BASIC MICROECONOMICS

CBM MIDTERMS REVIEWER

1ST SEMESTER I A.Y ‘23-’24 MADE BY: NICOLE CARREON

BRANCH OF ECONOMICS
EXTRA DEFINITIONS
MICROECONOMICS
• Market - Interaction between buyers and sellers. As • is a branch of economics that deals with how an
long as there is interaction, there is a market. individual, household, or firm efficiently allocates scarce
• Marketing - A set of activities (Promoting, Advertising, or limited resources to satisfy unlimited human wants
Etc.) and needs.
• Goal: Find customers to patronize your product. is a set
of activities that aims to find people who will patronize MACROECONOMICS
your product. • is a branch of economics that deals with how the nation
• Consumer - consumes the products. efficiently allocates scarce or limited resources to satisfy
• Buyer - Responsible for what to buy. Not all buyers unlimited human wants and needs.
consume the product.
• Knowledge - Facts, Information FACTORS OF PRODUCTION
• Information - truth, information should always be true.
• Body of Knowledge - list of knowledge, selection of 1. LAND
clusters. etc. • Natural Resources or Source of Raw Materials
• Organised - orderly, maayos, classifying. • Anything that is above and beneath the Earth
• Science - is an organized body of knowledge
• Facts - is proven statement 2. LABOR
• Inference - educated/scientific guess backed up with • Human Resources or Manpower, Human Effort,
evidence. Also known as hypothesis (hinuha, haka- Workforce
haka)
• Conclusion - result of test/experiment 3. CAPITAL
• Theory - result of a test. It is studied before theorizing. • Financial Capital (Money)
• Necessity - something that a human can't live without. • Physical Capital ‐> Manmade goods used to produce
Basic requirements of humans for survival other goods
• Greek translation of “Economics” - oikonomia • Machinery and/or Equipment
• (Oiko - Household; Nomia - Management — Oikonomia
- Household Management) 4. ENTREPRENEURSHIP/ENTRPRENEURIAL ABILITY
• Ekonomiya - managing limited goods in the household. • It is the innovative skill in combining the other factors of
• Equity - considering factors in distributing goods. production.
• Insatiable - cannot be satisfied • It refers to combining raw materials, manpower, and
• Efficient: Producing something in a short time with the equipment or machinery.
same results
• Allocation: Distribution of goods with decision making. BASIC ECONOMIZING QUESTIONS
It is ALLOCATION if you consider factors before by 1. What to produce?
distribution. Allocation is the distribution of resources 2. How to produce?
efficiently 3. How much to produce?
4. For whom to produce?
CHAPTER 1 – ECONOMICS AS A SOCIAL SCIENCE
TEN PRINCIPLES OF ECONOMICS
WHAT IS ECONOMICS?
• Economics is a social science that deals with the 1. People Face Tradeoffs
efficient allocation of scarce or unlimited resources to 2. The Cost Of Something Is What You Give Up To Get It
satisfy unlimited human wants and needs. 3. Rational People Think At The Margin
4. People Respond The Incentives
5. Trade Can Everyone Make Better Off
TYPES OF ECONOMIC ANALYSIS 6. Markets Are Usually A Good Way To Organize Economic
Activity
POSITIVE ECONOMIC STATEMENT 7. Governments Can Sometimes Improve Economic Activity
• is a type of economic analysis that describes an 8. A Country’s Standard Of Living Depends On Its Ability To
economic condition, behavior, or situation as it should Produce Goods And Services
be. 9. Prices Rise When The Government Prints Too Much
Money
NORMATIVE ECONOMIC STATEMENT 10. Society Faces A Short-Run Tradeoff Between Inflation
• is a type of economic analysis that describes an And Unemployment
economic condition, behavior, or situation as they are.
SUPPLY AND DEMAND
SUPPLY
• The amount or quantity of goods that producers are
willing to produce at a given price and at a specific time.
LAW OF SUPPLY
• The claim that, other things equal (ceteris paribus), the
quantity supplied of a good rises when the price of the
good rises.
SUPPLY SCHEDULE
• A table that shows the relationship between the price of
a good and the quantity supplied.
SUPPLY CURVE
• graph that shows the relationship between the price of a
good and the quantity supplied.
QUANTITY SUPPLIED
• the specific quantity that sellers supply at a specific
supply price.
Quantity supplied is matched up with a specific price.
Should the price change, then so too does the quantity
supplied. Quantity supplied is a single number.
• Price & Quantity Supplied = Direct relationship
NON-PRICE DETERMINANTS OF SUPPLY
a. seller’s expectation of future prices;
b. taxes and subsidies;
c. availability of raw materials;
d. technology; and
e. number of sellers
DEMAND
• The amount or quantity of goods that consumers are
willing to consume at a specific price and at a given
time.
LAW OF DEMAND
• the claim that, other things equal (ceteris paribus), the
quantity demanded of a good fall when the price of the
good rises.
DEMAND SCHEDULE
• a table that shows the relationship between the price of
a good and the quantity demanded.
DEMAND CURVE
• a graph that shows the relationship between the price of
a good and the quantity demanded.
• Price & Quantity Demanded = inverse relationship
QUANTITY DEMANDED
• Change in quantity demanded is a movement along a
given demand curve caused by a change in demand
price. The only factor that can cause a change in
quantity demanded is PRICE.
NON-PRICE DETERMINANTS OF DEMAND
a. buyers' income;
b. buyers' taste and preferences;
c. prices of related goods;
d. buyers' expectations; and
e. number of buyers
MARKET EQUILIBRIUM
• The point where in the Quantity Supplied is equal to the
Quantity Demanded (Qs = Qd), and at the same time,
the Price of Supply is equal to the Price of Demand (Ps
= Pd).
• Market Equilibrium is the point wherein there is an
Equilibrium Quantity and an Equilibrium Price.
MARKET DISEQUILIBRIUM.
• When there are INEQUALITIES
• surplus, shortage, (>, <, ≥, ≤, ≠)
EXAMPLE EQUATION
Qs = 8 + 10P
Qd = 30 – 12P
8 + 10P = 30 – 12P
• There should be THREE FINAL ANSWERS
o Price, Quantity Supplied (Qs), Quantity Demanded,
(Qd)
• Always Round off to TWO Decimal Places
ELASTICITY
• In Economics, elasticity is the measurement of how
changing one economic variable affects others.
ELASTIC
• Generally, an elastic variable is one which responds a
lot to small changes in other parameters.
INELASTIC
• Similarly, an inelastic variable describes one which
does not change much in response to changes in other
parameters.
THE PRICE ELASTICITY OF DEMAND
• (Commonly known as just price elasticity) Measures the
rate of response of quantity demanded due to a price
change.
o When we analyze price elasticities we're
concerned with their absolute value, so we
ignore the negative value.
HOW DO WE INTERPRET THE PRICE ELASTICITY OF
DEMAND?
• A good economist is not just interested in calculating
numbers. The number is a means to an end; in the case
of price elasticity of demand it is used to see how
sensitive the demand for a good is to a price change.
o The higher the price elasticity, the more
sensitive consumers are to price changes.
o A very high price elasticity suggests that when
the price of a good goes up, consumers will
buy a great deal less of it and when the price
of that good goes down, consumers will buy a
great deal more.
o A very low-price elasticity implies just the
opposite, that changes in price have little
influence on demand.
 DEMAND ELASTICITY RELATIONSHIPS INCOME ELASTICITY RELATIONSHIPS

