Reviewer for Economics, Taxation and Land Reform

Chapter 1: Introduction
1. Economics is the study of proper and efficient use of scarce resources to produce commodities for the
maximum satisfaction of unlimited human wants and needs.
2. Economics is divided into two branches: microeconomics and macroeconomics. The former deals with the
behavior of individual component while the latter deals with the behavior of economy as a whole.
3. Fundamental goals of economics include:
(a) strengthening of economic freedom,
(b) promotion of economic efficiency,
(c) promotion of economic stability,
(d) improvement of economic security, and
(e) attaining a high level of growth in the economy.
4. Another useful distinction of economics has to do with our purpose in analyzing a problem: positive economics
and normative economics. Positive economics relates to what is. it deals with how the economy works.
Normative economics, is used to make judgments about the economy and prescribe solutions to economic
problems.
Questions for Discussions
1. Cite an example on how you can use economics in real-life situation.
2. What is the significance of the five mentioned social sciences to economics?
3. Differentiate microeconomics from macroeconomics by citing examples.
4. Give examples of normative and positive statements.
5. Identify an economist in each school of thought and briefly explain his contributions that had influence in the world
of economics. great
Chapter 2: The Economic System
1. factors of production are categorized into land, labor, capital, and entrepreneurship.
2. An economic system is a set of economic institutions that dominates a given economy and plays a vital role in
answering the basic economic problems. The four economic systems are traditional, command, market, and
mixed economies.
3. Scarcity, a condition in which all resources are available only in limited supply.
4. The opportunity cost of a decision measures what has been given up by taking that decision rather than
the best alternative decision. Another economic term that we use in discussing opportunity cost is trade-off. It
is a situation in which more of one good thing can be obtained only by giving up some of another good thing.
Questions for Discussions
1. What are the three basic economic problems? Briefly explain each economic problem.
2. What is meant by scarcity, opportunity cost, and trade-off? Explain why these concepts are vital in economics.
3. Explain briefly why money is not considered as a factor of production.
4. In what economic system does our country, Philippines, belong? Why?
5. Briefly explain why the production possibilities frontier curves inward toward the axes or curves concave to the
origin. Why is it impossible for the economy to be outside or above the production possibilities frontier?
Chapter 3: Elements of Demand and Supply
1. Demand refers to the number or amount of goods or services desired by the consumers at various prices in a
particular period of time. The amount or quantity of goods that consumers are willing and able to purchase at a
given price at a given time is known as quantity demanded. It is determined by income, population, expectations
about the future, price of related goods, and tastes and preferences.
2. The law of demand shows an opposite relationship between the amount (quantity) of goods and price. As price
increases, quantity demanded decreases, ceteris paribus; and as price decreases, quantity demanded increases,
ceteris paribus.
3. Supply refers to the number of goods producers are willing and able to sell at a given price at a given period of
time. Factors that affect supply other than the good's price are change in technology, cost of inputs used,
expectation of future price, change in price of related goods, and imposition of taxes, subsidies and
regulations, and number of firms in the market.
4. The law of supply states that as the price increases, quantity supplied increases, ceteris paribus; and as price
decreases, quantity supplied decreases, ceteris paribus.
5. A condition which implies a balance between demand and supply is known as market equilibrium.
6. A situation where quantity supplied is greater than quantity demanded is known as surplus, while a situation
