NATIONAL COLLEGE OF BUSINESS AND ADMINISTRATION

CENTER FOR GRADUATE STUDIES IN BUSINESS & MANAGEMENT

Commonwealth Avenue corner Regalado St.
Fairview, Quezon City

NAME: Gaudencio M. Membrere COURSE: MPA

PROFESSOR: Dr. Maximo S. Artieda
SUBJECT: Microeconomics and Policy Analysis

1) Discuss the definition, uses, methods, and basic concepts of Microeconomics

Microeconomics  is derived from Greek word mikro which means "small" plus economics and is also
a branch of economics that studies the behavior of individuals and firms in making decisions
regarding the allocation of scarce resources and the interactions among these individuals and firms.
One of the goal of microeconomics is to analyze the market mechanisms that establish relative
prices among goods and services and allocate limited resources among alternative uses.
Microeconomics shows conditions under which free markets lead to desirable allocations. It also
analyzes market failure, where markets fail to produce efficient results.
Microeconomics stands in contrast to macroeconomics, which involves the sum total of economic
activity, dealing with the issues of growth, inflation, and unemployment and with national policies
relating to these issues. Microeconomics also deals with the effects of economic policies such as
changing taxation levels on microeconomic behavior and thus on the aforementioned aspects of the
economy. Particularly in the wake of the Lucas critique, much of modern macroeconomic theories
has been built upon micro foundations based upon basic assumptions about micro-level behavior.

2) Distinguish between Micro and Macro Economics on the following

The difference between microeconomics and macroeconomics can be made on the following counts.
The word micro has been derived from the Greek word mikros which means small. Microeconomics
is the study of economic actions of individuals and small groups of individuals. It includes
households, firms, industries, commodities and individual prices. Macroeconomics is also derived
from the Greek word makros which means large. It deals with aggregates of these quantities, not with
individual incomes but with the national income, not with individual prices but with the price levels, not
with individual output but with the national output. The objective of microeconomics on demand side
is to maximize utility whereas on the supply side is to minimize profits at minimum cost. On the other
hand, the main objectives of macroeconomics are full employment, price stability, economic growth
and favorable balance of payments. The basis of microeconomics is the price mechanism which
operates with the help of demand and supply forces. These forces help to determine the equilibrium
price in the market. On the other hand, the basis of macroeconomics is national income, output and
employment which are determined by aggregate demand and aggregate supply. Microeconomics is
based on different assumptions concerned with rational behavior of individuals. Moreover, the phrase
ceteris paribus is used to explain the economic laws. On the other hand, macroeconomics bases its
assumptions on such variables as the aggregate volume of output of an economy, with the extent to
which its resources are employed, with the size of the national income and with the general price
level. Microeconomics is based on partial equilibrium analysis which helps to explain the equilibrium
conditions of an individual, a firm, an industry and a factor. On the other hand, macroeconomics is
based on general equilibrium analysis which is an extensive study of several economic variables,
their interrelations and interdependences for understanding the working of the economic system. In
microeconomics, the study of equilibrium conditions is analyzed at a period. But it does not explain
the time element. Therefore, microeconomics is considered as a static analysis. On the other hand,
macroeconomics is based on time-lags, rates of change, and past and expected values of the
variables. This rough division between micro and macroeconomics is not rigid, for the parts affect the
whole and the whole affects the parts.

a. Nature

Macroeconomics is the study of aggregates covering the entire economy, such as total employment,
national income, national output, total investment, total consumption, total savings, aggregate supply,
aggregate demand, and general price level, wage level, and cost structure. In other words, it is
aggregative economics which examines the interrelations among the various aggregates, their
determination and causes of fluctuations in them. Thus, in the words of Professor Ackley,
“Macroeconomics deals with economic affairs in the large, it concerns the overall dimensions of
economic life. It looks at the total size and shape and functioning of the “elephant” of economic
experience, rather than working of articulation or dimensions of the individual parts. It studies the
character of the forest, independently of the trees which compose it. Macroeconomics is also known
as the theory of income and employment, or simply income analysis. It is concerned with the
problems of unemployment, economic fluctuations, inflation or deflation, international trade and
economic growth. It is the study of the causes of unemployment, and the various determinants of
employment.” In the field of business cycles, it concerns itself with the effect of investment on total
output, total income, and aggregate employment. In the monetary sphere, it studies the effect of the
total quantity of money on the general price level. In international trade, the problems of balance of
payments and foreign aid fall within the purview of macroeconomic analysis. Above all,
macroeconomic theory discusses the problems of determination of the total income of a country and
causes of its fluctuations. Finally, it studies the factors that retard growth and those which bring the
economy on the path of economic development. The obverse of macroeconomics is microeconomics.
Microeconomics is the study of the economic actions of individuals and small groups of individuals.
The study of firms, households, individual prices, wages, incomes, individual industries, commodities.
But macroeconomics deals with aggregates of these quantities; not with individual incomes but with
the national income, not with individual prices but with the price levels, not with individual output but
with the national output. Microeconomics, according to Ackley, it “deals with the division of total
output among industries, products, and firms, and the allocation of resources among competing uses.
It considers problems of income distribution. Its interest is in relative prices of particular goods and
services.” Macroeconomics, on the other hand, “concerns itself with such variables as the aggregate
volume of the output of an economy, with the extent to which its resources are employed, with the
size of the national income, with the ‘general price level’.” Both microeconomics and
macroeconomics involve the study of aggregates. But aggregation in microeconomics is different
from that in macroeconomics. In microeconomics the interrelationships of individual households,
individual firms and individual industries to each other deal with aggregation.
Thus the scope of microeconomics to aggregates relates to the economy as a whole, “together with
sub-aggregates which the cross product and industry lines such as the total production of consumer
goods, or total production of capital goods, and which add up to an aggregate for the whole economy
as total production of consumer goods and of capital goods add up to total production of the
economy; or as total wage income and property income add up to national income.” Thus,
microeconomics uses aggregates relating to individual households, firms and industries, while
macroeconomics uses aggregates which relate them to the “economy wide total”.

