Economics

It is a social science that deals with the proper allocation and efficient use of available goods and services for the satisfaction of human wants and needs.

Divisions of Economics
Microeconomics is a division of economics that studies the economy in parts. Macroeconomics is a division of economics that deals with the whole economy.

Economic Activities and Resources

Four (4) Economic Activities 1. Production is the creation of goods and services for the satisfaction of human wants and needs, this may also be defined as the creation of utility.
Utility is the satisfaction derived in the consumption of goods and services.

Four (4) Economic Activities

2. Exchange is the process of the delivering the finished commodity from the producer to the consumer. It focuses to the consideration of price and value. 3. Distribution is a division that deals on how the different products will reach the ultimate consumer. 4. Consumption is the utilization of goods and services. What is produced must be consumed in order to measure the utility of a commodity.

Economic Resources (Factors of Production)

1. Capital a stock of resources that may be employed in the production of goods and services. It also refers to the physical assets of an economy. Labor refers to human effort exerted in the production process which includes the physical and intellectual service of people. Land it refers to all natural resources which are given by and found in nature. The payment for the use of land is called rent. Entrepreneurship pertains to the skills and abilities of an individual.

2.

3.

4.

Economic Systems
1. Capitalism is an economic system characterized by private ownership of most resources in order to maximize its utilization.
Laissez faire: essential characteristics: 1. Profit oriented 2. Freedom of enterprise 3. Consumer sovereignty 4. Private property 5. Economic freedom

Economic Systems
2. Socialism is an economic system which allows the government to control and manage the major industries while the rest are left for private ownership. Characteristics: 1. No freedom of enterprise 2. No consumer sovereignty 3. No free competition 4. No private property

Economic Systems

3. Communism is an economic system characterized by collective ownership of all resources and also a centrally planned economic decision making. 4. Mixed Economy is an economic system which shows all the characteristics of pure capitalist, pure socialist, and pure communist.

Economic Systems

5. Traditional Economy is an economic system in which decisions are based on beliefs, practices, traditions, and customs that were handed down from one generation to another.

Demand and Supply Mechanism

A. Concepts in Demand
Demand refers to the amount of a good or service that buyers are willing to buy at given prices. Demand schedule refers to the quantity demanded that will be bought of a good or service at given prices.

Law of Demand
It states that as price of the commodity increases quantity demanded decreases, ceteris paribus (all things can be held constant).

Non-Price Determinants of Demand

1. 2. 3. 4. 5. Income Population Tastes and Preferences Consumer Expectations of Future Prices Prices of Related Goods

Supply Mechanism
Supply refers to the amount of a good or service that sellers are willing to sell at given prices. Supply Schedule refers to the quantity supplied that will be offered for sale at given prices.

Law of Supply
It states that as the price of the commodity increases, quantity supplied will also increase, ceteris paribus (or all other things can be held constant).

Non-Price Determinants of Supply

1. 2. 3. 4. 5. 6. Technology Innovations Cost of Production Producers Motive Prices of other Commodities Future Price Expectations Taxes and Subsidies

Market Equilibrium
Market Equilibrium a condition which shows that total quality demanded is equal to the total quantity supplied. Equilibrium a state of rest or balance. Equilibrium Quantity where quantity demanded and quantity supplied are equal. Equilibrium Price the price in a competitive market at which the quantity demanded and the quantity supplied are equal. Surplus the total quantity demands is less than the total quantity supplied. Shortage the total quantity demanded is greater than the total quantity supplied.

Law of Equilibrium
It states that when total quantity demanded is equal to the total quantity supplied, price remains constant. It means both buyers and sellers have mutual agreement.

Elasticity
The responsiveness of demand / supply to changes in the price of goods and services.

Determinants of Demand Elasticity

1. Importance of the commodity to the buyers 2. Number of good substitutes 3. Price increase in proportion to the budget of buyers

Money
Money is anything that is commonly used as medium of exchange.
Barter is the exchange of goods with other goods.

Early Forms of Money

Elephant tusks Skins Livestock Beads Shells Gold Copper Silver Dogs teeth Quarts pebbles

 Fiat Money money (as paper currency) not convertible into coin or specie of equivalent value. Legal Tender money that is legally valid for the payment of debts and that must be accepted for that purpose when offered. Credit Money form of money made of paper backed by promise by the issuer, whether a government or a bank to pay an equivalent value in the standard monetary metal.