where quantity demanded is greater than quantity supplied is known as shortage.
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 7. Price control set by the government includes: price ceiling and price floor. Price ceiling is defined as the
maximum price a good or service is bought or sold whereas government control through imposition of minimum
price is referred to as price floor.
Questions for Discussions
1. Briefly discuss the difference between change in demand versus change in quantity demanded. Also discuss the
difference between change in supply versus change in quantity supplied. Cite an example.
2. Explain why the law of demand is not true if other determinants are not constant,
3. Why does the demand curve slope downward?
Chapter 4: Concept of Elasticity
1. Elasticity measures the percentage change in one variable in relation to the percentage change in another
variable.
2. Price elasticity of demand measures the change in quantity demand that occurs with respect to a percentage
change in price. Its value ranges from zero to infinity and is categorized depending upon response of quantity
demanded to a change in price, that is &> 1 or elastic, &< 1 or inelastic, D= 1 or unitary elastic, & = ∞ or
perfectly elastic, and 8 = 0 or perfectly inelastic.
3. Determinants of price elasticity of demand include the degree of importance of product, number of available
substitute, proportion of income in price changes, and time period.
4. The responsiveness on quantity demanded to a change in income is referred to as income elasticity of demand.
Its numerical coefficient is defined as "the percentage change in quantity demanded divided by the percentage
change in income." Products with positive income elasticity are normal goods, and those with negative income
elasticity are inferior goods.
5. Changes in price generally affect total revenue in two ways: (a) the price effect on which an increase in unit price
will tend to increase revenue, while a decrease in price will tend to decrease revenue, and (b) quantity effect on
which an increase in unit price will tend to lead to fewer units sold, while a decrease in unit price will tend to lead
to more units sold.
6. Additional elasticity relating to demand is the cross elasticity of demand which measures the responsiveness of
quantity demanded of a good to a change in the price of another good. Cross elasticity of demand determines
whether the good is a substitute or complementary, that is, cross elasticity of demand for complementary goods is
negative, and positive for substitute goods.
7. Price elasticity of supply measures the responsiveness of quantity supplied in response to a percentage change
in price.
Questions for Discussions
1. Briefly explain why the negative sign is usually ignored when computing for price elasticity of demand.
2. Briefly explain the effect of the price elasticity of demand to the total revenue. Cite an example.
Chapter 5: The Consumer Behavior
1. The marginalist revolution in the 19th century developed the concept of utility. Utility or satisfaction refers to a
subjective pleasure that an individual can get from consuming a good or service. In economics, it explains
how individuals maximize their limited resources among the commodities that provide satisfaction.
2. There are two ways to measure utility. These are cardinal ranking of preferences and the ordinal ranking of
preferences. In the cardinal ranking of preferences, utility or satisfaction is measurable by attaching a specific
number to each level, while ordinal ranking of preferences rank or order an individual's preferences.
3. The law of diminishing marginal utility states that when an individual consumes more units of a commodity per
unit of time, his/her total utility increases, reaches its maximum, and starts to decrease. It means that as more
goods are consumed, the extra satisfaction or marginal utility received decreases. Consumer's equilibrium is
achieved when the ratio of marginal utility of good X to its price is equal to the ratio of marginal utility of good Y to
its price subject to its income constraint.
4. There are three assumptions of rational preferences; these are completeness, non-satiation, and
transitivity.

Questions for Discussions

1. What is utility? What is the difference between total utility and marginal utility? Explain why utility is subjective for
each individual. 2
2. How do we measure utility?
3. What is indifference curve? What are the characteristics of indifference curve?
4. What is an Engel curve? How does an Engel curve appear for inferior and luxury goods?
5. Discuss the difference between income and substitution effects.
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Chapter 6: Concept of Production
1. Production is a process of combining two inputs to come up with an output. Capital and labor are two important
factors of production. The quantity of an output will depend on the number of available resources.
2. Production is classified into two: the short-run and the long-run analyses. Short-run analysis is using one
factor variable of production that cannot be changed and employing fixed inputs, while the long- run analysis
connotes that all factors can be changed.

Questions for Discussions

1. Describe the three stages of production. What stage of production is most favorable? Explain your answer.
2. Explain the relationship between marginal product (MP) and average product (AP).
3. Explain the difference between short-run and long-run analysis of production. Cite an example.
4. Explain the law of diminishing marginal returns and give numerical example.

Chapter 7: Analysis of Cost, Profit, and Total Revenue

1. Economic costs are in tune with future costs that have major repercussions on potential profitability of the firm.
They give emphasis on the costs that are incurred by not putting the resources to optimum use. Whereas,
accounting costs are costs that are properly recorded on a journal or ledger.
2. Explicit costs refer to the actual expenses of the firm in purchasing or having the inputs it needs while implicit
costs refer to the value of inputs being owned by the firm and used in its own production process.
3. Short-run is a time horizon during which one input is held constant. Short-run costs include:
 total cost the sum of fixed cost and variable cost;
 fixed cost-cost that does not vary with output;
 variable cost - cost that varies with output;
 average fixed cost- total fixed costs divided by the number of output produced;
 average variable cost - total variable cost divided by the number of output produced;
 average total cost - total cost divided by the number of output produced; and g. marginal cost - refers to
changes in total cost divided by the change in output produced.
4. Long-run is a time horizon wherein all fixed factors can be variable. Long-run average total cost of producing a
given level of output is always the lowest point of the short-run average total cost of producing that output. The
long-run marginal cost measures the change in long-run total cost from a given change in output.
5. Business profit refers to the difference between total revenue and explicit cost, while economic cost refers to
the difference between total revenue and both explicit and implicit costs.
Questions for Discussions
1. Differentiate business profit from economic profit. Cite an example.
2. In what situation may a firm continue or shutdown its operation? Explain your answer
Chapter 8: Market Structure
1. Market structure is concerned with the type of market in which firms operate. It affects the extent of power that a
firm has to impact the price of the product.
2. The two major types of market structure are perfect or pure market and imperfect market.
3. There are two critical assumptions of the theory of perfect competition: the firms are price takers and the
industry displays freedom of entry and exit.
4. Forms of imperfect market identified were monopoly (single seller of goods and services), oligopoly (few
number of sellers, each aware of the action of the other firm/s), monopolistic competition (production of many
firms with somewhat different products), monopsony (where there is only one buyer in the market who has the
control of supply it buys), and oligopsony (there is a small number of buyers competing to obtain the factors of
production).
Questions for Discussion
1. What are the two types of market structure? List the distinguishing feature of each type.
2. What are the characteristics of pure competition, monopoly, oligopoly, and monopolistic competi- tion? Cite an
example of a firm that operates in each market structure.
3. Differentiate cartel from collusion. Cite an example for each.
4. What are the determinants of market structure? Briefly explain each determinant.
5. What are the types of oligopoly? Cite an example for each type.
Chapter 9: Measuring the Economy

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 1. Gross domestic product (GDP) is one of the ways in measuring the economy. It refers to the market value of
all final goods and services produced domestically in a given period of time.
2. Nominal GDP refers to the value at current price. Real GDP refers to the value at constant price using a base
year.
3. There are two approaches to GDP accounting: expenditure approach and the industrial origin or production
approach.
4. Gross regional domestic expenditure is the breakdown of the aggregate value of goods and services by
regions using the expenditure approach. Gross regional domestic product, on the other hand, is the breakdown
of the aggregate value by regions using the production approach.
5. Gross national income (GNI) refers to the value of final goods and services produced domestically and
abroad by its citizens. Net primary income (NPI) is added or deducted to or from the GDP depending on its sign.

