Chapter 1: ECONOMICS AND ITS NATURE

Economics is a very interesting subject because it analyses how human beings make
choices in an effort to maximize utility. It also analyses how a society seeks to allocate their
limited resources in other to achieve growth. One of the earliest recorded economic thinkers
was the 8th-century B.C. Greek farmer/poet Hesiod, who wrote that labor, materials, and time
needed to be allocated efficiently to overcome scarcity. But the founding of modern Western
economics occurred much later, generally credited to the publication of Scottish philosopher
Adam Smith's 1776 book, An Inquiry Into the Nature and Causes of the Wealth of Nations.
As a field of study, students are expected to be equipped with knowledge on the basic
nature of what Economics is all about, as well as the fundamental theories that governs the
subject. Hence, understanding economics from its core should be a prerequisite prior to delving
deeper on the more complicated theories in economics.
This chapter focuses on the nature and scope of
economics; to understand the subject matter of
economics, we will try to look at its different definitions
by different scholars. We will also be familiarized with
the basic concepts, and learn the fundamental aspects
of the subject.

LEARNING OUTCOMES:
After learning this module, the student will be able to:
1. Define economics
2. Distinguish between classical and neo-classical view of economics
3. Distinguish macroeconomics from microeconomics
4. Learn the concept of scarcity
5. Familiarize with the Law of Supply and Demand
6. Illustrate the circular flow model of economics
7. Learn the theory of macroeconomics
8. Understand the definition, history and approaches of economic development
9. Distinguish the difference between economic development and economic growth
10. Identify the stages of economic development and economic growth
11. Familiarize the determinants of economic growth
12. Learn the different measurements used in assessing economic development
 LESSON 1
THE BASIC NATURE OF ECONOMICS

Economics is derived from two words economy and science meaning the ‗science of the
economy‘ or the science of proper utilization of resources. It is broadly defined as the study of
how people allocate scarce resources for production, distribution, and consumption, both
individually and collectively.

A. DEFINITION OF ECONOMICS
Economics is defined both in classical and neoclassical views. As follows:

VIEWS DEFINITION

Classical View
Science of wealth

 The science of wealth.

Adam Smith  Economics makes inquiries into the factors that
„An Enquiry into the Nature and determine the wealth and growth of a nation.
Causes of Wealth of Nations‟  Focuses on the production and expansion of wealth

 The shifted emphasis from wealth production to wealth

David Ricardo
distribution
 Economics is the science of production, distribution,
J. B Say
and consumption of wealth
French Classical Economist
 Economics is the law that governs mankind in the
J.S. Mills production of wealth. The wealth definition means that
wealth was considered to be an end in itself

Neo-Classical
Economics is concerned with material welfare

 The distinction between material and non-material

activities.
 According to Robbins, the use of the word ‗material‘
narrows down the scope of economics
because there are many things in the world
Lionel Robbins
which are immaterial, but are useful for promoting
human welfare.
 Regards all goods and services which command a
price as economic activity whether they are material or
non-material.

Do you agree more on the classical definition or on the neo-

classical definition of economics?
 B. MACROECONOMICS VS. MICROECONOMICS

Economics encompasses a lot of grounds. However, it can best be understood by

looking at the branches of the study. Depending on the context, a student of Economics should
be able to distinguish which is a factor of Macroeconomics and which belongs to
microeconomics.

Two Branches of Economics

1. Macroeconomics is the branch of economics that focuses on broad issues such as

growth, unemployment, inflation, and trade balance.
2. Microeconomics is the branch of economics that focuses on actions of particular
agents within the economy, like households, workers, and business firms
Microeconomics
 Focuses on the actions of individual agents within the economy, like households,
workers, and businesses
 In economics, the micro decisions of individual businesses are influenced by whether the
macro-economy is healthy; for example, firms will be more likely to hire workers if the
overall economy is growing
 Some common questions related to microeconomics:
 What determines how households and individuals spend their budgets?
 What combination of goods and services will best fit their needs and wants, given
the budget they have to spend?
 How do people decide whether to work, and if so, whether to work full time or
part time?
 How do people decide how much to save for the future, or whether they should
borrow to spend beyond their current means?

Macroeconomics
 Looks at the economy as a whole. It focuses on broad issues such as growth of
production, the number of unemployed people, the inflationary increase in prices,
government deficits, and levels of exports and imports
 The performance of the macro-economy ultimately depends on the microeconomic
decisions made by individual households and businesses.
 An economy‘s macroeconomic health can be defined by a number of goals, some
common goals are the following:
a. Growth in the standard of living
b. Low unemployment
c. Low inflation
 Some common questions related to macroeconomics:
 What determines the level of economic activity in a society? In other words, what
determines how many goods and services a nation actually produces?
 What determines how many jobs are available in an economy?
 What determines a nation‘s standard of living? What causes the economy to
speed up or slow down?
 What causes firms to hire more workers or to lay workers off?
  What causes the economy to grow over the long term?

To understand why both microeconomic and macroeconomic perspectives

are useful, consider the problem of studying a biological ecosystem like a
lake. One person who sets out to study the lake might focus on specific topics: certain
kinds of algae or plant life; the characteristics of particular fish or snails; or the trees
surrounding the lake. Another person might take an overall view and instead consider
the entire ecosystem of the lake from top to bottom; what eats what, how the system
stays in a rough balance, and what environmental stresses affect this balance. Both
approaches are useful, and both examine the same lake, but the viewpoints are
different. In a similar way, both microeconomics and macroeconomics study the same
economy, but each has a different viewpoint.

Whether you are looking at lakes or economics, the micro and the macro insights should
blend with each other. In studying a lake, the micro insights about particular plants and
animals help to understand the overall food chain, while the macro insights about the
overall food chain help to explain the environment in which individual plants and animals
live.
 C. SCARCITY
The principle (and problem) of economics is that human beings have unlimited wants
and occupy a world of limited means. This limited means is what economics call ‗scarcity‘. For
this reason, the concepts of efficiency and productivity are held paramount by economists.
Increased productivity and a more efficient use of resources, they argue, could lead to a higher
standard of living.
Economics helps us understand the decisions that individuals, families, businesses, or
societies make, given the fact that there are never enough resources to address all needs and
desires. The resources that we value—time, money, labor, tools, land, and raw materials—exist
in limited supply. There are simply never enough resources to meet all our needs and desires.
This condition is known as scarcity.

