CHAPTER 1
ECONOMICS
science that deals with
management of scarce
resources
scarcity and choice
ORIGIN
OIKOS household
NOMUS system or
management
OIKONOMIA/OIKONOMUS
management of household
o MICROeconomics
City-states state of
management
MACROeconomics
CETERIS PARIBUS all other
things held constant or all else
equal
HISTORY
CLASSICAL ECONOMICS :
BIRTH
1700S AND 1800S
ADAM SMITH
o Father of Economics
o WEALTH OF THE
NATIONS bible in
economics
o Consumer & producers
through demand & supply
o Invisible hand
JOHN STUART MILL
o Heir to DAVID RICARDO
o Analysis on political
economy
KARL MARX
o Industrial revolution
o CAPITALISM
NEOCLASSICAL ECONOMICS
1870
Market system efficiencies
LEON WALRAS
o General economic system
o Analysis of equilibrium in
markets
ALFRED MARSHALL
o Most influential
o Principles in Economics
o MARGINALISM
JOHN MAYNARD KEYNES
Unemployment
General Theory of
Employment, Interest and
Money
NON-WALRASIAN
ECONOMICS
JOHN HICKS
o IS-LM
MACROeconomics model
(goods money)
POST-KEYNESIAN
ECONOMICS
World war II
NEW CLASSCIAL ECONOMICS
POSITIVE AND NORMATIVE
ECONOMICS
POSITIVE
o as they are, as it
is ,What is
o Objective
NORMATIVE
o as it should be , what
should be
o Personal judgments
(4) BASIC ECONOMIC QUESTIONS
1. What to produce?
2. How to produce?
3. How much to produce?
4. For whom to produce?
(6) RELATIONSHIP OF ECONOMICS
TO OTHER SCIENCES
1. Business Management
2. History
3. Finance management of
money etc.
4. Physics
5. Sociology behavior of societies
6. Psychology behavior of man
(3) IMPORTANCE OF STUDYING
ECONOMICS
1. To understand the society
2. To understand global affairs
3. To be an informed voter
(3) Es IN ECONOMICS
 1. EFFICIENCY productivity and
allocation of resources
2. EQUITY Justice and fairness
3. EFFECTIVENESS attainment
of goals and objectives
(5) IMPORTANT ECONOMIC TERMS
(WCPED)
1. WEALTH has a functional
value; stock of net assets
2. CONSUMPTION utilization or
usage of goods/ services
3. PRODUCTION combination of
land labor and capital
4. EXCHANGE trading of goods/
services
5. DISTRIBUTION allocating
(2) BRANCHES OF ECONOMY
1. MICROECONOMICS
Individual
Buyer-seller
2. MACROECONOMICS
Broad economic aggregates
Understanding the behavior
of the economy as a whole
Focuses on (4) specific
sectors
1. Consumption
2. Investment
3. Government spending
4. Export/import
OPPORTUNITY COST foregone
value of the next best alternative
(4) FACTORS OF PRODUCTION
1) LAND natural resources
2) LABOR human effort
3) CAPITAL man-made goods.
Ex. Facilities in production
process (building, machines)
INTEREST reward for the use
of capital
4) ENTREPRENEURSHIP
ENTREPRENEUR organizes,
manages and assumes the risks
of firm
THE CIRCULAR FLOW MODEL
(4) BASIC DECISION PROBLEMS
1) CONSUMPTION - individual
2) PRODUCTION - producers
3) DISTRIBUTION addressed to
the government
4) GROWTH OVER TIME last
(5) TYPES OF ECONOMIC SYSTEMS
1) TRADITIONAL ECONOMY
own consumption
2) COMMAND ECONOMY
dictated by the government
3) MARKET ECONOMY
resources are privately owned,
self-decisions
4) SOCIALISM private ownership
but state has control
5) MIXED ECONOMY market
and command
CHAPTER 2
DEMAND
CONSUMER gains satisfaction
SUPPLY
PRODUCER gains profit
MARKET where buyers and
sellers, trade/exchange of goods
and services
(2) KINDS OF MARKET
1. WET MARKET vegetable,
meat, etc.
2. DRY MARKET shoes, clothes,
etc.
