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Economic Concepts

Scarcitythere exist only a finite amount of resourceshuman and non-human. Nature does not freely
provide as much of everything as people want.
Resources(or Factors of Production) Are Scarce
Inputs used in the production of goods and services
1. Landoriginal fertility and mineral deposits, topography, climate, water, and vegetation
2. Laborcontributions of humans who work (thinking and doing)
3. Capitalall manufactured resources including buildings, equipment, machines, and
improvements to land
4
th
factor? Entrepreneurshiphuman activity of raising capital, organizing, managing, assembling other
factors of production, and making basic business policy decisions.
Theory
Mainstream economic theory relies upon a priori quantitative economic models, which employ
a variety of concepts. Theory typically proceeds with an assumption of ceteris paribus, which means
holding constant explanatory variables other than the one under consideration. When creating theories,
the objective is to find ones which are at least as simple in information requirements, more precise in
predictions, as and more fruitful in generating additional research than prior theories.
In microeconomics, principal concepts include supply and demand, marginalize, rational choice
theory, opportunity cost, budget constraints, utility, and the theory of the
firm. Early macroeconomic models focused on modeling the relationships between aggregate variables,
but as the relationships appeared to change over time macroeconomists, including new Keynesians,
reformulated their models in micro foundations.
The aforementioned microeconomic concepts play a major part in macroeconomic models for
instance, in monetary theory, the quantity theory of money predicts that increases in the money
supply increase inflation, and inflation is assumed to be influenced by rational expectations.
In development economics, slower growth in developed nations has been sometimes predicted because
of the declining marginal returns of investment and capital, and this has been observed in the Four Asian
Tigers. Sometimes an economic hypothesis is only qualitative, not quantitative.
Expositions of economic reasoning often use two-dimensional graphs to illustrate theoretical
relationships. At a higher level of generality, Paul Samuelson's treatise Foundations of Economic
Analysis (1947) used mathematical methods to represent the theory, particularly as to maximizing
behavioral relations of agents reaching equilibrium. The book focused on examining the class of
statements called operationally meaningful theorems in economics, which are theorems that can
conceivably be refuted by empirical data
Law of Supply and Demand
A theory explaining the interaction between the supply of a resource and the demand for that
resource. The law of supply and demand defines the effect that the availability of a particular product
and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high
demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower
the price will be.
In microeconomics, supply and demand is an economic model of price determination in
a market. It concludes that in a competitive market, the unit price for a particular good will vary until it
settles at a point where the quantity demanded by consumers (at current price) will equal the quantity
supplied by producers (at current price), resulting in an economic equilibrium for price and quantity.
The four basic laws of supply and demand are:
1. If demand increases (demand curve shifts to the right) and supply remains unchanged, a
shortage occurs, leading to a higher equilibrium price.
2. If demand decreases (demand curve shifts to the left) supply remains unchanged, a surplus
occurs, leading to a lower equilibrium price.
3. If demand remains unchanged and supply increases (supply curve shifts to the right), a surplus
occurs, leading to a lower equilibrium price.
4. If demand remains unchanged and supply decreases (supply curve shifts to the left), a shortage
occurs, leading to a higher equilibrium price.

Consumer Behavior
Is the study of individuals, groups, or organizations and the processes they use to select, secure,
and dispose of products, services, experiences, or ideas to satisfy needs and the impacts that these
processes have on the consumer and society. It blends elements
from psychology, sociology, social anthropology, marketing and economics. It attempts to understand
the decision-making processes of buyers, both individually and in groups such as how emotions affect
buying behavior. It studies characteristics of individual consumers such as demographics and behavioral
variables in an attempt to understand people's wants. It also tries to assess influences on the consumer
from groups such as family, friends, reference groups, and society in general.
Customer behavior study is based on consumer buying behavior, with the customer playing the three
distinct roles of user, payer and buyer. Research has shown that consumer behavior is difficult to
predict, even for experts in the field.
[2]
Relationship marketing is an influential asset for customer
behavior analysis as it has a keen interest in the re-discovery of the true meaning of marketing through
the re-affirmation of the importance of the customer or buyer. A greater importance is also placed on
consumer retention, customer relationship management, personalization, customization and one-to-
one marketing. Social functions can be categorized into social choice and welfare functions.
Production theory
Is the study of production, or the economic process of converting inputs into
outputs. Production uses resources to create a good or service that is suitable for use, gift-giving in a gift
economy, or exchange in a market economy. This can include manufacturing, storing, shipping,
and packaging. Some economists define production broadly as all economic activity other
than consumption. They see every commercial activity other than the final purchase as some form of
production.
Production is a process, and as such it occurs through time and space. Because it is a flow concept,
production is measured as a rate of output per period of time. There are three aspects to production
processes:
1. The quantity of the good or service produced,
2. The form of the good or service created,
3. The temporal and spatial distribution of the good or service produced.
A production process can be defined as any activity that increases the similarity between the pattern of
demand for goods and services, and the quantity, form, shape, size, length and distribution of these
goods and services available to the market place.

Price
The amount of money that has to be paid to acquire a given product. Insofar as the amount
people are prepared to pay for a product represents its value, price is also a measure of value.
Cost
A decision depends on both the cost of the alternative chosen and the benefit that the best
alternative would have provided if chosen. Economic cost differs from accounting cost because it
includes opportunity cost.


Profit
In neoclassical microeconomic theory, the term profit has two related but distinct
meanings. Economic profit is similar to accounting profit but smaller because it reflects the
total opportunity costs (both explicit and implicit) of a venture to an investor. Normal profit refers to a
situation in which the economic profit is zero. A related concept, sometimes considered synonymous to
profit in certain contexts, is that of economic rent.
In Classical economics and Marxian economics, profit is the return to an owner of capital
goods or natural resources in any productive pursuit involving labor, or a return on bonds and money
invested in capital markets. By extension, in Marxian economic theory, the maximization of profit
corresponds to the accumulation of capital, which is the driving force behind economic activity within
the capitalist mode of production.
Market Structure
In economics, market structure is the number of firms producing identical products which are
homogeneous.
Types of Market Structures
Monopolistic competition, is a type of imperfect competition such that many producers sell
products that are differentiated from one another (e.g. by branding or quality) and hence are not
perfect substitutes. In monopolistic competition, a firm takes the prices charged by its rivals as given
and ignores the impact of its own prices on the prices of other firms
Oligopoly, in which a market is run by a small number of firms that together control the majority of
the market share.
Duopoly, a special case of an oligopoly with two firms.
Monopsony, when there is only one buyer in a market.
Monopoly, where there is only one provider of a product or service.
Natural monopoly, a monopoly in which economies of scale cause efficiency to increase
continuously with the size of the firm. A firm is a natural monopoly if it is able to serve the
entire market demand at a lower cost than any combination of two or more smaller, more
specialized firms.
Perfect competition, a theoretical market structure that features no barriers to entry, an unlimited
number of producers and consumers, and a perfectly elastic demand curve.
Labor law
(Also labor law or employment law) mediates the relationship between workers (employees),
employers, trade unions and the government. Collective labor law relates to the tripartite relationship
between employee, employer and union. Individual labor law concerns employees' rights at work and
through the contract for work. Employment standards are social norms (in some cases also
technical standards) for the minimum socially acceptable conditions under which employees or
contractors are allowed to work. Government agencies (such as the former US Employment Standards
Administration) enforce labor law (legislative, regulatory, or judicial).





PRINCIPLES OF ECONOMICS














Solis, Dann Angelo C.

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