What is ​ECONOMICS​?

It is the study of how we manage our resources and, more specifically, the “ ​The science which studies human 
production and exchange of goods and services. behaviour as a relationship between 
// ends and scarce means which have 
a social science concerned with the production, distribution and alternative uses​.”
consumption of goods and services. It studies how individuals, businesses,
governments, and nations make choices on allocating resources to satisfy Lionel Robins 
their wants and needs, and tries to determine how they groups should BRITISH ECONOMIST
ON HIS ESSAY, THE
organize and coordinate efforts to achieve maximum output. NATURE & SIGNIFICANCE
OF ECONOMIC SCIENCE,
1932

THE BRANCHES OF ECONOMICS  

MICROECONOMICS  MACROECONOMICS  

the branches of economics that focuses on INDIVIDUAL
decision making, the allocation of resources, and how prices,
production and the distribution of income are determined.
//
Interactions of individual people and firms within the
economy; the business of supply and demand, buyers and
sellers, markets and competitions.
//
social science that studies the implications of individual
human action, specifically about how those decisions affect
the utilization and distribution of scarce resources
the branch of economics that is concerned with aggregate
variables such as levels of total economic activity,
unemployment, inflation, the balance of payment, economic
growth and development, the money supply, and the federal
budget
//
national/international level; growth and development of a
country’s economy wealth in terms of output and income,
and its policies for international trade, taxation, and
controlling inflation and unemployment.

LAW​ ​of ​DEMAND  

Demand ​is defined as the ​AMOUNT​ of a ​GOOD​ buyers ​WILL BUY​ at any one time at each of the prices that might be charged.
//
The​ Law of Demand ​states that the other factors being constant (ceteris paribus), price and quantity demand of any
good and service is ​inversely​ ​related to each other.

PRICE OF A PRODUCT PRICE OF A PRODUCT

DEMAND FOR THE PRODUCT DEMAND FOR THE PRODUCT

Law of Demand​ explains consumer choice behaviour when the price changes. In the market, assuming other factors
affecting demand being constant, when the price of a good rises, it leads to a fall in demand of that good, This is the natural
consumer choice behaviour. This happens because a consumer hesitates to spend more for the good with the fear of going out
of cash.
THE DEMAND CURVE  
Depicts maximum quantities of a good that an individual will purchase at various prices.  

The Demand Curve, which is downward sloping. Clearly, when the

price of a commodity increase ↑ from P3 to P2, the quantity
demanded comes down ↓ from Q3 to Q2.

*NOTE: ​that this formulation implies that PRICE is the INDEPENDENT

VARIABLE, and QUANTITY DEMANDED is the DEPENDENT VARIABLE
(Economics is an exception to the traditional rule that the IV appears on
the horizontal line or the x-axis).

 
 
  DEMAND   QUANTITY DEMANDED  
Defined as   the willingness of a buyer and his affordability to Represents exact quantity (how much) of a good or
pay the price for he economic good or service service is demanded by consumers.

What is it?  It lists out quantities that would be purchased at It is the actual amount of goods desired at a certain
various prices. price.

Change  Increase or decrease in demand Expansion or contraction in demand.

Reasons  Factors other than price Price

Measurement 
Of Change  Shift in demand curve Movement along demand curve

Consequences of 
Change in  No change in demand. Change in quantity demanded.
Actual  

THE DEMAND SCHEDULE  

Is a table of the quantity demanded o a good at different price levels. Given the PRICE LEVEL, it is easy to determine
the expected quantity demanded.

By showing the relationship between price and quantity, the demand schedule most
commonly consists of the two columns. The first column lists the current price of a
product, listed in ascending or descending order. The second column lists the quantity of
the product that is desired, or demanded, at that price. As the PRICE RISES, THE QUANTITY
DEMANDED TENDS TO REDUCE. It demonstrates the relationship between various price
points and the corresponding demand.
ELASTICITY OF DEMAND  
Is a measure of how consumers react to a change in price.