Questions for Discussion

1. Differentiate gross domestic product (GDP) from gross national income (GNI). Cite an example for each.
2. Enumerate the activities that are excluded in the computation of GDP. Explain each activity and cite an example.
3. What is the major component of GDP expenditure approach? Briefly discuss each component. Cite an example.
4. Define the terms: real GDP and nominal GDP. Which one is a better technique? Give a numerical example of
nominal GDP and convert it into real GDP.
5. Illustrate and explain value-added method using your own example.
Chapter 10: Consumption and Savings
1. In economics, consumption refers to the using up of resources.
2. Determinants of consumption include: income, wealth, price level, consumer expectation, and interest rate.
3. Part of income which is not consumed is saving.
Questions for Discussions
1. Differentiate marginal propensity to consume (MPC) from marginal propensity to save (MPS); average propensity
to consume (APC) from average propensity to save (APS).
2. Explain why MPC and MPS should be always equal to 1.
3. Explain how does the multiplier work. Give your own example.
4. What are the determinants of consumption? Briefly explain each determinant.
5. Differentiate consumption function from saving function. What does the 45° line represent?
Chapter 11: Aggregate Expenditure Model
1. Consumption has a positive relationship of with income; consumption spending increase as income increase.
Consumption depends on other things aside from income, and these are wealth, price level, consumer
expectation, and interest rate.
2. A Inflationary gap is excess to the amount of aggregate expenditures at full employment GDP over those
necessary to realize full employment. A recessionary gap exists when aggregate expenditures at full
employment GDP is less than the acquired level to attain the full employment GDP, or when the aggregate
expenditures fall below the 45º line.
Questions for Discussions
1. Differentiate inflationary gap from recessionary gap. Under what circumstances do recessionary gap and
inflationary gap occur?
2. Differentiate aggregate demand from aggregate supply.
3. What does the downward sloping curve represent?
4. What are the reasons for the downward sloping curve of aggregate demand? Explain.
5. On what occasion is the aggregate market in equilibrium?

Chapter 12: Business Cycle, Unemployment and Inflation

1. Business cycle is the fluctuation in overall economic activity, characterized by the simultaneous expansion on
contraction of output. In most sectors, phases of business cycle include: peak, recession, trough, and
expansion.
2. Unemployment is a condition of people who are able and willing to work but cannot find jobs. Types of
unemployment include unavoidable and avoidable unemployment. Types of unavoidable unemployment
include frictional unemployment, structural unemployment and cyclical unemployment. Full employment
does not mean that unemployment is zero; rather, it is unavoidable unemployment if cyclical unemployment is
zero.
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 3. Inflation refers to the rate of increase in the average prices of goods and services typically purchased by
consumers. Demand pull inflation, supply shocks to inflation, and profit-push inflation are among the
causes of inflation. Losers of inflation include fixed income earners, savers, creditors, and holders of securities
while winners of inflation include debtors, fixed asset owners, and producers.
4. Deflation refers to a sustained decrease in the average price level. Hyperinflation refers to a period of
extremely high inflation. Stagflation means that the economy is experiencing increasing inflation and
unemployment at the same time.
Questions for Discussion
1. Explain why the business cycle of one country is tied up to the business cycle of the Philippines.
2. Differentiate unemployment from underemployment. Which one would you prefer? Cite an example and explain.
3. Can the Philippines achieve zero unemployment? Explain your answer.
4. What is Okun's law? Explain its applicability to the Philippine economy.
5. Explain the trade-off between unemployment and inflation.
Chapter 13: International Economics
1. Mercantilism argues that for a country to become more powerful and richer, there should be an intensification
of exports while reducing the importation of goods from other countries thereby increasing the amount of
bullions.
2. Adam Smith contended that free trade would enhance specialization in producing a commodity, hence,
harnessing its absolute advantage over other countries.
3. David Ricardo argued that even if a nation had absolute disadvantages on two commodities with respect to other
nations, mutually advantageous trade can take place by applying the law of comparative advantage.
4. There are two major types of trade barriers: tariff barriers and non-tariff barriers. Non-tariff barriers include
quota, government regulations, and exchange control.
5. Trade restrictions are needed by developing countries under the following arguments: (a) infant industry
argument; (b) high standard of living argument, (c) increased employment argument; and (d) self-
sufficiency argument.
6. Foreign exchange market is the organizational framework wherein individuals, businesses, and banks buy
and sell foreign exchange. The price of Philippine peso versus other currencies is called foreign exchange
rate.
7. There are two types of exchange rates: floating/flexible exchange rate (market-driven) and fixed exchanged
rate (fluctuations within a range of values are determined by the CB). Managed float and dirty float are under
the floating/flexible exchange rate system while adjustable peg system and the crawling peg system are
examples of fixed exchange rate system.
8. The balance of payments (BOP) is a summary of the economic transactions of a country with the rest of the
world for a specific time period. Its economic transactions include current account, and capital and financial
account. The summary measure of the performance of the Philippine's external transactions is called the overall
BOP position.
Questions for Discussion
1. Explain the need for the Philippines to trade with other countries.
2. Explain the law of comparative advantage by David Ricardo. Do you think this law is applicable to the Philippines'
trading activities?
3. Differentiate the theory of absolute advantage by Adam Smith from comparative advantage by David Ricardo.
4. Differentiate floating exchange rate from pegged exchange rate. Which is more applicable in the Philippine
economy?
5. Explain each type of floating exchange rate. Cite the advantages and disadvantages of each type.
Chapter 14: Monetary and Fiscal Policy
1. Monetary policy is the deliberate control of money supply and in some cases, credit conditions for the
purpose of achieving macroeconomic goals.
2. Monetary policy has three frameworks that can be adopted by the central bank of a country to achieve the
desired level of inflation rate and thus affecting the level of economic growth. These are: monetary aggregate
targeting, interest rate targeting, and inflation targeting.
3. A central bank is the central monetary authority which provides monetary policy directions that cover the
areas of money, credit, and banking. It also supervises the operation of banks and regulates the activities of
nonbank financial institutions or intermediaries. The primary mandate of the BSP is: "to promote price stability
conducive to a balanced and sustainable growth of the economy", Par. 2, Sec. 3, R.A. No. 7653. issuer of
banknotes and coins, manager of the country's foreign exchange reserves, external debt, and
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 international stability, overseer of the convertibility of Philippine peso; lender of last resort, and the
government's banker, financial advisor, and official depository.
4. Monetary policy stances are categorized into: expansionary monetary policy or the monetary policy stance
that intends to increase the level of money supply in the economy, and contractionary monetary policy or
the policy stance that aims to decrease the level of money supply in the economy.
5. Fiscal policy refers to the government actions that affect total government spending activities, tax rates,
and revenues. It is an instrument which can push the economy towards equilibrium, when there are
destabilizing elements operating in the economy. Two types discretionary fiscal policies. Components of
fiscal policy include: taxation, government borrowing, and s of fiscal policy are automatic stabilizers and
government spending. Fiscal policy has traditionally been assigned with three major functions, as follows:
allocational function, distributional function, and stabilization function. There are three possible stances
of fiscal policy. These stances are: neutral, expansionary, and contractionary.
