REPUBLIC OF THE PHILIPPINES

EULOGIO “AMANG” RODRIGUEZ

INSTITUTE OF SCIENCE AND TECHNOLGY
NAGTAHAN, SAMPALOC, MANILA

GRADUATE SCHOOL

NAME : RAVENAL O. DELA FUENTE

TOPIC : The Fundamentals of Economics

Market and Government in Modern

Economy

Basic Elements of Supply and Demand

ACADEMIC YEAR : 1ST SEMESTER (AY 2022-2023)

FUNDAMENTALS OF ECONOMICS
Basically man is involved in at least four identifiable relationships: a) man with
himself, the general topic of psychology b) man with the universe, the study of the
biological and physical sciences; c) man with unknown, covered in part by theology
and philosophy d) man in relation to other men, the general realm of the social
sciences, of which economics is a part. It is hazardous to delineate these areas of
inquiry explicitly. However, the social sciences are generally defined to include
economics, sociology, political science, anthropology and portion of history and
psychology. Economists use history, sociology and other fields such as statistics and
mathematics as valuable adjuncts to their study.
As a body of knowledge, economics is old as mankind, it talks about wealth
and ordinary business of life and etc. Economics deals with many socioeconomic
issues, most of which are of immediate concern to us. Although it is tempting to
discuss important economic problems, but such discussion would be premature. To
form a reasoned opinion, it is necessary to analyze the issues carefully, a process
which requires a meaningful sequential exposures to economics.
Nature has blessed the humans with abundant natural wealth to live on this
earth. Humans would have been contended with that nature provided, had they been
able to peg their wants ( requirements) at a given level. But it is no so, man being

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born in this world is influenced by biological, physical and social needs, which keep
him always busy in searching out the means to keep him satisfied. To fulfill his
requirements arising out of various needs, he involves in an activity called economic
activity. Conversely, man would have freed himself from economic activity, had there
be no resource scarcity and also what human want can be satisfied without limit. But
neither of the possibilities being found because of the scarcity of resources imposed
by the nature, human always deeply engage in arriving at an equation, which
balances their unlimited wants and limited means. By engaging themselves in the
economic activity people aim at maximizing their satisfaction from their scare
resources. Thus scarcity is the pivot for the economic activity of the people
representing consuming and producing segments leading to the origination of a field
of study called economics. The field of economics keeps on going as long as the
human race exist of the earth with their toiling to satisfy their ever-new and emerging
wants and satisfying the same through their efforts. Thus, the field of economics
constitutes wants, efforts and satisfaction.
Two Major Factors Responsible for the Emergence of Economics
Problems:
1. The existence of unlimited humans wants.
2. The scarcity of available resources.
The numerous human wants are to be satisfied through the scarce resources
available in nature. Economics deals with how the numerous human wants are to be
satisfied with limited resources. Thus, the science of economics centers on want -
effort - satisfaction. Economics not only covers the decision making behavior of
individuals but also the macro variables of economics like national income, public
finance, international trade and so on.

A. DEFINITIONS OF ECONOMICS
Several economist have defined economics taking different aspects into account.
The word ‘Economics’ was derived from Greek words, oikos ( a house0 and nemein
(to manage) which would mean ‘managing an household’ using the limited funds
available, in the most satisfactory manner possible.
WEALTH DEFINITION
Adam Smith (1723 - 1790), in his book “An Inquiry into Nature and Causes of
Wealth of Nations” (1776) defined economics as the science of wealth. He explained
how a nation’s wealth is created. He considered that the individual in the society
wants to promote only his own gain and in this, he is led by an “invisible hand” to
promote the interests of the society though he has no real intention to promote the
society’s interests.
Criticism: Smith defined economics only in terms of wealth and not in terms of
human welfare. Ruskin and Carlyle condemned economics as a ‘dismal science’ as
is taught selfishness which was against ethics. However, now, wealth is considered

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only to be mean to end, the end being the human welfare. Hence, wealth definition
was rejected and the emphasis was shifted from ‘wealth’ to ‘welfare’.
On the other hand, Lionel Robbins published a book “An Essay on the Nature
and Significance Science” in 1932. According to him, “economics is a science which
studies human behavior as relationship between ends and scarce means which have
alternative uses”. The major features of Robbins definition are as follows:
a) Ends refer to human wants. Human beings have unlimited number of wants.
b) Resources or means, on the other hand, are limited or scarce in supply. There
is scarcity of a commodity, if its demand is greater than its supply. In other
words, the scarcity of a commodity is to be considered only in relation to its
demand.
c) The scarce means are capable of having alternative uses. Hence, anyone will
choose the resource that will satisfy his particular want. Thus, economics
according to Robbins is a science of choice.
Criticism: Robbins does not make any distinction between goods conducive to
human welfare and goods that are not conducive to welfare. In the production of rice
and alcoholic drink, scarce resources are used. But the production of rice promotes
human welfare while production of alcoholic drinks is not conducive to human
welfare. However, Robbins concludes that economics is neutral between ends.
Second, in economics, we not only study them micro economic aspects like how
resources are allocated and how price is determined, but we also study the
macroeconomic aspect like how national income is generated. But Robbins has
reduced economics merely to theory of resource allocation. And third, Robbins
definition does not cover the theory of economic growth and development.
GROWTH DEFINITION
Prof. Paul Samuelson defined economics as “the study of how men and
society choose, with or without the use of money, to employ scarce productive
resources which could have alternative uses, to produce various commodities over
time, and distribute them for consumption, now and in the future among various
people and groups of society”. The major implications of this definitions are as
follows:
a) Samuelson has made his definition dynamic by including the element of time
in it. Therefore, it covers the theory of economic growth.
b) Samuelson stressed the problem of scarcity of means in relation to unlimited
ends. Not only the means are scarce, but they could also be put to alternative
uses.
c) The definition covers various aspects like production, distribution and
consumption.
Of all the definitions discussed above the ‘growth’ definition stated by Samuelson
appears to be the most satisfactory. However, in modern economics, the subject
matter of economics is divided into main parts Micro Economics and Macro
Economics.