MARKET (IN ECONOMIC
PARLANCE) intangible domain
where goods and services are
traded
STOCK MARKET
REAL ESTATE MARKET
LABOR MARKET workers offer
their services
DEMAND quantity of a good or
service that people are ready to
buy at given price w/in a given
time period
Desire to possess a thing
The ability to pay for it
Willingness in utilizing it
LAW OF DEMAND
PRICE DEMAND
(INVERSELY PROPORTIONAL)
DEMAND SCHEDULE
 Relationship of prices and
quantity demanded
DEMAND CURVE
graphical presentation of
demand schedule
negative slope; slopes
downward from left to right
this indicates that as the
price decreases, more goods
will be bought by the
consumer
DEMAND FUNCTION
relationship bet. demand for
commodity and factors
CHANGE IN QUANTITY
DEMANDED movement is along
the demand curve
CHANGE IN DEMAND entire
demand curve shifts to the right
/left
(6) FORCES THAT CAUSE THE
DEMAND CURVE TO CHANGE
1. TASTE/ PREFERENCES personal
likes/dislikes
2. CHANGING INCOMES
3. OCCASIONAL/ SEASONAL
PRODUCTS
4. POPULATION CHANGE
5. SUBSTITUTE GOODS
6. EXPECTATIONS OF FUTURE
PRICES
SUPPLY quantity of
goods/services that firms are ready
and willing to sell at a given price
w/in a period of time
LAW OF SUPPLY
PRICE QUANTITY
SUPPLIED (DIRECTLY
PROPORTIONAL)
SUPPLY SCHEDULE listing of
prices and quantities supplied
SUPPLY CURVE
Graphical representation
showing the relationship bet.
the price and quantity supplied
Positive, slopes upward from left
to right
SUPPLY FUNCTION links
dependent variable to quantity
supplied
CHANGE IN QUANTITY SUPPLIED
movement is along the same
supply curve
CHANGE IN SUPPLY shifts
rightward/ leftward
(6) FORCES THAT CAUSE SUPPLY
CURVE TO CHANGE
1. OPTIMIZATION IN THE USE OF
FACTORS OF PRODUCTION
2. TECHNOLOGICAL CHANGE
3. FUTURE EXPECTATIONS
4. NUMBER OF SELLERS
5. WEATHER CONDITIONS
6. GOVERNMENT POLICY
MARKET EQUILIBRIUM
meeting of demand and supply
state of balance
EQUILIBRIUM
quantity demanded = quantity
supplied
general agreement of the buyer
and the seller at a particular
price at a particular quantity
EQUILIBRIUM MARKET PRICE
price agreed by the seller to offer
its good/ service for sale for the
buyer to pay for it.
(2) WHAT HAPPENS WHEN THERE
IS MARKET DISEQUILIBRIUM?
1. SURPLUS
Quantity supplied is more
than the quantity demanded.
Downward pressure
2. SHORTAGE
Quantity demanded is higher
than supplied
upward pressure
(2) TYPES OF PRICE CONTROL
1. FLOOR PRICE legal minimum
price imposed by government
(surplus)
2. PRICE CEILING legal
maximum price imposed by the
government (shortage)
CHAPTER 3
ELASTICITY OF DEMAND
Elasticity - Responsiveness
Measure of the degree of
responsiveness of quantity
demanded of a product to a
given change in one of the
independent variables which
affect demand for that product.
o PRICE ELASTICITY OF
DEMAND
o INCOME ELASTICITY OF
DEMAND
o CROSS ELASTICITY OF
DEMAND
INELASTIC
consumers will pay almost any
price for the product
there are no close substitutes
(basic food items, oil products)
ELASTIC
Consumers will only pay a
certain price
have may substitutes(clothes,
appliances, cars)
ELASTIC DEMAND CURVE
Flatter
the more the demand becomes
horizontal the greater it
becomes elastic
INELASTIC DEMAND CURVE
Steeper
the more the demand becomes
vertical the greater it becomes
inelastic
(3) IMPORTANT FACTORS THAT
INFLUENCE DEMAND ELASTICITY
1. Ease of substitution
2. Proportion of expenditures
3. Durability
i) Possibility of postponing
purchase
ii) Possibility of repair
iii) Used product market
iv) Length of time period
(2) EXTREME TYPES OF DEMAND
ELASTICITY
1. PERFECTLY INELASTIC
(VERTICAL)
2. PERFECTLY ELASTIC
(HORIZONTAL)
ELASTICITY OF SUPPLY
reaction/response of the
sellers/producers to price
changes of goods sold
measure of the degree of
responsiveness of supply to a
given change in price
SUPPLY ELASTIC
Flatter
The more the supply curve
tends to be horizontal the more
it becomes highly
elastic
SUPPLY INELASTIC
Steeper
The more the vertical the supply
curve the more it becomes
highly inelastic
(2) WHAT DETERMINES SUPPLY
ELASTICITY
1. TIME
2. TIME HORIZON INVOLVED WITH
PRODUCTION
(2) EXTREME TYPES OF SUPPLY
ELASTICITY
1. PERFECTLY INELASTIC
(VERTICAL)
2. PERFECTLY ELASTIC
(HORIZONTAL)
CHAPTER 4
CONSUMER
one who demands goods and
services
king in a capitalist/ free-market
economy
consumer sovereignty our
