Why we learn Economics?

- To make better economic decisions

Scarcity
- The lack of a certain resource
- Always going to be present because 1. Older generations used up resources and 2. There is an end to
everything.

Opportunity Cost
- The foregone best alternative when we make a choice
- The value of the unpicked choice
- We strive for equity because it prioritizes giving the finite resources to those who need it most.

Esse est co esse

- “To exist is to co-exist”
- Your choices may affect other people

Needs
- Things you literally can’t live properly without
- Are absolutely a necessity

Desires
- Things you don’t necessarily need to live properly
- They are only wanted
Self-actualization
- Helps you find out your “niche”
- Don’t necessarily have to acquire it (i.e. some people die without knowing what they want to become)
- Some people see it as a need

Scarcity and Opportunity may affect and shift this hierarchy. That’s how it relates to economics.

Economic agents
- Human beings who act on needs and desires.
- All of us are economic agents

Rationality leads to maximization of needs and desires

Production Possibility Frontier

- Shows maximum possible output combinations of two goods and services in an economy, ceteris
paribus.
We have to remember that it’s good to maximize gains and minimize losses but not at the
expense of other people.
Law of Diminishing Returns
- The more of something you have, the less satisfaction you receive from it

- When total utility and marginal utility starts to decrease, then you have reached
the “super saturation point” or our “limit”.

The Law of Consumer Theory’s 3 Assumptions

1. Preferences are complete

2. Preferences are transitive

- once you have properly ranked your preferences, all the factors under the rank are logically consistent
- ex. If you prefer Mcdonald’s > Jollibee, and like Jollibee > KFC, then you prefer Mcdonald’s > KFC

3. All goods are desirable

- if you are given the chance to buy everything, you would because all goods are desirable
- people will buy more than necessary

What affects our consumption

- Bias
- Constraint
- Availability/scarcity

Factors of production
- tools to turn raw materials into output

1. Land
- The working area which provides space and natural resources to a producer
2. Labor
- Personnel hired to operate the business
- Law of Diminishing Returns is evident (more people there are, the less efficient)
3. Capital
- wages and salaries given to workers (wage = output based, more informal)(salary = time based, more
formal)
- Money invested to start/grow a business
- May come in the form of physical assets (ex. Equipment, machinery, etc.)
- May come in paper form or stocks and bonds

- You should ask “how much material to make?” and “method of making the material” for
avoiding scarcity and to be efficient.

Marketing

Brands
- Most successful way to secure a market
- these can spawn super fanatics about your product

Testimonials
- Use popular characters or celebrities to reel consumers

Scare
- Makes you feel like you aren’t “in”
- Makes you feel left out
Multiple branches of economics

Market
- Market is the interaction, and our language in this context is the “price”.
- 3 Types of market:
1) Product Market
- Where we buy or sell a good/commodity (can be physical or digital)
- Most products are finished goods (not raw materials)
2) Financial Market
- Where we buy or sell stocks, bonds, etc. (can be physical or digital)
- Where we can buy or sell raw materials like crude oil, precious metals, etc.
- Mostly used for businesses
3) Labor Market
- Where supply and demand of labor is located
- employee = supply, employer = demand

Supply and Demand

. Demand
- Willingness and ability if consumer to purchase a certain quantity at a specific price

- Negative slope
- If you are unwilling to buy something or don't have the ability to buy something, then you aren’t in that
specific market.
- Will always be a downward slope when graphing
- demand is a constant, price only changes the quantity demand
- quantity demand is inversely proportional to price

- Inferior goods
> Goods that decrease in demand when income is increased
> What you settle for when you have less income
- Normal goods
> Goods that increase in demand when income is increased
> Things that you really prefer
- Concept of normal goods and inferior goods changes from person to person

- Demand is affected by expectations/events (ex. During Feb, roses and chocolates increase in demand)

Complementary goods
- Goods that are usually bought with each other
- i.e. burger and fries, rice and ulam, etc.
- When the quantity demand changes for one product in the “group”, then it will similarly affect the other
products (i.e. QD of burger increases, so QD of fries increases)

Substitute goods
- Goods that have a similar function so they may go against each other
- Opposite of complementary goods
- i.e. rice and bread, etc.
- When the quantity demand changes for one product in the “group”, then it will oppositely affect the
other products (i.e. QD for rice decreases, so QD for bread increases)

Supply
- Quantity supply = non price factors + price x slope
- Positive slope
Cost of production
- Affects profit
- Cost is inversely proportional to production

Technology
- If you improve technology, your rate of supply will also increase and vise versa

Availability of resources
- Materials are scarce, so there’s a shift in the supply curve based on how much a product is used

Market Equilibrium
- When demand and supply intersect at a quantity and price
- Supply = demand, QS = QD
- A supply is met with a demand and vice versa
- It will always shift due to non-price factors, so a true balance is rarely achieved

- equilibrium is represented by the point in the graph where demand and supply meet

(graph representation of equilibrium)

Shortage
- The demand is too high for the supply (as seen in the graph)

