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ECONOMICS Came from two Greek roots Oikos (household) and Nomus (system or management), management of household (the microeconomic branch of economics). State management refers to the macroeconomic branch of economics A science that deals with the study of the management of scarce resources, must be allocated and use it efficiently and effectively to its maximum possibility to satisfy societys unlimited demand for goods and services. Economics is considered the queen of all social sciences because it covers almost every activity of man in relation to the society. SCARCITY Scarcity gave birth to the study of economics. If there is no scarcity, there is no need for economics. Scarce Resources refers to the resources are not always present or available. According to Kapur, a commodity or service being in short supply, relative to its demand. ECONOMISTS THEIR THEORIES AND CONCEPTS ON ECONOMIC DEVELOPMENT Adam Smith is known as the father of economics from Scotland. His book Wealth of the Nations (the bible of economics) is one of his major contributions was his analysis of the relationship between consumers and producers through demand and supply, which ultimately explained how the market works through the invisible hand. His theory explaining that capital is best employed for the production and distribution of wealth under conditions of governmental noninterference, or laissez-faire, and free trade. John Stuart Mill developed the basic analysis of the political economy (applies management to an entire state) or the importance of a states role in its national economy. Karl Marx is a German who states that much influenced by the conditions brought about by the industrial revolution upon the working classes. Das Kapital was his major work which is a centerpiece from which major socialist thought was to emerge. Leon Walras introduced the general economic system and developed the analysis of equilibrium in several markets. Alfred Marshall became the most influential economist during that time because of his book Principles of Economics, Developed the analysis of equilibrium of a particular market and the concept of marginalism. John Maynard Keynes is An English economist who offered an explanation of mass unemployment and suggestions for government policy to cure unemployment in his influential book: The General Theory of Employment, Interest and Money. He provided a general theory for explaining the level of economic activity. He argued that there is no assurance that savings would accumulate during a depression and depress interest rates, since savings depend on income and with high unemployment, incomes are low. He argued that investment depends primarily on business confidence which would be low during a depression so the investment would be unlikely to rise even if interest rate fell. He also argued that the wage rate would be unlikely to fall much during a depression given its stickiness, and even if it did fall, this would merely exacerbate (aggravate) the depression by reducing consumption. John Hicks was recognized for his analysis of the IS-LM Model, which is considered as an important macroeconomic model. IS the goods market for a given interest rate and LM money market for a given value of aggregate output or income. Milton Friedman - introduced another stream of thought, mainly the monetarists.
PHILIPPINE CONSTITUTION Article II Section 9 the state shall promote a just and dynamic social order that will ensure the prosperity of the nation and free the people from poverty through policies that provide adequate social services, promote full employment, a rising standard of living and an improved quality of life for all. Article II Section 10 the state promote justice for all. Article II Section 19 the state shall develop a self-reliant and independent national economy effectively controlled by Filipinos. Article II Section 20 the state recognizes the indispensable role of the private sector incentives to needed investment. Article II Section 21 - the state shall promote comprehensive rural development and agrarian reform. Missions of the Above Articles are to reduce poverty, expand employment, redistribute wealth, improve the quality of life, reform land ownership, develop the countryside, encourage investment and promote economic control by the citizens as detailed in Article XII. POSITIVE AND NORMATIVE ECONOMICS Positive Economics is an economic analysis that considers economic conditions as they are or considers economics as it is. Uses objective or scientific explanation in analyzing the different transactions in the economy and simply answers the question what is? Example, The economy is now experiencing a slowdown because of too much politicking and corruption in the government. Normative Economics is an economic analysis which judges economic conditions as it should be and concerned with human welfare. It deals with ethics, personal value judgments, and obligations analyzing economic phenomena. It answers the question what should be? It is also referred to as policy economics because it deals with the formulation of policies to regulate economic activities. Example, The Phil. Government should initiate political reforms in order to regain investor confidence, and consequently uplift the economy. FOUR BASIC ECONOMIC QUESTIONS 1. What to Produce? An economy must identify what are the commodities needed to be produced for the utilization of the society in everyday life. 2. How to Produce? There is a need to identify the different methods and techniques in order to produce commodities. 3. How much to produce? This identifies the number of commodities and amount of production needed to be produced in order to answer the demand of the society. Underproduction will result to a failure to meet the needs and wants of the society. Overproduction results to excess goods and services going to waste. 4. For whom to produce? This identifies the target market of the goods and services which are to be produced to understand their consumption behaviors and patterns. RELATIONSHIP OF ECONOMICS TO OTHER SCIENCES 1. Business Management - is evident in analyzing microeconomic and macroeconomic behavior. 2. History - provides information regarding theories that can be revisited in order to evaluate present and future economic issues.
