● Social Science - “study of people in the organization or society and how people behave and

influence the world that surrounds them. The branch of science that deals to the study of societies
and the correlation of individuals within those societies”
● Economics As Social Science- “ principles in economics which analyze how people create and
execute choices in distributing limited resources for the satisfaction of limitless wants and
needs based on their social behaviors.” / economics studies how individuals make choices in
allocating scarce resources to satisfy their unlimited wants based on their social behaviors
● Economics As Applied Science- “refers to the use of economic concepts and theories and their
application in real life scenarios and conditions.” It also includes an attempt to forecast the results of
utilizing these concepts given different conditions in the market.
● Applied Science - is the use of scientific method and knowledge in order to achieve practical or
effective results to be used in decision-making.

Economics
- refers to social science that deals with the efficient and effective allocation of limited resources of
government, businesses and individuals. “It focuses on the effectiveness of producing, distributing
and consuming products.”
- a social science that deals with the allocation of scarce resources to satisfy man's unlimited needs
and wants
Scarcity
- refers to the state of being short on resources in order to satisfy the limitless needs and desires of a
citizen.
- insufficiency of resources to meet all the needs and wants of a population
Needs
- It is something that you must have in order to survive. For example, basic needs like air, food, water,
shelter, sleep etc.
Wants
- It is something that we desire but unimportant in daily life. For example, mobile phone,
laptop, jewelries, car etc.

There are two types of scarcity namely:

Relative Scarcity- a resource that are limited to satisfy infinite demand./ a good is scarce compared to its
demand
● Ex: Bananas are abundant in the Philippines but when typhoon destroys banana plants, they
become relatively scarce.
Absolute Scarcity- when resources are short in supply/ supply is limited.
● Ex: oil is absolutely scarce in the Philippines so we rely heavily on imports from oil producing
countries like Iran

Opportunity Cost - refers to the foregone benefit or value that would have been obtained by
choosing an alternative over another. Alternatively, some of us call this as the refers to the value of the best
foregone alternative
Trade-off - refers to a situation where you have to make a decision over another in order to have
more beneficial result./ choosing one thing over the other possibilities

Economic Resources
“Economic resources refer to the resources consumed in production in order to make
products and services. “In layman’s term, they are inputs used for the production process.””
1. Land - “Refers to the real estate and property comprises geographic land.”
- payment for lease contract to the land owners is rent.
2. Labor - physical and human effort exerted to be used in making the product or providing
services.
- compensation received for provided service is wage
 3. Capital - consists of human-created assets utilized in producing commodities
- The capital of the owner invested earns income is known as interest.

Two Divisions Of Economics:

Macroeconomics
- division of economics that is concerned with the studies of how an overall performance of
the entire economy behaves. Macroeconomics attempts to quantify the performance of the
entire economy in different aspects. There are many questions addressed by
macroeconomics this includes: What causes the unemployment? What causes inflation? What
creates or stimulates growth of the economy?
- division of economics that is concerned with the overall performance of the entire economy
- it focuses on the overall flow of goods and resources and studies the causes of change in the
aggregate flow of money, the aggregate movement of goods and services and the general
employment of resources.
Microeconomics
- division of economics that studies the implications of decisions of each individuals and firms and
how it affects the utilization and allocation of limited resources. It also focuses on relativity
or response of every individuals to change in prices, allocation of resources and method of
production.
- concerned with the behavior and decisions of individual entities such as the consumer, the producer,
and the resource owner
- it is more concerned on how goods flow from the business firm to the consumer and how resources
move from the resource owner to the business firm.

Basic Problems Of Society

The fundamental problem in economics is the satisfaction of limitless wants and needs and
dealing with the limited and scarce resources. Because of scarcity, there will be constant
opportunity cost where we forego benefits when choosing one alternative. Fair and efficient
allocation of scarce resources are attributes of economics. The main issues are:
1. “What to produce and how much” “Society should arrive to a decision on the kinds of products to be
created.”
2. “How to produce” “Refers to selection of technique that will be employed by the firm to create
products.”
3. “For whom to produce” “Refers to the target market of the firm as to who will buy or use the goods
and services.

