Economics is the proper allocation and efficient

use of available resources for the maximum satisfaction

of human wants.

Problem lies not on limited resources but on the unjust

distribution of resources.
1. Microeconomics- deals with the economic behavior
of individual units such as the consumers, firms and
the owners of the factors of production
2. Macroeconomics- deals with the economic behavior
of the whole economy or its aggregates such as
government.
Methods of Economics:
 Descriptive economics- the compilation of
data that describe phenomena and facts.

Economic Theory- a statement or set of

related statements about cause and effect, action
and reaction.
1. What goods and services to produce and how much.

2. How to produce the goods and

services.(technology),(intermediate technology)

3. For whom are the goods and services.

 Opportunity cost- the best alternative that
we give up, or forgo, when we make a choice or
decision.
 Ricardo’s theory that specialization and free
trade will benefit all trading parties, even those that
may be absolutely more efficient producers.
Absolute advantage- a producer has an absolute
advantage over another in the production of a good or
service if it can produce that product using fewer
resources.
 Comparative advantage- a producer has a
comparative advantage over another in the
production of a good or service if it can produce
that product at a lower opportunity cost.

Economic system is a set of economic institutions

that dominates a given economy.

Economic System Models

1. Capitalism
2. Socialism
3. Communism
Judging an economic system.
Abundance, growth, stability, security, efficiency,
justice and equity, economic freedom.

THE PRICES OF GOODS AND SERVICES

In a market or capitalists economy, prices of
goods and services are determined by the interaction
between supply and demand of goods and services.
Price is the value of a product or service which is
expressed in terms of a monetary unit.
The price system determines the allocation of
goods and services among the members of society.
DEMAND- the schedule of various
quantities which buyers are willing and
able to purchase at a given price, time
and place. Determined by some factors
like income, population, taste and
preferences, price expectation, prices of
related goods.
Price Quantity demanded
1 5
2 4
3 3
4 2
5 1
LAW OF DEMAND- consumers are most likely to
buy more goods and services as price decreases
and buy less goods and services as price rises.
Law of Demand states: as price increases, quantity
demand decreases and as price decreases,
quantity demand increases(applicable if the
principle of ceteris paribus is being followed).

Changes in Demand refer to changes in the

determinants of demands like income, population,
price expectation and so forth.
Changes in quantity demand indicate the
movement form one point to another point brought
by changes in price.
Supply is the Schedule of various quantities of
commodities which producers are willing and able to
produce and offer at a given price, place and time.
Determinants are technology, cost of production, number of
sellers, prices of other goods, price expectations, taxes and
subsidies.
Price Quantity supplied
1 1
2 2
3 3
4 4
5 5

Law of supply states that as price increases, quantity supply also

increases and as price decreases, quantity supply also decreases.
Changes in supply pertain to change in
the determinants of supply.
Changes in quantity supplied show the movements
form one point to another point on a constant supply
curve. Change in quantity supplied is brought about
by a change in price.
THE LAW OF SUPPLY AND DEMAND

Quantity supplied price Quantity

demanded
1 1 5 shortage
2 2 4 equilibrium price
3 3 3
4 4 2 Surplus
5 5 1
LAW OF SUPPLY AND DEMAND states that when supply
is greater than demand, price decreases; when demand
is greater than supply price increases; when supply is
equal to demand, price remains constant.

Practical Application of the law

ELASTICITY AND CONSUMER BEHAVIOR
Demand Elasticity refers to the reaction or
response to the buyers to changes in price of
goods and services.

Five types of demand elasticity

1. elastic demand
2. inelastic demand
3. unitary demand
4. perfectly elastic demand
5. perfectly inelastic demand
Determinants of Demand Elasticity
1.Number of goods substitutes
2.Price increase in proportion to income
3.Importance of the product to the consumers
Elasticity of supply refers to the reaction or response of
the seller/producer to price change of goods.
1.Elastic supply
2.Inelastic supply
3.Unitary supply
4.Perfectly elastic supply
5.Perfectly inelastic supply
The principal determinant of supply of elasticity is
the TIME involved in the ability of producers to
respond to price changes.

Theory of Consumer Behavior

1.Law of diminishing marginal utility. Utility means
satisfaction. Marginal utility refers to the additional
satisfaction of a consumer whenever he consumes
one more unit of the same good. Consumption of
more successive units of the same good increases
total utility, but at a decreasing rate because
marginal utility diminishes.
PRODUCTION
Free goods- goods that are produced without cost;
these are produced by nature.
Economic goods- produce by man and there is cost
in each production.

Factors of production
1.land Input=output
2.labor Fixed factors
3.capital Variable Factors
4.entrepreneur
 Production function- technical relationship
between the application of inputs and the resulting
maximum obtainable output.

LAW OF DIMINISHING RETURNS OR LAW OF

DIMINISHING MARGINAL PRODUCTIVITY- When
successive units of variable input work with a fixed
input beyond a certain point the additional product
produced by each additional unit of a variable,
input decreases.