Elasticity   Percent Change  

CALCULATING ELASTICITY OF
DEMAND: Percentage change in Quantity Demanded Old Number - New Number
it is determined using the following __________________________________ ______________________ x100
equations. Percentage Change in Price Original Number

TWO TYPES OF DEMAND CURVE  

ELASTIC DEMAND   INELASTIC DEMAND 

a significant increase in quantities bought when price ​NO increase in the quantities purchased even
decreases.   when a price decreases

 
 
5 FACTORS AFFECTING DEMAND  
TASTES & INCOME OF POPULATION, EXPECTATIONS PRICES OF RELATED
PREFERENCES CONSUMERS NUMBERS OF BUYERS ABOUT PRICES GOODS
people’s preferences demand for high population growth consumers who prices of related
arise from individual quality goods tend to expands number of expect shortage or products also
idiosyncrasies. rise sharply if income potential buyers price hikes in the near influence the
grows (inferior vs. future may race to demand, as most
normal goods) buy storable products goods are at least
more. weak substitutes for
another.

 
Substitution & Income Effect 
-​THE SUBSTITUTION EFFECT​:
occurs when consumers
reacts to an increase in
goods price by consuming
less of that good and
more of another.
-​THE INCOME EFFECT​:
happens when a person
changes his or her own
consumption of a good
and service as a result of
their change in real
income.

Normal vs. Inferior Good   

-​NORMAL GOOD -​INFERIOR GOOD
A product whose demand A product whose demand falls when income rises.  
rises when income rises.
 

LAW​ ​of ​SUPPLY 

Supply ​refers to the output sellers will provide under alternative conditions during a given period.
// 
The​ Law of Demand s​ tates that the other factors being constant (ceteris paribus), price and supply of any good and
service is ​directly​ ​related to each other.

PRICE OF A PRODUCT PRICE OF A PRODUCT

SUPPLY OF THE PRODUCT SUPPLY OF THE PRODUCT

Law of Supply ​states ​the price of a good or service increases, the quantity of goods or services that suppliers offer
will increase, and vice versa. The law of supply says that as the price of an item goes up, suppliers will attempt to maximize their
profits by increasing the quantity offered for sale.

THE SUPPLY CURVE 

Shows the maximum amounts of a good that firms are willing to furnish during a given time period at various prices.  

The Supply Curve that is upward sloping (positive

relation between the price and the quantity
supplied). When the price of the good was at P3,
suppliers were supplying Q3 quantity. As the price
starts rising, the quantity supplied also starts rising.

*NOTE: ​that this formulation implies that PRICE is the

INDEPENDENT VARIABLE, and QUANTITY SUPPLIED is the
DEPENDENT VARIABLE (Economics is an exception to the
traditional rule that the IV appears on the horizontal line or
the x-axis).

 
ELASTICITY OF SUPPLY 
Is a measure of how consumers react to a change in price.

Elasticity   Percent Change  

CALCULATING ELASTICITY OF SUPPLY:
it is determined using the following Percentage change in Quantity Supplied Old Number - New Number
equations. __________________________________ ______________________ x100
Percentage Change in Price Original Number

   
 TWO TYPES OF SUPPLY CURVE  
ELASTIC SUPPLY   INELASTIC SUPPLY 

a significant increase in quantities bought when price ​NO increase in the quantities purchased even
decreases.   when a price decreases

THE DEMAND SCHEDULE  

Is a table of the quantity demanded o a good at different price levels. Given the PRICE LEVEL, it is easy to determine
the expected quantity demanded.

By showing the relationship between price and quantity supplied, the

supply schedule most commonly consists of the two columns. The
first column lists the current price of a product, listed in ascending or
descending order. The second column lists the quantity of the
product that is supplied at that price. As the PRICE RISES, THE
QUANTITY SUPPLIED TENDS TO INCREASE. It demonstrates the
relationship between various price points and the corresponding
supply.

6 FACTORS AFFECTING SUPPLY 
PRODUCTION TECHNOLOGY
It includes such influence on
production cost as the state of
knowledge, the qualities of resources,
and such natural phenomena as
physical laws and weather. Cost falls
and supply grows when technology
advances. 
RESOURCE COSTS, PRICE INPUTS USED
IN PRODUCTION
Supply declines when resource costs
rise. Higher wages, rents, interest rates,
or prices for raw materials raise costs,
squeeze profits, and shrink supplies.  
PRICE OF RELATED GOODS
Most firms can produce a variety of
goods, so changes in the prices of other
potential outputs can affect the supply
of the current good.  

