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Economics
Economics
- Study of how society choose to use the scarce resources provided by previous generation
OPTIMAL METHOD OF PRODUCTION Use more abundant resources and less scarce resources
LABOR INTENSE TECHNOLOGY utilizes human labor than machine
CAPITAL INTENSE TECHNOLOGY utilizes more machine than human labor
Resources categories
1. LAND includes all natural resources
2. LABOR consists of physical action & mental activities to produce goods and services
3. CAPITAL man made-aid in production
4. ENTREPRENEURIAL ABILITY - combines land, labor & capital to make them more productive
BRANCHES OF ECONOMICS:
1. MICROECONOMICS concern with the behavior of individual units, households, factors of production
& firm
2. MACROECONOMICS concern with the economy as whole
MICROECONOMICS MACROECONOMICS
Individual decision making Economy as whole
Individual prices of goods & services general//overall price level
Individual income National/total income
Individual consumption/expenditure Total consumption/expenditure
Individual output Total output (GDP)
Number of people hired/fired in a particular area or region Total employment & unemployment
It examines the tree It sees the forest
DEMAND SCHEDULE
- Table showing the relationship between price and the corresponding quantity demanded
DEMAND CURVE
- Graphical representation of demand schedule
Characteristics
1. Depicts the situation of a given period of time
2. Demand curve slopes downward
LAW OF DEMAND
- Other things equal, as price falls, the quantity demanded rises, and as the price rises, the quantity
demanded falls
- There is a negative or inverse relationship between price & quantity demanded
Validity of law of demand:
CETERIS PARIBUS = all else equal; all other things remain constant
SUPPLY
- Schedule or a curve that shows the various amount of a product that producers are willing and able to
make available for sale at each of a series of possible prices during a specific period of time
INFLATION increase in the overall price level. It happens when many prices increase simultaneously
DEFLATION decrease in the overall price level
HYPER INFLATION
- period of very rapid increase in the general price level
- It happened when price level increase is more than 3 digit rate annually
- Uncontrollable inflation
2 types of Inflation
A. Demand pull
inflation happens when the increase in aggregate demand grows faster than the increase in aggregate
supply which creates shortage of supply
excessive demand relatively to supply of goods
inability of producers to immediately increase supply
B. Cost- Push
Rising price in terms of per unit production costs
Nominal Income
- number of dollar received as wages, rent, interest and profits
Real Income
- measure of the amount of G&S that nominal can buy
- it is the purchasing power of nominal income
- measurement of standard of living
BENEFITS OF INFLATION
1. Those with flexible incomes
2. Gain to debtors
HURT BY INFLATION
1. Fixed-Income receivers
2. Savers
3. Creditors
REDUCING INFLATION
1. Identify which type of inflation. Each type needs a different response
2. Control the money supply & the government tendency to overspend
3. Avoid too much politicking
Rule of 70 calculate the number of years requires for a doubling of the price level