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Basic Economics with Taxation and Agrarian Reform

(SOCSCI 4) NEEDS WANTS


HANDOUT NO.4 Kind of food:
Food A. rice and/or viands
I.BASIC ECONOMICS B. foie gras and caviar
CHAPTER 3: Decision Making in Economics cooked and served by
A. Basic Economic Questions five-time Michelin Star
B. Basic Economic Activities Chef Gordon Ramsay.
C. Factors of Production and their corresponding payments In what form?
D. Common Economic Goals of Countries Water A. Spring or mineral water
E. Economic Systems B. Beverage (coffee or tea)
--------------------------------------------------------------------------------------------- C. Refreshments (soda or
juice)
A. BASIC ECONOMIC QUESTIONS
The fundamental questions to be answered in economics, namely:  Market – Consumers and customers are generally
referred to as market, so long as these groups of
1. What to produce? people have money to buy and are willing to spend
2. How many and how much to produce? their money.
3. How to produce?  Market’s demand – When the market has a need or
4. For whom to produce? want for a particular product and has the money and
5. At what price to produce? willingness to buy it, then producers consider this
need or want as the market’s demand.
1. What to produce?
This question allows decision makers to determine what their  Products/Commodities –
scarce resources will be best used for. - What the market demands for.
- It is the creation of raw materials into finished
 Producers – they determine the needs and wants of products to satisfy human wants.
their consumers and customers.
Goods –
Needs – according to one College Professor stands Products if the products are
tangible in nature
for Natural Essential Elements Designed for Survival
(NEEDS). These are the things we simply cannot live
or survive without.
Services –
If the products are
Wants – those things not necessarily needed for
intangible in nature.
survival.

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2. How many or how much to produce? The same approach is done by governments to determine if the supply of the
 Two General Approaches used by business economists in answering products being demanded will be met by local producers or not. Should the
this question: governments’ projection reveal that the projection targets would fall short, they
now usually opt to import this commodity.
a. Market Aggregation
An approach by which the economists determine the needs and If the projection targets exceed the projected demand, government may opt to
wants of an entire group of people who are usually located in one export these excess products.
place.
b. Market Segmentation
 HOW: It may be done by determining the demand for a Another approach used by economists to determine only the specific
product in every city and municipality, then adding these demands of smaller markets.
demands to determine the demand of an entire region, o Market Aggregation vs. Market Segmentation
and adding these again to determine the entire country. While Market Aggregation is usually helpful in determining the total
 Example: demand most especially of basic and non-branded goods (such as
Demand for Rice per month rice, sugar, wheat); Market Segmentation is more helpful for
Cities/Municipalities Province Region determining the total demand of branded items where people use their
Legazpi City = 500 sacks Albay = V discretion and power of choice (i.e. clothes, school items, household
Ligao City = 375 sacks 1,275 sacks items).
Tabaco City = 400 sacks
o Target Markets – The smaller markets identified with the use
Sorsogon City =450 sacks Sorsogon = V
of market segmentation approaches.
Pilar =250sacks 855 sacks
Donsol =155sacks
3. How to produce?
Masbate City = 500 sacks Masbate = V
This question brings about a discussion on what specific methods of
San Jacinto = 400 sacks 1,200 sacks
production should be employed.
Claveria = 300 sacks
Virac = 450 sacks Catanduanes= V
o Capital-Intensive Production
San Andres = 300 sacks 1,100 sacks
This means that more machines are used in the production
Pandan = 350 sacks
process as compared to the manual effort involved.
Daet = 500 sacks Camarines V Developed countries usually employ this method.
Jose Panganiban =400 Norte =
Paracale = 440 sacks 1,340 sacks o Labor-Intensive Production
Naga City =550 sacks Camarines Sur V It utilizes more manual effort than machine contributions. This
Iriga City =400 sacks 1,200 sacks type of production is more characteristic of underdeveloped
Pili =250 sacks countries.

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basic goods, usually those relatively low-priced from the source use
this distribution strategy.
o Intermediate Production –
It is a method of production process where there is a Direct Distribution –
balanced use of machine and manual effort. Usually
applicable to developing countries as the latter utilize a Modern methods, however, are now evolving to keep
production process somewhat in between the two earlier products fresher, cheaper and straight to the consumer. This is known
types. as Direct Distribution. These strategies include, among others,
direct selling, direct mail, telemarketing, TV and internet shopping.
4. For whom to produce?
o Scope: 5. At what price to produce?
a. It uses market aggregation or segmentation techniques to
determine national or specific targets respectively; Answering the fifth question entails determining how much the
b. It also entails determining how the products will be distributed consumers are willing to pay for the product, and if the price is
to these markets. agreeable on the part of the producer.