SCARCITY refers to limitations–limited goods or services, limited time, or limited abilities to

achieve the desired ends.

Classification of Goods

 Economic goods or services are goods that consumer must pay to obtain; also called
scarce goods. Examples of economic goods include: clothes, shoes, massage, haircut,
food at a restaurant

 Free Goods or services that a consumer can obtain for free because they are abundant
relative to the demand. Examples of Free Goods include: water in the ocean, sand in the
desert, the air we breathe
Productive Resources
These are the inputs used in the production of goods and services to make a profit: land,
economic capital, labor, and entrepreneurship; also called ―factors of production‖. These
resources are considered limited.

Four productive resources (resources have to be able to produce something), also called factors
of production:

1. Land: any natural resource, including actual land, but also trees, plants, livestock, wind,
sun, water, etc.
2. Economic capital: anything that‘s manufactured in order to be used in the production of
goods and services. Note the distinction between financial capital (which is not
productive) and economic capital (which is). While money isn‘t directly productive, the
tools and machinery that it buys can be.
3. Labor: any human service—physical or intellectual. Also referred to as human capital.
4. Entrepreneurship: the ability of someone (an entrepreneur) to recognize a profit
opportunity, organize the other factors of production, and accept risk.

Watch the video in the link to learn more about Scarcity

Search Scarcity and Choices in YouTube if using Printed Module.
If using soft copy of the module, copy this link https://youtu.be/yoVc_S_gd_0
 D. BASIC CONCEPT OF ECONOMICS

 Economics provides a foundation for analyzing choices and making decisions.

 Economists believe that economic systems will be able to cope and evolve when
necessary

Consumers, Goods & Services

 Economic products are goods and services that are considered transferable,
scarce and useful to individuals, businesses, or governments.
 Consumers are those who purchase the goods and acquire services to satisfy the
wants and needs. Because goods and services may be scarce, they will command a
price.
 Consumer goods are products that are intended for use by individuals, such as
shoes, backpacks, cars, or computer.
 Capital goods are items that are manufactured to produce other goods and
services, such as a bulldozer used to clear land for homes, school computers for
students, or a cash register at a grocery store.
 A service is also considered an economic product because people will pay to have a
service performed by someone else. Example includes Haircuts, insurance, a visit to
the dentist, or banking are all services.
 The difference between a good and a service is that a good is tangible, it is
something that we receive. While a service is something we pay for but it is not
tangible.

Consumer Goods Consumer Services

Value, Utility & Wealth

 According to economists, for something to have value, it must be scarce and have
utility.
 Value is defined as an item that has a worth that can be expressed in dollars and
cents. Individuals, businesses, and governments determine if a product or service is
worth the ―value‖ that is placed on it. If the item is worth more to the consumer than
the value it is listed at; then we may decide to purchase the product and trade money
for the good or service. This type of economic decision also takes into account the
concept of utility.
 Utility is the usefulness of an item and must provide the purchaser with some
satisfaction; otherwise, the purchase would not take place.
 A product’s utility is determined by the consumer. Some people may find an item
more useful than another. One person may enjoy collecting DVDs of movies or
attending concerts, while another person may not find those items as useful.
 The “paradox of
value”, a
contradiction, is a
situation where
something should
have value
because it is
useful, such as
water, but it, in
fact, has little
monetary value.
On the other
hand, diamonds
have a high monetary value but have little use and are not essential for survival.

 Wealth is the accumulation of all those products that are scarce, tangible and
transferable from one person to another. A nation‘s wealth is comprised of everything
the nation has within its borders
  When economists evaluate countries and their standard of living, or how well the
people live, some nations are therefore considered wealthier than others based on
what they have. An example of what may add wealth to a nation would be the
amount of fertile land it has for food production.

E. SUPPLY AND DEMAND

Supply and demand affect prices in the market by interacting with one another.

Supply is defined as the amount of a product that will be offered for sale at all the possible
prices in the market. For this reason, supply is considered to be from the producer or seller‘s
point of view.

Law of Supply states that more will be offered for sale at higher prices, and less will be
offered for sale at lower prices.
 Changes in supply can be caused by several factors, including:
1. The Cost Of Inputs,
2. Productivity,
3. New Technology
4. Taxes & Subsidies
5. Expectations
6. Government Regulations
7. Number Of Sellers In The Market

Price is what the producer receives for selling one unit of a good or service. Consequently, it is
the value of goods and services that a consumer will pay in exchange.

 Ceteris paribus, a rise in price almost always leads to an increase in the quantity
supplied of that good or service, while a fall in price will decrease the quantity
supplied.
 When the price of gasoline rises, for example, it encourages profit-seeking firms to
take several actions: expand exploration for oil reserves; drill for more oil; invest in
more pipelines and oil tankers to bring the oil to plants where it can be refined into
gasoline; build new oil refineries; purchase additional pipelines and trucks to ship the
 gasoline to gas stations; and open more gas stations or keep existing gas stations
open longer hours
 Economists call this positive relationship between price and quantity supplied—
that a higher price leads to a higher quantity supplied and a lower price leads to a
lower quantity supplied—the law of supply.
 The law of supply assumes that all other variables that affect supply are held
constant

Supply vs. Quantity Supplied

Supply schedule is a table that shows the quantity supplied at different prices in the market.
Supply curve shows the relationship between quantity supplied and price on a graph. The law
of supply says that a higher price typically leads to a higher quantity supplied.

Supply is the relationship between a range of
prices and the quantities supplied at those
prices, a relationship that can be illustrated
with a supply curve or a supply schedule
Quantity Supplied means that only a certain
point on the supply curve, or one quantity on
the supply schedule. In short, supply refers to
the curve and quantity supplied refers to the
(specific) point on the curve

The shape of supply

curves will vary somewhat
according to the product:
steeper, flatter, straighter,
or curved. Nearly all
supply curves, however,
share a basic similarity:
they slope up from left to
right and illustrate the law of supply: as the price rises, say, from $1.00 per gallon to $2.20 per
gallon, the quantity supplied increases from 500 gallons to 720 gallons. Conversely, as the price
falls, the quantity supplied decreases
 Price and Supply of Gasoline (Supply Schedule)
The supply schedule is the table that shows
quantity supplied of gasoline at each price. As
the price rises, quantity supplied also increases
and vice versa. The supply curve (S) is created
by graphing the points from the supply schedule
and then connecting them. The upward slope of
the supply curve illustrates the law of supply—
that a higher price leads to a higher quantity
supplied, and vice versa.