Consumption - refers to the direct utilization or usage of the available goods and services by the buyer or the consumer sector. Production a combination of land, labor and capital in order for firms to produce outputs of goods and services. Price control is the specification by the government of minimum and/or maximum prices for goods and services. Price controls may be applied across a wide range of goods and services as part of prices and income policy aimed at combating inflation.
Exchange - the process of trading goods/services for money and/or its equivalent.
Choice in Consumption every individual has a freedom of choosing kind, quality, and quantity of goods and services but they have different sets or combination of goods and services as the pattern of consumption.
The Price System is a consequence of the use of money in the exchange of goods and services. Buying goods offering the sum of money is demand and selling goods quote a sum of money is supply.
Diminishing Utility or Satisfaction every goods and services consumed by the consumer will bring less and less or diminishing satisfaction. If the point where the unit already bring less satisfaction it is called point of satiety.
Diminishing Returns resulting when too many workers will not be more utilized as units of labor. Economies of Scale is the productivity advantage that arises when the size of the manufacturing plant is expanded so that the fixed cost are spread out over the larger volume of units produced while the sourcing of raw material becomes cheaper due to discount on bulk purchases. Controlled economy dictates the price and resource allocation in the economy.
Break-Even Point is the point where the total revenue (TR) is equal to the total cost (TC) after which every additional unit sold carries a profit. Decreasing Cost Industry is like the manufacturing where its capacity to reduce unit cost of production as the quantity produced is increased. Competition refers to the rivalry among sellers through dominating the market by selling large quantity of goods and they compete by quality, market pricing, and sales service. a. Oligopoly if the sellers dictate the price together rather than to compete with each other. b. Monopoly if the seller can drive the others out of business or can stand alone. c. Cut-throat if the sellers eliminate each others business, usually they did not succeed at the end.
Measurement of Growth and Development is through what are commonly called economic indicators. Gross National Product (GNP) is the sum of value of goods and services created in the economy in a given year. Level of Investment in Economy is made up of domestic and foreign investments and associated by number of business registered or newly opened means more investment and businesses that evaporates or closed, the investments also evaporates.
Domestic Investment high of its sources shows that the economy is able to provide for its growth requirements. Foreign Investment tendency of the investor is to return back their capital and remit profit to their country were domestic investment will become low and foreign exchange drain in the future.
Employment is viewed as an outcome of effectiveness of strategies of the nation which makes also the quality of life of every family. Unemployment happens if the job creation of the economy is low due to lack of investments or when the entry of new members of labor force is simply too high because of some baby boom in the past.
Under-employment is not having work for a full pay throughout the year or working below ones earning capacity due to unused professional or technical skill. Population Growth shows that population needs same amount of consumption requirements. Exceeding of population to their consumption requirements will indicate that there is no development or poverty as so.
Technology Transfer and Change technology is the measurement of development of a nation. Its change is based on the business decisions of managers and entrepreneurs. In production, it is influenced by the quality if education and training from the school system that they acquire. The fast of its technology is being transferred from technologically advanced countries or how fast the adoption of innovations and inventions is in the productive sector is of interest to development economics.
Poverty Line and Income Distribution if the population is high than the distribution of income, it indicates that the economy is poor. Poverty shows a lack of development which suffering poor weakens their moral values and become prone to crimes of need. Rich and well-to-do control the large part of the national resources of the country is a failure of redistribution of wealth through tax and market mechanism.
Poverty and Shelter homelessness is the proof of poverty due to they cannot afford to rent or build their own house Poverty and Malnutrition poverty is characterized by malnutrition that affects mostly to young and adolescent due to poor cannot afford to buy protein foods and the can afford only carbohydrate foods. In schools, malnutrition can be known through operation timbang.
Infrastructure for Development adding more infrastructures indicate its development or for further development. Government takes charge of setting in place the national development plan, approve the enabling laws, orders, ordinances, and memoranda. It advocates the laissez faire, means that let the business alone.
Central Planning Authority gives direction to the participation of both the private and public sectors in economic development efforts.
Nature of Economic Theory is the application of the logical relationships of dependent and independent variables in economics that result in some predictable outcomes. Economic Model is the reduction of a theory into a schematic diagram, mathematical equation or graphic functions for better understanding and manipulation. Isoquant is a model for the combination of two factors of input that will produce a series of outputs along an expansion path. Gross National Product (GNP) as sum of the productive factors within the economy.
