Pineda, Loretta Maria A.

BSN-IV
Economics

I. Elasticity
A measure a measure of the responsiveness of quantity demanded or quantity supplied to a
change in one of its determinants.
Is a measure of how much buyers and sellers respond to changes in market conditions
Allows us to analyze supply and demand with greater precision.
Elasticity allows economists to quantify the differences among market without standardizing
the units of measurement.

Types of Elasticity

1. Price Elasticity of Demand
o Is the percentage change in quantity demanded given a change in the price.
o It is a measure of how much the quantity demanded of a good responds to a change
in the price of that good
o Determinants of Price Elasticity of Demand:
Availability of Close Substitutes
Necessities versus Luxuries
Definition of the Market
Time Horizon
o Demand tends to be more elastic :
the larger the number of close substitutes.
if the good is a luxury.
the more narrowly defined the market.
the longer the time period.
o Computing the price elasticity of demand
The price elasticity of demand is computed as the percentage change in price.
Price Elasticity of Demand = %Change in Quantity Demand
%Change in the Price
o Example:
If the price of an ice cream cone increases from P2.00 to P2.20 and the
amount you buy falls from 10 to 8 cones then the elasticity demand would be
calculated as:










2
10
20
100
00 . 2
) 00 . 2 20 . 2 (
100
10
) 8 10 (

percent
percent
o Computing the Price Elasticity of Demand Using the Midpoint Formula
The midpoint formula is preferable when calculating the price elasticity of
demand because it gives the same answer regardless of the direction of the
change.




o Example:
If the price of an ice cream cone increases from $2.00 to $2.20 and the
amount you buy falls from 10 to 8 cones the your elasticity of demand, using
the midpoint formula, would be calculated as:







o Variety of Demand Curves
Inelastic Demand
Quantity demanded does not respond strongly to price changes.
Price elasticity of demand is less than one.

Elastic Demand
Quantity demanded responds strongly to changes in price.
Price elasticity of demand is greater than one.



)/2] P )/[(P P (P
)/2] Q )/[(Q Q (Q
= Demand of Elasticity Price
1 2 1 2
1 2 1 2


32 . 2
5 . 9
22
2 / ) 20 . 2 00 . 2 (
) 00 . 2 20 . 2 (
2 / ) 8 10 (
) 8 10 (

percent
percent
Unit Elastic
Quantity demanded changes by the same percentage as the price.

Perfectly Inelastic
Quantity demanded does not respond to price changes.

Perfectly Elastic
Quantity demanded changes infinitely with any change in price.

o Other Demand Elasticities

Income Elasticity of Demand
The income elasticity of demand measures how the quantity demanded
changes as consumer income changes. It is calculated as the percentage
change in quantity demanded divided by the percentage change in income.




Cross-Price Elasticity of Demand
The cross-price elasticity of demand measures how the quantity
demanded of one good responds to a change in the price of another good.
It is calculated as the percentage change in quantity demanded of good 1
divided by the percentage change in the price of good 2.


2. Elasticity of supply
measures how much the quantity supplied responds to changes in the price
o Computing the price elasticity of supply
The price elasticity of demand is computed as the percentage change in price.
Price Elasticity of Supply = %Change in Quantity Supplied
%Change in the Price
o Example:
Suppose that an increase in the price of milk from $2.85 to $3.15 a gallon
raises the amount that dairy farmers produce from 9,000 to 11,000 gallons
per month. Using the midpoint method, we calculate the percentage change
in price as

Percentage change in price = (3.15 2.85) / 3.00 100 = 10 percent

Similarly, we calculate the percentage change in quantity supplied as

Percentage change in quantity supplied =(11,0009,000)/10,000100=20 %

In this case, the price elasticity of supply is
















o Variety of Demand Curves





II. The Consumer Behavior
o Theory of Consumer Behavior
Our analysis of demand permits us to determine the underlying factors
affecting the level of consumer demand of a given commodity. An increase
in the price of a commodity, we expect consumers to react by decreasing the
quantity they want to buy.
o Consumer Behavior-Assumptions
Rational Consumer
Budget Constraints
Consumer Preferences
o The Utility Theory of Demand
The utility theory explains consumer behavior in relation to the satisfaction
that a consumer gets the moment he consumes a good.
When we speak of utility in economics, we refer to the satisfaction or benefit
that a consumer derives of his consumption.
The utility theory of demand assumes that satisfaction can be measured. The
unit of measure of utility is called utils.
o Indifference Preference Theory
Another theory explaining consumer behavior is the indifference preference
theory. Economist Vilfredo Pareto developed this modern approach to
consumer behavior. Under this, that analysis of consumer behavior is
described in terms of consumer preferences of various combinations of
goods and services depending on the nature, rather than from the
measurability of satisfaction in our previous discussion of the utility theory.
Under the latter theory, consumer's taste and preferences were presented by
the way of total and marginal utility.
o Indifference Curve
An indifference curve is a locus of points each of which represents a
combination of goods and services that will give equal level of satisfaction to
a consumer. To illustrate this, we consider an individual who prefer a
combination of 2 goods, say, food and clothing.