6. In the past years, the fiscal policy in the Philippines is characterized by continuous and increasing levels of debt
and budget deficits. Recent data shows that there have been improvements in the present administration showing
a fiscal surplus of P61 million for the period January to April 2011. The fiscal surplus for the month of April of
P26.258 billion was the highest recorded for the past 25 years.
Questions for Discussion
1. Differentiate monetary policy from fiscal policy.
2. What is the role of Bangko Sentral ng Pilipinas (BSP) in controlling the money supply?
3. In what case do we apply automatic stabilizers and discretionary fiscal policy?
4. Why is the Bangko Sentral ng Pilipinas (BSP) the sole government institution that can print paper money and mint
coins?
5. How can fiscal policy promote economic development?
Chapter 15: Agrarian Reform
1. Land reform is used interchangeably with agrarian reform; however, in the real sense of the word, the latter is
much broader than the former. Agrarian reform is more comprehensive in terms of concept, coverage, and
beneficiaries.
2. Lands covered by the CARP include all public and private lands as provided in Proclamation No. 131 dated July
22, 1987 including government-owned lands devoted to or suitable for agriculture, alienable and
disposable lands of the public domain devoted to or suitable for agriculture, and private lands devoted to
or suitable for agriculture regardless of agricultural products raised or that can be raised thereon.
3. Retention limit of the landowner is up to 5 hectares. In addition, each child of the landowner may be awarded 3
hectares, provided he/she is at least 15 years old and actually tilling the land or directly managing the
farm at the time CARL took effect.
4. As mandated by the law, just compensation shall be determined based on the following factors: cost of
acquisition of the land, current value of like properties, its nature, actual use and income, the sworn valuation by
the owner, the tax declarations, the assessment made by government assessors, the social and economic
benefits contributed by the farmers and the farm workers and by government to the property as well as the
nonpayment of taxes or loans secured from any government financing institution on the said land.
5. Lands acquired under VOS, CA, or EO 407, land value (LV) is computed using the factors such as: comparable
sales (CS), capitalized net income (CNI), and market value (MV) per tax declaration.
6. As to the prohibition on awarded land, no beneficiaries shall sell, transfer, or convey the land awarded to
him within the period of the ten (10) years, except to his heirs, to the government, or to the LBP. Any
transfer in violation of said provision is deemed null and void.
7. There are six (6) kinds of tenants that are practiced by the farmers and landowners up to this time. The six
kinds of tenants are follows: (a) cash tenants; (b) share-of-produce tenants; (c) cash and share-of-produce
tenants; (d) fixed amount-of-produce tenants; (e) cash and fixed amount-of- produce tenants; and (f) rent-free
tenants.
Questions for Discussion
1. Differentiate agrarian reform from land reform.
2. Explain the objectives and principles behind agrarian reform.
3. What lands are exempted from the coverage of Comprehensive Agrarian Reform Program?
4. What factors are considered in the determination of just compensation? Why is there a need for just
compensation?
5. What are the different ways by which the government can acquire landholding for distribution under CARP? How
are these lands covered by the CARP being redistributed?
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 6. Differentiate the six (6) types or kinds of tenants in the Philippines by citing examples.
Chapter 16: Concepts of Taxation and Income Taxation
1. Taxation is the inherent power of the state to impose and demand contributions from its people because
through taxation, the government can provide the social services intended to its people. It is also the only
source of the government for its spending activities and that is the reason why we are paying our individual
taxes directly and indirectly. Direct tax means a direct deduction of a certain percent from our salary or wage
before we receive our salary. Indirect tax means we pay an additional amount through purchase of goods
and services, or in short, when consumption takes place.
2. The basic theories of what constitute fair taxation lie on the following principles: benefit principle, ability-to-pay
principle, and equal distribution principle.
3. A tax structure is classified into three (3): proportional tax, progressive tax, and regressive tax. Tax is said to be
proportional if the tax amount is directly proportional to their earning or income. Tax is progressive if it
takes a larger percentage of income from people-a larger income means a larger amount for tax. And it is
considered as regressive if it takes a larger percentage of income from people; the lower their income
means the higher the for tax. percentage
4. The following are the essential characteristics of tax: it is enforced contribution; it is generally payable in cash;
it is proportionate in character; it is levied on person or property; it is levied by the State which has jurisdiction
over the person or property; it is levied by the lawmaking body of the State; and it is levied for public purposes.
5. A sound tax system has the following basic principles: fiscal adequacy, equality or theoretical justice,
administrative feasibility, and consistency or compatibility with economic goals.
6. There are six (6) forms of escape from taxation: shifting, capitalization, transformation, tax evasion, tax
avoidance, and tax exemption. Each form has its own characteristics.
7. Income tax is a tax imposed on the net income of an individual taxpayer in one taxable period of time.
Income tax is computed on a yearly basis, and April 15th of every year is the deadline in filing of income tax.
8. A taxpayer is classified into three (3) categories: single; head of the family; and married, with personal
exemptions in a year of P20,000.00, P25,000.00, and P32,000.00, respectively, plus an additional amount of
P8,000 per child with a maximum of four (4).
Questions for Discussion
1. Explain how you differentiate the three tax systems or structures.
2. Explain the distinctions between tax from toll; tax from penalty; and tax from debt. Cite an example for each.
3. Explain the significant implications of taxation to the government and why it is important.