Message of the law- there is a proper combination

of a variable input and fixed input to attain
maximum output
4.Average cost- also called unit cost
5.Marginal cost
6.Explicit cost
7.Implicit cost
8.Opportunity cost

Marginal cost and average cost relationship- when MC

is falling it pulls down AC, When MC is rising it pulls up
AC.
Short Run And Long Run

Economic of scale
External economies of scale are factors w/c are
outside the firm but contribute to the efficiency of the latter.
Internal economies of scale are those factors inside
the firm w/c contribute to the efficiency of the latter.
Appropriate Techniques of production
Labor-intensive technology
Capital-intensive
Revenue-income side of the firm
Total Revenue=price times unit sold
Total Revenue-total cost=profit

Under a short run period the rule is if TR> VC,

operate; If TR<VC, shut down.
Under a long run where all costs are variable this
means TC is equivalent to variable cost. The rules
are:
TR>TC: produce more
TR<TC: stop production
TR=TC: maintain production
In TR=TC the firm gets a normal profit.
Marginal Revenue-Marginal Cost Approach
If marginal revenue is greater than marginal cost,
increase production: if Marginal revenue is less than
marginal cost, do not increase production. Most
profitable output for a firm is when MR=MC ( refer to
Problem Set 4)
 MARKET STRUCTURE AND PRICE-OUTPUT
DETERMINATION
Basic Market Models
1.Perfect/pure type
a. perfect or pure competition
b. pure monopoly
2. Imperfect/ non-pure type
a. monopolistic competition
b. oligopoly
 FACTOR MARKET AND INCOME DISTRIBUTION
Determinants of Factor Demand
Direct demand
Derived demand-productive factors because of
their productivity
Demand for labor-wage as determinant

Supply in the Factor Market

Supply of labor- more are willing to work when
wage rates are higher when there are abundant job
opportunities.
Labor Market
Individual supply of Labor
Income Distribution- the allocation of income among the
owners of the factors of production

Types of Income distribution

Personal distribution- allocation of income among
persons or households
Functional distribution-allocation of income among
the factors of production.
Cause of Income inequality
1.Intelligence and talents
2.Education and training
3.Unpleasant and risky jobs
4.Ownership of productive factors
5.Luck and connections

Theories of income Distribution

Marginal Productivity
Needs
Social Usefulness
Equality
Pricing of Resources determined by law of supply and
demand

Wages the price of labor.

Supply and demand
Minimum wage
Labor unions

Economic Rent- payment for the use of land and other

natural resources which are fixed in total supply.
Taxation- inherent power of the state acting through the
legislature to impose and collect revenue for the purpose of
supporting the government and its recognized objects.

Two-folds nature of taxation

1. inherent- it exists w/o the necessity of any specific
grant of the power of the constitution.
2. legislative- exercised by the legislature though the
enactment of statutes.
Theory of taxation- that w/o money the
government would have no funds to meet the
various essential expenses it has to incur to enable
it to exist and function effectively.

Basis of Taxation- based on the reciprocal duties of

protection and support between the state and its
citizens as well as residents and on the sovereign
power as well as jurisdiction by the state over its
people and sovereignty.

Purpose of Taxation is to raise revenue or funds to

support the government and its services.
Source of taxation- constitution, statutory
enactments, administrative rules and regulations,
judicial decisions, opinions of legal luminaries.

Limitations on the taxing power according to

Malcolm:
1. tax must be for public purpose.
2. person, property or interest taxed must be
within the jurisdiction of the taxing power.
3. rule of taxation must be uniform and
equitable
 4. in the assessment and collection of certain
kind of taxes, certain guarantees against injustice to
individual especially by way of notice and
opportunity for hearing must be provided.
5. properties exempt from taxation under the
constitution can not be taxed.

Situs of taxation:
1. Property Tax
a. Real property tax- place where it is
located regardless of domicile or citizenship of the
owner.
 b. personal property- taxable in the
domicile of the owner.
2. income tax- residence/ citizenship of the
taxpayer or sources of income.
3. poll or residence tax- residence or domicile of
the person taxed.
4. transfer taxes- residence or citizenship or
location of the property.
5. business or occupation taxes- place where
the act or occupation is engaged in regardless of the
domicile of the owner or proprietor and regardless of
the location of the property used for business.
 6. franchise tax- state which granted the
franchise.

Tax- an enforced proportionate contribution imposed upon

persons, property or interest by the legislature for a public
purpose and generally payable in money.
Elements/ requisites of a tax.
1. enforced contribution
2. proportionate in character being based on
ability to pay.
3. levied by the legislature directly or by
delegation.
4. levied for a public purpose.
5. generally payable in money
 TAX
1.Revenue measure
2.Imposed on the exercise of
The power of taxation
3.Non-payment does not
Necessarily Render the
Business illegal
4.Not limited to the cost
of regulation
License Fee
1.regulatory measure.
2.imposed on the exer-
cise of police power
3.non payment as a rule
renders the business
illegal
4.limited to shoulder
only cost of regulation
Taxes Classified
a.As to subject matter
1. poll, personal or capitation tax, one imposed on residents.
2. Property tax- imposed on property.
3. Excise tax- imposed on a privilege or right.
b.As to who bears the burden
1.direct tax- imposed to a person directly involved.
2.indirect tax- which forms a part of the purchase price
of the commodity and passed on to consumers.
c. As to purpose
1. general tax- imposed for general purpose.
2. special tax-imposed for particular reason
d. As to determination of amount tax to be paid
1. ad valorem tax- based on value of the object taxed
determined by the appraiser
2. specific tax- based on weight and measurement
e. As to scope
1. local/municipal 2. national
Interest- payment for the use of money.

Profits

BUSINESS ORGANIZATION AND MANAGEMENT

Major forms of Business Organization
• Single or sole proprietorship
• Partnership
• Corporation
• Multinational Corporations
Characteristics of an Entrepreneur
1.Reasonable risk-takers
2.Self-confident
3.Hardworking
4.Innovative
5.Leadership-selfless dedication, purpose and vision,
courage, conviction, enthusiasm, integrity, tact, hardwork
6.Positive thinker
7.Decision-maker
Determinants of successful entrepreneur
Managerial skills
1. ability to conceptualize and plan.
2.ability to manage others.
3.ability to manage time and to learn.
4.ability to adapt to change.