Law of Demand states that, if all other factors remain equal, the higher the price of a good, the
less people will demand that good.
 In other words, the higher the price, the lower the quantity demanded.
 The amount of a good that buyers purchase at a higher price is less because as the
price of a good goes up, so does the opportunity cost of buying that good. As a
result, people will naturally avoid buying a product that will force them to forgo the
consumption of something else they value more.

Demand vs. Quantity Demanded

Demand refers to how much (quantity) of a Quantity demanded is the amount of a product
product or service is desired by buyers people are willing to buy at a certain price; the
relationship between price and quantity
demanded is known as the demand relationship

Other Factors That Affect Supply

 Cost of production may be affected by changes in weather or other natural

conditions, Natural disasters
 Some governmental policies

The cost of production for many agricultural products will be affected by changes in
natural conditions. For example, the area of northern China which typically grows about 60%
of the country‘s wheat output experienced its worst drought in at least 50 years in the second
half of 2009. A drought decreases the supply of agricultural products, which means that at any
given price, a lower quantity will be supplied; conversely, especially good weather would shift
the supply curve to the right

When a firm discovers a new technology that allows the firm to produce at a lower cost,
the supply curve will shift to the right, as well. For instance, in the 1960s a major scientific effort
nicknamed the Green Revolution focused on breeding improved seeds for basic crops like
wheat and rice. By the early 1990s, more than two-thirds of the wheat and rice in low-income
countries around the world was grown with these Green Revolution seeds—and the harvest
was twice as high per acre. A technological improvement that reduces costs of production will
shift supply to the right, so that a greater quantity will be produced at any given price.

Government policies can affect the cost of production and the supply curve through
taxes, regulations, and subsidies. For example, the U.S. government imposes a tax on alcoholic
beverages that collects about $8 billion per year from producers. Taxes are treated as costs by
businesses. Higher costs decrease supply for the reasons discussed above. Other examples of
policy that can affect cost are the wide array of government regulations that require firms to
spend money to provide a cleaner environment or a safer workplace; complying with regulations
increases costs.

A government subsidy, on the other hand, is the opposite of a tax. A subsidy occurs
when the government pays a firm directly or reduces the firm‘s taxes if the firm carries out
certain actions. From the firm‘s perspective, taxes or regulations are an additional cost of
production that shifts supply to the left, leading the firm to produce a lower quantity at every
given price. Government subsidies reduce the cost of production and increase supply at every
given price, shifting supply to the right.

Shift in Supply

We know that a supply curve shows the minimum price a firm will accept to produce a given
quantity of output. What happens to the supply curve when the cost of production goes up?

Following is an example of a shift in supply due to a production cost increase.

Step 1. Draw a graph of a supply curve for pizza. Pick a quantity (like Q0). If you draw a vertical
line up from Q0 to the supply curve, you will see the price the firm chooses

The supply curve can be used to show the

minimum price a firm will accept to
produce a given quantity of output

Step 2. Why did the firm choose that price

and not some other? One way to think about this is that the price is composed of two parts. The
first part is the average cost of production, in this case, the cost of the pizza ingredients (dough,
sauce, cheese, pepperoni, and so on), the cost of the pizza oven, the rent for the shop, and the
wages of the workers. The second part is the firm‘s desired profit, which is determined, among
other factors, by the profit margins in that particular business. If you add these two parts
together, you get the price the firm wishes to charge. The quantity Q0 and associated price P0
give you one point on the firm‘s supply curve

The cost of production and the desired

profit equals the price a firm will set for a
product

Step 3. Now, suppose that the cost of production goes up. Perhaps cheese has become more
expensive by $0.75 per pizza. If that is true, the firm will want to raise its price by the amount of
the increase in cost ($0.75). Draw this point on the supply curve directly above the initial point
on the curve, but $0.75 higher

Because the cost of production and the

desired profit equals the price a firm will
set for a product, if the cost of production
increases, the price for the product will
also need to increase

Step 4. Shift the supply curve through this point. You will see that an increase in cost causes an
upward (or a leftward) shift of the supply curve so that at any price, the quantities supplied will
be smaller

When the cost of production increases,

the supply curve shifts upwardly to a new
price level

Calculating the Price Elasticity of

Supply

Assume that an apartment rents for $650

per month and at that price 10,000 units
are rented. When the price increases to
$700 per month, 13,000 units are supplied
into the market. By what percentage does
apartment supply increase? What is the price sensitivity?

The price elasticity of supply is calculated as the percentage change in quantity

divided by the percentage change in price

Price elasticity measures the responsiveness of the quantity demanded or supplied of a good
to a change in its price.
 It is computed as the percentage change in quantity demanded (or supplied) divided
by the percentage change in price.

Elasticity can be described as: elastic (or very responsive), unit elastic, or inelastic (not very
responsive).

 Elastic demand or supply curves indicate that quantity demanded or supplied

respond to price changes in a greater than proportional manner.
 Inelastic demand or supply curve is one where a given percentage change in price
will cause a smaller percentage change in quantity demanded or supplied.
 Unitary elasticity means that a given percentage change in price leads to an equal
percentage change in quantity demanded or supplied.

Summary of the Factors That Changes Supply Curve

Notice in the figure in the next page that a change in the price of the product itself is not among
the factors that shift the supply curve. Although a change in price of a good or service typically
causes a change in quantity supplied or a movement along the supply curve for that specific
good or service, it does not cause the supply curve itself to shift.
(a) A list of factors that can cause an increase in supply from S 0 to S1.
(b) The same factors, if their direction is reversed, can cause a decrease in supply from S 0 to
S1.

Long-Run vs. Short-Run Impact

Elasticities are often lower in the short run than in the long run.

 On the demand side of the market, it can sometimes be difficult to change Qd in the
short run, but easier in the long run.
 Consumption of energy is a clear example. In the short run, it is not easy for a person to
make substantial changes in their energy consumption. Maybe you can carpool to work
sometimes or adjust your home thermostat by a few degrees if the cost of energy rises,
but that is about all. However, in the long-run you can purchase a car that gets more
miles to the gallon, choose a job that is closer to where you live, buy more energy-
efficient home appliances, or install more insulation in your home. As a result, the
elasticity of demand for energy is somewhat inelastic in the short run, but much more
elastic in the long run.

