Chapter 1

Economics Agriculture Production

 social science concerned with man’s  production on form like planting and
problem of issuing scarce resources to harvesting
satisfy unlimited wants. Economic Resources
Adam Smith  thing need to carry on the production of
 father of economics good and service/ factors of production
 stated “an inquiry information the nature  Land
and cause of the wealth of nation”  natural resources given by or
Basic Terms in Economics found on nature
Goods  earn rent
 yields satisfaction to someone  less supply of land the higher
Consumer Goods the rent to paid
 goods yield satisfaction directly just like soft  Labor
drink  Human effort covers wide
Capital Goods range of skills
 goods used in the production of other  Earn income/wages- the
goods and services return on the use labor
Essential Goods  Supply of labor in a country
 if they are used to satisfy the basic needs of dependent on its population
man such as food, shelter and medicine  Capital
Luxury Goods  Man made goods used in the
 those goods man may do without but are production of good and
used to contribute to his comfort and well services
being  The nation capital is
Economic Goods dependent on its level of
 goods which is useful and scarce SAVINGS- which refers to
Good is Free part of person income which
 satisfy everyone without paying it is not spent
Production  Earns from capital is
 involve information of a commodity such as INTEREST
the conversion of leather into shoes
 Types of Economic System
 Entrepreneur 1. Traditional Economy
 Classified as labor but not  Basically a subsistence economy
ordinary labor  Produces everything that it
 Person combines economic consumes
resources for use in  Carried on in the method used by
production of goods and forefather
services  Production decision is based on
 Entrepreneurship- economic customs and tradition.
goods that command price 2. Command economy
 Earned PROFIT  Owned by the government

Resources Payment  Men who dictate what, how and for

Land Rent whom to produce

Labor Wage/ Salary  Answers to economic problems are
Capital Interest dictated by the government.
Entrepreneurship Profit 3. Market system
 Privately own
 System depend on prices set by the
THE NEED TO CHOOSE
condition of demand and supply
Scarcity
 Competition is supreme
 Refers to the limitation that exist in
 Deals with the economic problems
obtaining all goods and services that people
by considering consumers’ choice.
want
 Goods Market-
 Kakulangan
 Resource Market
 Results on economic problems
4. Mixed economy
 What to Produce
 What to produce and how to
 How shall goods produce
produce are answered
 For whom shall goods produce
predominantly through the price
mechanism, and modified through
government intervention in the form
of direct controls, taxes, ad
subsidies.
Opportunity Cost CHAPTER 2
 When one makes a choice there is Household
always an alternative that has to be  Basic consuming unit
give up Firm
 The value of the alternative is given  Basic producing unit
Society’s Technological Possibilities Production
Inputs  The use of economics resources in the
 Refers to commodities or service used to creation of goods and services
produce the good or service Employment
 Raw materials]  The use of economic resources
 It consist of Consumption
 Land-gift of nature  Goods ready for use
 Labor- human resources STOCK AND FLOW VARIABLES
 Capital- man made durable goods
Output Flow
 Refers to useful goods and services resulting  Quantity measured over a particular period
from production process of time
 Finished product  Example : Income
Stock
The Tools of Economics  Quantity measured as a given point in time
Positive Science Wealth
 Deals with what it is  Is anything of valued owned
Normative Economics  Example: stock
 Deals with what should be Raw materials
 Unprocessed goods
MACRO AND MICRO ECONOMICS Intermediate Goods
Macroeconomics  Goods in process
 That deals with aggregates Final Goods
 Study of economy as a whole  Consist of the finished products
Microeconomics
 Studies economics as a part
Outflows Dry market
 Decrease economic activities  Shoes and clothes
 Examples Labor Market
 Savings – hindi nag cicirculate ang  Workers offer their service and employee
pera Stock Market
 Taxes- because of high tax  Commodities traded consist securities of
 Imports corporation
Inflows Chapter 3
 Increase economic activities Demand
 Example  Willing and able to buy

 Investment  Quantity demanded = Price

 Government Expenditure  Demand = Non Price

 Exports Demand Curve

Monetary Policy  Inverse/indirect relationship

 Includes savings, investment  When demand increase the price decrease

Fiscal Policy  Movement along the curve

 Tax and government expenditure  Downward slope

Trade Policy Substitute Goods

 Imports and Exports  Some benefits the same goods coffee/tea

Complementary Goods

“Limited Resources Unlimited Wants”  Goods that cannot stay without fair
 Phone and Charger