o Budget Line
The income of an individual acts as constraints on the qualities of bundles of
goods he can purchase. We can buy commodities only up to the extent that
our income allows us. In the same manner, do prices also constraints our
ability to buy. With a fixed income, the higher the level of prices, the less will
be the quantity we can purchase. These two constraints can be explained
through the concept of a budget line. A budget line shows the combination
of commodities that can be purchased at a given level of income.

o Consumer Equilibrium
Consumer equilibrium refers to the combination of goods that will give the
highest level of satisfaction to a consumer that is within his purchasing
power.

III. Theory of Production
o Production
Refers to the output of goods and services produced by businesses within a
market. This production creates the supply that allows our needs and wants
to be satisfied. To simplify the idea of the production function, economists
create a number of time periods for analysis.
o Short Run Production
The short run is a period of time when there is at least one fixed factor input.
This is usually the capital input such as plant and machinery and the stock of
buildings and technology. In the short run, the output of a business expands
when more variable factors of production (e.g. labor, raw materials and
components) are employed.
o Long Run Production
In the long run, all of the factors of production can change giving a business
the opportunity to increase the scale of its operations. For example a
business may grow by adding extra labor and capital to the production
process and introducing new technology into their operations.
o Productivity
When economists and government ministers talk about productivity they are
referring to how productive labor is.
The governments objective is to improve labor and capital productivity in
the British economy in order to improve the supply-side potential of the
country.
o Total Revenue
The amount a firm receives for the sale of its output
o Total Cost
The market value of the inputs a firm uses in production
o Profit
The firms total revenue minus its total cost
Profit = Total revenue Total Cost
o Cost of Production
Includes all the opportunity costs of making its output of goods and services
Explicit costs are input costs that require a direct outlay of money by the
firm
Implicit costs are input costs that do not require an outlay of money by the
firm
o Production Function
Shows the relationship between quantity of inputs used to make a good and
the quantity of output of that good
o Marginal Product
Is the increase in output that arises from an additional unit of that input
o Diminishing Marginal Product
Is the property whereby the marginal product of an input declines as the
quantity of the input increases.
Example: as more and more workers are hired at the firm, each additional
worker contributes less to the production because the firm has limited
amount of equipment.
o Market Structure
Identifies how a market is made up in terms of:
1. The number of firms in the industry
2. The nature of the product produced
3. The degree of monopoly power each firm has
4. The degree to which the firm can influence price
5. Profit levels
6. Firms behavior pricing strategies, non-price competition, output
levels
7. The extent of barriers to entry
8. The impact on efficiency
Importance
1. Degree of competition affects the consumer will it benefit the
consumer or not?
2. Impacts on the performance and behavior of the
company/companies involved




IV. GDP GNP PCI

o Gross Domestic Product (GDP)
The most important concept of national income is Gross Domestic Product.
Gross domestic product is the money value of all final goods and services
produced within the domestic territory of a country during a year.
GDP=(P*Q)
GDP=Gross Domestic Product
P=Price of goods and service
Q=Quantity of goods and service denotes the summation of all values.
According to expenditure approach, GDP is the sum of consumption,
investment, government expenditure, net foreign exports of a country during a
year.
GDP=C+I+G+(X-M)
C=Consumption
I=Investment
G=Government expenditure
(X-M)=Export minus import
o GDP includes the following types of final goods and services. They are: Consumer
goods and services. Gross private domestic investment in capital goods.
Government expenditure. Exports and imports. Gross National Product (GNP)
o Gross National Product
Is the total market value of all final goods and services produced annually in a
country plus net factor income from abroad. Thus, GNP is the total measure of
the flow of goods and services at market value resulting from current production
during a year in a country including net factor income from abroad. The GNP
can be expressed as the following equation:
GNP=GDP+NFIA (Net Factor Income from Abroad) or, GNP=C+I+G+(X-
M)+NFIA
Hence, GNP includes the following:

Consumer goods and services.
Gross private domestic investment in capital goods.
Government expenditure.
Net exports (exports-imports).
Net factor income from abroad.
Net National Product (NNP)
o Per Capita Income (PCI)
Per Capita Income of a country is derived by dividing the national income of the
country by the total population of a country.
PCI=Total National Income/Total National Population






