ECONOMIC CONCEPTS

1. SCARCITY
2. SUPPLY AND DEMAND
3. COST AND BENEFITS
4. INCENTIVES

1. SCARCITY
explains the basic economic problem that the world has limited or scarce resources to meet seemingly
unlimited wants

2. SUPPLY AND DEMAND

SUPPLY- the maximum units/quantity of goods or services producers can offer.
DEMAND- number or amount of goods and services described by the consumers
 LAW OF DEMAND
 price of supply increases
 quantity of demand will decrease
 MARKET
 Exchange of good of many among sales
 Refers to people opportunities for them to build business

3. COST AND BENEFITS

In every situation, people try to maximize their benefits while minimizing their cost.

4. INCENTIVES
Something that incites or has a tendency to incite to determination.

Ex.
 Rewards
 Recognition

BASIC ECONOMIC PROBLEMS

1.WHAT GOODS AND SERVICES SHOULD BE PRODUCED?

RESOURCES
A. NATURAL RESOURCES
B. PHYSICAL RESOURCES
C. HUMAN RESOURCES
1. NATURAL RESOURCES
A. FOREST RESOURCES - any materials derived from forestry
 Logs
 Charcoal
 Plywoods
 lumber
 timber
 fruits

B. NON- FOREST AREAS – resources extracted from not forest

 Agricultural crops
 Soil
 Oil

C. FISHERIES RESOURCES – resources extracted from water

 Fish
 water

D. MINERAL RESOURCES- non renewable

 Iron
 Gold
 Copper

2. PHYSICAL RESOURCES
Man made structures and equipment constructed to increase the productive capacity
 Building
 Roads
 Furnitures
 LABOR
 exerting effort to create something
 labor is also part of human resources

3. HUMAN RESOURCES

Power of human to produce goods and service

WHITE COLLAR – a person who performs professional, desk, managerial or administrative work
Ex.
 Company management
 Lawyer
 accountant
BLUE COLLAR – is a working class person who performs manual labor
Ex.
 Construction worker
 Farmer
2. HOW SHOULD THERE GOODS AND SERVICES BE PRODUCED?

3.FOR WHOM SHOULD THESE GOODS AND SERVICES BE PRODUCED?

 FACTORS OF PRODUCTION
 LAND
 LABOR
 CAPITAL
 ENTREPRENEURSHIP

LAND- source of all natural materials; solid, liquid, and gas

LABOR- Human resources
CAPITAL- physical resources
ENTREPRENEURSHIP- combination of land, labor, capital

BRANCHES OF ECONOMICS
 Microeconomics
 Macroeconomics

1. MICROECONOMICS “small”
 from greek word "micro" means small
 deals with the behavior of individual components such as household, firm & individual owner of production.
 one of its goal is to analyze the market mechanisms that establish relative prices among goods and services and
allocate limited resources among alternative uses.

2. MACROECONOMICS “big”
 from greek word "macro" means big
 deals with the behavior of economy as a whole with the view to understanding the interaction between
economic aggreggates such as employment, inflation, and national income.
 Includes national, regional and global economies.
INTRODUCTION TO MICROECONOMICS
SCOPE AND SUBJECT: MATTER OF MICROECONOMIC
 Is mainly concern with the product pricing and allocating the scarce resouces
 how we be able to allocate or use the scarce resources for us to be able to maximize and satisfy the
needs and the wants of our consumers/people
SCOPE AND SUBJECT: MATTER OF MICROECONOMIC
basically deals with the following theories:

1. THEORY OF PRODUCT PRICING

KEYWORDS: * Depending on law of demand and supply * Production and cost
 How the price of the product varies/change/make
 explains how the relative prices of cotton, cloth, rice, car and thousands of other commodities are
determined.
 Price of a commodity depends upon the forces of demand and supply.
 the theory of product pricing is divided into two parts Theory of Demand' and 'Theory of Production
and Cost'.

 THEORY OF DEMAND KEYWORD: seller depending the price based on demand/supply

 Demand theory describes the way that changes in the quantity of a good or service demanded by
consumers affects its price in the market,
 The theory states that the higher the price of a product is, all else equal, the less of it will be
demanded, inferring a downward sloping demand curve.
 Likewise, the more demand that occurs, the greater the price will be
 for a given supply. Demand theory places primacy on the demand side of the supply- demand
relationship.
Random emerut: MARKUP – TUBO
 THEORY OF PRODUCTION AND COST KEYWORD: Sum total during the production of the product/services
 states that the cost of a product is determined by the sum total of the cost of all the resources that
went into making it.

2. THEORY OF FACTOR PRICING OR MICRO THEORY OF DISTRIBUTION

KEYWORD: Factors of production
The theory of the price determination of various factors of production, such as rent for land, wages for
labour, interest for capital and profits for entrepreneur is called theory of factor pricing or micro theory of
distribution.