“Economic System”- “This is how the society responds to the basic economic problems. This could be a
simple or complex structure of how the society produce, allocate limited resources and distribute goods
and services.”
1. “Traditional economy” / Primitive
- “It is a system where decision relies on conventions, observances, history and practice of
beliefs. This is a system where the tradition is the model in executing economic choices
including manners or methods on producing, allocating and distributing products like goods and
services.”
- traditional societies exist in backward and primitive civilizations
- Methods are stagnant and therefore, not progressive
- Practiced in indigenous communities where life is less complicated and the simple needs of the
society can be self-produced
2. “Command Economy”
- “This is the kind of system where the basic economic problems are weighed on the shoulders of the
government.” The state or agency of government maybe in charge in the allocation of resources by
using its political power in answering the basic economic problems. “The command economic
system is practiced in dictatorial, socialist and communist nations.” “Russia, North Korea and
 China are just few of the countries that have this kind of economic system.” Sometimes the
government declares authoritative system in times of calamities, disasters, or national
emergencies. Typhoon destroyed crops, damaged houses and business establishments. The
government will:
● Ration commodities
● Impose price control
● Confiscate resources
3. “Market Economy”
- “”This is the kind of system where the choices on what to produce, how to produce or whom to
produce is weigh on the shoulders of the consumers and producers.” This is not absolute due to
uncertainties like calamities and national emergencies. “There can be government interference
during special or extreme economic situations, but generally, it is a type of economic
system that is more market oriented.” “The basic economic problems are answered by making
a decision that is in accordance to the workings of demand and supply. In a market system,
there is equilibrium price and output in the market. Also, this gives the businessmen freedom to
increase profit by making their products or services more valuable than the inputs used in the
production process.”
- The most democratic form of economic system
- People's preferences may reflect on the prices they are willing to pay in the market which becomes
the basis of the producers' decisions on what goods to produce
- There is Equilibrium price and output in the market
- The basic economic problems are answered based on the workings of demand and supply

Characteristics Of Mixed Economy

- Federal government can safeguard peaple and markets
- Government has a large role In military. International trade and transportation.

Market Economy Command Economy

Private property Federal government can safeguard people and

markets

Supply x Demand = Price Government may own some key industries

Driven by self-interest Government can manage social welfare

programs

Applied Economics
- refers to the economic principles, theories and its application in real events and an attempt to
forecast whatever the outcomes.” “This field of study employs the use of the comprehension
obtained from economic theory and past events to make better decisions and solve real-world
problems.” “It helps individuals, businesses and policy makers to study how people use
limited means available to achieve their goal and help them to make better decisions.”

Scientific Method
- A method of inquiry from identifying a problem, proposing alternative tentative answers or
hypotheses, testing the tentative answers to questions or problems at hand, gathering and treating
the data, and answering the question through the conclusion.” ““As proof in testing the hypothesis,
statistics and econometrics are being used.”
Positive Economics Versus Normative Economics
“When speaking about economic hypothesis they way you phrase your statement is actually a
pretty big deal. In economics, we can broadly define as positive or normative economics.”

Positive Economics
- This is a statement that answers what is in economics. It is important because it allows us to test
the statement with the data and which relies on objective analysis of data. Positive economics
deals with what is currently happening like unemployment rate, inflation rate and cut in income tax
improving the incentives to find jobs.”
Normative Economics
- Refers to “what ought to be” or “what should be”. “It conveys values, opinions and judgments
about the effects brought by economic practices if there are modifications in the public
policies”. Normative economic statements can't be tested because it is just a mere opinion.
Therefore, normative economics focuses on opinion-based analysis of data.

Positive Economics vs. Normative Economics Analysis

Example of Positive Statement:
● “Parents tend to enroll their children in private schools more, when they get a raise or
promotion” “You might look at the statement and say that’s probably false and maybe it is. But it is
still a positive statement. We can look at parents' income data, we can look at the enrollees in the
private sector and we can see if the statement is true or false.”
Example of Normative Statement:
● Everyone should enroll their children in private schools.” So, to say, that is a normative statement
because one cannot test that in data, you look at the world and you see “should” that’s an opinion
we cannot prove that if true or false”.

To summarize, there are two classifications of economic statements.” One is positive, it claims how
the world is. Second is negative, it claims how the world should be. “The only distinction that lies between
the two statements is how we are about to judge their reasonableness.” “By employing the economic
concept, positive statements can be accepted or rejected through investigations and gathering of
data.” “Conversely, assessing normative statements utilizes factual data, values, opinions and judgments.”

