ECONOMIC GROWTH
- Defined as the increase in market value of goods
and services produced by an economy over time.
- It is measured as percentage rate increase in real
gross domestic product (GDP)
- Real GDP is an inflation-adjusted measures that
reflect the value of all goods and services
produced.
2 Factor of Economic Growth
1. Intensive Growth – efficient use of inputs
2. Extensive Growth – an increase in the
amount of inputs available for use.
Measuring Economic Growth
- The rate of growth of GDP Capita is calculated
from the data and population for the initial and final
periods included in the analysis.
Determinant of Per Capita GDP GROWTH
Per Capita is calculated as follows:
- Labor productivity (output per unit of labor)
- Intensity (hours worked)
- Participation rate (% working age population) and
Demography (total population)
Historical Sources of Productivity Growth
 Malthusian Trap
- The Malthusian trap or population trap is
a condition whereby excess population
would stop growing due to shortage of
food supply leading to starvation.
 Industrial Revolution
- Changes in way of production in use of
machine.
 Second Industrial Revolution
- Substitution of inanimate power of
human and animal labor
- Productivity through the help of energy
- Improvement such as in transportation
and agriculture
19th century
- both prices and weekly work hours full
because less labor, materials and
energy were required to produce and
transport goods.
-real wages rose, allowing workers to
improve their lifestyle
Other Factors affecting Growth
Demographic Changes
- Demographic factors may influence
growth by changing the employment to
population ratio and the labor force
participation rate.
(Rate of Population Growth= Birth Rate
– Death Rate + Rate of net immigration)
Political Institutions, Rule of Law, Property
Rights
- “As the institutions influence behavior
and incentives in real life, they forge the
success or failure of nations.”
- In economics and economic history,the
transition to capitalism from earlier
economic systems was enabled by the
adoption of government policies that
facilitated commerce and gave
individuals more personal and economic
freedom.
- These included new laws favorable to
the establishment of business, including
contract law and laws providing for
the protection of private property,
and the abolishment of anti-usury
laws.
- Not having clear legal title to property
limits its potential to be used as
collateral to secure loans, depriving
many poor countries one of their most
important potential sources of capital.
Capital
- Capital in economics ordinarily refers to
physical capital, which consists of
structures and equipment used in
business.
Example: machinery, factory
equipment, computers, office
equipment, construction equipment,
business vehicles etc.
 - Capital is subject to diminishing returns
because of the amount that can be
effectively invested and because of the
growing burden of depreciation.
New Products and Services
- Another major cause economic growth
is the introduction of new products and
services and the improvement of
existing products. New products create
demand, which is necessary to offset
the decline in employment that occurs
through labor saving technology.
Growth Phases and Sector Shares
- Economic growth in the United States
and other developed countries went
through phases that affected growth
through changes in the labor force
participation rate and the relative sizes
of economic sectors
Example: manufacturing vs agricultural
Classical Growth Theory
- In classical economics, the theory of
production and the theory of growth are
based on the theory or law of variable
proportions, whereby increasing either
of the factors of production (labor or
capital), while holding the other constant
and assuming no technological change,
will increase output, but at a diminishing
rate that eventually will approach zero.
Human Capital
- Human Capital is the knowledge, skills
sets and motivation people have.
- Economist attempts to measure Human
Capital using numerous proxies
including:
 Population level of literacy and
numeracy
 Average score in international
test
 Average level of formal
schooling
Robert Barro and Jong- Wha Lee
- The amount of human capital acquired in a
year of schooling is not the same at all
levels of schooling and is not the same in all
countries. It presumes that Human Capital
is only developed in formal schooling
Erick Hanushek and Ludger Woessman
- Investigate whether the relationship of
knowledge capital to economic growth is
casual.
Energy Consumption and Growth
- Energy economic theories hold that the
rates of energy consumption and energy
efficiency are limited casually to economic
growth.
- Per capita electric consumption correlates
almost perfectly within economic
development.
- These includes the great improvement of
efficiency of conversion of heat to work the
reuse of heat, transmission of power
especially through electrification.
Quality of Life
- Relates economic growth with the quality of
life is “threshold hypothesis” which states
economic growth up to a point brings within
an increase in quality of life.
Business Cycle
- Short run variation in economic growth is
termed the business cycle
Income Equality
- Inequality may have a positive effect on an
economic development
Equitable Growth
- Special efforts must be made to ensure
poorer sections of society are able to
participate in economic growth.
Environmental constraints
- Any limitations on strategy options due to
political, external, competition, social
requirements and expectations and cultural
or economic factors. A business activity
 may be constrained (limited) by the nations that organize their work mainly in
environment in which it operates. business enterprises.

Political - political factors like how the

management manage their business

External - how businesses and their strategies can Keynesian Theory

impact us like emphasizing what we have that our - Keynesian it sometimes called
business or economy don't have "Keynesianism"

Competitions - good competition like both Keynesian

businesses are gaining and growing while in bad
competition the other business gain and the other is
falling
Social requirements and expectations - when
the business is expanding, more requirements are
needed because it is required to submit those
before the business can operate
Cultural and Economic - having a culture or
policies in a business can hinder the growth of a
company in a way that it limits the movement of
people
BUSINESS CYCLE
- The business cycle or economic cycle is the
downward and upward movement of Gross
Domestic Product (GDP) around its long-
term trend.
- An economic theory named after British
economist John Maynard Keynes. John
Maynard Keynes was a british economist
and was one of the most influential
economists during 20th century. He was the
founder of modern macroeconomic theory.
- According to keynesian economics,
fluctuations in aggregate demand cause the
economy to come to short run equilibrium at
levels that are different from the full
employment rate of output.
Georgism
- Henry George claimed land price
fluctuations were the primary cause of most
business cycles.
- George observed that one necessary factor
in production - land - has an inherent
tendency to rise in price on an exponential
basis as the economy grows.

