LECTURE - MICROECONOMICS

MODULE ONE

Economics came the Greek word “oikonomus” which means household

management.
It is a social science that deals with the study of man’s activities and efforts to use
the limited resources for the satisfaction of the unlimited needs of man.
It is the blood that gives life to every action of man in the society.

Important Aspects of Economics

1. Social Science: Society is a group of people who have common objectives, race,
goals, and interest.
2. Man’s Activities - Individuals strive hard to accomplish their responsibilities,
duties and functions in society and to satisfy their needs.
3. Unlimited Needs - Man has no satisfaction . We want to have so many things in
our life.

Phases of Economics
1. PRODUCTION: the transformation of inputs into outputs. The process of
transforming both fixed and variable inputs into finished goods and services.
Factors of Production-
a) Land - original gift of nature.
b) Labor - exertion of physical and mental efforts of individuals to produce
other goods..
c) Capital - money/funds used to acquire resources like machines and other
equipment used to produce goods and services.
d) Entrepreneur - organizer, and coordinator of Land, Labor and Capital’

Inputs= Labor and Capital Outputs= result that has been created by the inputs
which are Goods and Services

Classification of the Factors of Production:

1. Fixed factor - remains constant regardless of the volume of production
2. Variable factor - changes in accordance with the volume of production

The five R’s of Production

1. Right Product
2. Right Place
3. Right Time
4. Right Quality
5. Right Quantity
Production Function - It shows the relationship between quantities of the various inputs
and the maximum output that can be produced with those inputs per unit of time
expressed in a Table, Graph, or an Equation.

Costs of Production: HIgher cost of production results in a higher price of the product.
Economic Costs:
1. Total Cost- sum total cost of production. This is equivalent to fixed costs plus
variable costs
2. Fixed Cost remains constant regardless of the volume of production.
3. Variable cost changes in proportion to volume of production.
4. Average cost -called unit cost. It is equivalent to total cost divided by quantity.
5. Marginal Cost - the additional or extra cost brought about by producing one
additional unit. It is obtained by dividing change in the total cost by change
in quantity.
6. Explicit cost - called expenditure cost. These are payments to the owners of the fa
the factors of production.
7. Implicit cost - cost is non-expenditure cost. The factors of production belong to
the users.
8. Opportunity Cost is a foregone opportunity or alternative benefit.

2. CONSUMPTION - deals with buying and using goods and services to satisfy our
human needs..
Factors that change our Needs
Age
Education
Taste and Preference
Income
Profession

Types of Consumption
1. Direct - It happens when an individual satisfies himself upon buying and using a
certain product.
2. Productive - Buying goods to be used in producing other goods.
3. Wasteful - Buying things that do not give satisfaction to a person.
4. Harmful - Buying goods and prohibited drugs that endanger their health.

Factors that influence our Consumption

1. Income 7. Imitation or Bandwagon Effect
2. Occasion
3. Advertisement
4. Prices
5. Values
6. Season
 Laws of Consumption
1. Law of Variety
2. Law of Harmony
3. Law of Imitation
4. Law of Economic Order (Priority)
5. Law of Diminishing Marginal Utility

Trends of Filipino Consumption

Rural Areas versus Urban Areas
Spending Patterns
Standards of Living

Classification of Standards of Living

1. Poverty Standard - They depend on donations and alms
2. Rare-Living Standard - Income of people is enough only for their basic needs for
survival. (Hand to Mouth)
3. Decency Standard - They experience dignified living. They have the chance to
choose the kind of product to use.
4. Comfort Standard - Income is sufficient enough to enjoy the comforts in life.
Worry-free living. They have the opportunity to save their income.
5. Luxury Standard - People buy and use high-quality products. Price is ot a
problem for them. No limit in their expenses.

Filipino Values and Cultures that influence their Consumption Behavior-

1. Indebtedness - Buying from people who have done good to us.
2. Colonial Mentality - Buying imported goods. They have high regard for foreign
products.
3. Regionalism -Supporting and patronizing the products of their own region or
province.
4. “Pakikisama “ (Peer Influence/Pressure) - “Suki” system. Buying from friends or
relatives.