Copy the link and watch the video in YouTube to learn more
about Supply and Demand

https://youtu.be/LwLh6ax0zTE
https://youtu.be/ewPNugIqCUM
https://youtu.be/bhpgaXx6e4E
 F. THE CIRCULAR FLOW MODEL

Circular Flow Model

 Illustrates how the expenditures approach and the income approach must equal
each other, with goods and services flowing in one direction and income flowing in
the opposite direction, in a closed loop.
 The circular flow model demonstrates how money moves through society. Money
flows from producers to workers as wages and flows back to producers as payment
for products. In short, an economy is an endless circular flow of money.
 That is the basic form of the model, but actual money flows are more complicated.
Economists have added in more factors to better depict complex modern economies.
 Factors involved in the diagram are the components of a nation's gross national
product (GDP) or national income. For that reason, the model is also referred to as
the circular flow of income model.

Gross Domestic Product (GDP) can be represented by the circular flow diagram as a
flow of income going in one direction and expenditures on goods, services, and resources
going in the opposite direction. In this diagram, households buy goods and services from
businesses and businesses buy resources from households.

GDP can be measured in three different ways (to be discussed further in Chapter 2):

1. Value added approach

 2. Income approach
3. Expenditures approach

Understanding the Circular Flow Model

The circular flow model starts with the household sector that engages in consumption
spending (C) and the business sector that produces the goods. Two more sectors should also
be included in the circular flow of income, the government sector, and the foreign trade sector.
The government injects money into the circle through government spending (G) on programs
such as Social Security and National Parks administration. Money also flows into the circle
through exports (X), which bring in cash from foreign buyers. In addition, businesses that invest
(I) money to purchase capital stocks contribute to the flow of money into the economy.

Outflows of Cash
Just as money is injected into the economy, money is withdrawn or leaked through
various means. Taxes (T) imposed by the government reduce the flow of income. Money paid to
foreign companies for imports (M) also constitutes a leakage. Savings (S) by businesses that
otherwise would have been put to use are a decrease in the circular flow of an economy‘s
income.

GDP is calculated as consumer spending plus government spending plus

business investment plus the sum of exports minus imports.
Calculating GDP
GDP = C + G + I + (X – M)

A government calculates its gross national income by tracking all of these injections into
the circular flow of income and the withdrawals from it.

Adding Up the Factors

The circular flow of income for a nation is said to be balanced when withdrawal equals
injections.
 The level of injections is the sum of government spending (G), exports (X) and
investments (I).
 The level of leakage or withdrawals is the sum of taxation (T), imports (M) and savings
(S).
Take note: When G + X + I is greater than T + M + S, the level of national income (GDP) will
increase. When the total leakage is greater than the total injected into the circular flow, national
income will decrease.

If businesses decided to produce less, it would lead to a reduction in household

spending and cause a decrease in GDP. Or, if households decided to spend less, it would lead
to a reduction in business production, also causing a decrease in GDP
KEY TERMS

Gross domestic The market value of the final production of goods and services within the
product (GDP) geographic borders of a country in a given period; for example, if the GDP
of India is \$2.264\text{ trillion}$2.264 trillion dollar sign, 2, point, 264, start
text, space, t, r, i, l, l, i, o, n, end text in 2016, this means that this is the
value of all new goods and services that were produced inside the border
of India, excluding intermediate goods, during 2016.
Expenditures One of the three approaches to calculating GDP that involves adding up all
approach to spending on final goods and services in an economy; the expenditures
GDP approach categories this spending into five categories: consumption,
investment, government spending, exports, and imports: Y=C+I+G+X-
MY=C+I+G+X−MY, equals, C, plus, I, plus, G, plus, X, minus, M.

Income An approach to calculating GDP that involves adding up all of the income
approach to earned within the borders of a country in a given year; the income
GDP approach adds up wages, rents, interest, and profits.
Value-added An approach to calculating GDP that involved adding up all of the value
approach to added at various stages of production; for example, in the production of a
GDP cake that sells for \$12$12dollar sign, 12, the value-added approach counts
the value of the raw ingredients that a farmer sells to the baker (\$4$4dollar
sign, 4), which a baker then combines with her capital to create a cake,
which adds \$8$8dollar sign, 8 in value.
Final goods and The goods and services that are purchased by consumers, businesses, the
services government, or other countries in their final form for their intended final use;
for example, a car purchased by a household, a haircut, or a laptop bought
by a student.
Intermediate Goods that are used in the production of a final product; for example, tires
Goods are final goods when Katherine buys them at the tire store. But when Acme
Motor Company buys tires to build a car that they plan on selling, those
tires would be considered intermediate goods.
Consumption when using the expenditures approach, ―C‖ is the category of GDP that is
(C) spending by households on final goods and services in a given year but
excludes spending on new housing

Investment (I) When using the expenditures approach, ―I‖ is the category of GDP that is
spending businesses do in order to produce goods and services (such as
buy computers for accountants to use or build factories to build cars);
investment includes spending on capital goods (tools, equipment) and
inventory.
Government When using the expenditures approach, ―G‖ is the spending by government
spending (G) entities, whether local or national governments, on goods and services
such as building roads and national defense; note that transfer payments
are not included in ―government spending‖ in GDP even though it is
something that is part of the money that a government might spend each
year.
Transfer Any payment by a government to a household that is not in exchange for a
Payment good or service; for example, if the government hires a contractor they are
buying a service that is included in GDP, but if they send a retired person a
pension check they are not buying a good or service and it is not counted
in GDP.
Exports (X) Goods that are produced in one country and then sold within another
country; for example, if a producer in the United States
makes 400400400 Katnest Evergreen bobble-head dolls and sells them to
a store in Japan, these dolls would be counted as Exports for the United
States.
Imports (M) Goods that are produced in a different country than where they were
purchased; for example, those bobble-head dolls made in the U.S. are
purchased by Japanese consumers, so they would get counted initially as
consumption (―C‖) for Japan. Since they do not reflect something that was
produced in Japan, they are subtracted from Japan‘s GDP as an import
(―M‖).
Net Exports Spending on exports minus spending on imports‘ ―exports‖ is the value of
(X-M) goods that go out of a country; ―imports‖ is the value of the goods that
come into a country. There is a trade deficit when imports are higher than
exports and there is a trade surplus and when exports are higher than
imports.