Gross National Product (Gnp)

“It calculates the output of a country's residents wherever the location of the actual underlying
business’ activity. Gross National Product (GNP) measures the total income that is earned by a
country’s factor of production in producing goods and providing services by a country's residents and
businesses. It is equal Gross Domestic Product (GDP) plus income earned from assets abroad less the
income paid to foreign assets operating domestically.”
To restate the GNP equation:
GNP= C + I + G + (X – M)”

Whereas;
C- “Household and Individual Consumption”
I- Investments
G- “Government Expenditure on goods and services including labor”
X- “Exports”
M- “Imports, it is excluded because import products are produced in other economies.”
LECTURE 3: MARKET AND BASIC PRINCIPLES OF DEMAND

Introduction

“ Economics helps address and contribute to balanced supply and demand with the issue of excess supply
and demand. We don't want oversupply in our needs this leads to loss of profit. It is not effective for
entrepreneurs if their inventories or stocks exceed real demand. ”

Defining the Market

“ A market is composed of consumers and suppliers of a specific product. The buyers/consumers

determine the demand, and the suppliers/sellers determine the supply of goods and services. ”

- “ An interaction or trading between buyers and sellers. ”

- “ Any market place or venue for buying and selling of products ”

Types of Market

“ Markets are commonly known as factor markets or goods markets. ”

o “ Factor markets refer to the purchasing and selling of factors of production. In free market or
market economy, households are the owners and therefore could be the providers of the
factors of production (like land, labor, capital). ”

o Goods market- where we buy consumer goods. markets for the output of production.
o “ Labor market - the venue for potential employees looking for a job and ready to provide
” “

services. In the same way, it is a venue for employers who are hiring workers for particular
jobs. ”

o Financial market- where securities of corporations are traded.

BASIC PRINCIPLES OF DEMAND

“ DEMAND is the willingness and ability of consumers to buy a certain quantity of good or service at a
certain price. ”

“ MARKET DEMAND is the aggregate demand of all consumers, who buy the goods in the market. ”

THE LAW OF DEMAND

- “ As price increases, the quantity demand for that product decreases, other things held constant
(ceteris paribus) ”
 - “ There is an opposite relationship between the price of a product and the quantity demanded. ”

- “It states that quantity demanded varies inversely with price, other things held constant. Thus,
the higher the price (P) , the smaller the quantity demanded; the lower the price (P), the greater
the quantity demanded” (Dinio, et.al., 2017).
“ Conditions and assumptions of Law of Demand ”

1. There is no variation or change in the consumers’ income. If there is an increase or decrease on this
“

factor, the law might not be applicable. ”

2. The consumers’ taste and preference do not change

“ ”

3. The price of substitute goods or complement goods do not increase nor decrease
“ ”

“The law of demand can be expressed through demand schedule and demand curve. ”

CETERIS PARIBUS

- all other factors are held constant except the one that is under study (example: price only)
“ ”

- the variables that might influence the demand for the product do not vary or change and the only thing
“

that affects the quantity demand is only the price ”

DEMAND SCHEDULE

- “ It indicates the different amount or quantity that the consumer is willing to buy at different given
prices. ”

“The Law of Demand states that when the price of a commodity falls, its demand increases and when
the price of a commodity rises, its demand decreases; other things remaining constant. Thus, there exists
an inverse relationship between price and quantity demanded of a commodity. The functional relationship
between price and quantity demanded can be represented as Dx = f(Px).” (Dinio, et al, 2017)
“ This is a tabular representation of various quantity demanded at various price level. ”

“ Classifications of Demand Schedules : ”

a. Individual Demand Schedule

“ ”

b. Market Demand Schedule

“ DEMAND CURVE ”

- “ It illustrates the demand schedule graphically, with the price of a good on Y axis and the quantity
demanded on X axis ”

DEMAND FUNCTION

- “ It illustrates how the determinants affect the quantity demanded for a product, most importantly,
how the price determines the demand for the commodity. ”

Example: Qd= 6-P/2

Demand schedule for bottles of soy sauce given the following prices:

