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Economic Activity – this is what takes place in the economy and it is the basis of economic decisions.
• Household – basic consuming unit, consumers
• Firm – basic producing unit, producers
1st Cycle: Production Flow (Upper Region of the Cycle)
• The factors of production are mainly based from or rendered from household. These factors are: land,
labor, capital and entrepreneurship. These factors of production are utilized by forms to produce
goods and services to be consumed by household.
2nd Cycle: Financial Flow (Lower Region of the Cycle)
• Since aspects of the factor of production like labor or land are rendered from household, these shall
be paid by firm through factor payment. Through this households are able to gain money which they
can use for consumption. For example, laborers are to be paid with salary or labor by firm, land is
paid with rent by firms’ capital is paid with interest by firms, and firms pay the entrepreneur with profits.
In turn, by consuming goods and services, households pay the firm through consumption expenditure.
The payment the household gives for their acquired product or service is what we consider the
consumption expenditure.
CIRCULAR FLOW ECONOMIC ACTIVITY (Extended)
ENSC 105: LECTURE 01 & 02
Banks – unit of economy that saves money and keep the money running by securing the flow of money in
the economy so that the savings of household may be invested to firms for continuous production. That is
why it is encouraged for people to save money in banks.
Government – the role of government is to collect taxes to produce public goods. Taxes shall be invested
for the public goods and services, but most of the time it is not.
Foreign Countries – they influence the economy through import and export.
• Export – outward trading of goods with other countries. Products will be sold to other country.
• Import – inward trade of goods with other countries. Products will be bought from other country.
CHAPTER 2: Market
MARKET
• means, event, situation or a place wherein people exchange goods and services
• different kinds of situation wherein exchange of goods are present.
TWO ACTIVITIES IN THE MARKET (conceptual demand and supply): Buying Goods and Selling Goods
DEMAND
• states that as the price increases the quantity of goods demanded decreases and as the price
decreases the quantity of goods demanded increases ceteris paribus.
• Increased price = low demand, Decreased price = high demand.
• Ceteris Paribus – all other factors are held constant, meaning other factors concerning demand are
held constant. In this law, price inversely affects/influences demand
• Quantity Demanded (Qd) = a – bP (price), known as the representation of demand. Qd is the
dependent variable and the bP is the independent variable as it affects Qd.
SUPPLY
• States that as the price increase, quantify of supply increases and as the price decreases quantity
of supply decreases ceteris paribus.
• Ceteris Paribus – all other factors are held constant, meaning other factors concerning demand are
held constant. In this law, price proportionally affects/influences demand. As the demand increases,
the producer or seller will be more engaged to produce a new set of supply.
• Quantity supply (Qs) = a + bP (price), as the price increases quantity supply increases
MARKET EQUILIBRIUM / MARKET INTERACTION - interactions with supply & demand
Market interaction happens when Qs and Qd are equal. Meaning that the demand for a certain product is
met with the same amount of supply of the product.
ENSC 105: LECTURE 01 & 02
Price Qd Qs
5 5 1
SHORTAGE – Qs is less than the demand (Qd)
10 4 2
15 3 3 MARKET EQUILIRBIUM: Qd = Qd; Supply and demand is equal
20 2 4 SURPLUS – Qd is less than the supply (Qs)
25 1 5
• Since sellers will not get profit by selling with a low price, less supplier would want to supply the
product with that price despite the high amount of consumers that would like lower prices.
• Sellers would prefer to sell their products in a higher price for more profit but since it has a high price,
consumers would not want to buy the products hence the excess supply.
• Market equilibrium is achieved when a certain price guarantees equilibrium with the level of demand
and supply in the market.
MEASURES OF ECONOMY
Gross Domestic Product (GDP)
• All final products produced within the country’s or nation’s border (Gawa Dito sa Pinas)
• High GDP is used to indicate a good or thriving economy. Since it’s easier to solve compared to GNP,
since income in GNP is coming from a certain nationality in various countries
• Regardless of the nationality of producers, as long as it’s made within a country, it is considered GDP.\
Gross National Product (GNP)
• Frictional – unemployment where people who are finding work after graduation or after quitting a job
for 2-3 months. Type of unemployment wherein people can’t find work but is active looking for work
for 2-3 months.
• Cyclical – unemployment due to the economic difficulties such as low GDP for 6 months or for several
years. It is when a person is unemployed due to the recession/depression of the economy.
• Seasonal – unemployment is based on the economy shifting towards innovation. Unemployment is
due to the lack of demand for a specific skill set or when the skill set of a person is contradicting to
the work demands.
INFLATION refers to the change in the general level of prices.
MONEY SUPPLY refers to the amount of money is present in the circulation.