KEY TAKEAWAYS

 The circular flow model demonstrates how money moves from producers to households
and back again in an endless loop.
  The models can be made more complex to include additions to the money supply, like
exports, and leakages from the money supply, like imports.
 When all of these factors are totalled, the result is a nation's gross domestic product or
the national income

Read more on the topic to understand well the concept of Circular Flow Model
https://saylordotorg.github.io/text_economics-theory-through-applications/s22-03-the-
circular-flow-of-income.html

Watch the video in the link to learn more about Scarcity

Search Circular Flow of Income. How the different components of an economy interact in
YouTube if using Printed Module.
If using soft copy of the module, copy this link https://youtu.be/WlgMgppUx_Y
 G. MACROECONOMIC THEORIES
There are several theories which surround the study of macroenomics. When learning about
these economic perspectives, it is important to understand the value they add to one another
and the overall efficacy of all economic theory. Economists are often the product of multiple
schools of thought, and don‘t fit neatly into one school or another.
THEORY
Keynesian Theory
John Maynard Keynes
The General Theory of
Employment, Interest, and
Money (1936)
Theory Founder
John Maynard Keynes
MAIN TENETS
 Unemployment: Under the classical model, unemployment is
often attributed to high and rigid real wages. Keynes argues
there is more complexity than that—specifically that societies
are highly resistant to wage cuts and furthermore that reducing
wages would pose a great threat to an economy. Specifically,
cutting wages reduces spending and may result in a
downwards spiral.
 Excessive Saving: Keynes‘s concept here is somewhat
complicated, but in short Keynes notes excessive saving as a
threat and prospective cause of economic decline. This is
because excessive saving leads to reduced investment and
reduced spending, which drives down demand and the
potential for consumption. This can be another spiralling issue,
as money not being exchanged is actively reducing prospective
employment, revenues, and future investments.
 Fiscal Policy: The key concept in fiscal policy for Keynes is
‗counter-cyclical‘ fiscal policy, which is the expectation that
governments can reduce the negative effects of the natural
business cycle. This is, generally, achieved through deficit
spending in recessions and suppression of inflation during
boom times. Simply put, the government should try to curb the
extremes of economic fluctuation through informed fiscal policy.
 The Multiplier Effect: This idea has in many ways already
been implied in the atom, but inversely. Consider the
unemployment and excessive savings problems, and how they
stand to lead to spiralling decline. The other side of that coin is
that positive economic situations can spiral upwards. Take for
example a government investment in transportation, putting
money in the pockets of various individuals who build trains and
tracks. These individuals will spend that extra capital, putting
money in the hands of other business (and this will continue).
This is called the multiplier effect.
 IS-LM: While the IS-LM Model is a complicated by product of
Keynesian economics, it can be summarized as the relationship
between interest rates (y-axis) and the real economic output (x-
axis). This is done through analysing the invest-saving
relationship (IS) in contrast to the liquidity preference and
 money supply relationship (LM), generating an equilibrium
where certain interest rates and outputs will be generated.

Monetarist  Monetarism focuses on the macroeconomic effects of the

supply of money and the role of central banking on an
Followers: economic system

Clark Warburton  When the money supply is expanded, individuals will be

Milton Friedman induced to higher spending. In turn, when the money supply
Ann Schwartz retracted, individuals would limit their budgetary spending
Paul Volcker accordingly. This would theoretically provide some control over
aggregate demand (which is one of the primary areas of
disagreement between Keynesian and classical economists)

Austrian  About methodological individualism, or the idea that people will

act in meaningful ways which can be analyzed
Carl Menger
Friedrich von Weiser  The Austrian school of economics is one of the oldest
Eugen von Bohm-Bawerk economic perspectives, originating in the 19th century in
Vienna.

 Austrian economics is attributed for the identification of

opportunity cost, capital and interest, inflation, business cycles
and the organizing power of markets.
 Austrian economists do not often place much weight on
concepts such as econometrics, experimental economics, and
aggregate macroeconomic analysis. In this sense, the Austrian
school of thought is something of an outsider relative to other
perspectives (i.e. classical, Keynesian, etc.).

 Paul Krugman criticized Austrian economics as lacking explicit

models of analysis, or essentially a lack of clarity in their
approach. This results in inadvertent blind spots.

 The Austrian school of thought provided enormous value to the

economic climate, both as a foundation for future economics
and as a deliberate counterpoint to more quantitative analysis.
Of the most important ideologies, the following central tenets
are:

 Opportunity Cost: This is a concept you are likely already

familiar with, and one of the most important ideas in all of
business and economics. Essentially, the price of a good
must also incorporate the value sacrificed of the next best
alternative. Basically each choice a consumer or business
makes intrinsically has the cost of not being able to make
an alternative choice.

 Capital and Interest: Largely in response to Karl Marx‘s

labor theories, Austrian economist Bohm-Bawerk identified
the building blocks of interest rates and profit is supply and
demand alongside time preference. In short, present
consumption is more valuable than future consumption (the
time value of money).

 Inflation: The idea that prices and wages must rise as a

result of increased money supply is inflation (note: this is
different that price inflation). Simply put, more money in the
system without a higher demand for that money will drive
down the relative value of each dollar.

 Business Cycles: The Austrian business cycle theory

(ABCT) is the simple observation that the issuance of credit
(by banks) creates economic fluctuations that tend to be
cyclical (see ). In simple terms, banks will lend out money at
rates lower than the risk in which that money will be used.
So when businesses fail more often than they succeed,
thus losing interest as opposed to accruing it, will struggle
to repay their debts. When the banks call in those debts the
business cannot pay, creating negative business cycles.

 The Organizing Power of Markets: The idea of this

concept is that no one person knows what the appropriate
price of a good should be. Instead, markets naturally
 generate incentives to identify optimal price points. This
negates the ideas of socialism common at the time, as
communist systems will be unable to identify the
appropriate exchange value of each good.

Alternative Views  In approaching Neoclassical economics, it is most important

to keep in mind the following three principles:
Neo-Classical
1. People have rational preferences in the context of
Followers: options or outcomes that can be identified and
Adam Smith associated with a given value (usually monetary). In
David Ricardo short, people make smart choices regarding how they
spend their money.

2. Individuals maximize utility and firms maximize profit.

People will try to get the most from their money while
corporations will try to invest their time and assets to
capture the highest margin.