Price per bottle of soy sauce Number of bottles

P0 6

2 5

4 4

6 3

8 2

10 1
Computation based on demand function Qd= 6-P/2

Qd= 6- (0/2)= 6 Qd= 6-(6/2)= 3

Qd= 6-(2/2)= 5 Qd= 6-(8/2)= 2

Qd= 6-(4/2)= 4 Qd= 6-(10/2)= 1

PRICE
12

10

6
Series 1

0
1 2 3 4 5
Qd

- “ There is inverse relationship between the price of a commodity and the quantity demanded for
that good ”

- At a lower price, consumer buys more and at a higher price, consumption tends to go down
- “ The downward slope shows that the higher the price, the lower the demand for the product ”

- “ The negative slope happens because of income and substitution effect ”

o Income effect
- when the price of a good increases or decreases, the consumer’s real income or purchasing power also
changes
- It shows that when a commodity’s price increases, real income decreases and the buyers tend to
“

decrease the amount of goods they buy ”

 o Substitution effect
- it is felt when a change in the price of a good changes demand due to alternative consumption of
substitute goods; consumers substitute expensive goods with cheaper goods
“ Change in Quantity Demanded vs. Change in Demand ”

“ There is a difference between the change in demand and the change in quantity demanded. This is
shown by a shift in the demand curve or a movement along demand curve. ”

Change in Quantity Demand: movement along demand curve ”

“ Change in Demand: shifting in demand curve ”

Change in the quantity demanded:

- “Changes in the quantity demanded refers to the movements along a “fixed” demand curve as a
response to a change in the good's own price, ceteris paribus.”
- “An increase in quantity demanded is caused by a decrease in price while a decrease in quantity
demanded is caused by an increase in price.” (Birchall, 2016)
Change in demand:

“ When determinants affect change in demand, and the other things remain constant even the price, then
the demand will change, and the demand curve will move or shift to the right or to the left. The shifting in
demand indicates that there is a change in the quantity demanded at every given price. In this case, even
though the price of the good remains constant the quantity will either increase or decrease as shown in
the graph. When the other variables affect the demand to shift to the right, the move from D1 to D2, then
this signifies an increase in demand. The reason is that, at the same price of P1 the quantity that
consumers plan to buy increases from Q1 to Q2. On the other hand, when the other variables affect the
demand curve to shift to the left, the move from D1 to D3, then this is referred to as a decrease in demand.
It happens when at the same price of P1, the quantity that consumers would like to purchase fall from Q1
to Q3. ”

NON-PRICE DETERMINANTS OF DEMAND

- “ If ceteris paribus is disregarded or dropped, the variables other than price which also influence
demand can now affect demand (income, taste, expectations, prices of related goods and
population) ”

- “ Demand function will be: D= f( P, T, Y, E, PR, NC ) which means that demand for a commodity is
a function of price (P), taste (T), income (Y), expectations (E), price of related goods (PR), and
the number of consumers (NC) ”
 - “ The demand curve will move or shift rightward to reflect rise in demand and it will move or shift
leftward to show a decline in demand due to non-price determinants or variables ”

1. Income – the income of the consumer influences the capacity to purchase

Income ↑ QD↑ “ Shift to the right ”

Income ↓ QD↓ Shift to the left

- “ The effect of consumers' income on demand relies on the type of good (normal or inferior good) ”

- “ It is a normal good if a higher income of consumers raise the demand for the commodity; in this
case the demand curve will shift to the right (examples include cloths, cars, vacations) ”

- “ It is an inferior good if a higher income causes demand for the good to decline; in this case, the
demand curve will shift to the left. (Example: used cars or used furniture) ”

1. Prices of related goods

PSUBSTITUTTE ↑ QD of Chosen Good↑ Shift to the right

PSUBSTITUTTE ↓ QD of Chosen Good↓ Shift to the left

- “ Commodities can be related or unrelated goods ”

- “ If the two commodities are unrelated, then the change in the price of one item will have no effect
on the demand for the other good. For example, the change in the price of tomatoes will have no
influence on the demand for cars. ”

- “ As for related goods, their market price and availability may have an effect to the level of demand
for another good. This depends on whether the goods are complement or substitute goods. ”
a. Substitute goods

- “ These are goods that are consumed as a replacement for the other good. For example, beef and
chicken, broccoli and cauli flower, etc.) ”

- “ For these goods, an increase in the price of one good will increase demand (shifts demand curve
rightward) for the other good and the opposite is true for the decrease in the price of the first good. ”

b. Complementary goods

PCOMPLEMENTARY ↑ QD of Other Complement ↓ Shift to the left

PCOMPLEMENTARY ↓ QD of Other Complement ↑ Shift to the right

- “ These goods are usually consumed together. For example, cars and gasoline, DVDs and DVD
players, sugar and tea, etc.”