Functions of Money
Medium of exchange Standard of deferred payments Store of value

Banking
Bank is defined as an institution which offers financial resources mainly by accepting deposits of money, either current or savings and providing loans.

Types of Banks
1. 2. 3. Universal Bank Merchant Bank in a trading firm which deals in bills of exchange foreign currency or gold. Commercial Bank is engaged in business transaction in order to generate income by accepting deposits, savings, and foreign currency which the source of funds for their lending operations and handling local and international fund remittances. Thrift Bank serves as thrift institution drawing funds from individual saver or depositor and household. Rural Bank located in rural areas which specialized in the extension of small loans for agricultural operations and purposes. Central Bank is a government owned bank performing function as governments financial adviser, raising money and lending it to the government controlling bankruptcy issue and accepting deposits from other bank.

4. 5. 6.

Functions of the Central Bank

1. It serves as the government banker 2. It acts as the banker of the banking system
1. 2. Supervises banks Holds and transfers banks deposits

3. It regulates the monetary system for both domestic and innervations policy goals 4. It issues the nations currency
1. 2. 3. Makes loans to government Manages the issue and redemption of government debt Collects and disburses government income and receipts

5. It controls credit in the banking systems

Bangko Sentral ng Pilipinas

The Bangko Sentral ng Pilipinas (BSP) was established as an independent central monetary authority pursuant to the Philippine constitution and the New Central Bank of 1993, which was originally established to replace the Central Bank of the Philippines as the countrys central monetary authority on July 3, 1999.

Functions of the BSP

a. It formulates and implements a monetary policy aimed at managing the expansion or contraction of monetary aggregates consistent with the maintenance of price stability. It maintains a stable peso. It supervises and regulates the banking system in the Philippines. It manages the foreign currency reserve. It has the exclusive power to issue the national currency. It serves as a financial adviser and official depository of the government.

b. c.
d. e. f.

Objectives of the BSP

a. To maintain price stability b. To foster monetary, credit, and exchange conditions conducive to a balanced and sustainable growth.

Powers of the Monetary Board of BSP

a.
b.

c. d.

It directs the management, generations, and administration of the Central Bank. It prepares and issues rules and regulations for the effective charges of the responsibilities and exercises of the powers vested in the Central Bank. It authorizes such expenditures of the Central Bank in the interest of its effective administration and operations. It appoints and fixes the remuneration and decides on the resource of personnel except the Governor.

Business Organization
An entity formed for the purpose of carrying on commercial enterprise. Such an organization is predicated on systems of law governing contract and exchange, property rights, and incorporation.

Single or Sole Proprietorship

A business organization owned and run by a single person. The simplest form of operation. Easy to organize since it only needs a small capital.

Partnership
A contract whereby two or more persons bind themselves to contribute money, property or industry to a common fund, with the intention of dividing the profits among themselves. Art. 1767 CC It maybe formed to engage in lawful trade, business, or practice of profession.

Important Features of a Partnership

The partners can be held responsible for the actions and debts of both or any of them. It can be created by an express agreement or it can be created if the people are simply acting in a way that seems like partnership. All the assets of the business are personally owned by the partners.

Corporation
An artificial being created by operation of law, having the right of succession and the powers, attributes, and properties are expressly authorized by law or incident to its existence. Is a legal entity distinct and separate from the stockholder who owns it.

Important Features of a Corporation

A single body with its own powers and liabilities, separate from those of the individual members. Only natural persons are qualified to be incorporator who must be owner of at least one share of the capital stock. It can raise money for its operation by buying and selling stocks and bonds. It can exist for 50 years and can be renewed for another 50 years. It can efficiently manage its operations because of its huge resources and large scale operations.

Phase and Cycles in Business

peak

contraction recovery depression recession

Phase and Cycles in Business

At a peak, the economy is near or at full employment and the real output is at full economics capacity. Recession or contraction follows the peak. It is a period of decline in total output, income, employment, and trade. It usually lasts for 6 months or more. Depression is a situation when output and employment bottom out at their lowest levels. Recovery or expansion is a phase when output and employment rise toward full employment.