Characteristics of a Consumer- The action,behavior and styles of a Consumer in

Buying things show what kind of consumer he/she is:
1. Analytical - The consumer examines patiently the parts of the product she intends
to buy. She compares the materials, ingredients, price and weight to the other products
to know if it is worth-buying.
2. Looking for alternatives that will suit the needs and budget.
3. Alert - Always observant and watchful on the wrong-doings of the sellers.
4. Reasonable - The consumer always takes into consideration the price and the
quantity of the product.
5. Budget-Conscious - Not an impulsive consumer: Midnight sale, buy-one-take-one,
promotions, complementary products.
6. Avoiding panic buying -Artificial shortage made by hoarders who want a high
price.
7. Not affected by Advertisement - Endorsement of a product by a celebrity has no
effect on a wise consumer.

Responsibilities of the Consumer

1. Be united so that consumers will be strong enough to fight for their rights.
2. Protect the environment.
3. Always be alert, watchful, and mindful or vigilant of the wrongdoings,
malpractices of the sellers, businessmen and the government.
4. Support and patronize the local products and be part in developing the local
industries.
5. Take action and be vigilant in fighting the irregularities that affect the welfare and
rights of the consumer.

Rights of a Consumer
1. Right to choose
2. Right to proper information
3. Right to have basic Needs
4. Right to security
5. Right to organize or form an association
6. Right to a clean and orderly environment

3. DISTRIBUTION - is the process of bringing the goods and services to the different
sectors of the economy.
Distribution needs attention for the good of the economy. The following
questions should be considered:
a) For whom are the goods to be produced?
Ii is essential to identify the people who will receive the final products of the
economy. Distribution of goods and services can be done after knowing who will
be given priority in the consumption of such products.
b) How to distribute the goods?
The greatest number of people who need certain products should receive the
larger amount of what was produced.
Consider the personal and social outlook and consumption behavior of people
who
will receive the larger quantity of the produced goods of the economy.

4 EXCHANGE - the act of giving or receiving one thing as an equivalent for

another: trade, barter; the mutual giving and receiving of equivalents in money, goods, or
labor, specifically the system by which titles in commodities in distant localities are
transferred, by means of credits, drafts,etc.
5. PUBLIC FINANCE -The administration of public economy is known as public
finance. Public economy is the study of how people satisfy their wants through the
services of agencies represented by the government.
Governments must decide how much they intend to spend and then look nabout
for sources of revenue. The government depends on their taxing power to raise enough
money.
Public finance is composed of five divisions:
1. Public expenditures
2. Public revenues
3. Public debt
4. Fiscal Administration
5. Fiscal Policy

CONCEPT OF MARKET:
1. Geographical location
2. Body of buyers and sellers
3. General Economic Business condition

MACROECONOMICS versus MICROECONOMICS

Macroeconomics is the study of national entities.

Microeconomics - The part of economics concerned with single factors and the effects of
individual decisions.

It is a branch of economics that studies the behavior of individuals and firms in making
Decisions regarding the allocation of scarce resources and the interactions among these
individuals and firms.

It is a study of economic tendencies or what is likely to happen when individuals make

certain choices or when the factors of production change individual actors are often
grouped into microeconomic subgroups such as buyers, sellers, and business owners.

It concerns decision-making by individuals and small groups, such as families, clubs,

firms and governmental agencies.

It studies the decisions of individuals and firms to allocate resources of production, ex-
change,and consumption.

It deals with prices and production in single markets and the interaction between dif-
Ferent markets.
Study of Microeconomics is concerned with the following-
1. Theory of Consumer Choice and demand -This describes how the typical
consumer, constrained by a limited income, chooses among the many goods and
services offered for sale.
2. It deals with the choices made by business organizations or firms. - To see how
the firm decides what goods and services to produce,, how much to produce, and
at what price to sell its output.
3. It considers how consumers and firms interact.
4. It describes the supply and demand for inputs into the productive process.
5. It deals with the organization of the market and how they achieve efficiency.

Key Areas Involved in Microeconomic

1. Demand, Supply and Equilibrium
2. Measurement of Elasticities
3. Consumer Demand Theory
4. Theory of Production
5. Opportunity Cost
6. Market StructureMODULE TWO

Demand for Goods and Services-

Demand - schedule of various quantities of commodities which buyers are willing
and able to purchase at a given price, time and place.