power to determine what to
produce
producers - passive agents
GOODS
Provides satisfaction to the
needs, wants and desires of the
consumer
 Tangible Brand name, term or symbol
SERVICES given to a product by a supplier
Intangible in order to distinguish his
offering from that of similar
CLASSIFICATION OF TANGIBLE products supplied by
GOODS competitors
CONSUMER GOODS MASLOWS HIERARCHY OF
o Goods that yield satisfaction NEEDS
directly to any consumer basic priorities of every
o Sold for consumption, not for consumer
processing another good ascending
o E.g. Soft drinks, bread, o PHYSIOLOGICAL NEEDS
crackers, cellphone loads basic needs
ESSENTIAL/NECESSITY VS. o SAFETY NEEDS free of
LUXURY GOODS physical danger
o ESSENTIAL/NECESSITY o SOCIAL NEEDS sense of
GOODS belongingness, love, care,
satisfy the basic needs of acceptance and
man understanding
goods we cannot live o ESTEEM NEEDS
without o SELF-ACTUALIZATION
o LUXURY GOODS desire to become what is
Men may do without capable of becoming
Contribute to his comfort UTILITY THEORY
and well-being satisfaction/ pleasure that an
ECONOMIC AND FREE GOOD individual or consumer gets
o ECONOMIC GOOD from consumption of good/
services the (s)he purchases
Useful and scarce
measured by how much a
Has value attached to it
consumer is willing to pay for a
and price has to be paid
good/service
for its use
MARGINAL UTILITY additional
o FREE GOOD
satisfaction
If good is so abundant
TOTAL UTILITY- total satisfaction
that there is enough of it
LAW OF DIMINISHING
to satisfy everyones
needs without anybody MARGINAL UTILITY
paying for it States that as a consumer gets
TASTE AND PREFERENCES more satisfaction in the long-
determined by: run, he experiences a decline in
his satisfaction for goods and
o Age
services
o Income
TOTAL UTILITY CURVE
o Education
Convex utility curve
o Gender
TOTAL MARGINAL UTILITY
o Occupation
o Customs Concave curve
o Traditions CONSUMER SURPLUS
o Culture Measure of the welfare we gain
from the consumption of goods
 and services/ measure of the
benefits that we derive from the
exchange of goods.
Difference between total
amount willing to pay and the
total amount that we will
actually pay
CHAPTER 5
PRODUCTION
Refers to any economic activity
to form an output which will
give direct satisfaction to the
consumer
Input to output
INPUT
Commodities and services that
are used to produce goods
(3) BROAD CATEGORIES OF
INPUTS
1. LAND - represents the gift
of nature to our productive
processes
2. LABOR mental and
physical ability used in the
production of goods and
services
3. CAPITAL used in
production of other goods
and services
OUTPUTS
Goods and services that result
from production process
FINAL GOODS ultimately
consumed
INTERMEDIATE GOODS used
to produce another good
TECHNOLOGY body of
knowledge applied to how goods
are produced
(2) BROAD CATEGORIES OF
TECHNOLOGY
1. LABOR INTENSIVE
TECHNOLOGY utilizes
more labor resources than
capital resources
2. CAPITAL INTENSIVE
TECHNOLOGY utilizes
more capital resources than
labor resources
(2) TYPES OF INPUTS
1. FIXED INPUT any
resource the quantity of
which cannot readily be
changed when market
conditions indicate that a
change in output is reliable
2. VARIABLE INPUT any
economic source the
quantity which can be
readily changed in response
to changes in output
SHORT RUN so short that there
is at least one fixed input therefore
changes in the output must be
accomplished exclusively by
changes in the use of variable
inputs
LONG RUN so long that all inputs
are considered variable
PRODUCTION FUNCTION
functional relationship bet.
quantities of inputs used in
production and outputs to be
produced
TOTAL PRODUCT total output
produced after utilizing the fixed
and variable inputs
MARGINAL PRODUCT extra/
additional output, other inputs held
constant
AVERAGE PRODUCT TP/INPUT,
increases than falls
LAW OF DIMINISHING RETURNS
holds that we will get less and less
extra output when we add
additional amount of an input while
holding other inputs fixed
CONSTANT RETURNS TO SCALE
change in all inputs leads to a
proportional change in output
INCREASING RETURNS IN SCALE
- increase in all inputs leads to a
more-than-proportional increase in
output
DECREASING RETURNS TO
SCALE balanced increase in all
inputs leads to a less-than-
proportional increase in output