Centeris Paribus Non Price Determinants

 All other things held constant 1. Size of Population

Law of demand and supply  Increase on population increase

 Most important law in economics demands results to demand curve to

 System of exchange in the circular flow the right

Market 2. Quality of Product

 Interaction between buyer and sellers for 3. Taste and Preference

trading exchange  Greater preference for goof will lead

Wet market him to buy more of it even price

 Fish pork chicken unchanged
 4. Expectation of Future Price
 Consumes who expects increase
future income or future prices
increase trends to buy more at the
present time
5. Promotion or Advertisement
6. Religion, customs, tradition
7. Fashion Trend
Demand Curve
Pagmataas and demand to the right
Pagmababa ang demand to the left
Supply
 Sellers willing to sell and able to sell or
produce
 POV Producing Unit
Supply Curve
 When supply increase then price increase
 Direct relationship
Upward sloping
Hoarding
 Hinohold para tumaas and presyo bago
ipagbili
Non Price Determinant
1. Cost of Production
 Expense incurred to produce the
goods
 Increase in cost will normally result
in a lower supply of the goods
2. Availability of Raw material
 Shift to the right if increase if
scarcity- shift to the left
3. Number of Firms on Market
4. Technology
 Increase output rightward shift
 Obsolete technology- leftward shift
5. Process Goods
6. Tax and Subsidy- tax increase supply
decrease; subsidy increase supply increase
tax decrease supply increase, subsidy
decrease supply decrease
7. Price Expectation
Market equilibrium
 Kung saan nag meet dun equal
Shortage
 Demand increase; supply decrease
Surplus
 Supply increase; demand decrease
Elastic
  Luxury  FE- factor contribution
 Elasticity coefficient is greater than 1. abroad
ii. RGNP= Current GNP * 100
P CPI
 CPI- Customer Price Index
Q iii. GNP per Capita= GNP
Inelastic Total Population
 Basic needs  Kinds of GNP
 Elasticity coefficient is less than 1.  Current GNP- using current inflation
 Real GNP- effects of inflation are removed

Personal Income
Savings+ Income + Investment
Disposable Income
Unitary
Personal Income- Personal Tax
 Change in quantity demanded is equal to
Discretionary Income
the change in price.
Personal income- Personal Tax- Consumable
Chapter 4
Expense
Indicator for National Revenue
Gross Domestic Product
Gross National Product
 Made in Philippines
 Market value of all final products produced
by the resources of the economy during GDP= C+I+G+(X-M)
specified period of time C= Consumption
 Gawa ng pinoy I= Investment
 Limitations: G= Government Spending
 Exclude Imported Goods X= exports
 Final Stage of Production M= imports
 Finished gods GDP per Capita = GDP
 Time when GNP and GDP computed Total Population

