COBECON | LECTURE

Week 4, Day 2
Professor: Dr. Roberto B. Reymundo
Room: LS - 216
Consultation Time: 2:00 pm to 4:00 pm (LS-324)

MIXED ECONOMY (Review)

- Regulated Markets
- Price Control (Price Ceiling & Price Floor)
- Limits on Production / imports
- Limit entry into industry
- Protection from foreign competition (limit imports, limit import licenses, high
tariffs, quotas, non- tariff barriers)
- Minimum Wage
- Heave Government Intervention

- Free food - Free health care

- Free education - Free benefits (for senior
- Free housing / subsidy citizens)
- Free cash

WHY DOES GOVERNMENT-OWNED FIRMS TEND TO BE INEFFICIENT?

- Government-owned firms tend to be inefficient due to not being subject to competition.

IMPORTANT FORMULAS
Profit = Total Revenue + Total Cost / P*Q - Average Cost * Q
Total Revenue = P*Q (Selling Price * Quantity)
Total Cost = Average Cost * Q
Profits / Q = (P*Q - Average Cost * Q)/Q
Profits / Q = P - Average Cost

EMPLOYEES IN GOVERNMENT-OWNED FIRMS ARE INEFFICIENT

Since government-owned firms are not subject to competition from private firms, employees
tend to be inefficient because government-owned firm will not shut down its operations even if
they provide poor quality products and/or services as they are only choice the mass have;
especially those in the marginalized sector.

INFLATION: IN A NUTSHELL
Governement Spending > Taxes = Excessive Spending

ARCILLA, Ma. Angelika | BS - LGL (ID:121)

As more money circulates in the economy, the demand for goods and services increases. Output
production stays the same, despite an increase in demand caused by increase in money supply.
This put pressure on prices to increase, worsening inflation and destroying the value of money.

ARCILLA, Ma. Angelika | BS - LGL (ID:121)