Economics

It makes us understand how consumers, governments, businesses, markets,

manufacturing and financial services affect each other and interact with each other. It’s
also to keep us knowledgeable of the logical background of the economic activities
happening in our surroundings, Even performed by us.
Micro and Macroeconomics (with examples)

Microeconomics deal with the economy as individual units of our economy. For
example: Household activities, Business activities and Industrial activities.
Macroeconomics on the other hand deals with the economy as a whole. Which
examples are: The aggregate demand, Inflation, Government funds and money.

Normative and positive economics 

Normative economics makes an appeal to what is socially desirable and usually uses
the word “should”. For example, The price of rice should be 30PHP per kilogram to give
farmers a higher living standard and to save the farm. Positive economics is economics
based on objective analysis and freedom of values, It usually states as “economy as it is
now”. It is without making a judgement about the outcome whether it may be good or
bad. Positive economics also involves the stats that are variable for truth. For example:
35% of Philippines population lives below poverty line.

Law of Demand and supply.

It is a method where we determine prices in a market company with perfect competition.

If demand goes up or supply goes down, prices will go up. If demand goes down or
supply goes up, Prices will go down.

Market equilibrium

It is where the demand the supply are now equally tied.

Part 2: Problem Solving

1. Calculate and interpret the Price Elasticity of Demand. 

P1 = 50 Qd1 = 675 P2 = 73 Qd2 = 770

% c h ange ∈quantity
Formula for Price Elasticity of Demand =
% c h ange ∈ price

Q 2−Q 1
a. % change in quantity =
( Q2+Q ) / 2 x 100

P 2−P 1
b. % change in price =
( P 2+ P 1 ) / 2 X 100

Q 2−Q 1 770−675 95
c. % change in quantity = = x 100 = x 100 = 13.5
( Q2+Q ) / 2 x 100 ( 770+675 ) / 2 722.5

P 2−P 1 73−50 23
% change in price = = x 100 = x 100 = 37.40
( P 2+ P 1 ) / 2 X 100 ( 73+50 ) / 2 61.5

% c h ange ∈quantity
d. Price Elasticity of Demand =
% c h ange ∈ price

13.15
=
37.40

= 0.35

Therefore, I have concluded that the Demand curve is inelastic. Since the change in
quantity divided by the change in price is equal to 0.35 which is the Price of Elasticity of
Demand, The elasticity value is less than 1.

2.  Derived and analyze the income elasticity of demand for Mr. Covido. (5 points)
Where:
Mr. Covido earns a monthly salary of PHP 14,000 and he consumed PHP 1,400 worth
of dressed chicken per month. When his income increases by PHP 5,500/month, he
consumed PHP 2,405 worth of dressed chicken a month. Is Mr. Covido's demand for
dressed chicken normal, inferior, necessity, or luxury?
 % c h ange ∈quality demand
Formula: Income Elasticity of Demand =
% c h ange ∈income

I1 > 14,000php ; D1> 1,400php per month ; I0> 19,500php ; D0> 2,405php per month

(D 1−D 0) (D 1+ D 0)
a. E 1= /
(I 1−10) ( I 1+ I 0)

1,400−2,405 (1,400+2,405)
= /
(14,000−19,500) (14,000+19,500)

−1,005 3,805
= /
−5,500 33,500

−0.2641261498
=
−0.1641791045

= 1.61

Therefore Mr. Covido’s demand for dressed chicken is Luxury which normal goods are
associated with income elasticities of demand greater than one. The income elasticity of
demand for Mr. Covido is 1.61 and since it is a positive value, The elasticity is good.