- For these goods, an increase in the price of one of the goods will decrease the demand for the
other good and the opposite is true. For example, the demand for coffee creamer would increase
and the demand curve will shift to the right if the price of coffee decreases.

If X and Y are related goods, then

3. Expectation – prospect of what is going to happen to the price can influence the demand of a
commodity

PFUTURE ↑ QD↑ Shift to the right

PFUTURE ↓ QD↓ Shift to the left

- “ When there is an expectation that the price of the commodity will increase, then the present
demand will rise and the demand curve will shift to the right ”
 - “ When there is an expectation that the income of consumer will increase, then the present demand
will rise and the demand curve will shift to the right ”

4. Taste – preference that may influence the demand for a commodity

Factors affecting taste:

a. Cultural values

b. Peer pressure

c. Power of advertising

Taste ↑ QD↑ Shift to the right

Taste ↓ QD↓ Shift to the left

- “ Consumers with similar income may still differ in their demands depending on their preference to
the goods and services. ”

- “ If consumers prefer a certain commodity due to a certain reason, then the demand for that good
will rise. If they do not like a certain good, then the demand for it will fall. ”

5. Number of consumers (market) – size and characteristic of the population

Population ↑ QD↑ Shift to the right

Population ↓ QD↓ Shift to the left

“ The greater the number of the consumers of the good, the higher will be the demand for the commodity. ”
LECTURE 4: BASIC PRINCIPLES OF SUPPLY

SUPPLY

- “ It is the willingness of sellers to offer a given quantity of a good or service for a given price. ”

QUANTITY SUPPLIED

- “ It refers to the amount of good that a seller is willing to offer for sale ”

THE LAW OF SUPPLY

“ ”

- “With the premises of ceteris paribus, there is direct relationship between the price of a good and
the quantity supplied of that good”
- “As the price increases, the quantity supplied of that product also increases” (Dinio, et.al, 2017)

SUPPLY SCHEDULE

- “ It represents the various quantities the supplier is willing to sell at certain prices ”

- It denotes the relationship between the supply and the price, while all non-price variables remain
constant.

“ Classifications of Supply Schedules : ”

a. Individual Supply Schedule

b. Market Supply Schedule

SUPPLY CURVE

- “ It illustrates the supply schedule graphically; it has upward slope which signifies the direct
relationship between the price and quantity supplied for that commodity ”
SUPPLY FUNCTION

- “ It presents how the supply for a certain commodity is affected by different determinants or
variables ”

Example of supply function: Qs= 100 + 5P

Supply schedule (based on given supply function above):

Computation based on the supply function Qs= 100 + 5P

Qs= 100 + 5 (20)= 200

Qs= 100 + 5 (40)= 300

Qs= 100 + 5 (60)= 400

Qs= 100 + 5 (80)= 500

Qs= 100 + 5 (100)= 600

PRICE
90

80

70

60

50

40 Series 1

30

20

10

0
100 200 300 400 500
Qs

Change in Quantity Supplied vs. Change in Supply

Change in Quantity supplied: Movement along the same supply curve

Change in Supply: Shifting of supply curve

“ Change in the quantity supplied ”

“ If the price of the commodity changes, the quantity supplied will also change. In this case, it will only
move along the same supply curve. A rise in price from P1 to P2 raises the quantity supplied as shown
in the figure from Q1 to Q2. If the price of the good decreases, quantity supplied also declines as shown
in the figure, it is the movement from P1 to P3. ”
Changes in supply

“ There will be increase or decrease in supply of commodity if the non-price determinants vary. This will
lead to a shift of the supply curve. Higher supply results in shifting to the right of the curve and lower
supply will lead to shifting to the left of the curve.”

