SS 203-4

Basic Economics with Taxation

and Agrarian Reform

by:

DR. VICENTE S. BETARMOS, JR.

First Semester 2020 – 2021
Course No. SS 203-4
Course Code Sed-4-1-2, Sed-4-2-2,
Descriptive Title Basic Economics with TAR
Credit Units 3
School Year/Term First Semester 2020-2021
Mode of Delivery module

Name of Instructor/ Professor Vicente S. Betarmos, Jr.

Course Description
This course is all about the basics of economics and its
relevance to the changing needs of the time. The students will
be exposed to different theories in economics and principles
in order to widen their knowledge in suggesting solutions to
some problems that affect the economy. On the other hand,
this course gives special emphasis on Taxation and Agrarian
Reform. The knowledge and information gained in the
conduct of study is expected to abreast their general
understanding of the society and the government
relationship.

Course Outcomes At the end of the course, the learners should have:

1. Applied economic concepts like economics in

general and the study of consumer behavior
2. Described the models of market and business
organization
3. Developed an understanding on the issues and
problems related to inflation and national income
4. Determined and computed tax returns
5. Traced the economic history of agrarian reform the
Philippines
6. Appreciated the role of cooperatives in economic
development
SLSU Vision A high quality corporate University of Science, Technology
and Innovation.
SLSU Mission SLSU will
a. Develop Science, Technology, and Innovation leaders
and professionals;
b. Produce high-impact technologies from research and
innovations;
c. Contribute to sustainable development through
responsive community engagement programs;
d. Generate revenues to be self-sufficient and
financially-viable
Student Guide to Navigate the Module:

1. This is a self-pacing module that you can work on at your convenient time within
the term. The lessons are arranged according to the expected outcomes and you are
expected to achieve the task from the first lesson to the last. Module 1 consist of 3
lessons.
2. You are required to answer the Pre-test before going over to the lessons.
3. Answer the activities given before every lesson in each module.
4. The module is given for you to read, learn and enjoy.
5. Learning Tasks are part of the lessons has an application or assessment of how
much you have learned, thus all of it should be answered.
6. Answer the Post Test at the end of all the lessons.
7. Pre-test and Post Test can be answered using the module or in the online platform.
8. Do not hesitate to ask questions through Facebook Messenger (Jhunbet Sas) or
through our GC made for this purposes.
 Module 1
Introduction to Economics
Module Outcomes:
After navigating the module the students must have:
 Applied economic concepts like economics in general and the study of consumer
behavior
 Described the models of market and business organization
 Developed an understanding on the issues and problems related to inflation and
national income

Introduction

This module combines introductory Economics and Taxation and Agrarian Reform. This
also include cooperative as a fundamental activity for development. In order to make this module
easy to follow, it is divided into 2 modules with respective lessons in it.

Module 1 provides the salient features of economics in general, concepts, theories,

consumer behavior, production, cost, business, and market. It also include developmental issues
affecting national economy to grasp students’ general understanding.

Key to Remember

Economics Scarcity Elasticity

Demand Supply Production factors
Wants Opportunity cost Economic Cost
Utility Consumer behavior GNP, GDP, Consumption

Lesson 1 The Consumer Behavior

Intended Learning outcomes

At the end of the lesson you must have:

1. Explained what happened to the economy and what can be expected from the
individual economic capabilities.
2. Described the economic system
3. Analyzed the concept of demand and supply relationship

Activate Prior Knowledge:

Let’s try this!

1. What will usually happen to an economy without any economic activities?

2. What kind of economic system you think would be best for a single country?
 3. How can demand and supply affect production and distribution of goods and
services?

Acquire New Knowledge:

Direction: Jot down notes to amplify understanding!

Consumer behavior is considered as an important actor in any economic undertaking. It

plays vital role in the consumption and production of various goods and services. It can be said
that its reaction to the prices, fads, and new products stirs economic thinking among others.

Importance of Economics

Many people believed that economics is as old as Jesus Christ in the Bible. It is said, that
there was economics long before human existence. This is because, man moved to survive. For
him to survive; he needs other individuals to work harmoniously or to take advantage, of their
known inadequacy for economic survival and lifelong benefit.

Economics is a social science that deals with the proper allocation and distribution of
scarce resources for the maximum or optimum satisfaction of human wants. A noted scholar and
philosopher Adam Smith whom regarded as the father of economics define “an inquiry into the
causes of the wealth of nations.” His popular book commonly called “Wealth of Nations” became
the basis for more specific study in such area of discipline.