3. People act independently based upon comprehensive

and relevant information. People are influenced by
rational forces (mostly information and logic), and will
make the best personal purchasing decisions based
upon this.
Alternative View  Neo-Keynesian economics is actually the formalization and
coordination of Keynes‘s writings by a number of other
Neo-Keynesian economists

 IS/LM Model: This model was put forward by John Hicks in

order to capture the inherent relationship between
investment and savings (IS) relative to liquidity and the
overall money supply (LM) (see ). The implications of this
graph pertain to the static representation of monetary policy
and the effects on an economic system.

 Phillips Curve: Another important model following Keynes‘s

publications is the Phillips Curve, put forward by William
Phillips in 1958. The idea here was also largely Keynesian,
revolving around the relationship between inflation and
unemployment. This implies a trade-off between inflation
rates and the creation of employment, which governments
could consider in policy making. Stagflation (economic
stagnation and inflation simultaneously) created issues with
this however, necessitating New Keynesian ideas (as
discussed briefly above)

To read more on the topic of Macroeconomic Theories, you may download the soft copy of
the e-book by copying the link below
https://open.umn.edu/opentextbooks/textbooks/macroeconomics-theory-models-policy
 Lesson 2
ECONOMIC DEVELOPMENT: NATURE, HISTORY & CONCEPT

The concept "development" refers to the structural changes towards betterment. Until
the World War II, interest was rarely shown on the problems of the present day third World
Countries. After the Second World War, economists started devoting their attention towards
analyzing the problems of underdeveloped countries and formulating theories and models of
development and growth. The Under Developed Countries (UDCs) were once the colonies of
England and other European countries. After becoming free and independent, there was an
awakening to march towards economic development.
In economics, the study of economic development was borne out of an extension to
traditional economics that focused entirely on national product, or the aggregate output of goods
and services.
Economic development was concerned with the expansion of people's entitlements and their
corresponding capabilities, morbidity, nourishment, literacy, education, and other socio-
economic indicators.

A. DEFINITION OF ECONOMIC DEVELOPMENT

 "a process of creating and utilizing physical, human, financial, and social assets to
generate improved and broadly shared economic well-being and quality of life for a
community or region" (Karl Seidman)
 Economic development is a wider concept and has qualitative dimensions. Economic
development implies economic growth plus progressive changes in certain important
variables which determine well-being of the people (e.g: health, education)
 'Economic development' is a term that practitioners, economists, politicians, and others
have used frequently in the 20th century. The concept, however, has been in existence
in the West for centuries. Modernization, Westernization, and especially Industrialization
are other terms people have used while discussing economic development. Economic
development has a direct relationship with the environment‟. (University of Iowa's Center
for International Finance and Development)
 Economist Albert O. Hirschman, a major contributor to development economics,
asserted that economic development grew to concentrate on the poor regions of the
world, primarily in Africa, Asia and Latin America yet on the outpouring of fundamental
ideas and models.
B. HISTORY OF ECONOMIC DEVELOPMENT

 Economic development originated in the post-war period of reconstruction initiated by

the United States In 1949 during the time of President Harry Truman
 There have been several major phases of development theory since 1945. Alexander
Gerschenkron argued that the less developed the country is at the outset of economic
development (relative to others), the more likely certain conditions are to occur. Hence,
all countries do not progress similarly.
 From the 1940s to the 1960s the state played a large role in promoting industrialization
in developing countries, following the idea of modernization theory.
 The 1970s saw a brief period of basic needs development focusing on human capital
development and redistribution. Neoliberalism emerged in the 1980s pushing an agenda
of free trade and removal of import substitution industrialization policies.
 Borne out of the backdrop of Keynesian economics (advocating government
intervention), and neoclassical economics (stressing reduced intervention), with the rise
of high-growth countries (Singapore, South Korea, Hong Kong) and planned
governments (Argentina, Chile, Sudan, Uganda), economic development and more
generally development economics emerged amidst these mid-20th century theoretical
interpretations of how economies prosper.

C. APPROACHES TO ECONOMIC DEVELOPMENT

There are two main approaches to the concept of development viz. (1) the traditional
approach and (2) the new welfare oriented approach.

1. Traditional Approach: The traditional approach defines development strictly in

economic terms. The increase in GNP is accompanied by decline in share of agriculture
in output and employment while those of manufacturing and service sectors increase. It
emphasizes the importance of industrialization. It was assumed that growth in GNP per
capita would trickle down to people at the bottom.

2. New Welfare Oriented Approach: During 1970s, economic development was

redefined in terms of reduction of poverty, ‗inequality‘ and unemployment within the
 context of a growing economy. In this phase, ‗Redistribution with Growth‘ became the
popular slogan.

“Development must, therefore, be conceived as a multidimensional process involving

major changes in social structures, popular attitudes and national institutions as well as
the acceleration of growth, the reduction of inequality and the eradication of absolute
poverty”. - Michael P. Todaro,

Underdevelopment
The Underdeveloped Countries (UDCs) are characterized by predominance of primary
sector i.e. agriculture, low per capita income, widespread poverty, wide inequality in distribution
of income and wealth, over population, low rate of capital formation, high rate of unemployment,
technological backwardness, dualism etc.

Meaning of Underdevelopment
The term underdevelopment refers to that state of an economy where levels of living of
masses are extremely low due to very low levels of Per capita income, resulting from low levels
of productivity and high growth rate of population.

D. ECONOMIC DEVELOPMENT VS. ECONOMIC GROWTH

 Economic growth means an increase in real national income / national output. It is

also defined as the increase in the real value of goods and services produced as
measured by the annual percentage change in real Gross Domestic Product (GDP).
  Economic growth is also defined as a long-run increase in a country‘s productive
capacity / potential national output.
 Economic development means an improvement in the quality of life and living
standards, e.g. measures of literacy, life-expectancy and health care.
 Ceteris paribus, we would expect economic growth to enable more economic
development. Higher real GDP enables more to be spent on health care and
education.
 However, the link is not guaranteed. The proceeds of economic growth could be
wasted or retained by a small wealthy elite.
DIFFERENCE BETWEEN ECONOMIC DEVELOPMENT & ECONOMIC GROWTH

INDICATOR ECONOMIC DEVELOPMENT ECONOMIC GROWTH

State of Development Deals with the problems of economic growth to those of
underdeveloped countries developed countries
Nature and level of Development is a discontinuous and Growth is a gradual and
change spontaneous change steady change in the long run.
Scope of Change Not only more output, but also in Growth simply means more
composition output
Aspect of Change Qualitative + Quantitative Quantitative aspect, concerns
on per capita income
Scope Wider Concept Economic growth is narrower
Development= Growth+ Change concept and change is non-
structural

E. STAGES OF ECONOMIC DEVELOPMENT & ECONOMIC GROWTH

STAGES OF ECONOMIC DEVELOPMENT

According to the American University official webpage, most development economists would
agree that the key stages of development are related to three different transitions:
1. A structural transformation of the economy,
2. A demographic transition, and
3. A process of urbanization.