Policy - measures taken by government intended to influence the behavior of the economy that is needed to establish and fortify the poles of development which are the strong points of growth.
Government Budget under by department of budget and management audit the contract of the government. Adding additional infrastructures and the capitalization of government enterprise, reduces unemployment and underemployment. Budget is a kind of mechanism for allocation of public funds to the different services rendered by government and to the different development projects.
Governments in Business government sometimes engage in propriety (held under patent) business. Examples are Cebu Portland Cement Company and Philippine Air Lines. Other developing countries; power generation, portable water and irrigation generally owned by government due to the need of the community, industry and agriculture but could not be serve as a private sector. Private sector is discouraged by low return of investment.
Government Planning should be from top to bottom because of Central Investment Ceiling (CIC) for each project is fixed by the central planning authority. Government Organization of Organization is under standably carried by the fact that only the national government is concerned with the development of the country as whole. Organization of the Government is better structured and has the essential implementation of policies to facilitate its accomplishment of objectives. Access to Varied Financing Resources government funding of its economic development projects and programs is vast such as Asian Development Bank (ADB) or International Monetary Fund World Bank (IMF-WB).
Build Operate - Transfer Scheme (BOT) under the Philippine government, the R.A. No. 6957 of July 9, 1990. It covers highways, bridges, interchanges, tunnels, mass transit facilities, navigable inland waterways, railways, airports, power generation, power distribution, telecommunication, irrigation, water supply, sewerage, health, infrastructure, land reclamation, dredging, industrial estates, markets, slaughter houses, fish ports, incinerators, land fill and related facilities.
Economic Monitoring by Government comprehensive, accuracy and recency of government data on society and the economy require an efficient mechanism for that purpose. Vital Sources of Information by the Government such as NEDA, Central Bank, National Statistics Office (NSO), Department of Labor and Employment (DOLE), Department of Agriculture (DA), Department of Trade and Industry (DTI) and their agencies. LGUs have not yet developed.
Public Benefit View of Development is derived from the wealth redistribution effect of taxation which in addition to employment actualizes the trickling down of benefits. Politics of Growth and Development the political platform is always reducible to the term development which the political promises of more jobs embraces employment in the private and public sectors.
A Lesson from Italy massive public works were undertaken emergency financing to stave off unemployment but it leads to nowhere but if they have given the money as incentives to industry which could have produce the jobs, maybe it is not wasted.
Privatization and Development privatization works better when it is a part of large reform program that improves business than when this is under the government which was difficult to sustain in the face of persistent management failure due to few takers and bids are very low.
Public Debt and the Debt Cap public debt was caused by the effort to develop the economy which their returns would enable the economy to pay the interest and principal while the debt cap limits the debts to a certain percentage of the earnings from foreign trade.
Psycho-Social Factors of Development psycho-social qualities and characteristics of people help the economic growth and development of a country whose response depends on the effectiveness of policies and programs. Some of this people are the economists and psychologists who find the positive way in guiding the development and know what to be avoided.
Religion and Development religion plays the important role in the development of a country. They help the people to be determined to reach their goals like the perception of some popular industry and persistence such by the sweat of your brow you shall eat. Religion also serves as opiate of the poor in the time of poverty stricken. Religion also shows some values in leading such as self-reliance, dedicated stewardship, cooperation, coordination and compassion. But religion argued to the perception of artificial birth control other than abortion in case of population issue in development.
Family Values and Development family is the basic unit of the society which is composed of parent and children as nuclear family. But in case of extended family composing parents, children, grand parents, grand children and others which shows that they be not able to save if only few of them are earning. School system reduced the dependency of the members of the family but the church and lay leaders forcing that the family prays together, stay together, without clarifying that it is referred to the spiritual aspects only and not in physical contiguity.
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Ethnocentrism and Regionalism ethnocentrism is a roadblock to the development of a corporate culture wherein people pool their capital in the earnest belief that business will prosper and also they do not share common social and cultural characteristics while regionalism is to identified with those who come from the same geographical part of the country and are hindrance to growth and development.
Venture Character and Development venture character of the people can help to advance the economy due to willingness of the venturing investment, production and trade after acquired some capital. While homeostatic tendency is unable to contribute to development to their maximum capacity due to unwillingness to change their occupation to improve their savings and they are comfortable to the stability of their economic life.