Surplus
- When supply is higher than demand (as seen in the graph)
- The producers are losing money

Government Interventions to Market Inefficiency

Price Ceiling
- Government puts a cap on the price of a product so they don’t sell it for too high

===============================================================

Elasticity
- How well people respond to price changes
- helps consumers and producers with decision-making
- Absolute value, so we express the final answer in the computation as plus or minus
Elastic ( > 1)
- Greater proportional change in quantity for every percent change in price (numerator is greater than
denominator)
- Since they are just luxury items and non-essential, consumers may wait for ads, sales, etc.
- Elastic products are usually luxury items and have substitutes, a slight change in price can drastically
change the demand. (if you sell phones, and you make your phone a little more expensive, people will
consider other brands)

Inelastic (< 1)
- Lesser proportional change in quantity for every percent change in price (numerator is lesser than
denominator)
- Inelastic products are usually essential (i.e. rice, gasoline, medicine, etc.), so it doesn’t matter if the price
increases,
- Since they are essential needs, producers can increase price indefinitely or until a price ceiling

Unit Elastic (1)

Perfectly inelastic (E = 0)
- Quantity doesn't change when price changes
- usually applies to medicines where there is a set prescription amount
- Graph:
Perfectly elastic (E = infinite)
- Quantity changes when price doesn’t change
- Very rare to occur
- Graph:
Elastic supply
- means the firm is quick to adapt and ramp up production of goods and services if conditions are
favorable. (i.e. an alcohol company since you can use this for consuming or medicinally)
- if you can adapt, then you are elastic

Inelastic supply
- means a firm has a rigid and fixed production (i.e. a tobacco company since you can only use tobacco
for smoking)
- You would need a drastic shift in price to affect the demand (i.e. gasoline)

Equations for elasticity

- Arc elasticity = u want something precise
- Point elasticity = u want a quick, rough estimate

Arc elasticity formula = midpoint formula

Competition in the market

- sparks innovation for producers
- provides the consumers with the absolute best product

Mobility of resources
- how much value a single material can give you (lumber is good for furniture, medicine, paper, etc.)
Pareto-optimality
- win-win situation
- i.e. garage sale, you get rid of old things and get money and people buy your things

Types of Market Structures:

1) Perfect competition
- ideal market structure adheres to true-pareto optimality
- infinite number of buyers and sellers
- unattainable

2) Imperfect competition
1. Monopoly
- single firm controlling the entire market
- high barrier to entry
- homogenous products by design
- price of product is determined by the people who have the monopoly
- can be a necessary evil when they are a monopoly over an essential product

- Natural Monopoly: firm becomes a monopoly due to them being the only ones able to produce
the product (i.e. utility providers)
- Geographical Monopoly: firm becomes a monopoly due to remoteness of location
- Government Monopoly: Government owned monopoly in order to manifest economy of scale
- Technological Monopoly: Firm has exclusive rights to patent to production or an innovator in
the industry
- Monopolistic Competition: Many producers competing against each other, offering almost the
same products, but not perfect substitutes (i.e. Jollibee and McDonald’s)

2. Oligopoly (Oligarchy + Poly)

- Multiple firms working together to eliminate competition (PLDT and Globe trying to take down
converge)

1) Microeconomics
- We apply economics to individuals and businesses, etc
.
2) Macroeconomics
- We apply economics to larger groups like countries.
- Gives an overview of the economy (similar to a birds eye view of a location)

- If microeconomics is a tree then macroeconomics is a forest

(GDP) Gross Domestic Product (Gawa Dito Pilipinas)

- Final value of all products produced in the country
- Expressed in the country’s currency

(GNP) Gross National Product (Gawa Ng Pilipino)

- Final value of all products produced by the countrymen
- More important indicator for national income as opposed to GDP
- Expressed in Dollars (because it’s a global standard)

X = Export
M = Import
NX is the final verdict of the relationship between import and export
Having a negative NX means that you are importing more than you’re exporting (bad if international
trade is a main source of income), and vise versa

National income
- The GNP of a country

Consumption
- An individual buying something

Investment
- Firm purchase of physical capital goods such as machinery, equipment, land, etc.
- If we remove this from society, then no one would get employed which also affects consumption and
would end up decreasing government expenditure.

Government Expenditures
- Government purchase/construction of physical goods and services for the sake of the people such as
roads, public spaces, etc.
Types of unemployment:

1) Natural Unemployment
- unavoidable and normal; doesn't hurt our economy
- normal unemployment rate = 3-5%
- 2 subcategories:
Frictional: leaving voluntarily; the transition between jobs (looking for a new job and left the previous
job)
Structural: leaving involuntarily; unemployment when there's a shift in the industry (i.e. manual labor,
jobs are lost due to machines taking over)

2) Cyclical Unemployment
- unnatural
- exceeds the 3-5% unemployment rate
- could happen in a recession (i.e The Great Recession, Covid-19. etc.)