The structural transformation refers to a change in the composition of GDP. Initially,

economic activities and jobs are based in the agricultural sector. With development, the
share of agriculture in GDP decreases as economic activities and jobs shift towards the
 industrial sector, especially manufacturing. After some decades of industrialization, the
service sector will slowly overtake the share of industry, while the share of agriculture
continues to decrease. In other words, at the final stage of development, we typically have
an economy in which people earn their livelihood predominantly from the service sector and
a still important but diminished industry sector.

The demographic transition is determined mostly by changes in the fertility rates (i.e., the
number of children per woman) and changes in life expectancy. Initially, fertility rates are
high, but due to relatively high death rates (especially high infant mortality rates), population
growth is limited. In the next stage, both fertility rates and life expectancy are increasing,
causing a sharp increase in the size of population. With continuous development, life
expectancy continues to increase, but sharply declining fertility rates will limit population
growth.

The main factors leading to the process of urbanization is the migration of people from
rural areas seeking jobs in the emerging urban centers, the transformation of originally semi-
urban suburbs into fully urban centers, and differences in population dynamics between
rural and urban areas.

Stages of Economic Growth

It is said that one of the most relevant theory on economic growth is Walt W. Rostow‘s
Theory of Economic Growth wherein it is proposed in his theory that countries pass through five
stages of economic growth. The model asserted that all countries exist somewhere on this
linear spectrum, and climb upward through each stage in the development process
 Rostow penned his classic "Stages of Economic Growth" in 1960, which presented five
steps through which all countries must pass to become developed:
1. traditional society
2. preconditions to take-off,
3. take-off,
4. drive to maturity and
5. age of high mass consumption
Traditional Society: This stage is characterized by a subsistent, agricultural-based
economy with intensive labor and low levels of trading, and a population that does not
have a scientific perspective on the world and technology.

Preconditions to Take-off: Here, a society begins to develop manufacturing and a

more national/international—as opposed to regional—outlook.

Take-off: Rostow describes this stage as a short period of intensive growth, in which
industrialization begins to occur, and workers and institutions become concentrated
around a new industry.
 Drive to Maturity: This stage takes place over a long period of time, as standards of
living rise, the use of technology increases, and the national economy grows and
diversifies.

Age of High Mass Consumption: At the time of writing, Rostow believed that Western
countries, most notably the United States, occupied this last "developed" stage. Here, a
country's economy flourishes in a capitalist system, characterized by mass production
and consumerism.

F. DETERMINANTS OF ECONOMIC DEVELOPMENT

Economic development is not determined by any single factor. Economic development
depends on (1) Economic, (2) Social, (3) Political and (4) Religious factors.

ECONOMIC FACTORS

1. Natural Resource: The principal factor affecting the development of an economy is

the availability of natural resources. The existence of natural resources in abundance is
essential for development. A country deficient in natural resources may not be in a
position to develop rapidly. But a country like Japan lacking natural resources imports
them and achieve faster rate of economic development with the help of technology. India
with larger resources is poor.
2. Capital Formation: Capital formation is the main key to economic growth. Capital
formation refers to the net addition to the existing stock of capital goods which are either
tangible like plants and machinery or intangible like health, education and research.
Capital formation helps to increase productivity of labour and thereby production and
income. It facilitates adoption of advanced techniques of production. It leads to better
utilization of natural resources, industrialization and expansion of markets which are
essential for economic progress.

3. Size of the Market: Large size of the market would stimulate production, increase
employment and raise the National per capita income. That is why developed countries
expand their market to other countries through WTO.

4. Structural Change: Structural change refers to change in the occupational structure

of the economy. Any economy of the country is generally divided into three basic
sectors: Primary sector such as agricultural, animal husbandry, forestry, etc; Secondary
sector such as industrial production, constructions and Tertiary sector such as trade,
banking and commerce. Any economy which is predominantly agricultural tends to
remain backward.

5. Financial System: Financial system implies the existence of an efficient and

organized banking system in the country. There should be an organized money market
to facilitate easy availability of capital.

6. Marketable Surplus: Marketable surplus refers to the total amount of farm output
cultivated by farmers over and above their family consumption needs. This is a surplus
that can be sold in the market for earning income. It raises the purchasing power,
employment and output in other sectors of the economy. The country as a result will
develop because of increase in national income.

7. Foreign Trade: The country which enjoys favorable balance of trade and terms of
trade is always developed. It has huge forex reserves and stable exchange rate.
 8. Economic System: The countries which adopt free market mechanism (laissez faire)
enjoy better growth rate compared to controlled economies. It may be true for some
countries, but not for every country.

NON- ECONOMIC FACTORS

„Economic Development has much to do with human endowments, social attitudes,
political conditions and historical accidents. Capital is a necessary but not a sufficient
condition of progress. – Ragnar Nurkse.

1. Human Resources: Human resource is named as human capital because of its

power to increase productivity and thereby national income. There is a circular
relationship between human development and economic growth. A healthy, educated
and skilled labour force is the most important productive asset. Human capital formation
is the process of increasing knowledge, skills and the productive capacity of people. It
includes expenditure on health, education and social services. If labour is efficient and
skilled, its capacity to contribute to growth will be high. For example Japan and China.

2. Technical Know-how: As the scientific and technological knowledge advances, more

and more sophisticated techniques steadily raise the productivity levels in all sectors.
Schumpeter attributed the cause for economic development to innovation.

3. Political Freedom: The process of development is linked with the political freedom.
Dadabhai Naoroji explained in his classic work ‗Poverty and Un-British Rule in India‘ that
the drain of wealth from India under the British rule was the major cause of the increase
in poverty in India.

4. Social Organization: People show interest in the development activity only when
they feel that the fruits of development will be fairly distributed. Mass participation in
development programs is a pre-condition for accelerating the development process.
Whenever the defective social organization allows some groups to appropriate the
benefits of growth.Majority of the poor people do not participate in the process of
development. This is called crony capitalism.
 5. Corruption free administration: Corruption is a negative factor in the growth
process. Unless the countries root-out corruption in their administrative system, the
crony capitalists and traders will continue to exploit national resources. The tax evasion
tends to breed corruption and hamper economic progress.