Gambling and Development gambling is not venturing but this is adventure and is part of a peoples culture. It also affects the other member of the family if there is one that is a gambler and became a mania. It helps the development if their people are not gamblers because it produces lot of income.
Work Ethics and Development well established work ethics put them to the highest possible productivity in the use of technology and they find dignity in labor and work to deserve their compensation. When absenteeism is a widespread among workforce, it indicates failure to work ethics due to poor commitment to their job and reduces production economy. But if absenteeism involves few workers, its problem was in the managerial.
Tax Consciousness results a progressive society due to paying tax is the legal obligation and moral duty of people but there are still tax invader results a rampant smuggling undervaluation of taxable goods and incomplete report of income.
Economic Nationalism people are awaken to the fact that they had been importing what they have produced, had been working in foreign owned firms that the countrys own citizens could afford to own; had suffered work discrimination on their own country; and had seen poverty persists in growth without effective distribution of wealth, have embraced a thought.
The Overseas Work Syndrome is the way of some people to reduce poverty and unemployment. Governments consider them as a valuable export because their earnings contribute and inject resources to the economy. They take the risks from the abuses of their employers as the fact of life.
Production Cooperatives inspire people to organize their own cooperative and hoping that will improve livelihood and develop the countryside. Kibbutz is based on the establishment of settlements wherein people would live and work the land in a complementation of the other members. Kibbutz productive activity was guided by a plan, a management group and the application of affordable technology.
Proactive Response Formation its the development requirement for the people to awaken as result of the social and economic phenomena take place, respond by thought, expression or action. Proactive people form ideas and take action on them as to make things happen productively.
Language in Development it is touted as the lingua franca of business and technology that enhances productivity.
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Psychology in the Bureaucracy jobs in the government are sometimes in political spoils and the retrenchment of those who posses civil services slow the bureaucracy, indifferent, bucket-passing or even corrupt. This has required the re-indoctrination of civil servants to improve the quality of services in government and schemes of appointments based on qualification, promotion based on merit and productivity compensation have been instituted.
The Gun Society from the investigation of social character of people, it shows that commonly their investment is wide in guns and rifles for self defense and self-esteem. If it is used as tools for social and economic abuse it results as political terror and increased the criminality.
Conspicuous Spending we can also say that it is spending beyond the need for comfortable living cannot help the economy not like the controlled spending if it is emphasized that can contribute to the development of the economy.
Social Justice refers to the promotion of the welfare justice of all the people, the adoption by the government of measure calculated and exercise of powers to ensure economic stability of all the component element of society, through the maintenance of a proper economic and social equilibrium in the interrelation of the members of the community constitutionally through the adoption of measure legally justifiable or extra-constitutionally. MICROECONOMICS AND MACROECONOMICS Microeconomics Branch of economics which deals with the individual decisions of units of the economy firms and households, and how their choices determine relative prices of goods and factors of production. The market is the central concept of microeconomics. It focuses on its two main players the buyer and the seller, and their interaction with one another. Topics discussed: 1) Theories of demand and supply 2) Elasticity of demand and supply 3) Individual decision making 4) Theories of production, output and cost of firms 5) A firms profit maximization objective 6) Different types of business organizations 7) Kinds of market structures Macroeconomics It seeks to understand the behavior of the economy as a whole. Branch of economics that studies the relationship among broad economic aggregates such as national income, national output, money supply, bank deposits, total volumes of savings, investment, consumption expenditure, general price level of commodities, government spending, inflation, recession, employment, money supply. Focuses on the four specific sectors of the economy: 1) consumption behavior of the aggregate household 2) investment decision making of the aggregate business 3) government spending the policies and projects of the government 4) export and import the behavior of external/foreign economic agents through trading Discusses the following:
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THE CONCEPT OF OPPORTUNITY COST Opportunity Cost - when one makes choices, there is always an alternative that has to be given up in making a choices, this means that the price of one item should be relative to the price of another. FACTORS OF PRODUCTION 1. Land - refers to all natural resources and are not man made such as forests, mountains, rivers, oceans, minerals, air, and sunshine, light, etc. 2. Labor - any form of human effort exerted in the production of goods and services such as workers and professionals with a wide range of skills, abilities, and characteristics. 3. Capital - man-made goods used in the production of other goods and services such as buildings, machinery and other physical facilities used in the production process. The reduction of productive capacity of capital is called depreciation and the reward is interest. 4. Entrepreneurship the ability and willingness to undertake the task of organizing and managing production, along with making the usual decisions. It is also associated with the functions of innovating and bearing risks. Entrepreneur is person who organizes, manages and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business. 5. Technology contribution of science which is the outcome of investment in machinery, equipment or systems 6. Government policy factoral influence that regulates or promotes the economic activities in the business environment TYPES OF ECONOMIC SYSTEMS A. Traditional Economy Produces goods only for its own consumption and decisions on what, how, how much, and for whom to produce are made by the family head. B. Command Economy The manner of production on what how, how much, and for whom to produce is dictated by the government and it is owned by the people and administered by the state. C. Market Economy The resources are privately owned, and also to the most of economic decisions and means of production. D. Socialism The key enterprises are owned by the state that has control over a large portion of capital assets, and private ownership is also recognized. The main emphasis is on equitable distribution of income and wealth. It is considered as an economy bordering between capitalism and communism. E. Mixed Economy It is a mixture of market system and the command system and more on market-oriented rather than a command or traditional economy. DEMAND AND SUPPLY Demand is generally affected by the behavior of consumers, while supply is usually affected by the conduct of producers.
