ECONOMY

ABM 12-1

ECONOMY - refers to how society manages, allocates, or uses its scarce

resources (limited or economic resources).

Economic resources include Labor/workers, Capital (equipment, tools),

Land (natural resources), and Entrepreneurship.

Scarce resources refer to unlimited wants/needs but limited resources. If

the resources are not managed properly, it will not be sustained and could not
meet or compromise the future needs or wants.

Economy could also be defined as a study of choice. Every individual must

make their own decisions because not all needs and wants can be obtained.
There are economic questions that could guide you to make decisions.

Economic Questions (depends on the economic system):

1. What to produce?
- “What kind of goods, services, products or something that needs to be
produced using limited resources?”
- This could also be answered by what society needs, demands, or
prioritizes.
2. How to produce?
- Refers to the method or process.
- It could be either traditional, high technology, or labors.
- Knowing the right method or process will affect the efficiency and
effectiveness of the production.
 3. To whom to produce?
- Refers to the people, society, or beneficiaries.

“ECONOMIC SYSTEM”

This refers on how a country or society decides on the “3 economic

questions” and how they distribute its goods and services. It also includes law,
regulations, and institutions (external and internal).

Economic Systems:

1. Capitalism (eg. Philippines)

- Also called Market Economy or Free Enterprise Economy.
- Private ownership
- It is in the hands of the individual who has its own resources and its
up to the individual on what to do with the resources.
- NO government intervention
- The DISADVANTAGE is that it will lead to market economy’s unhealthy
contribution.
2. Communism (eg. North Korea)
- Also called Command Economy.
- State-ownership
- Government holds the resources thus they decide, plan, manage, and
answers the economic questions.
- NO individual intervention
- The DISADVANTAGES are no freedom, injustice, and no competition
since equality is pushed.
- Karl Marx is the founder of communism due to “inequality” that
occurred before.
3. Mixed Economy
- Both intervened by government and individuals (considers both sides).
 4. Traditional Economy (usually on ethnic groups)
- Systemized based on their beliefs, traditions, and customs.
- Beliefs dictates/answers the economic questions.
5. Islamic Economy
- Similar to mixed economy
- Based on Qur’an or primary resources.
- It does not involve interests.
- Government and Individuals are allowed to intervene.
- Zak’at exclusively exists in this type of economy.

“SUPPLY AND DEMAND”

A. Demand

Demand - refers to the desire to buy or to purchase.

Quantity Demanded (Qd) - refers to the amount of goods, and services

that the buyer is willing or able to buy.

Law of Demand - when the price increases, the quantity demand

decreases and vice versa. Other factors are not considered in Quantity demand
besides price. (Ceteris Paribus)

- It also denotes that Price and Quantity Demand has negative relation.

Demand Schedule – framework of the relation of quantity demand and

price.

Example:

Price Quantity Demand (Qd)

P35.00 10
P40.00 5
P45.00 3
 P50.00 1

Demand Curve - graph of the relation of quantity demand and price. The
demand curve must also be in a downward slope.

Movement Along the Demand Curve

- Movement from which a point moves to the other point thus change of
price.

Shifting Along the Demand Curve

- When new demand occurs and considers other factors that can change
the quantity demand besides price.
- When it shifts to the LEFT, it indicates decrease in demand. This means
that at any given price, customers are willing to purchase a smaller
quantity of the good or service. Some factors of leftward shift include:
• Decrease in Consumer’s income.
• Decrease in the price of substitutes goods.
• Decrease in number of consumers and many more.
 - When it shifts to the RIGHT, it indicates increase in demand. Some
factors of rightward shift include:
• Increase in Consumer’s income.
• Increase in the price of substitute goods.
• Increase in number of consumers and many more.

Determinants of the Demand (Other Factors):

A. Price
B. Preference/Taste
C. Weather
D. Expectation
E. Income
2 Types:
• Inferior Goods: When income increases, quantity demand decreases.
• Normal Goods: When income increases, quantity demand increases
also.
F. PRG (Price of Related Goods)
2 types:
• Substitute: Both goods have same function. If one is absent, choose
the alternative. Example is Pizza and Burger.
• Complement: Both goods blended each other. Example is Bread and
Peanut Butter.

Analysis:

- In substitute, it has a positive relation. Once the price of pizza

increases, the quantity demand of burger increases too. This is because
the quantity demand of the pizza decreases.
(Inc) PPizza → (Dec) QdPizza → (Inc) QdBurger
 - In complement, it has negative relation. Once the price of gasoline
increases, the quantity demand of the car decreases. Few people will
buy car since the price of gasoline increases.

(Inc) PGasoline → (Dec) QdGasoline→ (Dec) QdCar

G. Number of Buyers

A. Supply

Supply – something that is produced or sold. It is viewed as a seller.

Quantity Supply (Qs) – amount of goods that the seller is willing or able
to sell or produce.

Law of Supply – when the price increases, quantity supply increases too.
It has a positive relationship. Once it has high profit due to high prices, it will
lead to more production of supplies.

Other factors, besides price, that affect quantity supply are not
considered. (Ceteris Paribus)

Supply Schedule – framework of the relation of quantity supply and price.

Example:

Price Quantity Supply (Qs)

P35.00 100
P40.00 120
P45.00 150
P50.00 200
 Supply Curve - graph of the relation of quantity supply and price. The
supply curve must also be in an upward slope.

Movement Along the Supply Curve

- Movement from which a point moves to the other point thus change of
price.

Shifting Along the Supply Curve

- When new supply occurs and considers other factors that can change
the quantity supply besides price.
- When it shifts to the LEFT, it indicates decrease in supply. This means
that at any given price, customers are willing to produce a smaller
quantity of the good or service. Some factors of leftward shift include:
• Increase in cost of production.
• Decrease in the number of producers and many more.
- When it shifts to the RIGHT, it indicates increase supply. Some factors
of rightward shift include:
• Decrease in cost of production.
• Decrease in the number of producers and many more.
Determinants of the Supply (Other Factors):

A. Price H. Government Regulations

B. Weather I. Cost of Inputs (raw
C. No. of Sellers ingredients, materials,
D. Capital labors)
E. Expectation J. Technology (method,
F. Trend/Preferences process)
G. Related Goods

Price Floor – when the product is at minimum price.

Price Ceiling – when the product is at maximum price.

These two are both regulated by the Government. Example is the SRP or a.k.a
Suggested Retail Price.

Market Equilibrium – when the market supply and demand balance each
other and as result, prices become stable. Over-supply causes prices to go down
thus higher demand; under-supply causes prices to go high thus lesser demand.

Market Price Equilibrium Market Quantity Equilibrium

 Elasticity – how responsive or sensitive the buyers or seller

Kinds:

• Perfectly Inelastic – Qd/Qs remains even the price changes.

• Inelastic – there is a slight change in Qd/Qs
• Elastic – there is a big change in Qd/Qs
• Perfectly Elastic – Qd/Qs completely changes to 0.

Note:

The content could be inaccurate and unreliable since it is based on MY NOTES. If you wish to
study using this document, please do have some secondary sources like YOUR NOTES.
Thank YOU