►Proper allocation & efficient use of available resources

Economics
►Study of man’s life and how he lives
Adam Smith Father of economics
Wealth of Nation Bible of Economics
Oikonomos Management of Household
Plato He recommended division of labor
Aristotle Explained the function of money
1.Sociology
2.Political Science
3.History
(6) Economics interdependent with other Sciences (Nature of Economics)
4.Geography
5.Physics
6.Religion
(3) Methods of Economics
1.Emperical Method Scientific method in gathering data
2.Economic Principle Generalization its means they do not apply to all people
Economic Policy/ Applied Econs. Presented by models in the form of verbal statement
Ceteris Paribus Other things being equal or constant
1.Biases
(2) Limitations of Economic Method
2.Values of those who get the facts
(2) Division of Economics
1.Microeconomics Economic behavior of individual
2.Macroeconomics Economic behavior of the whole country
(3) Basic Economic problems
1. What goods and services to produce and how much
2.How to produce goods and services
3.For whom are the goods and services
Economic System Set of economic institutions that dominates a given economy
Institution Set of rules and conduct, established ways of thinking or ways of doing things
(3) Models of Economic System
1.Capitalism Factors of product and distribution are owned and managed by private individuals
1.1.Private Property
1.2.Economic Freedom
(4) Characteristics of Capitalism
1.3.Free Competition
1.4.Profit Motive
opposite to capitalism; Production are owned and managed by state
2.Communism
also called command Economy / Classless Society
2.1.No Private Property
2.2.No Free competition
2.3.No Economic Freedom
(5) Characteristic of Communism
2.4.No profit Motive
2.5.Presence of Central
Planning
Combination of Capitalism and Communism ;major and strategic industries are owned and
3.Socialism
managed by state -minor industries belong to private sector
Karl Marx Father of modern economics
(6) Ways on How to Judge an Economic System
1.Abundance Goods and services member of society received
2.Growth Growth of economy is tangible and is measurable
3.Stability Absence of inflation and unemployment
4.Security Depends on economic stability; do not lose jobs if there is prosperity in economy
5.Justice and Equity Distribution of income, wealth and power are fair
6.Economic Freedom Free to choose lifestyle
1.Economic Growth
2.Full Employment
3.Price Stability
4.Economic Freedom (6) Social Justice - Goal of Economic
5.Equitable distribution of
wealth and income
6.Economic Security
Demand
1.Income
2.Population
3.Taste and Preferences
4.Price of Related Goods
5.Price Expectation
Law of Demand
Income Effect
Substitute Effect
Supply
1.Technology
2.Cost of Production
3.Number of Sellers
4.Price Expectation
5.Taxes and Subsidies
Law of Supply
Supply
Demand
Price System
Elasticity of Demand
1.Elastic Demand
2.Inelastic Demand
3.Unitary demand
4.Perfectly elastic demanded
5.Perfectly inelastic demanded
1.Number of Goods Substitutes
2.Price increase in proportion to
income
3.Important to consumer
1.Wage determination
2.Farm production guide
3.Maximize profits
4.Imposistion of sales taxes
Elasticity of Demand
1.Elastic Supply
2.Inelastic Supply
3.Unitary Supply
4.Perfectly Elastic Supply
5.Perfectly Inelastic Supply
Time
1. Law of Diminishing
marginal utility
1.1.Utility
1.2.Marginal Utility
2.Indifference Curve
2.1.Indifference
Budget Line
Schedule of various quantities commodities buyer are willing and able to purchase
(5) Determinants of Demand
People buy more goods and services when their income increases
More people means demand for goods and services
Demand of goods and services increases when people like or prefer them
When price of certain product increase people tend to buy the substitute
When certain demand decrease people tend to buy a product more needed
Buy more goods & services as price decrease; Buy less goods and services as price rises
Lower prices an individual has a greater purchasing power
Tends to buy goods with lower price
Schedule of various quantities of commodities producers willing and able to produce
(5) Determinants of Supply
Technology or method of production
Producing goods, raw materials, are needed together with laborers
More seller or more factories mean an increase in supply
If producers expect prices to rise very soon
Certain taxes increase cost of production
Price increase, quantity of supply also increases; Price decreases quantity of supply decreases
represented by producer's seller
represented by buyers
Mechanism of allocating goods and services through the rise and fall of prices
Reaction or response of the buyers to changes in price of goods and services
(5) Types of Demand Elasticity
Greater change in quantity demanded
Lesser change in quantity demanded
Equal change in quantity demanded
Infinite change in quantity demanded
Creates no change in quantity demanded
(3) Determinants of Demand Elasticity
Demand is elastic to products with many substitutes
Price increase has a little effect on the income or budget of the buyers
Luxury goods are not very important to many Filipinos
Businessmen may attain to the (4) ff goals
1. Achieve target return on investment
2.Maintain or improve a share in the market
3.Meet or prevent competition
4.Maximize profit
(4) Economic significance of elasticity of demand
If product has elastic demand, a reduction in price increases quantity demanded
Most agricultural products like rice, coconut and sugar are inelastic
Reduction in price causes more quantity demanded
Government planners should exercise prudence in taxing goods and services
Reaction or response of a seller/producer to price change of goods
(5) Types of Elasticity of Supply
Greater change in quantity supplied
Lesser change in quantity supplied
Equal change supplied
Infinite change in quantity supplied
No effect on quantity supplied
Principal determinant of supply elasticity
(2) Theories of Consumer Behavior
means satisfaction
additional satisfaction of a consumer
means showing no bias or neutral
various combination of 2 products