Likewise, there are various economists, entrepreneurs, writers and other professionals
who have defined it according to both personal experiences and the practices they have through
research and application.

Samuelson and Nordhaus define economics as the study of how societies use their
scarce resources to produce valuable commodities and distribute them among different people.

Collin viewed economics as the study of production, distribution, selling and use of goods
and services.

McConnell and Brue, economics is a social science concerned with using scarce
resources to obtain satisfaction of the unlimited material wants of society.
Colander defines economics as the study of how human beings coordinate their wants
and desires, given the decision-making mechanisms, social customs, and political realities of the
society.

The opposing realities of Economics

Within the context of economics and its definition, it can be deduced that this discipline
tries to explain opposing realties in makin1g decisions or the making of choices. These are:

Scarcity versus Unlimited wants – there seems to be scarcity of goods and services, but
consumers and users find themselves with unlimited wants.

Needs versus Wants – confusion between what you need and what you want, the quest
for comfort and luxury drives every person to look beyond their limit.
 Satisfaction versus desire – it is the quest for satisfaction and failure to realize desire
which permeates a complex of interest; for it is bounded by budget constraint. The inability to
acquire goods and services justify among other reasons due to financial limitation, time, and
conditions.
The basic problems of Economics

The quest and desire for optimum satisfaction lead people to find means and allocate limited
resources for maximum benefit. By understanding scarcity and limitation of goods and services,
a problem of economics need to be addressed. When one answers this very essence of
shortcomings, he then not complaint but rather adapt it to obtain probable benefits in the
consumption of goods and services. These are the basic questions:

1. What goods to produce?

This means identification of what needs and wants (goods and services needed)
2. How to produce the goods and how much?
This means the procedures/mechanism of providing the needed resources and
services and in what volume or quantity.
3. For whom are the goods produced?
This means who will use or consume the finished goods and services.

The division of Economics

1. Microeconomics – is the branch of economics that deals with the relationship and
behavior of consumer (household) and the firm’s economic activities. It is specific and
individualized in scope.
2. Macroeconomics – is the branch of economics that studies the whole economy e.g.
income, taxation, labor and employment, inflation, international trade, banking, etc.

Economic Systems

Every economic system regardless of how they address basic economic problems wanted
to ensure success of economy. The said economic system makes sure that economic resources
are given importance in order not to hamper the delivery of basic services for the good of the
society it serves. Within this context, each economic system aims to fulfil the following goals, as
opined by Medina (2003)

How to Judge an Economic System?

• An economic system is designed to provide goods and services to the people in a most
efficient and equitable manner.
• Therefore, it is not only a question of efficiency but also a question of equity or fairness.

Criteria in Judging a Good Economic System

1. Abundance – this refers to goods and services that individual members of society have
received. Are the people satisfied? Has the economic system eliminated poverty?

2. Growth – the growth of the economy is tangible and is measurable in terms of buildings,
houses, schools, hospitals, and factories in a given year.
3. Stability – the absence of inflation and unemployment.
4. Security – workers and employees do not lose their jobs if there is prosperity.
5. Efficiency – it means productivity. It is acquired by applying appropriate technology, machine,
material and management.
6. Justice and Equity – Is the distribution of wealth, income and power among the members of
society fair? The presence of reward and recognition is encouraged.
7. Economic Freedom – if the consumer is free to choose his food, style of his house, appliances.
Similarly, the producer is free to invest his money and decide his management strategy.

Economic Systems

1. Traditional economy – is a type of economic system that relies on their subsistence. It

is described as an economic based on the production of goods and services for private
consumption.

Characteristics of traditional economy

 Economic activity is private in nature
 Self- sufficiency and self-help mechanism
 Is afraid of development and structural changes

2. Capitalism – is an economic system where major and minor industries are owned and
managed by private individuals.

Characteristics of pure capitalism

 Promotion of individual freedom and economic decision (laissez faire)
 There is presence of strong economic competition
 Individualistic, government with less economic intervention and survival of the
fittest strategy (race to gain absolute advantage in business)

3. Communism – is an economic system where major and minor industries are owned and
managed by the state.

Characteristics of communism
 Resource allocation is managed by the state
 No freedom of choice and presence of central planning
 Products are distributed based on people’s needs set by the government

4. Socialism – is the combination of capitalism and communism economic system, where

minor industries are managed by private individuals and the major industries managed
by the government (state).

