The Economic System

MICROECONOMICS
Economic System
 Economic System ­ refers to a set of economic institutions that 
dominate a given economy with the main objective of solving the 
basic economic problems in the economy. 
Economic System
 1.Traditional Economy ­ is one whose economic decisions are made  
with great influence from the past.
 2.Command Economy ­ the factors of production and distribution 
are owned and managed by the state.
 3.Market Economy ­ is another is another way of of solving the basic 
economic problems.                
 4.Mixed Economy ­ elements of traditional,command, and free 
market are present in varying degrees.that is both private and public 
institutions exercise economic control.
FACTORS OF
PRODUCTION
FACTORS OF PRODUCTION
Land Labor
• is the source of all • refers to human effort,
materials and food when the effort is
whether in liquid ,solid rewarded with some
or gaseous form, in or kind of pay. Mental and
above the earth. physical talents of the
people to
FACTORS OF PRODUCTION
Capital
• refers to tangible ,physical
good that a person or
society creates in the
expectation to improve or
increase future production.
Entrepreneurship
• means that people are
combining the factors of
production to create
products and services
• They hope for profit, but
take risk loss or
bankruptcy.
PRODUCTION POSSIBILITIES FRONTIER
 THREE CONCEPTS OF PPF:

1.Scarcity­is indicated by the unattainable combination above the 
boundary.
2.Choice­can be seen by the need to choose among the alternative 
attainable points along the boundary and opportunity cost.
3.Opportunity cost­refers to the cost of using them in their best 
alternatives.

Trade­off is a situation in which more of one good thing can be obtained only 
by giving of another thing.
Demand
 Demand ­ refers to the number or amount of goods and services 
desired by the consumers
Determinants of Demand

 1.Price of the good itself
 2.Consumers`income
 3.Consumers` expectation of future prices
 4.Prices of related commodities or goods
 5.Consumers` tastes and preferences
 6.Population
Supply
 Supply ­ defined as the quantity of goods and services producers can 
offer.
Determinants of Supply
 1.Change in Technology
 2.Cost of Inputs Used
 3.Expectation of Future Price
 4.Change in the Price of Related Goods
 5.Government Regulation and Taxes
 6.Government Subsidies
 7.Number of Firms in the Market