- Deals with what is

 Normative Economics (Ideal)

- Deals with what should be

ECONOMICS

- It is the branch of knowledge concerned with the production, consumption,

and transfer of wealth. DEMAND
- Study of how individuals and societies make decision about ways to scarce
resources to fulfill wants and needs - is the willingness of a consumer to buy a commodity at a given price
5 ECONOMIC QUESTIONS:
LAW OF DEMAND
 WHAT TO PRODUCE
- the inverse relationship between the price and the quantity demanded of a
 HOW MUCH TO PRODUCE
good or service during some period
 HOW TO PRODUCE IT
 FOR WHOM TO PRODUCE
 WHO GETS TO MAKE THESE DECISION? P↑D↓ P↓D↑
SCARCITY Based on:

- is a condition where there are insufficient resources to satisfy all the needs and 1. INCOME STATEMENT – at a lower price, consumers can buy some of a
wants of a population. product without giving up some goods
2. SUBSTITUTION EFFECT – consumers have the incentive to substitute the
TYPES OF SCARCITY: cheaper good to similar goods
3. DIMINISHING MARGINAL UTILITY – consumers will only buy more of a good
if its price reduced
 RELATIVE SCARCITY – fewer resources
 ABSOLUTE SCARCITY – supply is limited NON-PRICE DETERMINANTS OF DEMAND

ECONOMIC RESOURCES  income

 taste
 Land - soil and natural resources  expectations
 Labor - Physical and human effort exerted in production  prices of related goods
 Capital - man-made resources  the number of consumers

ECONOMICS AS A SOCIAL SCIENCE CHANGES IN DEMAND

- the study of society and how people behave and influence the world around - Price of Related Goods
them
 Substitute Goods
THE STUDY OF ECONOMICS Ex. Butter and Margarine
 Complementary Goods
 MICROECONOMICS Ex. Phone and Simcard
- is a division of economics that is concerned with the behavior of  Independent Goods
individual entities such as the consumer, the producer, and the
resource owner. - Expectations – if buyers expect that the price of the good will be increasing in
 MACROECONOMICS the future, they are likely to buy more today
- is a division of economics that is concerned with the overall - Number of Consumers – the higher the population, the more consumers
performance of the entire economy. - Seasons/weather

BASIC ECONOMIC PROBLEM OF SOCIETY

DEMAND CURVE
1. What to produce and how much
Increase in demand – going to the right
Decrease in demand – left
2. How to produce

3. For whom to produce

SUPPLY
- the various amount of a product that producers are willing and able to supply
BASIC ECONOMIC SYSTEM at various prices during some specific period

 Traditional Economy/Economic System LAW OF SUPPLY

- Decisions based on traditions and practices - direct relationship between the price and product
 Command Economy P↑P↑
- The government will decide the needs of the people
 Capitalism/Market Economy
CHANGES IN SUPPLY
- consumers will decide what goods and services to produce

OPPORTUNITY COST - Represented as a shift of the supply curve

- Caused by changes in determinants of supply
- refers to the value of the best forgone alternative Increase in supply – up right

 Positive Economics (Reality) Decrease in supply – down left

  Price Elasticity – measured by dividing the percentage change in
quantity demanded by the percentage change in price
 Elasticity – responsiveness/effect of change in price and quantity to
demand and supply
Demand for good is:
 Competition - is rivalry among various sellers in the market.
 Market – is a situation of diffused, impersonal competition among
sellers who compete to sell their goods and among buyers who use
their purchasing power to acquire the available goods in the market.

 Elastic – greater than 1 4 types of Market Structure:

 Inelastic – less than 1
 Unitary – equal to 1 1. Pure/Perfect Competition
 Elastic demand – there is a change in demand and price/wants - Large number of buyers and sellers
 Inelastic demand – no change in demand/essential - Identical product/Selling the same thing
-Well informed buyers and sellers
Ex. Mcdo and Jollibee, Soaps
PRICE ELASTICITY OF DEMAND
2. Monopolistic Competition
- meets all condition of perfect competition except for identical
 Arc Elasticity – the coefficient of the price elasticity of demand
products
between two points along the demand curve
- Product Differentiation
 Point Elasticity – more exact than arc elasticity and measures only
Ex. RESTAURANTS
one point on the demand curve
3. Oligopoly
- Market dominated by a small number of strategically interacting
PRICE ELASTICITY OF SUPPLY
firms
- A few or very large sellers dominate the industry
- Measure of responsiveness of the quantity supplied of a good to a change its
- Engage in price wars
price when all other influences on sellers’ plans remain the same
- Standardized or differentiated products
Ex. P&G, Nestle, Coca Cola, Globe, Shell, Petron
 Price Elastic Supply – change price to almost zero
4. Monopoly
 Elastic Supply – change in quantity supply is higher than change in
- Only one seller of a particular product
price
- High barriers to entry
 Unit Elastic Supply – change in the quantity supplied equals the
- Single Seller
percentage change in price
- Unique product
 Inelastic Supply – percentage change in the quantity is less than the
Ex. Microsoft
percentage change in price
 Perfectly Inelastic Supply – line is vertical
MARKET
PRICE CONTROL
- is an interaction between buyers and sellers of trading or exchange
- Control of price done by government
 Good Market – offering products
 Price Ceilings – certain amount that when you go beyond  Labor Market – offering services
it may be illegal  Financial Market – stock market
 Price Floors – go below it, it would also be considered
illegal MARKET EQUILIBRIUM

- occurs in a market when all buyers and sellers are satisfied with their
perspective quantities at the market price

 Equilibrium – a system in equilibrium when there is no tendency for it

to change
 Equilibrium Price – the price of which the intentions of buyers and
sellers match
 Equilibrium Quantity – the quantity demanded and quantity supplied
that occurs at the equilibrium price in a competitive market