V. Agrarian Reform
can refer either, narrowly, to government-initiated or government-backed redistribution of
agricultural land or, broadly, to an overall redirection of the agrarian system of the country,
which often includes land reform measures.
For a long period of time, the agrarian system of Philippines was being controlled by the
large landlords. The small farmers in Philippines were struggling for their rights to land and
other natural resources.
o Implementation of Agrarian Reform in Philippines
The implementation of Agrarian reforms proceeded at a very slow pace. This
was due to the lack of political will. The redistribution of land was also very slow.
o Comprehensive Agrarian Reform Law: Philippines
The Republic Act No. 6657, alternatively called the Comprehensive Agrarian
Reform Law was signed by President Corazon C. Aquino on 10th June, 1988.
The Comprehensive Agrarian Reform Law is responsible for the implementation
of the Comprehensive Agrarian Reform Program(CARP) in Philippines. The law
focused on industrialization in Philippines together with social justice.
o Comprehensive Agrarian Reform Law: Objectives
The primary objective of instituting the Comprehensive Agrarian Reform law
was to successfully devise land reform in Philippines. It was President Arroyo,
who signed the Executive Order No. 456 on 23rd August to rename the
Department of Land Reform as Department of Agrarian Reform. This had been
done to expand the functional area of the law. Apart from land reform, the
Department of Agrarian Reform began to supervise other allied activities to
improve the economic and social status of the beneficiaries of land reform in
Philippines.
o CARP
Comprehensive Agrarian Reform Program of 1998
Is a Philippine state policy that ensures and promotes welfare of landless farmers
and farm workers, as well as elevation of social justice and equity among rural
areas.
While there is significant empirical evidence that agrarian reform has yielded
significant benefits and has the potential for even greater benefits, the fact is that
it has encountered implementation problems.
Regardless of the problems encountered by CARP, the point is that CARP is not
the cause of the continuing poverty nor the obstacle to solving it. On the
contrary, completing CARP in accordance with the mandate of the Constitution
is a necessary condition to correct social injustice, and achieve sound agricultural
development and economic growth.
o Department of Agrarian Reform
is the lead implementing agency of Comprehensive Agrarian Reform Program
(CARP). It undertakes land tenure improvement and development of program
beneficiaries. DAR conducts land survey in resettlement areas. It undertakes land
acquisition and distribution and land management studies.
The DAR also orchestrates the delivery of support services to farmer-
beneficiaries and promotes the development of viable agrarian reform
communities.
Mandate: The Department of Agrarian Reform (DAR) leads the implementation of
the Comprehensive Agrarian Reform Program (CARP) through land tenure
improvement, agrarian justice, and coordinated delivery of essential support
services to client-beneficiaries.
Mission: "To lead in the implementation of agrarian reform and sustainable rural
development in the countryside through land tenure improvement and provision
of integrated development services to landless farmers, farmworkers and small
landowner-cultivators, and the delivery of agrarian justice".
Vision: "A nation where there is equitable land ownership and empowered agrarian
reform beneficiaries who are effectively managing their economic and social
development for a better quality of life"
o Republic Act No. 9700
An act strengthening the comprehensive agrarian reform program, extending the
acquisition and distribution of all agricultural lands, instituting necessaey reforms,
amending for the purpose certain provisions of RA No. 6657, otherwise known
as the CARP law of 1988 as amended and appropriating funds therefor.

VI. Taxation
Is the inherent power by which the sovereign state imposes financial burden upon persons
and property as a means of raising revenues in order to defray the necessary expenses of the
government
Is the imposition of financial charges or other levies, upon a taxpayer (an individual or legal
entity) by a state such that failure to pay is punishable by law.
It is a mode of which government make exactions for revenue in order to support their
existence and carry out their legitimate objectives

