive and
earning some profit at the current price
CETERIS PARIBUS – other things held because unit cost are lower than the current
constant; other factors that may affect the market price. The inefficient producers at lower
supply of the commodity are not changing price have become efficient and competitive as
the price of the commodity increases.

PRINCIPLE OF DIMINISHING MARGINAL

PRODUCTIVITY AND INCREASING
MARGINAL COSTS – as the production of a
good increase, not only does its total cost
increases but the additional or marginal cost
increases as well. As a fixed factor input is
mixed with a variable factor input, it will
increase total production but will increase it at a
decreasing rate.

- Upward sloping supply curve CHANGES IN SUPPLY CURVE

- Direct relationship between the price of
commodity and the quantity supplied in  MOVEMENT ALONG THE SUPPLY
a supply curve CURVE - refers to the change in
Quantity supplied resulting from the
OTHER FACTORS AFFECTING THE SUPPLY change in the Price of the commodity
OF A COMMODITY (DETERMINANTS OF
 SHIFT IN THE SUPPLY CURVE -
SUPPLY)
changes caused by any of the other
factors beside the price of the
commodity.
TOPIC 6
DETERMINATION OF PRICES OF
COMMODITIES (Analysis of Demand and
Supply)

When the buyers and sellers transact in market

they agree on the price of the commodity and
the amount to be sold and bought. This agreed
price is called the EQUILIBRIUM PRICE.
 When there are disagreements among
buyers and sellers on the price and
quantity, this situation is called the
DISEQUILIBRIUM.

 Price higher than equilibrium price is

excess supply
 Price lower than equilibrium price is
excess demand

Changes in Equilibrium Price and Output  Shift of the Supply curve to the Right
 Shift of the Demand curve to the Due to high supply, there is an EXCESS
Right SUPPLY
Due to high demand, there is an EXCESS To eliminate, suppliers will compete through
DEMAND. PRICE DECREASE.
Competition will put pressure to price resulting
to PRICE INCREASE.

 Shift of the Demand curve to the Left

Due to low demand, there is an EXCESS
SUPPLY
To eliminate, suppliers will compete through
PRICE DECREASE.
  Market Equilibrium with a shift in
Demand to the Right and a Supply Shift

 Shift of the Supply curve to the Left

Due to low supply, there is an EXCESS
DEMAND
Competition will put pressure to price resulting
to PRICE INCREASE.
to the Right (Equal Proportion)
Market Equilibrium with a shift in Demand to
the Right and a Supply Shift to the Left
(Unequal Proportion)

Simultaneous Changes in Demand and TOPIC 7

Supply
Other Applications of Supply and Demand
Analysis

Price Ceiling – As a measure to stabilize the

prices of basic commodities during unusual
periods the government may impose a price
control measures on basic commodities. This
means that the price commodity cannot go
higher than the mandated price ceiling.

Price Floor – Another government measure to

arrest the price adjustments in the market is
the imposition of a Price floor. This means that
the government sets the price of a commodity
and it cannot go lower than the set price meant
to protect certain actors in the market.
 power to determine the price and the level of
output in the market.
Applications in the Labour Market – Analysis
of demand and supply can be used in the MONOPOLY COMPETITION - Market
determination of the wage rate in the labour structure characterized by a single seller in the
market. These major actors in the labour market.
market are motivated by the changes in the
OLIGOPOLY - Market structure characterized
price of labour which is indicated by the wage
by a few sellers producing similar and
rate.
differentiated products.
 Minimum wage as price floor
MONOPOLISTIC COMPETITION - Also called
the Imperfect competition. It is competitive
because it has numerous sellers and buyers
Applications in the Foreign Exchange that can freely enter and leave the market. It is
Market – Another application is the monopolistic since the product being sold in the
determination of exchange rate. Exchange rate market although similar can be differentiated by
is the price of a foreign currency. the seller through various means of advertising
 Labour Migration and the Overseas and packaging.
Filipino Workers Market Structures and Implications for
Entrepreneurs

Determination of Rent – Another application  Investment and Interest Rate

is the determination of rent which is the price  Rentals and the Cost of Business
for a fixed factor input. Rent refers to the price Operations
of using land, a fixed input, in the process of  Minimum Wage
production.  Taxes
TOPIC 8
CONTEMPORARY ECONOMIC ISSUES
FACING THE FILIPINO ENTREPRENEUR
MARKET- place or state where transactions
are made between sellers and buyers.
MARKET POWER- the ability of any actor or
group of actors in the market to significantly
influence the price in the market and the
quantity to be produced or sold.
The ability to have market power and enhance
interest of the actors will depend on the
structure of the market.

4 CLASSIFICATIONS OF MARKET
STRUCTURE
PERFECT COMPETITION- Market structure
where no single seller or single buyer has