A P P L I E D E C O N O M I C S - R E V I E W E R S

Economics - owned by private entities

- management of scarce resources to satisfy o Command Economic Systems
unlimited wants and needs - owned by the government
- social studies that studies the means by which o Mixed Economic Systems
individuals, groups, and societies produce, - owned by both
distribute, and consume products and services  Rationality
Adam Smith - individuals are consistent and logical in
- Father of Modern Economics decision-making
Basic Economic Concepts - they seek an outcome beneficial to
 Scarcity them
- limitation of scarce resources  Opportunity Cost
 Unlimited Needs and Wants - cost of giving up an alternative
o Needs  Trade-off
- are essential for human survival - occurs when individual has made a
o Wants choice, thereby sacrificing
- are desired but not essential for Economics as Applied Science
human survival - application of economic theories and
 Factors of Production econometrics in real world
o Land Economic Development
- natural resources without - sustained elevation of an entire society and
man’s intervention social system towards a better and more human
- RENT – payment for land life
o Labor  Sustenance
- human input - society is able to provide for basic
- SALARIES and WAGES – needs
payment for labor  Self-Esteem
o Capital - self-respect, reputation, pride, and
- man-made factor of production acknowledgement
used to create another product  Freedom
- INTEREST – payment for capital - wide variety of choices as well as
o Entrepreneurship minimizing external limitations
- integrates the three Positive Economics
- ENTREPRENEURSHIP – makes - what exists and how things work
the decision with regards to - objective description
production Normative Economics
 Basic Economic Systems - outcome of economic behavior
o What to produce? - evaluates and makes judgement
o How to produce? - propose actions
o For whom to produce? Theory
 Economic Systems - preposition about certain related variables
- institution responsible for the - explains a phenomenon
management and allocation of  Model
resources - framework or representation

o Market Economic Systems

 A P P L I E D E C O N O M I C S - R E V I E W E R S
Assumptions in Economics Poverty
 Rationality - only able to meet its basic subsistence needs
- individuals act in a logical and Inequality
predictable manner - unequal access to wealth and income
- pursue which will benefit them  Gini Coefficient
 Profit Maximization - population’s distribution of income
- minimize utility while firms intend to deviates from a set of standards of
maximize their profit equality
 Perfect Information  Kuznet’s Ratio of Inequality
- consumer and producer complete - richest 20% and poorest 40%
accurate information Absolute Poverty
 Ceteris Paribus - severe deprivation of basic human needs
- all things being equal Unemployment
- controls the effects of other variables - portion of the labor force who are willing to
apart from those who are being studied engage in productive activities yet fails to do so
Fallacies in Economics  Frictional
- errors in judgement due to faulty reasoning - between job; left a job and looking for
 Failure to hold things under ceteris paribus another
- when an individual considers other  Cyclical
extraneous variables in studying - by changes in economy or business
economic phenomenon - lay-off of employees
 Post Hoc Fallacy  Structural
- after this, there for because of this - unemployed at certain times of the year
 Fallacy of Composition  Structural
- a trait of one part as true or applicable - experience longer period of frictional or
for the whole cyclical
- PART TO WHOLE - employees are being replaced by
 Sweeping Generalization machines
- oversimplifies a specific scenario Underemployment
presenting it as a general rule - employed but his/her talents and expertise are
- WHOLE TO PART underutilized
Production Possibilities Frontier  Visible Underemployment
- graph that shows the greatest sum of outputs - less than the normal work hours
given the accessible inputs  Invisible Underemployment
- model of opportunity cost/trade-off - work the normal hours but talents are
Comparative Advantage – David Ricardo underutilized or receive inadequate
- specialized in industries where they enjoy an compensation
advantage in resources and production Inflation
- EX: Philippines is an agriculture country, - sustained and continual increase in the price of
therefore focus on products related to goods or services
agriculture  Hyperinflation
International Trade - very high inflation
- exchange of resources among countries
- interconnected global economy  Stagflation
Economic Problems
 A P P L I E D E C O N O M I C S - R E V I E W E R S
-
high inflation, low economic growth,
Poor
high unemployment Economic
Policies
Underdevelopment
- low production and standard of living
Underdevelopment
Factors to Consider
 Level of Production
Poor
- focuses on material wealth Resource
Allocation