Two conditions involved in demand:

a) Willingness to buy
b) Ability to buy

Two classifications of Demand:

a) Individual demand
b) Market Demand

Demand can increase or decrease demand for goods and services.

1. Income - when income increases, purchase increases
2. More people, more demand
3. Tastes and preferences - High preference, high demand
4. Price Expectation - Fall of prices, increase purchases
5. Prices of related goods - Prices of related goods are lower,
Increase the demand

Law of Demand: Individuals buy goods and services as prices decrease, buy less
goods as prices increase.
Effects on the Law of demand
1. Income Effect- At lower prices, an individual has a greater purchasing
Power. He can buy more goods and services; at higher prices, naturally he can buy less.
2. Substitution Effect - Consumers tend to buy goods with lower prices and
as
price decreases, quantity demanded increase.

Equilibrium Quantity - Quantity supplied is equal to the quantity demanded.

Measurement of Elasticities:
Elasticity is a measure of a variable’s sensitivity to a change in another variable.
It refers to the degree to which individuals, consumers or producers change their
demand or the amount supplied in response to price or income changes.

Elasticity of Demand-
Demand Elasticity - reaction or response of the buyers to change in price of goods
and services.
Two types of Demand Elasticity-
a) Elastic demand - A change in price results in a greater change in quantity
demanded. Buyers are sensitive to price change,
b) Inelastic demand - A change in price results in a less change in quantity
demanded.

Determinants 0f Demand Elasticity-

1. Number of good substitutes
2. Price increase in preparation to increase
3. Importance of the product to the consumer

Economic Significance of Demand Elasticity

1. Wage determination
2. Farm production goods
3. Maximum profits
4. Imposition of sales taxes

Consumer Demand Theory

This is centered on the study and analysis of the utility generated from the satis-
faction of wants and needs.
Demand function shows the quantity of a good demand depending on its price
and overall income.

Production Theory - explains the principles by which a business firm decides how much
of each commodity that it sells (its outputs or products) it will produce; and how much
fixed capital goods that it employs (its inputs or factors of production) it will use.
Opportunity Cost of a product or service means the revenue that could be earned by its
alternative use, in other words the cost of the next best alternative of a product or
service. It refers to what you have to give up to what you want in terms of other goods or
services.

Market Structure

Market has the following criteria to classify it-

1. Number of buyers and sellers
2. Kinds of products
3. Pricing
4. Mobility in the market
5. Availability of information

Some Classifications of Market

Perfect Competition
A market is in the state of perfect competition when businessmen have the
absolutepower to compete among themselves;
Characteristics- 1. Many buyers and sellers of the product
2. Homogenous product
3. Freedom to enter and leave the market
4. Sufficient knowledge: Present market condition & situation

Monopoly
A market structure with only one seller and producer who controls the biggest
portion of supply in the market.
Characteristics- 1, One seller
2. Product differentiation

Monopsony
Market structure where there is only one buyer in the market. The power of the
Buyer prevails. The buyer has the power to determine the level that will benefit
him. He has the opportunity to choose high-quality products and services. The
government is a monopoly in buying the different services for the public.

Oligopoly
Market structure where the number of producers is few. Products are almost
Similar. Brand name is used to differentiate the products.
SUPPLY OF GOODS AND SERVICES
Supply represents the amount of goods and services available for consumption at
different prices,
It refers to the quantity of goods and services that suppliers are willing and able to sell
at alternativ prices.
It is the schedule of various quantities of commodities which producers are willing and
able to produce and offer at a given price, place and time.

Factors that determine the supply-

1. Technology - Modern technology and machineries speed up production
processes and increase output.
2. Price Expectation - Producers also expect and sometimes speculate the
price decrease/increase.
3. Number of Sellers - If product is in season, there are more sellers.
4. Costs of Production - If production cost is high, producers and
businessmen decrease their production.
5. Price of Related Products - If the price is high, the supply of substitute and
complementary goods increase.
6. Subsidies - This refers to the assistance provided by the government to
small-scale businessmen and farmers to make them produce more products.

Law of Supply - As price increases. Quantity supplied also increases, and as price
decreases, quantity supplied also decreases,

Supply Function
Quantity supplied is affected by changes in price. The supply increases, the price
Increases. Quantity supplied and price have a direct relationship.