3. THEORY OF ECONOMIC WELFARE KEYWORD: focus on scarce resources and raw materials
This theory deals with the efficiency in the allocation of resources. Efficiency in the allocation of resources
is attained when it results in maximization of satisfaction of people.
THE 3 EFFICIENCY
ECONOMIC EFFICIENCY- distributing the scarce resources to producers or consumers for them to use it on
essentials things to minimize or eliminate waste.
EFFICIENCY IN CONSUMPTION – Consume resources that we only need
EFFICIENCY IN THE DIRECTION OF PRODUCTION- distributing the right goods to the right people
MARKET, DEMAND SUPPLY, MARKET EQUILIBRIUM AND ELASTICITY
MARKET
A market exist when buyers wishing to exchange their money for a good services and the seller would like
to exchange their product and services for money
In business terms:
 Exchange of good of many among sales
 Refers to people opportunities for them to build business

In economics:
 It is where people are left alone to make their own transactions.
 It is also where the forces of demand and supply interact.
 An arrangement whereby buyers and sellers interact to determine the price and quantities of
commodities

MARKET FUNCTIONS
 Markets are strictly made up of buyes and seller
 The higher the demand is for a product and services the higher will be the demand for economic
resources
MEANS:
 If there is no buyers and selllers then there will be no market
 They act as the mechanism by which resources are allocated
MARKET DEMAND AND ITS DETERMINANTS
MARKET DEMAND
it refers to "the buyers willingness and ability to pay a sum of money for some amount of a particular good
or service."
 Factors that will affect the quantity demand of a good or service:
 Needs
 Preferences
 Income Level
 Expectations about the future
 The prices of related commodities
 The buyers' decision
 LAW OF DEMAND
 The quantity of any good which buyers are ready to purchase varies inversely with the price of the
good.
 The law of demand is illustrated in a hypothetical demand schedule.
 THE DEMAND CURVE
a graph that shows the relationship between the quantity demanded of a commodity at each price, other
things equal. Normally a demand curve has price on the vertical or Y axis and quantity demanded on the
horizontal or axis.
Y AXIS/ VERTICAL- PRICE OF THE PRODCT
X AXIS/ HORIZONTAL- QUANTITY DEMANDED

 NON PRICE DETERMINANTS OF DEMAND

As much as price is a determinant of demand, there are other factors that affect demand as well. These are
as follows:

1. AVERAGE INCOME OF CONSUMERS- the person basically purchased the necessity with their income
2. SIZE OF THE MARKET- market – people
3. PRICE AND AVAILABILITY OF RELATED GOODS- goods or services that are related and to influence each
other demands
 2 types of related goods and services
 Substitutes- these are the products or goods that compete to each other (mas pinipili ang mas mura)
 Compliments- the goods that are being used jointly (produkto na ginagamit na magkasama)

4. PREFERENCE OR TASTE- different culture/people have different taste and preferences.

5. SPECIAL INFLUENCES- ex. Taginit mahal ang kuryente. Taglamig- mura ang kuryente
6. EXPECTATIONS ABOUT FUTURE ECONOMIC CONDITIONS- when people expect changes in the
economy their reaction will actually affect the demand for the certain product.
  SHIFTS IN DEMAND CURVE
when the adjusted demand schedule is plotted in a graph, the original demand curve(C1) will shift to the
left(C2) when there is a decrease in demand, and shift to the right(C3) when there is an increase in
demand.
C1 – original demand curve
C2 – decrease in demand
C3 – increase in demand

 ELASTICITY
A measure of the responsiveness of one variable to a certain change of another variable.
2 significant words
1. Measure – reported as the number or coefficient
2. Responsiveness- reaction

The basic formula used to determine elasticity is:

Elasticity = percentage change in variable x

percentage change in variable y

using mathematical symbols,

% △x
ε= %△y

Where:

ε= greek letter epsilon used as symbol for elasticity

△= greek letter delta, which means change
% = percentage
Types of Elasticity
1. Elastic- The percentage change in variable x is greater than the percentage in variable y. It is said to be
elastic whenever the elasticity coefficient is greater than 1 (ε>1)
2. Inelastic- The percentage change in variable x is less than the percentage in variable y. When
elasticity coefficient is less than 1, it is said to be inelastic or (ε<1)
3. Unitary Elasticity - The percentage change in variable is equal to the percentage change in variable
y when the coefficient is equal to 1 or (ε=1)
4. Perfectly Elastic - Any change in variable y will have no effect in variable x (ε = infinity)
5. Perfectly Inelastic- Any change in variable y will have an infinite effect on variable x (ε=0)

PRICE ELASTICITY
measures the percentage change in quantity with respect percentage change in price. Categories of price
elasticity include price elasticity of demand and price elasticity of supply

 PRICE ELASTICITY OF DEMAND

measures the responsiveness of the quantity demanded with respect to its price. The basic formula used to
caldulate the coefficient of price elasticity of demand (PεD) is:

PRICE ELASTICITY OF DEMAND= percentage change quantity demanded

percentage change in price

mathematically,

εD= %△Qd △Q Q2- Q1 Q2- Q1 x Q1

%△P or Q or Q1 or P2 - P 1 P1
△P P2 - P 1
P P1

Where:
εD= price elasticity of demand
Q2 = new quantity demanded
Q1 = original quantity demanded
P2 = the new price
P1 = the original price
Example:
What is the demand elasticity given the followinh:

1. Q1 = 10,000kg
2. P1 = P5.00/kilo
3. Q2 = 16,000kg
4. P2 = P4.00/kilo
PRICE ELASTICITY OF DEMAND
When measuring a very small change in both the price and quantity on demand curve on a particular point,
the same formula is used and is referred to as point elasticity

ARC ELASTICITY
PRICE ELASTICITY OF SUPPLY

The concept of price elasticity of supply measures the responsiveness of quantity supplied in response to a
percentage change in the price of goods.
Formula: