TRADE-OFF

A trade-off is a situational decision that involves diminishing or losing

one quality, quantity, or property of a set or design in return for gains
in other aspects. In simple terms, a tradeoff is where one thing
increases, and another must decrease.

● Situational decision-making is about making effective and

pragmatic (realistic) decisions or choices and considering the
specific situation or context

● Situational awareness is the foundation for good decision

making. Situational awareness is formed by observing… and
understanding what is happening in your environment, in the
context of how time is passing. That “understanding” is then
used to make predictions of future events.

Why is decision-making important in economics?

Using good economic reasoning (like a decision-making model) can

help avoid unintended yet predictable consequences. The more
students practice the decision-making skill, the greater likelihood it
becomes intuitive and they will make more informed decisions

or be able to better analyze decisions made by others.

In economics, a very basic trade-off can be understood as the idea

that if you choose one thing, you are going to lose another. The
trade-off is taking the opportunity to have something, but in order to
get that thing, you have to give up, or sacrifice, something else.

Givin up a portion of something to gain a portion of something

When entering into these types of decisions, it is important to

consider the opportunity cost, which is the benefit that is being lost
from the thing that is being sacrificed. (Whenever you make a trade-
off, the thing that you do not choose is your opportunity cost.)

Trade-offs create opportunity costs, one of the most important

concepts in economics. Whenever you make a trade-off, the thing
that you do not choose is your opportunity cost. Everything has
opportunity costs. If you just bought something, you could have
always chosen to buy something else instead. If you just chose to
spend your time in a particular way, you could have always done
something else. "Something else" is your opportunity cost.

MONETARY SENSE:
Watsons Plans to give free vouchers to those who come into their
stores on their anniversary day as part of their anniversary promo.
Obviously, giving free vouchers causes a loss but the trade-off of the
expense is bringing customers into their stores, who then spend
money buying merchandise.

REAL WORLD SCENARIO:

For example, you might take a day off work to go to a concert,
gaining the opportunity of seeing your favorite band, while losing a
day's wages as the cost for that opportunity.

The idea of trade-offs is one of the most basic principles in

economics, that in order to have more of one thing, you have to
accept having less of something else.

Importance of trade off in economics

● This principle disciplines us to use resources efficiently and

without waste, and also makes us alert to new resources that
can satisfy our wants.
● Understanding the trade-off for every decision you make helps
ensure that you are using your resources (whether it's time,
money or energy) wisely.

Because money, time, and energy are such valuable resources, it is

important to understand what the opportunity costs are when
making a decision so that you can make the most beneficial trade-
off for each particular situation.

ECONOMIC SYSTEM
A system (method, technique) is a collection of elements or
components that are organized for a common purpose. The word
sometimes describes the organization or plan itself (and is similar in
meaning to method, as in "I have my own little system").
-an organized framework or method.

What is an Economic System?

An economic system is a means by which societies or governments
organize and distribute available resources, services, and goods
across a geographic region or country.

Economic systems regulate the factors of production, including land,

capital, labor, and physical resources.

It includes the combination of the various institutions, agencies,

entities, decision-making processes and patterns of consumption
that comprise the economic structure of a given community.

What is the role of economic institutions?

Economic institutions are responsible for organizing the production,
exchange, distribution and consumption of goods and services.

An economic system is a type of social system.

the patterned series of interrelationships existing between individuals,

groups, and institutions and forming a coherent whole

Social System, the groups and institutions that work together to make
a complete whole.
 ● Interrelationship - connection, connect, interconnection,
correlation
● companionship

Social systems are used to identify relationships that connect people

and organizations, which ultimately contribute to a larger institution.

The study of economic systems includes how these various agencies

and institutions are linked to one another, how information flows
between them, and the social relations within the system (including
property rights and the structure of management).

Economic system = Economic order

Main Types of Economic System

● Traditional economic system

The traditional economic system is based on goods, services,

and work, all of which follow certain established trends. It relies
a lot on people, and there is very little division of labor or
specialization.

Some parts of the world still function with a traditional

economic system. It is commonly found in rural settings in
second and third world nations, where economic activities are
predominantly farming or other traditional income-generating
activities. (Income Generating Activities IGAs most basic
business activities to increase their household income through
 livelihood) Handicrafts, Gumagawa ng tela, Food drying,
Agricultural production.

Over centuries, these communities have become highly skilled

in a particular niche. In 2022, the traditional economic system
can be seen in nations like Brazil, Alaska, Canada, Yemen,
Haiti, and Greenland.( The World Population Review)

There are usually very few resources to share in communities

with traditional economic systems.

Most conventional economic systems (system in human

activities related) are found in Asia, Africa, Latin America, and
the Middle East.

● Command economic system

In a command system, there is a dominant centralized

authority – usually the government – that controls a significant
portion of the economic structure. Also known as a planned
system, the command economic system is common in
communist societies since production decisions are the
preserve of the government.

● Examples of a command economy include the likes of China,

North Korea, Cuba, Russia, and Vietnam.

If an economy enjoys access to many resources, chances are

that it may lean towards a command economic structure. In
such a case, the government comes in and exercises control
over the resources. Ideally, centralized control covers valuable
 resources such as gold or oil. The people regulate other less
important sectors of the economy, such as agriculture.

Command economies are rigid (not able to be changed or

not flexible) compared to other systems.

They react slowly to change because power is centralized.

(controlled by a single authority or managed in one place)

That makes them vulnerable to economic crises or

emergencies, as they cannot quickly adjust to changing
conditions.

● Market economic system

Market economic systems are based on the concept of free

markets. In other words, there is very little government
interference.

The government exercises little control over resources, and it

does not interfere with important segments of the economy.
Instead, regulation comes from the people and the relationship
between supply and demand.

The market economic system is mostly theoretical. That is to say,

a pure market system doesn’t really exist.

Why? Well, all economic systems are subject to some kind of

interference from a central authority. For instance, most
governments enact laws that regulate fair trade and
monopolies.
 A market economy’s greatest downside is that it allows private
entities to amass a lot of economic power, particularly those
who own resources of great value.

The distribution of resources is not equitable because those

who succeed economically control most of them.

● Mixed economic system

Mixed systems combine the characteristics of the market and

command economic systems.

For this reason, mixed systems are also known as dual systems.

Many countries in the developed western hemisphere follow a

mixed system.

Most industries are private, while the rest, composed primarily of

public services, are under the control of the government.

A mixed economy may emerge when a government

intervenes to disrupt free markets by introducing state-owned
enterprises (such as public health or education systems),
regulations, subsidies, tariffs, and tax policies.

Mixed systems are the norm globally. (NORM it is something

that is usual, typical, or standard)

● Countries with a mixed economy include Iceland,

Sweden, France, the United Kingdom, the United States,
Russia, and China.

Supposedly, a mixed system combines the best features of

market and command systems.

However, practically speaking, mixed economies face the

challenge of finding the right balance between free markets
and government control. Governments tend to exert much
more control than is necessary.

Main Advantage of Mixed Economic System

Weaker section gets benefits

Economic imbalance is reduced- The government takes

necessary steps to balance the economic inequality in the
society. The weaker section gets job opportunities and good
education to balance the economic difference between a
private business that grows better in a mixed economy.

What kind of economic system is used in the philippines

The Philippines has a mixed economic system that includes a

variety of private freedom, combined with centralized
economic planning and government regulation.

ECONOMIC DEVELOPMENT

Is the process of improving the quality of life of a nation, region

or community. This typically involves objectives such as social
well-being, economic growth and sustainability.
Difference between economic growth and economic growth
Economic growth is defined as an increase in the country's real
output of goods and services.
● Economic Growth is the positive change in the indicators
of the economy.
● Economic growth means an increase in real national
income / national output.
● Gross domestic product (GDP), Interest rates, Stock
markets
Economic development entails changes in income, savings,
and investment, as well as gradual changes in the country's
socio-economic structure (institutional and technological
changes).

● The overall development of a country is based on many

parameters such as the creation of job opportunities,
technological advancements, standard of living, living
conditions, per capita income, quality of life
● Per capita income or total income measures the average
income earned per person in a given area in a specified
year

Types of Economic Development

● Infrastructure

Infrastructure is vital to economic development, as it is

key to achieving higher and stable economic growth.
 Although most economies in Asia have already
developed their basic infrastructure, the focus of
development is usually on the quantity rather than the
quality.

Example: Telecommunication services

Boosts the productivity of private capital and labor,

leading to higher output.

The economy needs reliable infrastructure to connect

supply chains and efficiently move goods and services
across borders.

