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Midterm Notes Eco
Midterm Notes Eco
Midterm Notes Eco
*highly developed
* less developed
National Income- defined as
a measure of the money
value of the total flow of
goods and services produced
in a economy over a specified
period of time.
Factors causing variations in National
Income
1. population
2. investments
3. saving
4. consumptions
Investment- process of
spending an amount with the
end view of getting a profit.
GNP GDP
Production is Production is
within the within the
Philippines by Philippines by
Filipinos Filipinos
Production is Production is
outside the within the
Philippines by
Philippines by
GDP – Expenditure Approach
It involves calculating the sum of all the
expenditures incurred in the production of
final goods.
GDP=W + I + P + R
Given
W = P200
I = P20
P =P15
R=150
Elasticity is a measure of
how much buyers and
sellers respond to the
changes in market
conditions
The Elasticity of Demand
Consumers usually buy more of a
good when the prices are lower,
when their incomes are higher,
when the prices of the
substitutes for the good are
higher, or when the prices of the
complements of the good are
lower.
The Price Elasticity of Demand and Its
Determinants
The law of demand states that a
fall in the price of a good raises
the quantity demanded.
The price elasticity of demand
measures how much the
quantity demanded responds to
a change in price.
Demand for a good is said to
be elastic if the quantity
demanded responds
substantially to changes in
price. Demand is said to be
inelastic if the quantity
demanded responds only
slightly to changes in price.
The price elasticity of
demand for any good
measures how willing
consumers are to buy less of a
good as its price rises. Thus,
the elasticity reflects the
many economic, social, and
psychological forces that
Inelastic is an economic term
referring to the static quantity of a
good or service when its price
changes. Inelastic means that when
the price goes up, consumer’s
buying habits stay about the same,
and when the price goes down ,
consumers’ buying habits also
remain unchanged.
Elastic is a term used in
economics to describe a
change in the behavior of
buyers and sellers in
response to a price change
for a good or service
Three general rules that determines
the price elasticity of demand.
1. Availability of close
substitutes
* the more substitutes, the more elastic the
demand will be
Demand is:
< 1 Inelastic
> 1 Elastic
= 1 Unit Elastic
= 0 Perfectly Inelastic
Costs of Production
Identify the costs at Mr. A’s Cookie
Factory
TC=FC + VC
Business Organization
1. Sole Proprietorship
- one owner or
proprietor
- oldest and simplest
Guidelines
1. Register the business name
with DTI
2. Pay municipal/city licenses
3. Apply for a VAT or Non-VAT
number
4. Register with the BIR, the
books of accounts and the OR to
be used
Advantages
1. Easy to form (government
requirements is minimal)
2. Decisions can be easily be
made
3. Financial operations are
simple
Disadvantages
1. Very limited capacity to raise
capital
2.Unlimited liability that
creditors can go after an owner’s
personal assets
3. Limited capital to expand
2. Partnership
* association of two or more persons
who bind themselves to put up a
business and contribute money,
property or industry
* agree that profit will be shared
among the members based on its
capital share
* basic requirement- contract
agreement among partners
Advantages
1. Easy to form- less legal requirements
2. Flexibility of operations
3. It is expected to be operated efficiently
“two heads are better than one”
4. Partners are expected to have a
greater interest in the operation of
partnership because of unlimited
liability
Disadvantages
1. Unlimited liability for
partnership debts
2. Limited existence since it can
be dissolved
3. Limited ability to raise capital
4. Net income is subject to tax
whether distributed or not
3. Corporation
* artificial being created by
operation of law
* has the right of succession
* its powers and properties
expressly authorized by law or
incident of its existence
* has legal personality or a juridical
person with personality separate
from its individual stockholders or
power to transact business
* acquire and possess property
* enter into contracts
* bring civil or criminal actions like
natural person does
* Its personality starts on the date
of issuance of Certificate of
Incorporation by the SEC
Nature and Components of a
Corporation
1. Stock Corporation – profit
–motivated organization
where its capital stock is
divided into shares and its
earnings may be distributed
to shareholders as dividends.
Ex. San Miguel Corporations,
Procter and Gamble
2. Non-Stock Corporation- non profit
organization where there is no dividend
distributed to its members, trustees or
officers.
Any income derived from its operation
may be used for the furtherance of the
purpose for which the corporation was
organized.
Common types: charitable, religious and
educational institutions, professional
organizations
Requirements
1. at least 5 but not more than 15
members
2. all of legal age
3. majority of whom are residents
of the Phils
4. each member must subscribe to
at least one share
Advantages
1. shareholders are not liable for any debts
incurred by corporation (only their equity)
2. can raise additional funds by selling
shares of the corporation
3. may deduct cost benefits its provides to
employees and officers
4. may elect treatment as to taxes
5. Perpetual life (long existence
6. Ownership transfer
Disadvantages
1. Requires more time and money in
forming this business structure
2. Government agencies monitor
corporations which result in added
paperwork
3. Corporate profits may subject to higher
taxes or subject to double taxation
4. Independent Management
Cooperatives
- private business organization
that is owned and controlled by
the people who use its products,
supplies or services.
* It is for sustainable interest of
its members.
* Registration (CDA)
Advantages
1. Easy formation
2. Limited liability
3. Perpetual Existence
4. Social Service
5. Open Membership
6. Tax Advantage
7. State Assistance
8. Democratic Management
Disadvantage
1. Lack of Secrecy
2. Lack of Business Acumen
3. Lack of Interest
4. Corruption
5. Lack of Mutual Interest