E>1 %∆𝑃 < %∆𝑄 Elastic E>1 Luxury Good Income Elastic

E<1 %∆𝑃 > %∆𝑄 Inelastic IEoD < 1 Normal Good Income Inelastic
IEoD > 0
E=1 %∆𝑃 = %∆𝑄 Unitary
IEoD < 0 Inferior Good Negative Income Inelastic

E=∞ %∆𝑃 = 0 Perfectly Elastic

E=0 %∆𝑄 = 0 Perfectly Inelastic INCOME ELASTICITY OF SUPPLY FORMULA

%∆𝑄𝑑 Price Elasticity is equal to the percentage

change in quantity over the percentage
%∆𝐼 change in income

𝑄𝑑(𝑛𝑒𝑤) − 𝑄𝑑(𝑜𝑙𝑑)
𝑄𝑑(𝑜𝑙𝑑)
𝐸𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 =
𝑃(𝑛𝑒𝑤) − 𝑃(𝑜𝑙𝑑)
𝑃(𝑜𝑙𝑑)

PRICE ELASTICITY OF DEMAND FORMULA

%∆𝑄𝑑 Price Elasticity is equal to the percentage

change in quantity over the percentage
%∆𝑃 change in price

𝑄𝑑(𝑛𝑒𝑤) − 𝑄𝑑(𝑜𝑙𝑑)
𝑄𝑑(𝑜𝑙𝑑)
𝐸𝑙𝑎𝑠𝑡𝑖𝑐𝑖𝑡𝑦 =
𝑃(𝑛𝑒𝑤) − 𝑃(𝑜𝑙𝑑)
𝑃(𝑜𝑙𝑑)

THE INCOME ELASTICITY OF DEMAND

• It measures the rate of response of quantity demand
due to a raise (or lowering) in a consumers income.
o Unlike price elasticities, we do care about
negative values, so do not drop the negative
sign if you get one.

HOW DO WE INTERPRET THE INCOME ELASTICITY OF

DEMAND?
• Income elasticity of demand is used to see how
sensitive the demand for a good is to an income
change. The higher the income elasticity, the more
sensitive demand for a good is to income changes.
o A very high income elasticity suggests that
when a consumer's income goes up,
consumers will buy a great deal more of that
good.
o A very low price elasticity implies just the
opposite, that changes in a consumer's income
has little influence on demand.