Unit 1

Economics
the social science that is concerned with the efficient use of scarce resources to achieve the
maximum satisfaction of unlimited economic wants and needs.

Factors of Production
1. Land
2. Capital
3. Labor
4. Entrepreneurship

Fundamental Problems in Economics under scarcity

1. What and how much to produce?
2. How to produce?
3. For whom to produce?

Economic Units
1. Households
2. Firms/Businesses
3. Government
4. Rest of the World

Branches of Economics
1. Microeconomics detailed study of INDIVIDUAL ECONOMIC BEHAVIOR
2. Macroeconomics study of AGGREGATE ECONOMIC BEHAVIOR

Economic System
1. Command/Planned Economy
a. Resource allocation is done by the government
b. Presence of central planning of all economic resources
c. No free competition
d. Only the government sets the legal framework for production and distribution of
products
e. The products or the needs if the people are distributed based on the priorities set by the
committee

2. Mixed Economy
a. The combinations of the best features of capitalist and command economies are
observable in the economy
b. The means of production are owned and controlled by the private sector and the
government
c. The people decide on economic activities within the economy
 3. Market
a. The private sector own and manages the means of production
b. The price system applies to determine how much will be paid for a certain product
c. Minimum government interference on decisions pertaining to the management of the
economy
d. Existence of competition
e. Presence of economic power

Positive Analysis refers to the analysis that is concerned with what is

- Cause and effect relationship
Normative Analysis refers to the analysis that is concerned with what ought to be
- incorporates value judgements about what the economy should be like or
what particular policy actions should be recommended to achieve a desirable
goal.

Scarcity limited resources, unlimited demands

Opportunity cost what to sacrifice
System of resource allocation
1. By the state (planned economy)
2. By the state and market (mixed eco or market based)
3. By the free market (free market economy)

10 Principles of Economics
A. How people make decisions
1. People face tradeoffs.
2. The cost of something is what you give up to get it.
3. Rational people think at the margin
4. People respond to incentives
B. How people interact
5. Trade can make everyone better-off
6. Markets are usually a good way to organize economic activity
7. Governments can sometimes improve market outcomes
C. How economy as a whole works
8. A countrys standard of living depends on its ability to produce goods and services
9. Prices rise when the government prints too much money
10. There is a short-term tradeoff between inflation rate and unemployment rate

Income
Low Income = $1025 or less
Middle Income:
Lower-middle = $1026-$4035
Upper-middle = $4036-$12475
High Income = $12476
 Human Development Index
-adopted by United Nations Development Program
- used to emphasize that people and their capabilities should be the criteria for
assessing the development of a country, and not the economic growth alone

Unit 2

Law of Demand
price increase, demand decrease
Non-Price Factors of Demand
1. Income
a. normal Product- sweldo day, Goto
b. Inferior Product no money, lugaw
2. Price of Related Products (Py)
a. Substitutes 711 kape kasi no money for starbucks
b. Complements toothbrush and toothpaste
3. Quality
4. Ad
5. Future price expectation (pf)
6. Tastes and preference

Change in Qd
- caused by changes in the price of the product
- graphically it is represented by an upward or downward movement along a demand
curve

Change in Demand
- caused by changes in the non-price determinants of demand.
- Graphically it I represented by a rightward or leftward shift of the demand curve

Law of Supply
- Price increase, supply increase

Non-price factors of supply

1. production costs
2. profitability of substitute products
3. technology
4. taxes
5. government subsidies
6. future price expectations

Change in Qs
- caused by changes in the price of the product
- graphically it is represented by an upward or downward movement along a supply
curve
Change in Supply
- caused by changes in the non-price determinants of supply
- graphically it is represented by a rightward or a leftward shift of the supply curve

Market Equilibrium
- market mechanism
Qd = Qs

Market clearing price price at which markets clear