CLASSIFICATION OF PERIODS OPPORTUNITY COST

1. Expansion - In microeconomic theory, the opportunity
2. Crisis cost of the choice is the value of the best
3. Recession alternative forgone where, gives limited
4. Recovery resources, a choice needs to be made
between several mutually exclusive
Occurrence alternatives.
- There were increases in productivity, - “The loss of potential gain from other
industrial production and real per capita alternatives when one alternative is chosen.
product throughout period from 1870 to - Opportunity cost is a key concept in
1890 that included the Long Depression and economics, and has been described as
two other recession expressing “the basic relationship between
scarcity and choice”
Identifying
- Business cycle are a type of fluctuation Opportunity Costs in Production
found in the aggregate economic activity of 1. Explicit Costs
 - Explicit Costs are opportunity costs that
involve direct monetary payment by
producers. The explicit opportunity cost of
the factors of production not already owned
by a producer is the price that the producer
has to pay for them.
2. Implicit Costs
- Implicit costs (also called implied, imputed
or notional costs) are the opportunity costs
that are not reflected in cash outflow but
implied by the failure of the firm to allocate
its existing (owned) resources, or factors of
production to the best alternative use.
PRODUCTIVE EFFICIENCY
- Productive efficiency is a situation in which
the economy could not produce any more of
one good without sacrificing production of
another good.
- Least costly production techniques are used
to produced wanted goods and service
GAME THEORY
- Attempts to consider the interactions
between the participant's and their behavior
to the strategic decision making.
- Game theory is the study of mathematical
model of conflicts and cooperation between
intelligent rational decision-making.
Game Types
Cooperative
- If the players are able to form binding
commitments externally enforced
Non-Cooperative
- If players cannot form alliances or if all
agreements need to be self-enforcing.
Symmetric
- Is a game where the payoff for playing a
particular strategy depend only on the other
strategies employed
Asymmetric
- Are games where there are not identical
strategy sets for both players.
General and Applied Uses
- The first use of game theoretic analysis was
bay Antoine Augustin Cournot (1838)-
Cournot Duopoly.
- The use of game theory in the social
sciences has expanded, and has been
applied to political, sociological and
psychological behaviors as well.
- Game theory has also been used to develop
theories of ethical or normative behavior
and to prescribe such behavior.
Description and Modeling
- The primary use of game theory is to
describe and model how human populations
behave. Some scholars believe that by
finding the equilibria pf games they can
predict how actual human populations will
behave when confronted with situations
analogous to the game being studied.
Economics and Business
- Game theory is a major method used in
mathematical econ and buss for modeling
competing behaviors of interacting agents.
- Applications include a wide array of
economic phenomena and approaches.
Such as: auctions, bargaining, mergers &
acquisitions pricing, fair division, duopolies,
oligopolies, social network formation, agent-
based computational economics, general
equilibrium, mechanism design and voting
systems.
Political Science
- The application of game theory in political
science is focused in the overlapping areas
of fair division, political economy, public
choice, war bargaining, positive political
theory, and social choice theory. In each of
these areas, researchers have developed
game theoretic models in which the players
are often voters, states, special interest
groups and politicians
- Game theory could also help predict
nation's responses when there is a new rule
or law to be applied to that nation.
- Peter john wood (2013)- he looked into what
nations could do to help reduce climate
 change.
Gains from Trade
- In economics, gains from trade refers to net
benefits to agents from allowing an increase
in voluntary trading with each other. In
technical terms, it is the increase of
consumer surplus plus producer surplus
from lower tariffs or otherwise liberalizing
trade.
Dynamics
- Gains from trade are commonly described
as resulting from:
 Specializations in production from
division of labor, economics of scale,
scope, and agglomerations and
relative availability of factor
resources in types of output by
farms, businesses, location and
economics.
 Resulting increase in total output
possibilities and trade through
markets from sales of one type of
output for other, more highly valued
goods.
3. Size of country: If a country is small in size it
is relatively easy for them to specialize in
the production of one commodity and export
the surplus production to a large country
and can get more gains from international
trade. Whereas if a country is large in size
then they have to specialize in more than
one good because the excess production of
only one commodity cannot be exported
fully to a small sized country as the demand
for good will reduce very frequently. So, the
smaller the size of the country, the larger
the gain from trade
REPORTERS:
GROUP 4
Hermocilla, Chariz E.
Ituralde, Kristine Iris D.
Jamier, Alma Y.
Loro, Jannele A.
Lozano, Sherilyn S.
Martirez, Abigail A.
Manabat, Joana Ann Mae B.

Measurement of Gains from Trade

Two methods to measure the gains from trade
1. International trade increases national income
which helps us to get low priced imports.

2. Gains are measured in terms of trade.

Factors affecting gains from trade:

There are several factors which determine the

gains from international trade

1. Demand and supply: If a country has elastic

demand and supply gains tha gains from
trade are higher than if demand and supply
are inelastic.
2. Factor availability: International trade is
based on the specialization and a country
specializes depending upon the availability
of factors of production. It will increase the
domestic cost ratios and thereby the gains
from trade.