 It is important to remember that the distribution question does not To the consumer, the price is representative of a cost on his or
primarily deal with: her part.

a. how the goods and services in the economy are marketed by To the producer, the price represents both cost and profit. When
various middlemen, but rather it is based on the purchasing the producer says that he or she will produce only if the price is right,
power of consumers (the consumer’s ability to buy the produced technically, he or she is saying that his or her profit in performing such
goods and services); or an activity should also be right.
b. if there is a considerable demand for the products produced. In
allowing products to reach their ultimate consumers, however, Ideally, it is only the government that does not charge any profit
marketing intermediaries either use direct or indirect methods. for its production of goods and services, since these are for public
consumption.
 DISTRIBUTION STRATEGIES

Indirect Distribution -
This is one kind of distribution employed by traditional methods which
involves transferring ownership of goods from the producer to a
wholesaler, then a retailer, before reaching the final consumer.

Sometimes, agents of producers, wholesalers or even retailers come


into the picture before the product reaches the final consumer. Many

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B. BASIC ECONOMIC ACTIVITIES Economic goods Goods that are normally Processed food, mineral
produced or are scarce, water, branded clothes
Generally, there are four (4) economic activities that are undertaken in a cycle requiring a certain
to address the five (5) basic economic questions. payment for their
consumption
1. Production
2. Distribution
3. Exchange DISTRIBUTION
4. Consumption This is known as the second activity in economics. It directly
addresses the question “for whom to produce?” It focuses on how the
PRODUCTION products will reach the ultimate consumer.
This is the first economic activity. This directly addresses the basic economic
questions of what to produce, how many or how much to produce, and how to  Non- conventional methods of transporting products are still the
produce products. cheapest but the slowest.
i.e. These include: pushcarts, horses, kalesa and the like.
Type of Good Definition Examples  Conventional Methods of transport, though a lot more expensive, also
Basic goods Primary and necessary Food, clothing, shelter happens to be much faster.
items needed for man to These include: buses and cargo trucks, ships and air cargo, pipelines
survive. (for oil, water, and gas) and via the telephone or internet.
Luxury goods Items that are desired Mansions, high-end
by man to have a more cars, jewelry EXCHANGE
comfortable way of life, This is the third economic activity designed to facilitate the transfer of
but are necessary to his the good or service from the producer to the consumer, and the
survival, often corresponding payment from the consumer to the producer.
expensive and not easy
to acquire. An exchange only occurs when both parties agree, or when the
Public goods Goods that are provided Highways, bridges, consumer agrees with the price of the producer.
for by government for waiting sheds
the benefit of the o GENERAL RULE: Legal tenders or Legal offers used as a
constituents. collective term for the acceptable forms or denominations of
money to be used for payment. i.e. Money
Free Goods Goods that normally Spring water, oxygen,
abundant and do not rocks o Legal Tender
need to be paid for. Q: What is the legal tender in the Philippines?
A: Only the Philippine coins and bills duly issued by the
Bangko Sentral ng Pilipinas (BSP) are generally acceptable.

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o Utility – The satisfaction derived by a consumer from the
Q: Effect when using the legal tender: consumption of a good or service. Normally, the higher the
A: This would mean that normally, producers do not have a utility of a good, the higher the satisfaction a consumer gets.
right to refuse payment when made in the form of Philippine
money called the Philippine Peso (Php)
C. FACTORS OF PRODUCTION AND THEIR CORRESPONDING
o Non-Legal Tenders PAYMENTS
Such as those in the form of foreign currencies, checks,
promissory notes and even credit cards. Generally, there are at least four (4) basic factors used in any production
process, regardless of the type of production facility an enterprise has, or
Q: Effect when using Non-Legal Tender. what the products may be. This is so-called CELL of production, which
A: It may be refused by producers since they are not stands for Capital, Entrepreneurship, Land and Labor.
generally acceptable.
 Reason:  CAPITAL – It pertains to all man-made resources used in the
It remains the discretion of the producer or seller production process. This includes: machines, buildings, and
whether or not to accept these forms of payment. equipment.
 For Foreign Currency to be accepted as payment –  Interests or Interest Payments –
Foreign Currency Deposit Units (FCDUs) – This pertains to the payment for use of capital.
technical term used for any of the following:
 ENTREPRENEURSHIP or Entrepreneurship Ability –
a. It has to be internationally accepted currency, or It refers to the skills the owner or producer applies to combine all
b. have a relatively strong values (called Hard the factors of production to produce goods and services.
Currencies) that are internationally acceptable in  Profits –
many foreign central banks. The payment of entrepreneurial ability is the share of
entrepreneur in the entrepreneur in the enterprise.
o Barter – Parties agree to accept other goods as payment in
exchange for their goods being sold.  LAND – It encompasses not only the real estate property being
used in the production process, but also all natural elements that
o Modern – day Bilateral Barter – Import and export come from the land – whether grown or mined. Land resources
transactions when done between two countries (bilaterally) is are also considered to be God-given resources. All raw materials,
an example of modern-day barter. especially those found in their natural states, are considered as
o part of land.
CONSUMPTION  Rent or Rent payments –
This is known as the final economic activity where the ultimate Payment for the use of land and its resources.
consumer now gets to enjoy the good or the service, which he or she
has bought.