Cause of unemployment
- low morale and low-income level.
- Less government expenditure
- Less investments
- Overpopulation
- Crime

Rural poverty
- poverty in rural areas

Urban poverty
- poverty in urban areas

Price stability
- Change in price over time

Inflation
- Increase of price; decrease in purchasing power
- isn’t always a bad thing because a controlled inflation rate improves the economy
- Felt more by the lower class
- Causes of inflation:
1. Cost-push inflation- increase in prices due to higher input costs; more on the supply side
2. Demand-pull inflation - price increase due to shift in demand; more on the demand side
3. Money-supply inflation - printing too much money than the supply of the country; high supply of
money devalues the demand for it. (i.e. Post-WW1 Germany printed a lot of bills despite being in a bad
financial state. They had to bring wheelbarrows of bills to buy potatoes.)

Deflation
- Decrease of price; increase in purchasing power

Inflation rate
- how fast inflation occurs
- measured with Consumer Price Index (CPI).

Consumer Price Index

- Assesses inflation rate through measurement of costs of the basket of goods and services;
- Average cost for essentials for the population

=====Economic Policy=====

M1: Narrow Money

- Used for direct purchases and compensations and found in circulation

M2: Broad Money

- M1 + money in savings, time deposits, or mutual funds

M3: Broad Money Liabilities

- M2 + checks, promissory notes, IOUs

M4: Liquidity Money

- Close substitute for M1 - M3, but does not accomplish most of the transactions applicable to them.

Liquid money
- Can be converted to cash
- Money that you can use right now (examples of “non-liquid” money are investments like land)
- When to use liquid money: Transfer deposits, Government securities (treasury bills, etc.), Foreign
currency, Capital
1) Monetary Policy
- Influences money supply, inflation, and economic growth through the Central Bank adjusting
interest rates
(the interest rate is a percentage of a loan that is added to the total amount that the borrower pays back)

red = purpose
green = entity enacting it
purple = area of control

- Either Expansionary or Contractionary/Restrictive

Expansionary Monetary Policy

- Purpose: . improve unemployment
. prevent/end a recession
- Promotes spending of money through lowering interest rates charged to private banks

Contractionary/Restrictive Monetary Policy

- Purpose: . improve inflation
- Slows economic growth (ideal is around 2-3% a year to avoid inflation, too low of unemployment, etc.)
- Decreasing money supply of the BSP (Banko Sentral ng Pilipinas) while limiting consumer spending
by increasing interest rates

2) Fiscal Policy
- Increases National Income through the Government adjusting Government expenditures (G) and
taxation

red = purpose
green = entity enacting it
purple = area of control

- Either Expansionary or Contractionary/Restrictive

Expansionary Fiscal Policy

- Purpose: . improve unemployment
. increase consumer demand
. prevent/end a recession
- Provides subsidies to people to improve national income
- Government Expenditures (G) increases, but taxes decreases
- Because of lower tax, the Government gets money from Selling Securities,
Selling/Privatizing Government Assets, Borrowing Money, etc.
Contractionary/Restrictive Fiscal Policy
- Purpose: . payment of loans and debts or buyback securities
. spending on future projects
- Government Expenditures (G) decreases but taxes increases

Pump Priming
- Provision of Public Goods to help the people/businesses in order to motivate them to spend/invest for
economic growth

Taxes
- money that the government acquires from the people to use
- basically, a certain value of money that is added to the total price of a good/service or an amount of
money taken from your salary
- always present

Ability to Pay Principle:

Types of Taxes

1) Salary
- 3 types:
- Progressive: as your salary increases, your taxes will also increase
- Regressive: taxes imposed are the same regardless of income; constant (i.e. VAT)
- Proportional: taxes imposed are the same regardless of income, but after a certain point you have to
pay a certain amount; it's like a hybrid between proportional and regressive

2) Payment Method
- 2 types:
- Direct taxes: tax that a person/organization pays directly to the one demanding tax (i.e. utility bills)
- Indirect tax: imposed on the end-users of the services to avoid double-counting

3) Purpose
- 5 types:
- Property tax: imposed on acquisition of land
- Excise tax: imposed on all goods and services produced & sold within the country
- Tariffs/duties: imposed on imported products
- Regulatory tax: imposed to control consumption of products (i.e. sin taxes on cigarettes, alcohol, etc.)
- Luxury tax: imposed on expensive commodities (i.e. jewelry, cars, gadgets)

=====International Trade=====
Absolute Advantage
- Country can produce the greater number products with least/same number cost of resources

Comparative Advantage
- Emphasizes the need for trading
- Products can produce the products with the least opportunity cost (best outcome of the unpicked choice)

Strong Currency
- more favorable for foreign trade
- less favorable for domestic trade
- usually seen in countries with a lot of OFWs or with frequent international trade

Weak Currency
- less favorable for foregin trade
- more favorable for domestic trade
- the country can sustain themselves (Japan, South Korea, etc.)

Trade Barriers
- Protection of local industries by the state
- Export Subsidies: help provided to local producers to improve production
- Tariffs: Tax imposed on imported and exported goods
- Quotas and Bans: Limit/regulation of number of imported goods