PRODUCER’S EXPECTATIONS NUMBER OF SELLERS TAXES, SUBSIDIES, AND REGULATIONS

Firms that expect high output prices in More producers generate more output. government policies also affect supply
the near future usually increase Thus, as the number of sellers in a as powerfully as they influence
production quickly. They may also particular market increases, the supply demand. Taxes causes prices to differ.  
expand their productive capacity by, also increases.  
for example, acquiring new buildings or
investing in new
equipment/machinery/ 

 
 
  
 
 

HOARDING 
Hoarding​ i​ s the purchase of large quantities of a commodity with the intent of pushing up the price. An investor
hoping to increase the price of a commodity can do so by leveraging his or her demand for it, and buying physical inventory as
well as purchasing futures contracts for that commodity. Hoarding can also take place in financial instruments like bonds.
 
 
 

RESOURCE ALLOCATION 
 
*3 METHODS OF RESOURCE ALLOCATION  
Traditional Method  Command Method  Market Method 
as something that is governed by decisions on who gets the resource is decisions are determined by
fairness; those who need the resource governed by the central planning. individuals; by price system; decisions
most are those who should get it. Ex. Communism as a central to buy it or produce it.
government is the deciding factor.

 
 

ECONOMIC SYSTEMS 
➢ TRADITIONAL ECONOMY  
-Basic Concept: 
Economic system that relies on habit, custom or ritual to decide questions of production and consumption of goods
and services; found in small hunting or agricultural based societies.
-Allocation of Resources:  
Changes little over generation
 ➢ FREE MARKET / MARKET ECONOMY  
 
Markets enable mutually beneficial exchange between
producers and consumers, and systems that​ ​rely on markets
to solve the economic problem ​are called market economies.
In a free market economy,​ ​resources are allocated through
the interaction of free and self-directed market forces​. ​This
means that ​what to produce is determined consumers​, ​how
to produce is determined by producers​, and ​who gets the
products depends upon the purchasing power of consumers.
Market economies work by allowing the​ direct interaction of
consumers and producers ​who are pursuing their own
self-interest. The pursuit of self-interest is at the heart of
free market economics.  
 
 
-Basic Concept: 
Economic system in which decisions on production of goods and services are based on voluntary exchange in market
-Allocation of Resources:  
Determined by consumer spending

➢ CENTRALLY PLANNED / COMMAND ECONOMY  

The second solution to the economic problem is the  
allocation of scarce resources by government​, or ​an agency
appointed by the government.​ This method is referred to as
central planning, and ​economies that exclusively use central
planning are called command economies​. In other words
governments direct or command resources to be used in
particular ways. For example, governments can force citizens
to pay taxes and decide how many roads or hospitals are
built.
Command economies ​have certain advantages over free
market economies​, especially in terms of the coordination of
scarce resources at times of crisis, such as a war or following
a natural disaster. ​Free markets also fail at times to allocate
resources efficiently,​ so remedies often involve the  
allocation of resources by government to compensate for
these failures.

-Basic Concept: 
Economic system in which the central government makes all goods and services decision on the production of and
consumption of all goods and services.
-Allocation of Resources:  
Determined by a small group of planners
 ➢ MIXED ECONOMY  
There is a third type of economy involving ​a combination of  
market forces and central planning​, called mixed economies.  
Mixed economies may ​have a distinct private sector,​ where
 
resources are allocated primarily by market forces​, such as
the grocery sector of the UK economy. Mixed economies
 
may also have a ​distinct public sector​, ​where resources are
allocated mainly by government​, such as defense, police,
and fire services. In many sectors, resources are allocated by
a combination of markets and planning, such as healthcare
and, which have both public and private provision.

In reality, all economies are mixed, though there are wide

variations in the amount of mix and the balance between
public and private sectors. For example, in Cuba the
government allocates the vast majority of resources, while in
Europe most economies have an even mix between markets
and planning.
Economic systems can be evaluated in terms of how efficient
they are in achieving economic objectives.