 Quality of Life
- considers aspects such as health,
nutrition, education, environment, and
Reduction of
income distribution in analyzing Promotion of Government
Pay Market Development
Control
development
- DEVELOPMENT – significant change in
New Growth Theory
quality of life
 Sustainable Development
- impact of human activities in the Slow Transmission Underdevelopment
of Technology
environment
Theories of Economic Development
Linear Stages of Growth
- process which follows a sequence of historical
Knowledge Technology Development
stages
1. Traditional Society – based on tradition
2. Preconditions for Take-off – “barter” Theory of Coordination Failure
3. Trade-off – use of money or banks
4. Maturity – industrialization
5. High Mass Consumption – luxuries become Uncoordinated Market To foster development,
Activities =
needs Underdevelopment
a "Big Push" is
implemented
Structural Change Model
- reallocation of labor from agriculture to
industrial sector O-ring Theory

International Dependence
High wages
Dominance of and
Developed investment
Countries and Dependence Underdevelopment
Multinational Similarly skilled
Companies workers work
together (efficient
production)

Neoclassical Theory

Review of Market Analysis

 A P P L I E D E C O N O M I C S - R E V I E W E R S
Demand  Prices of inputs and cost producing the goods
- amount of goods or services consumers are  Technology
willing to purchase given a certain period  Taxes and Subsidies
3 Ways to Show  Number of sellers or firms in the industry
 Demand Function Surplus
 Demand Curve - supply exceeds demand
 Demand Schedule Labor Supply and Labor Demand
Law of Demand Labor Supply
- as the price increases, the demand decreases - available labor force who are willing to engage
and vice versa in productive activities yet fails to do so
Getting the Slope of Demand Curve Labor Demand
ΔP - industry’s total available job vacancies
D=
ΔQ Wages
Price Elasticity of Demand - payments made in exchange for the time and
- determine whether demand curve is steep or effort exerted
flat Analysis of Labor Supply and Labor Demand
%Δ∈Qd  Increase for Supply in Labor while Demand
D=
% Δ∈ Price Remain Constant
 Unitary Elastic Demand Curve
- EP = 1
 Relatively Inelastic
- EP < 1
 Relatively Elastic
- EP > 1
 Perfectly Elastic
- slope = infinity
 Perfectly Elastic
- slope = 0
Shifts in Demands and Its Determinants - a lot of recent graduates
 Income - a lot of unemployed workers who were
 Taste or Preference not deployed during the past year
 Price of goods like substitutes and complements - increase in returning workers who have
 Changes in speculation no contract abroad and are willing to
 Population work locally
Supply  Decrease in Supply of Labor while Demand
- willingness of sellers to produce and sell a good Remain Constant
at various possible price
3 Ways to Show
 Supply Function
 Supply Curve
 Supply Schedule
Law of Supply
- the higher the supply, the higher the price and
vice versa
Shifts in Supply and Its Determinants
 A P P L I E D E C O N O M I C S - R E V I E W E R S

- less college graduate and the labor Overseas Filipino Workers

force decline (K to 12) - labor migration started in the Philippines in the
 Increase in Demand for Labor while Supply 70’s and early 80’s when Saudi Arabia saw the
Remain Constant expertise of Filipino
- can be land-based or sea-based
- BRAIN DRAIN (skilled workers leaving) and
BRAIN DRAIN (professional leaving)
- contributes by Remittances
Foreign Exchange
- conversion of Philippine Currency to an
International Currency

- industry expands while labor supply

remains constant (lumalaki yung
business kaya kailangan nila ng
trabahador)
 Decrease in Demand for Labor while Supply
Remain Constant

- economic recession where business

leave the industry or shut down
Unemployment and Wages