● Education

Education raises people's productivity and creativity and

promotes entrepreneurship and technological advances.
In addition it plays a very crucial role in securing
economic and social progress and improving income
distribution.

● Versatile, flexible and has a purpose

● Health and wellness

Health is an important determinant of economic

development; a healthy population means higher
productivity. Healthier people are more economically
productive.
 Better health also leads to an increase in savings rates—
because healthier people expect to live longer and are
naturally more concerned with their future financial needs

● Justice

Justice institutions play a significant role in economic

development, particularly through their impact on credit
markets and firm growth, the protection of vulnerable
populations, their capacity to deter violence, and their
influence over people's trust in formal institutions.

Transparent, effective, accessible, competent and

impartial justice is not only an essential generator of
economic development and wealth, but is also vital for
the legitimacy of regimes, for good governance, respect
for human rights, and the fight against poverty.

● Markets

Well functioning markets that support competition and

lower the costs of doing business provide incentives for
trade and investment, and hence growth and poverty
reduction.

With stock prices rising, investors and consumers have

more wealth and optimism about future prospects.

The result leads to increased sales and earnings for

corporations, further boosting GDP.

Markets are the main 'transmission mechanisms' between

 growth in the wider economy and the lives of the poor.

● Finance
It promotes economic growth through capital
accumulation and technological progress by increasing
the savings rate, mobilizing and pooling savings,
producing information about investment, facilitating and
encouraging the inflows of foreign capital, as well as
optimizing the allocation of capital.

We know that financial development is a crucial

component of successful economic development.

It supplies the necessary financial inputs for the production

of goods and services, in turn, promotes the well-being
and standard of living of people in the country.

Financial sector development can help with the growth of

small and medium sized enterprises (SMEs) by providing
them with access to finance. SMEs are typically labor
intensive and create more jobs than do large firms. They
play a major role in economic development particularly in
emerging economies.

● Transportation

Regular access to transport has a major effect on

economic activities. Transport offers numerous
 opportunities within the employment sector. Traffic
control, pilots, captains, delivery services, and drivers are
some of the jobs that are provided through the industry.

The main role of transport is based on the need to provide

and enhance access to various locations for individuals
and businesses within both personal and professional
domains.

Mobility - the ability to move or be moved easily

In both developing and developed economies, transport

continues to play a crucial role. When transport
infrastructure is properly connected, the environment is
conducive to economic development.

● Technology

In economics, it is widely accepted that technology is the

key driver of economic growth of countries, regions and
cities. Technological progress allows for the more efficient
production of more and better goods and services.

Technology can save the time it takes to produce a good

or deliver a service, contributing to the overall profits of a
business. Technology can contribute to the efficiency of a
business's output rate, allowing for larger quantities of
products to be moved or of services to be rendered.

THE SECTORS OF AN ECONOMY

Human activities which generate income are known as economic
activities. Economic activities are broadly grouped into primary,
secondary, tertiary activities. Higher services under tertiary activities
are again classified into quaternary and quinary activities.

One classical breakdown of economic activity distinguishes three

sectors

● Primary: involves the retrieval and production of raw-

material commodities, such as corn, coal, wood or iron.
Miners, farmers and fishermen are all workers in the primary
sector.
Primary activities are directly dependent on the environment as
these refer to utilization of earth’s resources such as land, water,
vegetation, building materials and minerals. It thus includes hunting
and gathering,, fishing, forestry, agriculture, and mining and
quarrying.

People engaged in primary activities are called red-collar workers

due to the outdoor nature of their work.

● Secondary: involves the transformation of raw or

intermediate materials into goods, as in steel into cars, or
textiles into clothing. Builders and dressmakers work in the
secondary sector.
Secondary activities add value to natural resources by transforming
raw materials into valuable products. Secondary activities, therefore,
are concerned with manufacturing, processing and construction
(infrastructure) industries.

People engaged in secondary activities are called blue-collar

workers.

● Tertiary: involves the supplying of services to consumers and

businesses, such as babysitting, cinemas or banking.
Shopkeepers and accountants work in the tertiary sector.

Tertiary activities include both production and exchange. The

production involves the ‘provision’ of services that are
‘consumed.

● Provision of services means commercial activities whereby

a party (hereinafter referred to as the service provider) is
obliged to provide a service to another party and receive
payment

Exchange involves trade, transport and communication

facilities that are used to overcome distance.