o Cedula
Also known as a residence certificate, is a legal identity document in the
Philippines.
Issued by cities and municipalities to all persons that have reached the age of
majority and upon payment of a community tax, it is considered as a primary
form of identification in the Philippines and is one of the closest single
documents in the Philippines has to a national system of identification, akin
to a drivers license and a passport.
A person is required to present a cedula when he or she acknowledges a
document before a notary public; takes an oath of office upon election or
appointment to a government position; receives money from a public fund;
transacts official business; or receives salary from a person or corporation.
o The Four Rs of Taxation
Revenue the taxes raise money to spend on armies, roads, schools and
hospitals, and more on indirect government functions like market regulation
or legal systems.
Redistribution Refers to the transferring wealth from the richer sections
of society to poorer sections.
Repricing taxes are levied to address externalities; for example, tobacco is
taxed to discourage smoking, and a carbon tax discourages use of carbon-
based fuels.
Representation as what goes with the slogan no taxation without
representation, it implies that rulers tax citizens, and citizens demand
accountability from their rules as the other part of this bargain.
o Purpose of Taxation
The main purpose of taxation is to accumulate funds for the functioning of
the government machineries. No government in the world can run its
administrative office without funds and it has no such system incorporated in
itself to generate profit from its functioning.
The governments ability to serve the people depends upon the taxes that are
collected. Taxes are indispensable in the government operation and without
it, the government will be paralyzed.
o The Philippine Tax System
Tax law in the Philippines covers national and local taxes. National taxes refer to
national internal revenue taxes imposed and collected by the national government
through the Bureau of Internal Revenue (BIR) and local taxes refer to those
imposed and collected by the local government. The 1987 Philippine Constitution
sets limitations on the exercise of the power to tax. The rule of taxation shall be
uniform and equitable. The Congress shall evolve a progressive system of taxation.
(Article VI, Section 28, Paragraph 1).
o Tax Evasion
Tax evasion happens when there is fraud through pretension and the use of
other illegal devices to lessen ones taxes, there is tax evasion, under-
declaration of income, and non-declaration of income and other items
subject to tax, Under-appraisal of goods subject to tariff , and over-
declaration of deductions
o Branches of Government vis--vis the Tax Law
The Congress may, by law, authorize the President to fix within specified
limits, and subject to such limitations and restrictions as it may impose, tariff
rates, import and export quotas, tonnage and wharfage dues, and other duties
or imposts within the framework of the national development program of
the Government (Article VI, Section 28, Paragraph 2).
The President shall have the power to veto any particular item or items in an
appropriation, revenue, or tariff bill, but the veto shall not affect the item or
items to which he does not object (Article VI, Section 27, Paragraph 2).
The Supreme Court has the power to: review, revise, reverse, modify, or
affirm on appeal or certiorari, as the law or the Rules of Court may provide,
final judgments and orders of lower courts in all cases involving the legality
of any tax, impost, assessment, or toll, or any penalty imposed in relation
thereto (Article VIII, Section 5, Paragraph 2b).
o Forms of Taxes Imposed on Persons and Property
Personal, capitation or poll taxes - These are taxes of fixed amount upon
residents or persons of a certain class without regard to their property or
business
Property taxes
Real Property Tax - an annual tax that may be imposed by a
province or city or a municipality on real property such as land,
building, machinery and other improvements affixed or attached to
real property.
Estate Tax (Inheritance Tax) - a tax on the right of transmitting
property at the time of death and on the privilege that a person is
given in controlling to a certain extent the disposition of his property
to take effect upon death.
Gift or Donors Tax - a tax on the privilege of transmitting ones
property or property rights to another or others without adequate
and full valuable consideration.
Capital Gains Tax - tax imposed on the sale or exchange of
property . Those imposed are presumed to have been realized by the
seller for the sale, exchange or other disposition of real property
located in the Philippines, classified as capital assets.
Income Taxes - Taxes imposed on the income of the taxpayers from
whatever sources it is derived. Tax on all yearly profits arising form property,
possessions, trades or offices.
Excise or License Taxes - Taxes imposed on the privilege, occupation or
business not falling within the classification of poll taxes or property taxes.
These are imposed on alcohol products; on tobacco products; on petroleum
products like lubricating oils, grease, processed gas etc; on mineral products
such as coal and coke and quarry resources; on miscellaneous articles such as
automobiles.
Documentary Stamp Tax - a tax imposed upon documents,
instruments, loan agreements and papers and upon acceptance of
assignments, sales and transfers of obligation and etc.
Value added tax - is imposed on any person who, in the course of
trade or business sells, barters, exchanges, leases, goods or properties,
renders services, or engages in similar transactions.
o Who should pay taxes?
Individuals
Resident Citizen
Non-resident Citizen
Resident Aliens
Non-resident Aliens
Corporations
Domestic Corporations
Foreign Corporations
Estate under judicial settlement
Trusts irrevocable both as to the trust property and as to the income.
o Who (or What) are those exempted in paying taxes?
The Constitution expressly grants tax exemption on certain
entities/institutions such as:
Charitable institutions, churches, parsonages or convents appurtenant
thereto, mosques, and nonprofit cemeteries and all lands, buildings
and improvements actually, directly and exclusively used for religious,
charitable or educational purposes (Article VI, Section 28, Paragraph
3)
Non-stock non-profit educational institutions used actually, directly,
and exclusively for educational purposes. (Article XVI, Section 4 (3)
o Exempted to tax as stated in the Article 283 of Rules and
Regulations Implementing Local Government Code of 1991
(RA 7160):
Local water districts
Cooperatives duly registered under RA 6938,
otherwise known as the Cooperative Code of the
Philippines
Non-stock and non-profit hospitals and educational
institutions
Printer and/or publisher of books or other reading
materials prescribed by DECS (now DepEd) as
school texts or references, insofar as receipts from the
printing and / or publishing thereof are concerned.