Basic terms and principles of economics:

In many economic studies, there are two basic types of factors to be considered:

Tangible factors – are those which can be expressed in terms of monetary values.

Intangible factors – are those which are difficult or impossible to express definitely in terms of
monetary values.

Perfect competition - occurs when certain product is offered for sale by many vendors or suppliers,
and there is no restriction against other vendors from entering the market. Buyers are free to buy from
any vendor, and the vendors, are free to sell to anyone.

Monopoly is the opposite of perfect competition. A perfect monopoly occurs when a unique product
or service is available only from a single supplier and entry of all other possible suppliers is prevented.
Under conditions of perfect monopoly, the single vendor can control the supply and the price of the
product or service.

Oligopoly – occurs when there are few suppliers and any action taken by anyone of them will
definitely affect the course of action of the others. Examples of oligopolies in the Philippines are the oil
companies and the manufacturers of soft drinks who hold franchise to produce drinks of foreign origin.
It is observed that any change anyone of them makes is usually accompanied by a similar change by the
other competitors.

Price – the amount of money or its equivalent which is given in exchange for it. Goods that are in
great demand and are scarce command a high price relative to cost of production and therefore will
yield a high profit.

Market – a place where sellers and buyers come together. A limited locality where certain goods such
as those which are perishable are sold, is said to be a local market. Certain goods sold all over the
country are said to have national market. Goods that are exported to other countries are said to have a
world market.

Consumer goods - are those that are consumed or used directly by the people, or are things and
services which serve to satisfy human needs. Examples: clothes, food, houses, medical services and
beauty services.

Producer goods - are those which produce goods and services for human consumption, such as
generators, tools, busses, and airplanes. These are instrumental in producing something or furnishing
service for people.

Demand is the quantity of a certain commodity that is bought at certain price at a given place and
time.

Law of Demand:

The demand for a commodity varies inversely as the price of the commodity, though not
proportionately.. when the price of the commodity is low, the demand is great, for then more people
will be able to afford the price of the commodity. However, as the price increases, the demand
decreases.
 Utility – capacity of a commodity to satisfy human want. If the utility of a certain good to a certain
individual is great, his demand for that good will be great. The demand for a certain good varies directly
as the utility.

Law of diminishing utility:

An increase in the quantity of any good consumed or acquired by an individual will decrease the
amount of satisfaction derived from that good. If a man has only one car, the utility of that car to him
would indeed be great. However, a second similar car would not have as much utility as the first. A
third similar car would practically have very little use. Thus, manufacturers of similar goods vary the
style, the size, and the use of the goods they manufacture.

Marginal utility of a commodity is the utility of the last unit of the same commodity which is
consumed or acquired.

Supply – the quantity of a certain commodity that is offered for sale at a certain price at a given place
and time. A merchant may have more goods in his warehouse, but if he only wishes to sell a certain
quantity, then that quantity represents the supply.

Law of supply:

The supply of a commodity varies directly as the price of a commodity, though not proportionately.
As the price increases, the supply also increases. As price decreases, the supply also decreases.

Law of supply and demand:

When free competition exists, the price of a product will be that value where supply is equal to the
demand. No sale exists if the buyer and seller do not agree on a common price for the commodity. The
price is determined only when the demand is equal to the supply and a sale occurs.

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