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 Economics is therefore rightly considered as the study of allocation of scarce
resources and determinants of income, output, employment and economic growth.

MARKETS AND GOVERNMENT IN A MODERN ECONOMY

Market System
When buyers wishing to exchange money for a good or service are in contact
with sellers wishing to exchange goods and services for money, a market exists.
Market
Refers to a situation wherein there are buyers and sellers sufficiently in
communication with each other that exchange takes place among them.
Two Classifications of Market:
Market for Finished Goods/Commodities
The market that is usually known to the man in the street (e.g., Carbon
Market, Ayala Mall Supermarket and the like)
Factor Market
Is the market where factors of production are being sold and bought.
Other Classifications of Market:
1. Labor Market
2. Capital Market
3. Land Market (Real State)
4. Foreign Exchange (ForEX) Market
Market Structure
A. Perfect Type
1. Perfect/Pure Competition
2. Pure Monopoly
B. Imperfect Type
1. Monopolistic Competition
2. Oligopoly
ELEMENTS OF ECONOMICS
There are two essential elements of economics first we have goods which are
also known as products and second we have services now take note that goods are
anything that yields satisfaction to someone, it is anything used to satisfy a person's
wants and desire, now classification of goods are according to form, we also have
according to use, according to availability, and according to importance.
PRODUCTION

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 The process or means of creating and producing goods.
ECONOMIC SYSTEM
Is a set of economic institution that dominate a given society, an organization
that is based primarily on the manner in which the productive enterprise are to be
operated, managed and owned.
FOUR MODELS OF ECONOMIC SYSTEMS:
Capitalism. The factors of production and distribution are owned and
managed by private individuals or corporations and also call as market economy,
free enterprise economy or laissez faire economy.
Communism. This is exactly the opposite of capitalism. The factors of
production and distribution are owned and managed by the state. It is also called as
command economy or classes economy.
Socialism. Is a combination of capitalism and communism.
Mixed Economy. Is one that has elements from more than one economic
system. And it contains both private and state enterprises.
ECONOMIC GOALS
Take note that economics is basically concerned with a fair distribution of
goods and services right, and the efficient use of available scarce resources as well,
now the reason is to obtain both optimum and maximum benefits for the satisfaction
of all the members of the society, so such fundamental role of economics has been
the focus towards the attainment of the following objectives: abundance, economic
growth, full employment, price level stability, economic security, economic efficiency,
justice and equity, economic freedoms and balance and trade.
THE ROLE OF THE GOVERNMENT
In the real world, markets do not always operate as smoothly as we might like.
Market imperfections lead to a wide range of problems and government step in to
address them.
1. Government intervene in a market economy in order to promote efficiency.
2. Government intervene in a market economy in order to promote equity or
fairness, in the distribution of resources and income. This is a difficult concept
because there is no universal definition of fairness. Markets distribute goods
and services to those who have the money to purchase them, not necessarily
to those who need or deserve them the most.
3. Governments intervene in a market economy in order to promote
macroeconomic growth and stability. Fiscal policies of government (the power
to tax and spend and monetary policies (the power to adjust the money and
interest rates) help to move an economy along a stable path, avoiding periods
of excessive inflation and unemployment.

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THE LAW OF DEMAND
Demand. Is defined as a schedule of various quantities of a good or
commodities that will be bought by buyers at various prices at an interval of time.
The law of demand states that there is an inverse relationship between the
price and the quantity demanded which means that if your price increases then the
quantity demanded decreases on the other hand if the price decreases then the
quantity demanded decreases.
THREE REASONS WHY DEMAND CURVE IS DOWNWARD SLOPING
First, substitution effect, it is the observation that a change in the price of a
good alters the relative prices of substitute products, which them motivates buyers to
buy more or less of the substitute goods, and less or more of this good.
Second, income effect is the observation that a change in the price of a good
alters the purchasing power of income.
Third, the law of diminishing marginal utility as you continue to consume a
given product, you will eventually get less additional utility (satisfaction) from each
unit you consumes.
TYPES OF GOODS
A. As to Functions
Substitute Goods. Goods are substitute when the price of one good and the
demand for the other are directly related.
Complementary Goods. Goods are complimentary when the price of one
good and the demand for the other are inversely related.
Independent Goods. Good which are not, in a way related to one another.
B. IN RELATION TO INCOME
Superior/Normal Goods. These are commodities whose demand varies
directly with income.
Inferior Goods. These are commodities whose demand varies inversely with
income.
NON-PRICE DETERMINANTS OF DEMANDS
1. Taste and Preferences
2. Number of Consumers
3. Price of Related Goods
4. Changes in Income
5. Price Expectation
6. Special Influences

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THE LAW OF SUPPLY
Supply
Is the schedule of various quantities of commodities which producers are able
and willing to produce and offer at a given price, place and time.
The law of supply states that there is a direct relationship between the price
and the quantity supplied so in other words if the price increases then the quantity
supplied increases and if the price decreases then the quantity supplied also
decreases.
NON-PRICE DETERMINANTS OF SUPPLY
1. Price of Resources/Cost of Production
2. Number of Producers
3. Technology
4. Taxes and Subsidies
5. Price Expectation
6. Price of other goods
7. Special Influences

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