Characteristics of socialism
 Major services like water, electricity, communication managed by the state and
the not so important services are controlled by private individuals
 It is a combination of capitalism and communism as observed in the market
system
 The people decide on what is the best for the economy (economic activities)

The Concept of Demand and Supply

In the given market, the supply of goods and services serve as the equaling of price or
price determinants. As Fajardo (1999) opined price “is the value of a product or service”, it is
expressed in terms of monetary unit like peso, euro or dollar. The price system is important in
the economy for it determines the allocation of goods and services among the members of the
society.
This simply means that goods and services are being acquired by the people by paying
them with their money. Hence, there is a need to balance the interests of both buyers and sellers
of goods and services, and this task belongs to the government.

Economic Choice and Opportunity Cost

• Due to scarce resources available people have to make economic choices which create
sacrifice because alternatives must be given up.
• Economic choice is deciding between different uses of scarce resources.

Opportunity Cost
• The amount of other product that must be forgone or sacrificed to produce a unit of a
product.
• It is the value of the second best alternative forgone.
• It is the benefit that is lost in making a choice between two competing uses of
scarce resources.

Economic agents are participants in the economy that engage in specialization,

production, exchange, and consumption. There are two economic agents:

1. Producers - the ones that produce and distribute goods and services
2. Consumers – the ones that buy and consume the goods and services

Demand – is the schedule of various quantities of commodities which buyers are willing and able
to purchase at a given price, time and place (ceteris paribus)

1. You must be able to make a purchase

2. You must be willing to make a purchase
3. Purchases made during a given time period

Law of Demand – consumers are most likely to buy more goods and services at low prices and
tend to buy less as the price increases.
Factors that affects demand

1. Income – more income means more to buy goods and services without questions.
2. Population – it is said that more people means more demands for goods and services, and
prices are at stake.
3. Tastes and preferences – more demands for goods and services when people like or prefer
it. If it is out of fashion certainly, those goods and services fall.
4. Price expectation – as consumers feel an increase or decrease in prices of various
commodities, so do is the availability of goods and services are affected by it.
5. Prices of related goods – when the price of certain products increases, buyers tend to find
substitute to economize it.

Supply – is the schedule of various quantities of commodities which producers are willing and
able to produce and offer at a given price, place and time.

The Law of Supply states that the quantity of goods supplied will be greater at a higher price
than it will at a lower price.

Factors that affects supply

1. Technology – new technology might provide best service but expensive. Or it may the
other way around, the use of technology can increase production and provide cheaper
prices.
2. Cost of production – the total cost in the production of various commodities may in turn
affect the prices of finished products. The higher the cost the higher and price or vice
versa.
3. Number of sellers – high or stiff competition affects the availability of products and
services resulting to cheaper price. The absence of it creates monopoly or may result to
high prices.
4. Prices of other goods – the number of alternative or substitute goods can also affect the
prices and availability of superior products. Less substitute may end to stable price can
be cheap or expensive.
5. Price expectations – the speculation or expectation of the prices of various commodities
will lead to changes in prices or the supply of such goods.
6. Taxes and subsidies – the higher the tax the higher the prices, but the higher the subsidies
the cheaper the prices of various goods and commodities.
Theory of Consumer Behavior

1. Law of diminishing marginal utility – consumption of more successive good at the time
increases satisfaction (utility) but beyond certain limit satisfaction diminishes. Utility of
goods can be measured in terms of the
price of goods or services paid by the
typical consumer.
 Utility means satisfaction.
 Marginal utility refers to the
additional satisfaction of a consumer
whenever one consumes one more
unit of the same good.
 Utility also means the amount of
money paid for every good and
services bought in a given period of
time. This can also be the basis in
determining total utility.

2. Indifference curve – the word

“indifference” means showing no bias or
neutral. An indifference curve is a curve
which shows different combinations of
two goods which yield the same level of
satisfaction.

3. The Budget line or consumption-

possibility line, indicates the various
combinations of two products which can be
purchased by the consumer with his income,
given the prices of the products. A consumer
has a fixed budget, and he has to spend his
money wisely to be able to maximize his
satisfaction. He has several combinations of
two products to choose, but his choice is
confined within the limits of his budget,
Fajardo (1999).
 Application

Direction: Match with line the relationship connecting the two opposing realities.

1. Communism  Wants

2. Consumer  Unlimited wants

3. Economic Choice  Producer

4. Microeconomics  Price

5. Needs  Opportunity Cost

6. Price expectation  Macroeconomics

7. Satisfaction  Desire
8. Scarcity  Demand
9. Supply  Cost of Production
10. Utility
 Capitalism