“ By looking at the graph, at a price of P1, as the supply curve shifts rightward (S1 to S2), the quantity of
the good moves from Q1 to Q2 which signifies that the quantity rises. If other determinants will make the
supply curve to shift leftward (S1 to S3), It will result to decrease in quantity supplied (movement from
Q1 to Q3). ”
NON-PRICE DETERMINANTS OF SUPPLY

1. Price of Production Input – value added to raw materials through the process of production

Intermediate Input – raw materials; these are still going to be processed or transformed into higher levels
of output
Examples:
Lumber
Oil
Mineral
Factor Input – processing or transforming input
Examples:
Labor
Capital
Land

PRODUCTION INPUT ↑
Cost of Production↑ QS↓

PRODUCTION INPUT ↓
Cost of Production↓ QS↑

- Producers create a method of combining factors of production in order to create a product.

Generally, it is the production cost that determines the supply of the commodity.
- “ When the price of the factors of production increases, the minimum price will increase, too. So
we can say that an increase in the price of the factors of production decreases supply and makes
the supply curve to shift to the left. ”

- “ Likewise, if production cost decreases, producers will now have the incentives to increase their
production. This will result to rise in supply of the commodity which will then make the supply
curve to shift to the right. ”

2. Taxes – monetary expense paid to the government

Taxes ↑ QS↓
 3. Technology – the manner in which factor inputs process intermediate inputs is done through
technology

Improvement or discovery in technology

Improved technology (Cost of Production) ↑ QS↓

Obsolete technology (Cost of Production) ↓ QS↑

- “ Improvement in the technology used in production will result any of these two: number of
produced goods or output will increase without changing the quantity of factors of production or
firms will need less resources to create the same quantity of products. ”

- “ If less materials or resources will be used to create the same level of output when technology is
improved, then there will be lower cost of production which will result for the supply to increase.
This will make the supply curve to shift rightward. ”

- “ For example, the price of computers has greatly decreased as technology evolved. This causes
the telecommunication industry to have lower cost. With this great innovation of technology, the
supply curve tend to shift rightward. ”

4. Expectation – anticipation on what is going to happen on the price of the commodity

PFUTURE ↑ QS↑
PFUTURE ↓ QS↓

- “ If there is an expectation that the market price for a certain commodity will decrease in the future,
then the present quantity supply will rise resulting to the shifting to the right of the supply curve. ”

- “ Conversely, if it is anticipated that the price of the good will increase in the future, suppliers may try
to limit their supply in the market so they can benefit of the expected higher price. This will result to
decline in the quantity supply of the good thus, shifting the curve to the left. ”

5. Availability of raw materials and resources

Materials and Resources ↑ QS↑

Materials and Resources ↓ QS↓
6. Number of Sellers:

- The more sellers of a good, the higher is the supply.

- More suppliers of a commodity will shift the supply curve of that good to the right.

NOTE:

- “ If a non-price determinant causes higher supply of goods, then the entire supply curve will shift
rightward; on the other hand, a decline in supply of a good will make the supply curve to shift
leftward. ”

MARKET EQUILIBRIUM: Bringing Demand and Supply Together

- A state of balance between demand and supply

- “The quantity that sellers are willing to sell and the quantity that buyers are willing to buy for a
price” (Dinio et.al, 2017)
- The equilibrium price is the given price in which the quantity demanded, and the quantity supplied
are equal. At this price buyers are buying all the goods they desire, sellers are selling all the goods
they desire, and there is no pressure for the market price to change.
DETERMINATION OF MARKET EQUILIBRIUM

For example, given here are the demand and supply function of product X:

If we use the functions above, this will be the demand and supply schedule which will be derived at
certain prices.

PRICE Qd Qs

0 60 5

2 59 15

4 58 25

6 57 35
 8 56 45

10 55 55

12 54 65

14 53 75

16 52 85

Equilibrium is attained when Qd=Qs

Through computation using the functions:

Qd= 60- P/2 and Qs= 5 + 5P

60- P/2= 5+5P

60-5= 5P+ P/2

(2) 55= 5P+P/2 (2)

110= 10P + P

110/11= 11P/ 11

P= 10

• Using P=10, substitute P in the functions:

Qd= 60- P/2

Qd= 60- (10)/2

Qd= 60- 5

Qd= 55

Qs= 5 + 5P

Qs= 5+ 5 (10)

Qs= 5+ 50

Qs= 55

Equilibrium price is P10 and equilibrium quantity is 55