Tertiary jobs = White-collar jobs.

THE SECTORS OF AN ECONOMY BY OWNERSHIP

● Public Sector or State Sector

The public sector (also called the state sector) is the part of the
economy composed of both public services and public
enterprises.

Public sectors include the public goods and governmental

 services such as the military, law enforcement, infrastructure,
public transit, public education, along with health care and
those working for the government itself, such as elected
officials.

● Public sectors include the public goods and

governmental services such as the military, law
enforcement, infrastructure, public transit, public
education, along with health care and those working for
the government itself, such as elected officials.

The public sector might provide services that a non-payer

cannot be excluded from (such as street lighting), services
which benefit all of society rather than just the individual who
uses the service.[1] Public enterprises, or state-owned
enterprises, are self-financing commercial enterprises that are
under public ownership which provide various private goods
and services for sale and usually operate on a commercial
basis.

● Private Sector or Private Businesses

The private sector is the part of the economy, sometimes

referred to as the citizen sector, which is owned by private
groups, usually as a means of establishment for profit or non
profit, rather than being owned by the government.

States legally regulate the private sector. Businesses operating

within a country must comply with the laws in that country.

● In the private sector, activities are guided by the motive

 to earn money.
● States legally regulate the private sector. Businesses
operating within a country must comply with the laws in
that country.

In some cases, usually involving multinational corporations that

can pick and choose their suppliers and locations based on
their perception of the regulatory environment, local state
regulations have resulted in uneven practices within one
company.

For example, workers in one country may benefit from strong

labour unions, while workers in another country have very weak
laws supporting labour unions, even though they work for the
same employer. In some cases, industries and individual
businesses choose to self-regulate by applying higher standards
for dealing with their workers, customers, or the environment
than the minimum that is legally required of them

● Voluntary Sector

The voluntary sector, independent sector, or civic sector is the

realm of social activity undertaken by organizations that are
non-governmental nonprofit organizations.

● The 'voluntary sector' refers to organizations whose primary

purpose is to create social impact rather than profit.

This sector is also called the third sector, community sector, and
 nonprofit sector in contrast to the public sector and the private
sector.

ivic sector or social sector are other terms for the sector,
emphasizing its relationship to civil society.

The presence of a large non-profit sector is sometimes seen as

an indicator of a healthy economy in local and national
financial measurements. With a growing number of non-profit
organizations focused on social services, the environment,
education and other unmet needs throughout society, the
nonprofit sector is increasingly central to the health and well-
being of society.

THE FUNCTIONS OF PRICES

The price of goods plays a crucial role in determining an efficient
distribution of resources in a market system.

● Price acts as a signal for shortages and surpluses which

help firms and consumers respond to changing market
conditions.
● If a good is in shortage – price will tend to rise. Rising
prices discourage demand, and encourage firms to try
and increase supply.
● If a good is in surplus – price will tend to fall. Falling prices
encourage people to buy, and cause firms to try and cut
back on supply.
● Prices help to redistribute resources from goods with little
demand to goods and services which people value more.
 In economics, a price mechanism is the manner in which the
profits of goods or services affect the supply and demand of
goods and services, principally by the price elasticity of
demand.

Price elasticity of demand

● Economists use price elasticity to understand how supply
and demand for a product change when its price
changes.
● Like demand, supply also has an elasticity, known as price
elasticity of supply. Price elasticity of supply refers to the
relationship between change in supply and change in
price.
● It’s calculated by dividing the percentage change in
quantity supplied by the percentage change in price
● Together, the two elasticities combine to determine what
goods are produced at what prices.

● If price elasticity is greater than 1, the good is elastic; if less than

1, it is inelastic.
● If a good’s price elasticity is 0 (no amount of price change
produces a change in demand), it is perfectly inelastic.
● If price elasticity is exactly 1 (price change leads to an equal
percentage change in demand), it is known as unitary
elasticity.

If supply is excessive, prices will be low and production will be

reduced; this will cause prices to rise until there is a balance of
demand and supply. In the same way, if supply is inadequate,
prices will be high, leading to an increase in production that in
turn will lead to a reduction in prices until both supply and
demand are in equilibrium.

PRICE IS A QUANTITATIVE VALUE OF A PRODUCT