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 LABOR – it is needed in the production process to properly use D. COMMON ECONOMIC GOALS OF COUNTRIES
the capital and the land, under the supervision or instruction of the The following are the most common economic goals of countries:
entrepreneur to produce goods and services. Economic Growth Increase in the number of goods and
 Salary – Labor encompasses all manpower services produced in the country.
requirements of the enterprise, the payment for which Economic Improvement in the quality of life of the
is called salary (if the employed person is paid on a Development people
monthly or semi-monthly basis), and Full Employment The presence and availability of jobs for
 Wage – if the employed person is paid on a daily those who are able and willing to work.
basis. Economic Efficiency Achieving the maximum fulfillment of wants
using the available productive resources.
Of these, four (4) factors of production, land and capital may be classified as Price Stability Absence of wide fluctuations in prices
property or physical resources. Economic Freedom The freedom to do economic activities
within the legal framework of the economy.
 Land vs. Capital Economic Security the assurance of the fulfillment of economic
CAPITAL however, differs from land such that it is largely composed need of every member of society, including
of man-made resources while LAND are natural resources. the handicapped.

Labor and entrepreneurship fall under human resources.

Factor of Production Corresponding Type of Resource


Payment
Capital Interests Man-made Resource
Entrepreneurship Profits Human Resource
Land Rents Natural Resource
Labor Salaries and wages Human Resource

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E. ECONOMIC SYSTEMS dictates of government. This freedom also allows people to own
It is the mechanism in a country which deals with the production, businesses in the economy.
distribution, exchange and consumption of goods and services.
It is composed of people, institutions and their relationships. It is designed USA applies this kind of system. Its people enjoy a lot of economic
primarily to address the problems of economics in a country, particularly freedom.
the allocation of scarce resources.  Fascism – This is an extreme form of economic system which
only happened in Italy under the reign of Benito Mussolini. Under
More often than not, the economic system is also in consonance with this system, people were encouraged to accumulate great
nation’s political ideology. quantities of wealth and consume large quantities of products
apparently to bring about great economic wealth to the country.
Traditional Economic System
It is one in which people’s economic roles are the same as those of Planned (Command) Economic System
their parents and grandparents. Societies that produce goods and In this system, the main decision maker is the government. No person may
services in traditional ways are found today in some parts of South independently decide to open and run any kind of business. The government
America, Asia, and Africa. decides what goods and services are to be produced, and the government
sells these goods and services. The government also decides how the talents
There, people living in an agricultural village still plant and harvest and skills of its workers are to be used. i.e. Soviet Union, Cuba.
their own food in their own land. And the way they produce clothing
and shelter are almost exactly the same as those used in the past. Mixed Economic System
Tradition decides what these people do for a living and how their work Modern economies have evolved to encompass several characteristics of
is performed. these three original economic systems. Isolated tribes, clans and towns even
in highly developed countries still have societies using traditional economic
Market Economic System systems. Market economies although giving their constituents a very wide
A market economy is one in which the nation’s economic decisions range of economic choices and freedom, still enjoy reasonable government
are the result of individual decisions by the buyers and sellers in the intervention, especially in basic goods and services – a key characteristic of a
market. Planned Economy. Planned economies, on the other hand, have been known
to give their constituents freedom of enterprise and a wider range of economic
The buyers represent the demand side of the market. choices, although still in a limited scale. This, in turn, is a key characteristic of
The sellers represent the supply side of the market. Market Economy.

Transactions in this market occur when both the buyers and sellers
agree on the price of the given good and service. Although there is
government intervention, it usually plays more of a regulatory rather
than an intervening role. A market economic system gives people the
freedom of enterprise or the freedom to pursue business without the

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Characteristics of the Economic Systems --------------------------------------------------------------------------------------------------------
Economic Production Existence Degree of Country ASSIGNMENT: Schedule for Monday!
System Decisions if freedom government example 1. Oral Recitation!
of intervention 2. TOPIC:
enterprise 2.1 CHAPTER 3: Economic Systems
Pure Market Yes Very little Early 2.2 CHAPTER 4: Demand Concepts
Capitalism decides industrialization A. Basic Concepts in Demand
(buyers and experiences B. Non-price determinants in Demand
sellers)
Socialism State decides Limited, only Great extent China under C. Elasticity of Demand
on major and non-basic and Mao Tse Tung D. Income Elasticity and Cross Elasticity Shifts in Demand
basic products non-critical
products NOTE: CHAPTER 4 Handout will be given to you on Friday.
Communism State decides None Absolute Former Soviet
entirely Union, modern-
day Cuba
Fascism Individuals and Yes Govt. Italy
groups encourages
material
accumulation
Mixed Dynamic Yes, but with Govt. only Modern-day
Economies interaction government imposes countries
between the participation, regulations
market and the especially for
govt. basic goods.

REFERENCE:
Azarcon, Marzo, Navarro, Ressureccion, Paca, Degay, Sison and Rojo.
Principles of Economics with Taxation and Agrarian Reform, 2nd Edition

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