TOPIC 1
There are 3 strands in the development of the
definition of Economics:
 Study of Wealth
Wealth-getting and wealth-using implies
that the motivation of the process of
wealth accumulation is the utilization of
wealth for the individual’s satisfaction
and society’s welfare. (Production and
consumption)
 Study of Making choices
Decisions based on alternative choices.
Opportunity cost-foregoing or sacrificing
the benefits that would have been
derived from alternatives that were not
selected.
 Study of Allocation
Allocation of scarce resources to answer
the unlimited human wants.
There are 5 elements in the definition of
economics:
1. SOCIAL SCIENCE – Study of the
society and the manner in which people
behave and influence the world around
us
o SCIENTIFIC METHOD – A method of
inquiry from identifying a problem,
proposing alternative tentative answers
or hypotheses, testing the tentative
answers to question or problems at
hand, gathering and treating the data,
and answering the question through the
conclusion
o HUMAN INTERACTIONS – aspire to
preserve group as a social unit, to make
it stable, promote growth, expansion and
development.
o MATERIAL WEALTH – how this wealth
available to people with minimum
difficulties, and its expansion.
o OTHER SOCIAL SCIENCES – Political,
behavioural and history
2. RESOURCES – Products of nature,
qualities of individuals, and man-made
things which are used in producing
goods or services
NATURAL RESOURCES – can
directly provide goods for current
consumption, or use as raw materials for
production of other goods
HUMAN RESOURCES –
qualities of human beings that may
include labor, intelligence, health,
education, talents, and many more.
PHYSICAL RESOURCES –
man-made resources that include
various types of buildings, equipment,
technology, bridges, factory plants, and
other physical infrastructure that can
provide present and future satisfaction
RESOURCES ARE LIMITED
- Difficulties in production
- Competing uses of resources
3. HUMAN NEEDS AND WANTS
Human wants is a differentiated human
needs rather than luxuries. This is being
accounted by the way consumers
answer their basic needs.
4. SCARCITY – Limitation of resources to
answer expanding human wants.
Scarcity is a general characteristic of resources
in the light of its competing uses that may arise
from the rapid expansion of human wants.
Shortage is a condition when the supply of
good, service, or resource is not enough to
meet the demand.
5. ALLOCATION – A mechanism of
distributing limited resources to meet
expanding human wants
How can we treat the problem of scarcity?

o Temper or slowdown the expansion of

their human wants in the light of limited
resources.
o Hasten the expansion of limited
resources in the light of expanding
human wants.
o Combination of two alternatives.
MECHANISMS OF ALLOCATION
3. Tradition Process
- Practiced in indigenous communities
where life is less complicated and the
simple needs of the society can be self-
produced
- Roles of social structure, norms, belief,
and value system are important

1. Market System ECONOMICS – A social science that deals

MARKET – A state when buyers and sellers with the allocation of scarce resources to meet
transact on the purchase or sale of goods and the unlimited human needs and wants.
services
ECONOMICS as an Applied Science
Consumer considers the PRICE as an indicator o Accountancy – useful in making
of his satisfaction/benefit/utility in the purchase business decisions in terms of wealth.
of a good or service. Therefore, a higher price o Marketing – understanding the
reflects higher utility while a lower price implies behaviour of consumers to expand
lower utility. market share
o Finance – formation of excess funds for
3 Basic economic questions: investment purposes through concept of
o What to produce? saving rooted on the opportunity cost of
o How to produce? present consumption.
o For whom to produce? o Management – optimal combination of
resources.
2. Command System
- The state or agency of government
maybe in charge in the allocation of
resources by using its political power in
answering the basic economic problems
- Temporary alternative mechanism in
abnormal times
- Used in times of calamities, disasters, or
national emergencies

Example:
Typhoon destroyed crops, damaged
houses and business establishments.
The government will:
o Ration commodities
o Impose price control
o Confiscate resources
 levels of satisfaction measurable