* 
-Basic Concept: 
Economic system that combines traditional and free market with limited government involvement
-Allocation of Resources:  
Either the consumer or the government

TYPES OF BUSINESS ORGANIZATIONS 

Sole Proprietorship  
With this type of business organization, you are the sole owner, and fully responsible for all debts and obligations related to
your business. All profits are yours to keep. Because you are personally liable, a creditor can make a claim against your personal
assets as well as your business assets in order to satisfy any debts.
Advantages Disadvantages

Easy and inexpensive to register Unlimited liability (if you have business debts, claims can be
made against your personal assets to pay them off)

Regulatory burden is generally light Income is taxable at your personal rate and, if your business
is profitable, this could put you in a higher tax bracket

You have direct control of decision making Lack of continuity for your business if you are unavailable

Minimal working capital required for start-up Can be difficult to raise capital on your own

Some tax advantages if your business is not doing well (for

example, deducting your losses from your personal income,
and a lower tax bracket when profits are low)

All profits go to you directly

Partnership 
A partnership is a non-incorporated business that is created between two or more people. In a partnership, your financial
resources are combined with those of your business partner(s), and put into the business. You and your partner(s) would then
share in the profits of the business according to any legal agreement you have drawn up
In a general partnership, each partner is jointly liable for the debts of the partnership. In a limited partnership, a person can
contribute to the business without being involved in its operations. A limited liability partnership is usually only available to a
group of professionals, such as lawyers, accountants or doctors.
When establishing a partnership, you should have a partnership agreement in place. This is important because it establishes the
terms of the partnership and can help you avoid disputes later on. Hiring a lawyer or other legal professional to help you draw
up a partnership agreement will save you time and protect your interests.
Advantages Disadvantages

Fairly easy and inexpensive to form a partnership There is no legal difference between you and your business

Start-up costs are shared equally with you and your Unlimited liability (if you have business debts, personal
partner(s) assets can be used to pay off the debt)

Equal share in the management, profits and assets Can be difficult to find a suitable partner

Tax advantage — if income from the partnership is low or Possible development of conflict between you and your
loses money (you and your partner(s) include your shares of partner(s)
the partnership in your individual tax returns)

You are held financially responsible for business decisions

made by your partner(s); for example, contracts that are
broken

Corporation 
Another type of business structure is a corporation. Incorporation can be done at the federal or provincial/territorial level.
When you incorporate your business, it is considered to be a legal entity that is separate from its shareholders. As a
shareholder of a corporation, you will not be personally liable for the debts, obligations or acts of the corporation. It is always
wise to seek legal advice before incorporating.
Advantages Disadvantages

Limited liability A corporation is closely regulated

Ownership is transferable More expensive to set up a corporation than other business

forms

Continuous existence Extensive corporate records required, including

documentation filed annually with the government

Separate legal entity Possible conflict between shareholders and directors

Easier to raise capital than it might be with other business You may be required to prove residency or citizenship of
structures directors

Possible tax advantage as taxes may be lower for an

incorporated business
Co-operatives 
A co-operative is owned and controlled by an association of members. It can be set up as a for-profit or as a not-for-profit
organization. This is the least common form of business, but can be appropriate in situations where a group of individuals or
businesses decide to pool their resources and provide access to common needs, such as the delivery of products or services,
the sale of products or services, employment, and more.
Advantages Disadvantages

Owned and controlled by its members Longer decision-making process

Democratic control (one member, one vote) Participation of all members is required in order to succeed

Limited liability Possible conflict between members

Profit distribution Extensive record keeping

Less incentive to invest additional capital

INFLATION 
Inflation ​is the rate at which the general level of prices for goods and services is rising and, consequently, the
purchasing power​ of currency is falling. ​Central banks​ attempt to limit inflation, and avoid ​deflation​, in order to keep the
economy​ running smoothly.

OPPORTUNITY COST 
Opportunity Cost​ refers to a benefit that a person could have received, but gave up, to take another course of action.
Stated differently, an opportunity cost represents an alternative given up when a decision is made. This cost is, therefore, most
relevant for two mutually exclusive events. In investing, it is the difference in return between a chosen investment and one that
is necessarily passed up.