6. Desire for development: The pace of economic growth in any country depends to a
great extent on people‘s desire for development. If in some country, the level of
consciousness is low and the general mass of people has accepted poverty as its fate,
then there will be little scope for development.

7. Moral, ethical and social values: These determine the efficiency of the market,
according to Douglas C. North. If people are not honest, market cannot function.

8. Casino Capitalism: If People spend larger proportion of their income and time on
entertainment liquor and other illegal activities, productive activities may suffer,
according to Thomas Piketty.

9. Patrimonial Capitalism: If the assets are simply passed on to children from their
parents, the children would not work hard, because the children do not know the value of
the assets. Hence productivity will be low as per Thomas Piketty.

G. MEASUREMENT OF ECONOMIC DEVELOPMENT

Economic development is measured on the basis of four criteria

1. Gross National Product (GNP): GNP goods and services produced within a nation in a
particular year, plus income earned by its citizens (including income of those located
abroad), minus income of non -residents located in that country. GNP is one measure of
the economic condition of a country under the assumption that a higher GNP leads to a
higher quality of living, all other things being equal.

2. GNP Per Capita: This relates to increase in the per capita real income of the economy
over the long period. This indicator of economic growth emphasizes that for economic
development the rate of increase in real per capita income should be higher than the
growth rate of population.
 3. Welfare: Economic development is regarded as a process whereby there is an increase
in the consumption of goods and services by individuals. From the welfare perspective,
economic development is defined as a sustained improvement in health, literacy and
standard of living.

4. Social Indicators: Social indicators are normally referred to as basic and collective
needs of the people. The direct provision of basic needs such as health, education, food,
water, sanitation and housing facilities check social backwardness.

REFERENCES

Amaka, M. (2016). The nature and scope of economics.

Dupont, B. (2017). "The History of Economic Ideas: Economic Thought in Contemporary

Context," Chapter 1. Routledge, Taylor & Francis Group.

Understanding Economics and Scarcity. Lumen Learning. Microeconomics.

https://courses.lumenlearning.com/wmmicroeconomics/chapter/understanding-economics-and-
scarcity/

Circular Flow Model. Macroeconomics. Investopedia.

https://www.investopedia.com/terms/circular-flow-of-income.asp

Supply and Demand.

https://flexbooks.ck12.org/user:zxbpc2rzcziwmthaz21hawwuy29t/cbook/episd-2019-2020-
economics-with-emphasis-on-the-free-enterprise-system

Major Theories in Macroeconomics. Lumen Learning.

https://courses.lumenlearning.com/boundless-economics/chapter/major-theories-in-
macroeconomics/

Meaning of Development and Underdevelopment. Economics 12th Std.

http://www.brainkart.com/subject/Economics-12th-Std_412/
Chapter Exercises
Exercise 1.
Exercise Code: CE1

ESSAY
Direction:
Answer the following questions in essay format. However, you are free to inject your creative
imagination—you may draw, create tables or illustrate, if applicable.
Submit to the prescribed platform, as directed by the instructor. Follow the format provided by
the instructor when naming or putting label on your exercises. Make sure to include the exercise
code.
Points:
SPECIFICS POINTS
Question 1 20
Question 2 20
Question 3 20
Question 4 20
Question 5 20
Total Points 100

Rubric for Scoring Essay:

20 points – Exceptional (Detailed, precise and supported with facts and statistics, if applicable)
18 points – Very Satisfactory (Detailed and supported with facts but discussion is not
comprehensive)
15 points – Satisfactory (Well-discussed, with correct details but lacking in facts and statistics)
13 points – Acceptable (Fairly-discussed, able to answer and support the discussion)
10 points – Fair (Fairly-discussed, lacking the necessary discussion to support answer or claim)
5 points – Inadequate (Least effort, did not answer the question or have copied answer from
internet without injecting own insights and understanding)

Questions to Answer:
1. How do you understand the ―creation of wealth‖ based on what you read in this chapter?
2. Since we are a part of the demographics contributing to the overall economy of the
country, what do you think are your participation in these economic activities? (Provide 3
logical answers, explain further)
3. Illustrate (draw, make diagram, etc.) according to your own interpretation, the differences
between Macroeconomics and Microeconomic based on the given definitions suggested
in this chapter.
4. In the stages of Economic development, which current stage/phase do you think
Philippine Economy is? Support your discussion with facts and statistics (if necessary)
5. In the stages of Economic Growth, which current stage/phase do you think Philippine
Economy is? Support your discussion with facts and statistics (if necessary)
MIDTERM REQUIREMENT:

Instruction:
Follow carefully the instructions in writing the written report. This requirement will be submitted
during the midterm exam.

RESEARCH
Make a written report on the current economy of Philippines. Important consideration on the
effect of COVID-19 on our economy
 Must include the current GDP, GNP or GNI
 Must incorporate the economic growth/change during the time of the pandemic

Format of the Paper: (Font: Times New Roman, size 12, 1.5 Spacing)
COVER PAGE (Include Title of the Paper, Student‘s Name, Degree Program and Year Level,
Class Schedule)
I. INTRODUCTION (1 page introduction)
II. CONTENT (Minimum of 2 pages)
III. PERSONAL INSIGHT (Give your thoughts/ opinion about the result of your research)
IV. REREFERENCES (Use APA 6th)

SPECIFICS POINTS
Cover Page, Format & References 25
Introduction 25
Content 25
Personal Insight 25
Total Points 100

Rubric for Scoring Introduction/Content/Personal Insights:

25 points – Exceptional (Surpassed the expectation, comprehensive report, precise and
supported with facts and statistics)
20 points – Very Satisfactory (Followed the instructions, Detailed and supported with facts but
discussion is not comprehensive)
15 points – Satisfactory (Followed instructions, well-discussed, with correct details but lacking in
facts and statistics)
10 points – Acceptable (Did not completely follow instruction, Fairly-discussed, able to answer
and support the discussion)
5 points – Inadequate (Did not follow instructions, irrelevant contents)

Rubric for Scoring Cover Page, Format & References

25 points – Exceptional (Followed the format, complete details, well-referenced)
20 points – Satisfactory (Followed the format, complete details but not well-referenced)
15 points – Fair (Did not follow format completely, has required details and lacking in
references)