CHAPTER 4: ECONOMICS

Methodology of economics

- Economics is a social science that studies individuals and organizations

engaged in the production, distribution, and consumption of goods and
services.
- Macroeconomics looks at the total output of a nation and the way nation
allocates its limited resources of land, labor and capital in an attempt to
maximize production levels and promote trade and growth for future
generations. -
- When one or more of these variables change, there is a change in demand and
- Microeconomics studies the economic behavior of individual decision makers
therefore a shift of the demand curve.
such as consumers, resource owners, and business firms.
- Economics theories can only describe expected behavior. Monopoly
Law of Demand
- Pure monopoly is the form of market organization in which there is a single
seller of a commodity
- Monopoly may be the result of:
o Increasing returns to scale
Customer side o Control over the supply of raw materials
o Patents
o Government franchise
- These natural monopolies usually operate under a government franchise and
are subject to government regulation.
- - Under pure monopoly, the firm face negatively sloped industry demand curve.
- The relationship between price and quantity demanded is inverse: more units - Example: Astro
are purchased at lower prices because of a substitution effect and an income
effect. Oligopoly
- The demand schedule for an individual specifies the units of a good or service
that the individual is willing and able to purchase at alternative prices during a - Is a market from wherein a market or industry is dominated by a small number
given a period of time. of large sellers
- Only a few firms makes up an industry
Law of Supply - They control over the price
- Product often identical
- Example: Celcom, Digi and Maxis.

Perfect competition

- Many buyers and sellers

Supplier side - Many products similar in nature
- Less barriers to entry a new company
- Price determine by supply and demand
- Example: Giant, Tesco, Carrefour
-
- The supply curve normally has a positive upward slope, indicating that the Gross National Income (GNI) / Gross Domestic Product (GDP)
producer must receive a higher price for increase output due to the principle
of increasing costs. - Gross National Income(GNI)/Gross Domestic Product (GDP) is a total value of
- A market supply curve is derived by summing the units each individual goods and services produces added to the value of income received from other
producer is willing to supply at alternative prices. nations.
- It is the total number of payments made to foreign nations id deducted from
Equilibrium price and quantity production and income.

Gross Domestic Output

- Gross domestic product (GDP) measures total output in the domestic

economy,
- Nominal GDP, real GDP, and potential GDP are three different measures of
aggregate output.
- Nominal GDP is the market value of all final goods and services produced in the
domestic economy in a one-year period at current prices.
- - Because nominal GDP values are inflated by prices that increase over time,
- Equilibrium – occurs at intersection point of the market supply and market aggregate output is also measured holding the prices of all goods and services
demand curves. (most efficient) constant over time.
- Surplus – Prices higher than the equilibrium price, quantity demand is less than - Real GDP is the evaluation of GDP at constant prices.
quantity supply. (Excess supply) - Potential GDP is the maximum production that can take place in the domestic
- Shortage – Price lower than equilibrium price, quantity demand exceeds economy without putting upward pressure on the general level of prices.
quantity supply. (supply demand)
Gross National Product (GNP)
Price movements
- Tool used to measure national income
- Caused by only change in price - Total value of goods and services a nation produces over a particular time
period
- Does not include income from foreign sources and does no deduct payments
to foreign sources.
- However, it does allow for depreciation and indirect business taxes such as
sales or property tax.

Tax

- - Contribution levied on persons, property, or business for the support of

- Reduce the price, demand will increase: Jusco sale
government.
Price shifts - Is an amount of money which is taken from your earnings to help towards
some of the cost of services we received in the country
- Ensuring stable growth in revenue to finance the annual budget
- Providing incentives within the tax system to promote growth, especially in the
private sector.
- Type of tax:
Direct tax – income tax, stamp duty and petroleum income tax
Indirect tax – Sale tax, Service Tax and GST
- GST – goods and services tax is a single tax right from the manufacturer to the
consumer.
- Advantages of GST
Help the diversification of income sources for the government
Transparent form of taxation and reduces the number of indirect taxes
incurred.
GST allows business to show the tax applied directly in the sales invoice itself
- Disadvantages of GST
Reduce demand among consumers since price will increases.
It becomes a burden to the public.
Market demand decreasing

Inflation and productivity

- Price inflation – increase of price or it cost

- Money inflation – increase in money supply. The currency is losing its purchase
power and increase in item and service priced.

Business cycles

- A business cycle is a cumulative fluctuation in aggregate output that last for

some time.
- A peak is point which marks the end of economic expansion and the beginning
of a recession.

Productivity

- The amount of acceptable work employees does for each dollar they earn
- The number of acceptable products manufactured with a given amount of
resources.
- Productivity = Output / Input
𝑠𝑒𝑟𝑣𝑖𝑐𝑒 𝑖𝑡𝑒𝑚 𝑥 𝑝𝑟𝑖𝑐𝑒
- 𝑀𝑢𝑙𝑡𝑖𝑓𝑎𝑐𝑡𝑜𝑟 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑣𝑖𝑡𝑦 =
𝐿𝑎𝑏𝑜𝑟+𝑀𝑎𝑡𝑒𝑟𝑖𝑎𝑙+𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑

Constraint on productivity

- Management limitations
- Employee attitudes and skills
- Government regulation
- Union rule

Cost of Living

- How to much to pay for housing, gas, food, clothing and other everyday items.
- Cist of living index gives you the percentage difference in the cost of living at
difference location.
- Factors influence cost of living
Rising food prices
Slow wage growth
GST

Types of financing

- Sources of finance
Internal source (within organization)
 Owner’s investment (start up or additional capital))
 Retained profits
 Sale of stock
 Sale of fixed assets
 Debt collection
External source (outside organization)
o Bank loan or overdraft
o Additional partners
o Share issue
o Leasing
o Hire purchase
o Mortgage
o Trade credit
o Government grants
- Factors affecting choice of source of finance
Purpose
Time period
Amount
Ownership and size of the business