TOPIC 2 VARIATIONS IN BENEFITS AND COSTS DUE

ANALYSIS OF BENEFITS AND COSTS TO THE STAGE OF RECOGNITION
RECOGNITION
Decision Making Spatial Dimension Temporal Dimension
The decision maker The decision maker
Influenced by motivations may not be aware of may not be aware of
the social or public the proximity of
effects of his actions benefits and costs in
BENEFITS COSTS terms of time
Derived Incurred Level of his Level of his
awareness are more awareness are
Level of satisfaction Sacrificed money,
pronounced on readily realized on
time, resources, and
private benefits and present benefits and
other goods
costs costs
Implicit to others, Implicit benefits and
- We make sure that our net benefits be
explicit to him costs are future
positive and as much as possible will because he benefits and costs
yield to the highest net returns (surplus, experiences direct
net satisfaction, net returns, profit) satisfaction
- We aspire to have maximum net Social benefits –
returns/benefit spill over effects that
the entire community
MARGINAL BENEFITS AND COSTS – can enjoy
additional benefits and costs that will be the Social costs –
basis of whether to continue or not whatever spillover effects that
you are currently doing may put a burden on
the community at
large
Positive Marginal Benefit
Marginal Benefit > Marginal Costs
VARIATIONS IN BENEFITS AND COSTS DUE
(Meaning, benefits can still be increased
TO THE STAGE OF VALUATION
through increase in consumption)
VALUATION
Spatial Dimension Temporal Dimension
Negative Marginal Benefit
Individuals may Individuals may have
Marginal Benefit < Marginal Costs
have different different valuation of
(Meaning, benefits are declining) valuation of social present and future
impacts benefits
Maximum Net Benefit Some individuals Some individuals
(Optimal Decision) have low valuation have low valuation on
Marginal Benefit = Marginal Costs on social benefits future benefits and
(Since total benefits are no longer increasing, it and costs costs
implies it has reached its maximum level) Present benefits are
currently and directly
BENEFITS AND COSTS enjoyed that’s why it
EXPLICIT IMPLICIT is more significant
Obvious or showing Hidden than benefits that are
Expressed in No monetary yet to be realized in
monetary terms or expense, non- the distant future
TOPIC 3
Basic Economic Problems Confronting the
Development of the Philippines in the 21st
Century
• Poverty and unequal distribution of
Income
2 Categories of Poverty:
- Absolute Poverty
o Lack of income to buy the basic
needs for living
o Measured in terms of Poverty
threshold and Poverty incidence
Poverty Threshold - income needed
to purchase minimum nutritional
requirements and other basic
necessities for daily survival
Poverty Incidence – proportion of
households in the country with family
income lower than the poverty line
- Relative Poverty
 Refers to the structure on how the
national income is being distributed
among households in an economy
 Measured in terms of Lorenz curve and
Gini coefficient
Lorenz curve – shows the share of the
various household groups on the total
national income
Gini coefficient – a measure of income
inequality derived from the Lorenz curve
• Demographic change
• Low investment in Human Resource
development
• Weak infrastructure
• Pursuing food security
• Slow adoption of modern technology
• Environmental sustainability and
country’s development thrust
TOPIC 4
ANALYSIS OF DEMAND
DEMAND - is the willingness and capacity of a
consumer to buy a commodity at alternative
prices at a given point in time.
DEMAND SCHEDULE - Tabulation form of the
quantity demanded at a given price.
DEMAND CURVE – a schedule of willingness
and capacity of a consumer to buy a
commodity at alternative prices at a given point
in time other things held constant; Graphical
illustration of the demand schedule
LAW OF DEMAND – an economic law that
states as the price of a good or service
increases, consumer demand for the good or
service will decrease (inverse/indirect
relationship), other things held constant
(ceteris paribus)
CETERIS PARIBUS – other things held
constant; other factors that may affect the
demand for the commodity are not changing
and the only factor that influences the level of
demand is the price only
- Downward sloping demand curve
- Indirect relationship between the price of
commodity and the quantity bought in a
demand curve
INCOME EFFECT – refers to the modification
of the consumption of a commodity due to the
change in the purchasing power of the
consumer resulting from a price change
SUBSTITUTION EFFECT – the decision of a
consumer to substitute an expensive good with
cheaper goods when there is a price change
PRINCIPLE OF DIMINISHING MARGINAL
UTILITY – as a buyer continues to consume a
good, his total satisfaction or utility increases,
however, the additional or marginal satisfaction
decreases as a buyer consumes an additional
unit of good
OTHER FACTORS AFFECTING THE
DEMAND OF A COMMODITY
(DETERMINANTS OF DEMAND)
1. Income – the income of the consumer
influences the capacity to purchase
2. Prices of Other Commodities – the
influence of related goods
a. Substitute
b. Complementary
3. Expectation – prospect of what is going
to happen to the price can influence the
demand of a commodity
4. Taste – preference that may influence
the demand for a commodity
Factors affecting taste:
a. Cultural values
b. Peer pressure
c. Power of advertising
5. Market – size and characteristic of the
population
CHANGES IN DEMAND CURVE
 Movement along the demand curve –
refers to the change in Quantity demand
resulting from the change in the Price of
the commodity
 Shift In the demand curve – changes
caused by any of the other factors
beside the price of the commodity.
TOPIC 5
LAW OF SUPPLY
SUPPLY – refers to the quantity of goods that
producer or seller is willing to sell at alternative
prices at a given point in time.
SUPPLY SCHEDULE - Tabulation form of the
different quantities of goods seller is willing to
sell at various prices.
SUPPLY CURVE – a schedule showing a
direct or positive relationship between the price
of commodity and level of output that the seller
is willing to supply at a given point in time other
things held constant. Graphical illustration of
the supply schedule
LAW OF SUPPLY – an economic law that
states an increase in price results in an
increase in quantity supplied, other things held
constant (Ceteris Paribus)
CETERIS PARIBUS – other things held
constant; other factors that may affect the
supply of the commodity are not changing
- Upward sloping supply curve
- Direct relationship between the price of
commodity and the quantity supplied in
a supply curve
OTHER FACTORS AFFECTING THE SUPPLY
OF A COMMODITY (DETERMINANTS OF
SUPPLY)
1. Price of Production Input – value
added to raw materials through the
process of production
a. Intermediate Input – raw materials;
these are still going to be processed
or transformed into higher levels of
output
b. Factor Input – processing or
transforming input
2. Taxes – monetary expense paid to the
government
3. Technology – the manner in which
factor inputs process intermediate inputs
is done through technology.
Improvement or discovery in technology
4. Expectation – anticipation on what is
going to happen on the price of the
commodity
VARIATIONS IN THE UNIT COST OF
PRODUCTION – All are competitive and
earning some profit at the current price
because unit cost are lower than the current
market price. The inefficient producers at lower
price have become efficient and competitive as
the price of the commodity increases.
PRINCIPLE OF DIMINISHING MARGINAL
PRODUCTIVITY AND INCREASING
MARGINAL COSTS – as the production of a
good increase, not only does its total cost
increases but the additional or marginal cost
increases as well. As a fixed factor input is
mixed with a variable factor input, it will
increase total production but will increase it at a
decreasing rate.
CHANGES IN SUPPLY CURVE
 MOVEMENT ALONG THE SUPPLY
CURVE - refers to the change in
Quantity supplied resulting from the
change in the Price of the commodity
 SHIFT IN THE SUPPLY CURVE -
changes caused by any of the other
factors beside the price of the
commodity.
TOPIC 6
DETERMINATION OF PRICES OF
COMMODITIES (Analysis of Demand and
Supply)