Elasticity of Supply - reaction or response of the sellers/producers to price change of

goods.

Determinant of Supply Elasticity - The principal determinant of supply elasticity is the

time involved in the ability of producer to respond to price changes

MODULE THREE

Consumer Profile
The Modern Consumer- Consumer refers to people who buy and use the goods or
services to satisfy their needs.
The consumer has the right to choose and decide what kind of products he/she prefers
to buy in such a way that every centavo spent is accounted for.
Government Agencies that Protect Consumers-
1. Department of Trade and Industry - All abuses, irregularities and malpractices
of the trader and businessmen should be reported to the DTI.
2. Bureau of Food and Drugs - Complaints regarding fake drugs, cosmetics and
others are addressed to BFAD.
3. Local Municipalities - Local government units formed a task force to monitor the
prices of goods and services and to act in the consumer’s complaint.
4. Mass Media - Radio, television, newspaper handle all kinds of complaints.

Maslow’s Hierarchy of needs

Physiological Needs (Human basic Needs)

Safety/Security (Survival)
Social Needs (Belongingness)
Self-Esteem (Self-regard, reputation, prestige)
Self-Actualization (Accomplished/fulfilled)

Utility Theory
Utility refers to the satisfaction or pleasure that an individual or consumer gets
from the consumption of a good or service that she/he purchased.
Utility is measured by how much a consumer is willing to pay for a good or
service.

Two Concepts of Utility Theory:

a) Marginal Utility - additional satisfaction that an individual derives from consuming

an extra unit of a good or service. Marginal means “additional” or “extra”.
Marginal utility of a commodity is the increase in total utility or satisfaction
derived from the consumption of an additional or extra unit of such commodity; it is the
loss of
utility or satisfaction if one unit is consumed.
b) Total Utility _ is the total satisfaction that a consumer derives from the
consumption of a given quantity of a good or service in a particular time period.
It is the total benefit that a person gets from the consumption of a good or service.
It depends on the quantity of a good consumed -- more consumption generally
gives more total utility.
Our total utility usually increases as we consume more and more of a good or
service but generally the increase is at a slower or declining rate.
This implies that each extra unit consumed adds less and less marginal utility
than the previous units consumed as we become satiated with the good or service we are
consuming.
PRODUCTION, COSTS AND REVENUE

Production- economic activity which combines the four factors of production to form an
output that will give direct satisfaction to the consumer.
It includes material goods or any provision of service that satisfies the wants of
the people.
It is the act of combining the factors of production by firms or institutions in order
to produce outputs of goods or services.
It is the process of converting INPUTS into OUTPUTS.
Inputs - commodities and services that are used to produce goods and services
Outputs - various goods and services that result from the production process and are
either consumed or employed in further production.

Production Function
It is the functional relationship between quantities of inputs used in production
and outputs to be produced.
The production function specifies the maximum output that can be produced with
a given quantity of inputs, given the existing technology of a firm

Three Production Concepts-

1) Total product - total output produced after utilizing the fixed and variable inputs in
the production process.
2) Marginal product - extra output produced by one additional input while other
inputs are held constant.
3) Average product - total product divided by total units of input used.

THE THEORY OF COST

Cost refers to all expenses acquired during the economic activity in the
production of goods or services. It includes expenditures incurred for the utilization
of the various factors of production in the creation of goods.

Sales minus Costs = Profit

Or
Total Revenue less Total Costs = Profi

FIRM’S GOALS
1. Making a high quality product
2. Business growth
3. Greater market share
4. Creation of employment
5. Workforce satisfaction
FUNDAMENTAL GOAL OF THE FIRM - To maximize profit
Costs consist of all expenses/expenditures incurred during the operation of the
business.
These can be seen in the preparation of the Statement of Operations periodically.

Total Revenue - the amount received from the sale of the product. It is the price of the
output multiplied by the quantity sold.

MODULE FOUR

TYPES OF BUSINESS ORGANIZATIONS

As to Ownership:
Sole/Single Proprietorship
Partnership
Corporation
Cooperative

As to Nature of Business
Service
Trading or Merchandising
Manufacturing

Single or Sole Proprietorship - form of business owned by a single person or proprietor.