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Two kinds of market: Wet where people usually buy vegetables, meat, etc. Dry where people buy shoes, clothes, or other dry goods. DEMAND It pertains to the quantity of a good or service that people are ready to buy at given prices within a given time period, when other factors besides price are held constant. Demand implies a desire to possess a thing, the ability to pay for it or means of purchasing it, and willingness to utilizing it LAW OF DEMAND It states that if price goes up, the quantity demanded will go down. If price goes down, the quantity demanded will go up ceteris paribus. DEMAND SCHEDULE It is a table that shows the relationship of prices and the specific quantities demanded at each of these prices. The information provided by a demand schedule can be used to construct a demand curve showing the price-quantity demanded relationship in graphical form. DEMAND CURVE It is a graphical presentation showing the relationship between price and quantities demanded per time period. A negative curve has negative slope thus it slopes downward from left to right. The downward slope indicates the inverse relationship between price and quantity demanded. Most demand curves slope downwards because: 1. As the price of the product falls, consumers will tend to substitute (now relatively cheaper) product for others in their purchases. 2. As the price of the product falls, this serves to increase their real income allowing them to buy more products.
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Price
Demand
DEMAND FUNCTION It is expressed as a mathematical function that shows the relationship between demand (Qd) for a commodity and the factors that determine or influence this demand. Factors of Demand: 1) Price of related goods - In a situation where the price of particular good increases, a consumer will tend to look for closely related commodities.
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Quantity Demanded
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50 40 Price 30 20
Factors of supply: 1) Cost of production - refers efficient use of resources to the 10 increase supply, while a failure to 10 20 30 40 achieve such will result to a decrease Quantity Demanded in supply or it could mean maximum production of output at minimum cost. 2) Number of sellers - the more sellers there are in the market, the greater supply of goods and services will be available. 3) Availability of raw materials scarcity of raw materials used in production also decreases the supply and the more the availability of raw materials will increase the supply. 4) Technology - introduction of cost-reducing innovations in production technology increases supply on one hand but tech-problems can decrease supply by means of freezing the production.
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CHANGE IN SUPPLY There is change in supply when the entire supply curve shifts rightward or leftward. If the entire supply curve shifts to the right side at the same price, less amounts of a good or service are supplied. If the entire supply curve shifts to the left at the same price, more amounts of a good or service are supplied. MARKET EQUILIBRIUM This refers to the result of the meeting of supply and demand. Equilibrium is understood as a state of balance. EQUILIBRIUM MARKET PRICE It is the price at which quantity demanded if a good is exactly equal to the quantity supplied.
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Equilibrium
Demand
EQUILIBRIUM It pertains to a balance that exists when quantity demanded equals quantity supplied. There is a balance between price and quantity of goods bought by consumers and sold by sellers in the market.
HAPPENS DURING DISEQUILIBRIUM 1. Surplus - is a condition in the market where the quantity supplied is more Quantity Demanded than the quantity demanded. The tendency is for sellers to lower market prices in order for the goods to be easily disposed from the market. There is a downward pressure to price to restore equilibrium in the market.
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Supply
2. Shortage - is a condition in the market in which quantity demanded is higher than supplied.
There is a possibility of consumers being abused, while producers are enjoying imposing higher prices for their own interest. There is an upward pressure to prices to restore equilibrium in the market.
3. Price Control is the specification by the government of minimum or maximum prices for
the goods and services. TWO TYPES OF PRICE CONTROLS
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