When the buyers and sellers transact in market

they agree on the price of the commodity and
the amount to be sold and bought. This agreed
price is called the EQUILIBRIUM PRICE.
 When there are disagreements among
buyers and sellers on the price and
quantity, this situation is called the
DISEQUILIBRIUM.

 Price higher than equilibrium price is

excess supply
 Price lower than equilibrium price is
excess demand

Changes in Equilibrium Price and Output
 Shift of the Demand curve to the
Right
Due to high demand, there is an EXCESS
DEMAND.
Competition will put pressure to price resulting
to PRICE INCREASE.
 Shift of the Supply curve to the Right
Due to high supply, there is an EXCESS
SUPPLY
To eliminate, suppliers will compete through
PRICE DECREASE.

 Shift of the Demand curve to the Left

Due to low demand, there is an EXCESS
SUPPLY
To eliminate, suppliers will compete through
PRICE DECREASE.
  Market Equilibrium with a shift in
Demand to the Right and a Supply Shift

 Shift of the Supply curve to the Left

Due to low supply, there is an EXCESS
DEMAND
Competition will put pressure to price resulting
to PRICE INCREASE.
to the Right (Equal Proportion)
Market Equilibrium with a shift in Demand to
the Right and a Supply Shift to the Left
(Unequal Proportion)

Simultaneous Changes in Demand and TOPIC 7

Supply
Other Applications of Supply and Demand
Analysis

Price Ceiling – As a measure to stabilize the

prices of basic commodities during unusual
periods the government may impose a price
control measures on basic commodities. This
means that the price commodity cannot go
higher than the mandated price ceiling.

Price Floor – Another government measure to

arrest the price adjustments in the market is
the imposition of a Price floor. This means that
the government sets the price of a commodity
and it cannot go lower than the set price meant
to protect certain actors in the market.

Applications in the Labour Market – Analysis
of demand and supply can be used in the
determination of the wage rate in the labour
market. These major actors in the labour
market are motivated by the changes in the
price of labour which is indicated by the wage
rate.
 Minimum wage as price floor
Applications in the Foreign Exchange
Market – Another application is the
determination of exchange rate. Exchange rate
is the price of a foreign currency.
 Labour Migration and the Overseas
Filipino Workers
power to determine the price and the level of
output in the market.
MONOPOLY COMPETITION - Market
structure characterized by a single seller in the
market.
OLIGOPOLY - Market structure characterized
by a few sellers producing similar and
differentiated products.
MONOPOLISTIC COMPETITION - Also called
the Imperfect competition. It is competitive
because it has numerous sellers and buyers
that can freely enter and leave the market. It is
monopolistic since the product being sold in the
market although similar can be differentiated by
the seller through various means of advertising
and packaging.
Market Structures and Implications for
Entrepreneurs

Determination of Rent – Another application  Investment and Interest Rate

is the determination of rent which is the price  Rentals and the Cost of Business
for a fixed factor input. Rent refers to the price Operations
of using land, a fixed input, in the process of  Minimum Wage
production.  Taxes
TOPIC 8
CONTEMPORARY ECONOMIC ISSUES
FACING THE FILIPINO ENTREPRENEUR
MARKET- place or state where transactions
are made between sellers and buyers.
MARKET POWER- the ability of any actor or
group of actors in the market to significantly
influence the price in the market and the
quantity to be produced or sold.
The ability to have market power and enhance
interest of the actors will depend on the
structure of the market.

4 CLASSIFICATIONS OF MARKET
STRUCTURE
PERFECT COMPETITION- Market structure
where no single seller or single buyer has