 Kung kaylan ginawa dun ibibilang

 To avoid double accounting
 Formula of GNP
i. GNP=GDP+FE CHAPTER 5
Consumption
  is the act of using goods and services to debts and reduce what the economy
satisfy human wants owes to past savings
 It is not the monopoly of households since Factors of Consumption
businesses and the government also uses 1. Framework
goods and services to attain some needs.  Personal consumption is household’s
Household consumption realized demand to satisfy current
 Directly satisfies human wants and one of needs.
the determinants of national factor income. 2. Taste or Preference
 Depends on how the product
satisfies one’s desires.
Business consumption 3. Population
 Does indirectly inasmuch as business  Determines consumption needs and,
activities provide the households with therefore, affects consumption
economic income to meet consumption expenditures with a given income.
expenditures. 4. Income- the level of income can increase
The Consumption Function with more infusions in the circular flow.
1. Consumption and Income 5. Price Level- individual product demand is
 Y=Cb+ C inversely proportional to price due to the
 Y= factor Income change in purchasing power and
 Cb= Borrowings from economy substitution with other products.
stock savings 6. Innovation and Promotion- can expand the
 C= Change in Consumption line of consumers’ choice and extend the
2. The Multiplier Concept influence of demand factors on
 The process of generating income consumption and propensity to consume
through the circular flow exchange income.
between the households and the 7. Engel’s Law and the Compositional Change
firms. in Consumption Expenditure- the name
 Multiplier coefficient- measures the Ernest Engel in the 19th century found a
average number of times every peso relation between the level of family income
of inflow circulation and the composition of its consumption
3. Consumption and Savings spending.
 Generating more income means Theories in Consumption
savings outflows to retire more  KEYNESIAN THEORY
 o John Maynard Keynes
o Current real income is the most
important determinant
consumption in the short run
CHAPTER 6
Investment
 Money committed or property acquired for
future income
 To mean additions to real stock capital
 Fixed Investment – is spending on new
capital, machinery, plat
 Working Capital –is spending on stocks
inventories of Finished Goods and Raw
materials
Types of Investment
 Traditional Investment
 Putting money into well-known asset
with the expectation of capital
appreciation
 Alternative Investment
 Hedge fund, managed futures, real
states
Investment Expenditure
 Is a capital spending mainly derived not
from current income and consumption but
from accumulated savings and other
sources external to the circular flow.
 It also simply assumed as an exogenous
component of National Income. (pre-
payment of long run consumption)
 Investment increases the capital stock and
the expenditures for which generate income
as inflows to the system.
Consumption Expenditure
 Is spending on current consumption or
of consumption of non- durable goods.
 Business and household investments tend
to increase the economy’s stock of capital
and total output; whereas, depreciation has
the opposite effect as it represents capital
consumption.
Investment and the Stock Adjustment Process
 The capital stock is not a headcount but
rather the aggregate production capacity of
existing capital goods in the economy which
can diminish due to usage and depreciation.
Investment Demand Determinants:
1. Interest Rate
 Investment demand is inversely
proportional to the interest rate
level with other factors as constant
(ceteris paribus) resulting in an
investment demand curve that is
downward sloping.
2. Acceleration Principle
 The level of investments is a
function of desired changes in
output.
3. Innovations
 long- run factor which can shift the
investment demand curve.
 Joseph Schumpeter describes
innovation as the introduction of an
unfamiliar product and untested
technology.
4. Profit
  The basic reason why a business
invests and therefore, profit trends
influence business investments in
the long- run. Economic
happened in 1984.
5. Expectations
 delves into underlying changes to
anticipate turning points in the
business environment and decides
at present the magnitude and type
of investment he should make.
Savings
 Money in bank
 the unspent portion of income during the
period intended for spending
 Consuming less out of a given amount of
resources in the present in order to
consume more in the future
 Gradually diminishes the inflow that the
system circulates and generates
income.
 It is only when income is fully generated
that the debt balance is reduced to zero.
Types of Savings
 Personal Savings
 What people save, avoiding to
consume all their income
 Remains on bank accounts
 National Savings
 Personal savings plus the business
saving and public savings
 Business Savings – measured
by the value of undistributed
corporate profits
crisis  Public Savings tax revenues
less public expenditure
Savings- Investment Equilibrium
 Implies that increasing, decreasing or
maintaining the level of investment
expenditure will respectively increase,
decrease or maintain the level of income
and savings assuming ceteris paribus.
Determinants of Savings:
1. The price level of which can affect expenditures
and savings.
2. Population growth which may change the level
of savings depending on the wellbeing of the
economy.
CHAPTER 7
Demand estimation
into  Aggregate supply can be met by aggregate
demand.
Consumption
 Is the largest component expenditure which
can account to about 65 to 70 percent of
GNP? There is a close relationship of
aggregate consumption expenditure to the
level of disposable income.
Consumption Function
 Schedule that relates consumption to
disposable income.
 Disposable income is measured on the
horizontal axis; consumption is measured
on vertical axis.
John Maynard Keynes Surplus budget- it means that the government
 aggregate real consumption is a function of should spend less than its budget.
the aggregate level of income (The General Major macroeconomic effects of government
Theory of Employment, Interest and expenditure and tax policy:
Money) 1. Expenditure impact
INCOME= CONSUMPTION + INVESTMENT 2. Financial impact
Investment is the most volatile of the major 3. Supply impact
components of aggregate expenditure.
Multiplier the number of times money has changed
hands and generates income.
Full employment equilibrium- is an ideal objective
because at that level of income, there is no
available and useful resource that is wasted.
Inflationary gap- aggregate demand would exceed
equilibrium income leading to pressures for higher
prices.
Deflationary gap- aggregate demand would fall
short of equilibrium income leading to less income
produced in the economy.
Fiscal Policy- when the government uses its powers
to influence total spending either directly by
changing its purchases of goods and services or
indirectly by altering the disposable income of
persons through changes in the level of taxation or
transfer outlays.
Deficit budget- during periods of deflation or
recession, economic policy dictates deficit budget.
It means that the government can or should spend
more than what it collects through the taxes.
Tax cuts- taxes imposed in person or in businesses
are cut.
Inflationary period- economic policy dictates a
surplus or balanced budget.