How to Organize- Register the name with DTI
Pay the municipal license in the local government
Apply for VAT or NON_VAT number with BIR
Register with the BIR the Books of Accounts and business forms
Advantages:
1. Easy to organize.
2. Its organization and operation only involve few business requirements.
3. Single proprietor is the boss.
4 Financial operations are not complicated.
5. The owner acquires all the profits.
Disadvantages-
1. Limited ability to raise capital.
2. Sole proprietors have unlimited liability. (Risks not only the assets of the
Business but to the extent of his personal assets.)
3. Limited ability to expand.
4. Business is entirely a responsibility of the owner.
Partnership - two or more persons who agree to placemony, property or industry in a
business in a common fund with the aim of sharing the profits among themselves. It can
be oral or written.
How to Organize: 1. Register the business name with DTI.
2. Have the partnership agreement notarized and registered
with the SEC.
3. Obtain a TIN for the partnership from the BIR.
4. Obtain pertinent municipal license from the local govt.
5. Obtain the VAT or NON-VAT number from the BIR.
6. Register the Books of Accounts (Simplified Bookkeeping
records or Journals and Ledgers) and the business
forms used (sales invoices, cash sales invoices,official
receipts) with the BIR.
Advantages- 1. Easy to form.
2. Flexibility of operation.
3. Efficiency in operation (Two heads are better than one.)
4. Partners are expected to have great interest in the operation
of the business.
5. Possibility of bigger resources.

Disadvantages- 1. Partners have unlimited liability for partnership debts.

2. It has a limited life or it lacks stability. (Can be dissolved
upon their agreement: withdrawal, incapacity of death
of a partner.)
3. Limited ability to raise capital.
4. Conflicts and quarrels between or among partners.
Grounds: Rules, regulations, policies, number of hours in the
area.
Responsibility
Decision-making
Agreements and profit distribution
Corporation - an artificial being created by operation of law, having the rights of
succession, and the powers, attributes and properties expressly authorized by law or
incident to its existence.
How to Organize: 1. Verification of name with SEC.
2. Drafting and execution of the Articles of Incorporation.
3. Deposit of cash received for subscribed shares of stocks in a
banking institution - name of temporary treasurer, in
trust for and to the credit of the corporation.
4. Filing of the Articles of Incorporation.
5. Payment of filing and publication fee.
6. Issuance by SEC of the certificate of incorporation.
7. Registration of the corporate name with the DTI.
 8. Obtaining municipal license from the local government.
9. Obtaining the VAT or NON-VAT number
from the BIR.
10. Registration with BIR of Books of Accounts and accounting
forms.
By-Laws - Rules of action for the internal government of a corporation and
for the government of its officers,,, stockholders and members.

Advantages: 1. It has a legal capacity.

2. It has continued and more or less permanent existence
50 years life span
3. Management Is centralized. It has Board of Directors
or Board of Trustees
4. It has the most efficient management.
5. Shareholders have limited liability.
6. Shareholders freedom.
7. Ability to raise more capital.

Disadvantages:
1. Complicated to maintain and not easy to organize.
2. Subject to higher tax.
3. Government intervention.
4. It has limited powers.
5. Abuses of corporation officials.
6. Some corporations are engaged in questionable activi-
ties (Sell substandard goods; pollute the envi-
ronment.
7. There is a very impersonal or formal relationship
between the officers and employees of a
corporation.

Cooperative - Only organization composed primarily of small producers and

consumers who voluntarily join together to form business enterprise which
They themselves own, control and patronize.

Principles of Cooperatives:
1. Open and voluntary membership.
2. Democratic control.- one member-one vote.
3. Limited interest in capital.
4. Division of net surplus.
5. Cooperative education.
6. Cooperation among members.
Objectives of Cooperative
1. To provide goods and services to its members and thus enable them
attain increased income and savings, investments, productivity and purchasing
power.
2. To promote among them equitable distribution of net surplus
through maximum utilization of economies of scale, cost-sharing and risk-
sharing without however conducting the affairs of the cooperative for
eleemosynary or charitable purpose.
3. To provide maximum economic benefits to its members, teach mem-
bers efficient ways of doing things in a cooperative manner.
4. To propagate cooperative practices and new ideas in business and
management.
5. To allow the lower income groups to increase their ownership in
the wealth of the nation.

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