Economic Development in Asia

Chapter 1 –Introduction and Overview

 Introduction

Economic and Scarcity:

• Scarcity is often described as limited,
inadequate, insufficient, and meager.
• Economic resources or factors of
production (e.g. land, labor, capital, and
entrepreneur) are scarce, and these are
the basis of producing products (goods
and services).
 Introduction

• These factors of production are scarce and

there is not enough supply to produce the
products the we need and want.
• Even though there is efficiency in the use
of these factors of production and with the
fullest use of the advancement in
technology, there is limit to our current
production.
 Introduction

• Scarcity will compel producers to choose

among competing uses of factors of
production.
• We are faced with another problem, and
this is the questions of what to produce? ,
how to produce?, For whom to produce?
• What to produce and how to distribute
this output to society are the most basic
choices to be made.
 Introduction
• Production possibilities frontier (PPF) is a
concept that can easily resolve this
problem.
• PPF is a boundary showing the
combination of two products that can be
efficiently produced by using the given
resources.
• PPF is illustrated by the following
concepts, due to the complicated
 Introduction
• structure of the economy, we try to simplify by making
certain assumptions. In examining PPF, these
assumptions are important, and these are:
1. All available factors of production (economic resources)
are fully used;
2. All available factors of production (economic resources)
are efficiently used;
3. There is a constant quantity and quality of these
factors of production in a specific period of time;
4. Technology is constant as well; and
5. Two products are produced with our factors of
production and technology.
Introduction

FIGURE 1
 Introduction
• A number of important concepts are illustrated in the
PPF. The fundamental concept is that there is limit to
what we can produce.
• A fundamental idea in the PPF is when we try to produce
more of a good we must give up producing the other
good as given by the concept of opportunity cost.
• Opportunity cost is a foregone opportunity by not
choosing the next best alternative.
• This opportunity cost can take any variable such as
products and money. And in our illustration, guns are
the products that the society has to give up to produce
more butter. As economists fond of saying, there is no
such thing as a free lunch! There is an opportunity cost
to everything.
 Introduction
• Because opportunity cost arises, trade – off’s happen.
This is defined as one more good thing can be obtained
only by giving up something.
• The second concept manifested in the PPF is
unemployment. Realizing the different combinations of
two products represent possible quantities. We have
assumed the full use of our resources, skills, knowledge,
and technology, hence, the phrase production
possibilities.
• In reality, we rarely produce to our full potential, some
economic resources maybe unused such as factories,
machine, and ultimately our workers who are laid off.
• If this is the case, we are working not on the curve
itself, but below the curve.
 Introduction
• We could do much if we are working on
the curve itself.
• If there is an outward movement in our
PPF, this involves rise in the economic
growth.
• Economic growth is an outward movement
in the PPF brought about by a rise in
technology.
• Services are indispensable products that
we have. And our example of these are:
 Introduction
• Health care, education, road and bridge
repairs, etc.
• We cannot graph these infinite
combinations, however, we can redefine
our axes as staple goods for the y – axis,
and luxury goods in our x – axis.
• We can also divide our economy’s output
into agricultural goods and manufactured
goods (consumer goods and capital
goods).
 Introduction
• We can also examine the choice between
military and civilian goods, and private
and public goods. There are many options
involved in the production of various types
of output.
 Introduction
• We can also examine the choice between
military and civilian goods, and private
and public goods. There are many options
involved in the production of various types
of output.
 Economics and Distribution
• Production choices are very important, but they
tell us half of the story. The choices of
distribution is as important as the choices for the
products.
• In our present circumstance, the distribution of
the vaccine for covid – 19 is as imperative as the
discovery of the vaccine.
• Pharmaceutical companies such as Pfizer need
to enter into a contract with various
governments. For the Philippines, the local
government units (LGU’s) need storage facilities,
that require ultra cold storage facilities.
 Economics and Distribution
• And because the country is made up of islands,
the geographical location is another type of
disadvantage.
• To promote the use of vaccine, there should be
consumer confidence to properly use the
vaccine.
 Demand and Supply
• The theoretical concept of demand and supply
was provided to you in the course of managerial
economics.
 Efficiency and Equity
• Understanding demand and supply provide
better insight into the working of the market
economy and its PPF, because demand and
supply determines how much to be produced for
the product. And high prices creates thriftiness.
• Prices of the products creates efficient means of
allocation and distribution.
• Equity is a value – laden concept. Fairness is
what it means.
• But there are certain results of the market may
not seem fair to some of us.
 Efficiency and Equity
• To illustrate this idea, let us analyze the
pharmaceutical companies that create covid – 19
vaccines, and these are Pfizer and sinovac.
• The efficacy of Pfizer is 95% while sinovac has
54%.
• The following table shows their respective
prices:
 Efficiency and Equity
• The market is often efficient but not necessarily
equitable.
 Market failures and Glimpse of the Future
• The market performs useful functions. In
addition to efficiency a market – based economy
gives economic incentives and tend to be highly
productive.
• Despite this, market can also fail, the existence
of many market failures does not imply that the
market we work in is in itself a failure.
• This is the reason why the government involves
in the market so assure that the needs of the
society are met. And some of this are the
following:
 Market failures and Glimpse of the Future
1. public Goods and Services;
2. Spillovers;
3. Inequity;
4. Market power;and
5. Instability