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Chapter 1: Introduction to Economic Theory

I. Introduction
A. Terms to Remember
1. Basic needs
2. Capital
3. Economic Resources
4. Economic System
5. Economics
6. Empirical Validation
7. Entrepreneur
8. Free Enterprise System
9. Function
10. Labor
11. Land
12. Luxury Goods
13. Market
14. Right to private property
15. Theory/hypothesis
16. Variable
17. Wants
B. Definition of Economics for Samuelson and Nordhaus
1. Prices
2. Financial Market Behaviour
3. Income Distribution
4. Government
5. Business cycle
6. Trade patterns
7. Economic growth
II. Economic Activity
A. Man’s Basic Economic Activity
B. Three Elements
1. Human Wants
2. Use of Resources
3. Technique of Production
C. Resources and Payment
III. Consumption
A. Players
1. Household
a) Opportunity Cost
2. Business Firms
a) Entrepreneur
B. Some Economic Aspects in Need of Panacea
1. Aim of Societies
2. Problems
a) Unemployment
b) Economic Instability
(1) Fluctuations in Production
c) Not High levels of growth and development
d) Income Distribution Inequality
(1) Pyramidal Structure
e) Determination of Economic System
C. Economic Analysis
1. Tools
a) Logic
(1) Inductive Reasoning
(2) Deductive Reasoning
b) Statistics
c) Mathematics
2. Purposes
D. Economic Policy
E. Economic Theory
1. Construction
a) Specification and definition of its Postulates
(1) Propositions/ Conditions
(2) Consumer Rationality
b) Observation of “facts” concerning the activity about which we want
to theorize
c) Application of the rules of logic to the observed facts
(1) Hypotheses
d) Testing of Hypotheses
(1) Principle
2. Functions
a) Explain the nature of Economic Activity
b) Predict what will happen to the economy as facts change
3. Positive and Normative Economics
a) Economic-policy making
IV. Price Theory
A. Microeconomics
1. Macroeconomics
a) Net National Product
b) National Income
2. Price Index Numbers/ GPL and Price Theory
3. Characteristics (5)
B. Economic Models
1. Competitive Market (Comparative Static Analysis)
2. Expressions
a) Verbal (or logical)
b) Mathematical Notations
c) Graphical
3. Models are abstractions
a) Theories
b) Three types of Theories
4. Dragon
C. Comparative Statics and Dynamic Analysis
1. Statics
2. Equilibrium
D. Partial and General Equilibrium
1. Ceterus Paribus
V. Overview of the Economy
A. Circular Flow of Economic Activity
B. Basic Economic Problems
1. What to produce?
2. How much to produce?
3. How to produce?
4. For whom to produce?
C. Types of Economic System
1. Traditional Economic System
2. Command Economy
3. Market System
a) Free Enterprise System Freedom Range
4. Mixed Economy

Chapter 2: Demand and Supply


I. Introduction
A. Terms to remember
1. Aggregate demand
2. Aggregate supply
3. Ceteris Paribus
4. Demand
5. Demand Curve
6. Demand Function
7. Demand Schedule
8. Directly Proportional
9. Equilibrium point
10. Inversely Proportional
11. Equilibrium point
12. Market
13. Movement Along the Curve
14. Non-price factors
15. Price
16. Price Ceiling
17. Price Floor
18. Shift of the Curve
19. Supply
20. Supply Function
21. Supply Schedule
22. Surplus
B. The Market Mechanism
II. Demand
A. Schedule, Function and Curve
1. Slope
2. Relationship
B. The Law of Demand (through illustration and formal description)
1. Change in Quantity Demanded/ Movements Along the Curve
a) Ceteris Paribus
(1) J. Bruce Linderman
(2) Purpose
b) Factors
(1) Income
(2) Expectation on future prices
(3) Prices of related goods like substitutes and complements
(4) Size of the population
(5) Quality of the product
(6) Taste and Preferences
(7) Promotion and /or advertisement
(8) Religion
(9) Customs and traditions
(10) Fad or fashion
2. Change in Demand/ Shifts in the Demand Curve
a) Determinants on Shifts to Left or Right
III. Supply
A. Schedule, Function and Curve
1. Slope
2. Relationship
3. Individual Supply Schedule and Market Supply Schedule
B. The Law of Supply (through illustration and formal description)
1. Changes in Quantity Supplied/ Movements Along the Curve
a) Factors
(1) Cost of Production
(2) Availability of Economic Resources
(3) Number of firms in the market
(4) Technology Applied
(5) Producer’s goals
(6) Taxes and subsidiaries
(7) Price of the Product
(8) Price Expectation
2. Changes in Supply/ Shifts in the Supply Curve
a) Determinants on Shifts to Left or Right
IV. Market Equilibrium
A. Alfred Marshall
B. Equilibrium Point
1. Supply and Shortage
2. Effects
a) Rightward Shift of Supply
b) Rightward Shift of Demand
V. Violations
A. Price Controls
1. Price Ceiling Effects
a) Purpose
b) Demand and Supply
2. Price Floor Effects
a) Purpose
b) Demand and Supply

Chapter 3: Elasticity of Demand and Supply


I. Introduction
A. Terms to Remember
1. Arc Elasticity
2. Coefficient of Elasticity
3. Complementary goods
4. Cross Elasticity of demand
5. Elasticity
6. Engel Curve
7. Income Elasticity of Demand
8. Inferior Goods
9. Normal Goods
10. Price Elasticity
11. Point Elasticity
12. Prestige Goods
13. Substitute Goods
14. Total Revenue
II. Price Elasticity of Demand
A. Definition, Pro-forma Formula and Result Interpretation
B. Arc and Point Elasticity
1. Difference
2. Formulae
C. Point Elasticity
1. Advantages
2. Formula
D. Commodity and Their Elasticities
E. Substitution and Price Elasticity of Demand
1. Factors of Substitution
a. Competing Products
b. Desirability of a Product
c. Relative Importance of Consumers’ Needs
i. Relationship to Earnings and Cost of Elasticity and
Inelasticity of Price (table)
2. The Tax Burden (Graphs and Effects)
a. Equal Share
b. Bigger Tax Shoulder to Seller
c. Bigger Tax Shoulder to Buyer
F. Income Elasticity of Demand
1. Qualitative Explanation
a. >1, <1, =1
b. Ernest Engel
2. Quantitative Representations
3. The Consumption Line
a. Underlying reasons for the change in the relative importance of
commodity items as income increases
i. Gradual Satisfaction of the consumers’ hierarchy of needs
ii. Theory of diminishing marginal utility
G. Cross Elasticity of Demand
1. Equation
2. Demand Curves and Elasticity
a. Relatively Elastic
b. Relatively Inelastic
c. Perfectly Elastic
d. Perfectly Inelastic
H. Price Elasticity of Supply
1. Equation
2. Demand Curves and Elasticity
a. Relatively Elastic
b. Relatively Inelastic
c. Perfectly Elastic
d. Perfectly Inelastic
3. Forecasting
a. Average Arithmetical Growth Rate Method
i. % Growth Rate
ii. Average Growth Rate
iii. Projected Value
b. Regression Analysis or the Least Squares Regression Method
i. Straight Line Trend
ii. Finding a
iii. Finding b