b. Methodology
It is an inquiry into the question of how to conduct a proper scientific analysis of uncertainty
within macroeconomics. It will be of great interest to scholars of the philosophy of social sciences
and methodology, as well as post-Keynesian and heterodox economists. And it is the study
of methods, especially the scientific method, in relation to economics, including principles underlying
economic reasoning. Philosophy and economics also takes up methodology at the intersection of the
two subjects.
 c. Economic Variation
The short-run variation in economic growth is called the business cycle and long-
run economic growth is measured as the percentage rate increase in the real gross domestic
product. And it is the adjustment in income that changes the consumer's utility equal to the level that
would occur IF the event had happened. In the case of a positive economic change, such as a fall in
price, EV would be the increase in income.
d. Field of Interest
Economic growth is the increase in the inflation-adjusted market value of the goods and services
produced by an economy over time. It is conventionally measured as the per cent rate of increase in
real gross domestic product, or real GDP. Growth is usually calculated in real terms - i.e., inflation-
adjusted terms to eliminate the distorting effect of inflation on the price of goods
produced. Measurement of economic growth uses national income accounting. Since economic
growth is measured as the annual per cent change of gross domestic product (GDP), it has all the
advantages and drawbacks of that measure. The economic growth rates of nations are commonly
compared using the ratio of the GDP to population or per-capita income. The "rate of economic
growth" refers to the geometric annual rate of growth in GDP between the first and the last year over
a period of time. This growth rate is the trend in the average level of GDP over the period, which
ignores the fluctuations in the GDP around this trend . The field interests investors as
individual consumer spending. What Is Consumer Spending? Consumer spending is the total
money spent on final goods and services by individuals and households for personal use and
enjoyment in an economy. Contemporary measures of consumer spending include all private
purchases of durable goods, nondurable goods, and services. Consumer spending can be regarded
as complementary to personal saving, investment spending, and production in an economy.

e. Scopes

The scope or the subject matter of microeconomics is concerned with: Commodity pricing,
The price of an individual commodity is determined by the market forces of demand and supply.
Microeconomics is concerned with demand analysis i.e. individual consumer behavior, and supply
analysis i.e. individual producer behavior. Factor pricing theory, Microeconomics helps in determining
the factor prices for land, labor, capital, and entrepreneurship in the form of rent, wage, interest, and
profit respectively. Land, labor, capital, and entrepreneurship are the factors that contribute to the
production process. Theory of economic welfare, Welfare economics in microeconomics is concerned
with solving the problems in improvement and attaining economic efficiency to maximize public
welfare. It attempts to gain efficiency in production, consumption/distribution to attain overall
efficiency and provides answers for ‘What to produce?’, ‘When to produce?’, ‘How to produce?’,
however, there are areas of study in macro and microeconomics.
1. Theory of Income and Employment
In it, the formulation of income and Employment level is done and study of consumption, function,
investment, function, multiple and accelerator is also done.
2. Theory of General Price Level
In it, the formulation of the general price level is studied and problems related to inflation, deflation
are a prime subject matter of Macro Economics.
3. Theory of Development and Planning
For a fast and balanced development, developing countries apply many economic theories.
So, the study of process and theories of economic development and planning is also an important
subject matter of Macro Economics.
4. Theory of trade cycle
In macroeconomics study of the trade, the cycle is done. The factor of Boom and Depression in the
trade cycle, there effects and removal of these effects are studied in Macro Economics.
5. Theory of International Trade and Foreign Exchange
It is also a subject matter of Macroeconomics. Under its theory of International Trade, terms of trade,
determination of foreign exchange rates, etc. are studied.
6. Theory of Public Finance
In it, the study of theories, policies, and effects related to government income, expenditure loan, etc.
are done. Study of fiscal policy is the prime subject matter of public finance.
7. Principles of Money and Banking
In macroeconomics, theories related Money and banking, country’s monetary and credit system,
functions of the central bank and other banks and international finance are studied. 
8. Macro-Theory of Distribution
In macroeconomics study of Distribution of wages and profits in national income is done. So it is clear
that the scope of Macro Economics it’s very wide.

f. Area of study

START YOUR BUSINESS FINANCE YOUR BUSINESS MANAGE YOUR BUSINESS What Are Five
Areas of Economics? By: Chris Shultz Updated September 26, 2017 Economics is a social science
which analyzes the production, consumption and distribution of goods and services. Economics
attempts to explain how economies and economic agents work, and applies models in order to
analyze primarily business finance, and government. However, the models derived through
economics may be applied to many other things such as crime, law, politics and education.
While there are endless subtopics of economics, there are five main areas which will be a factor in
the analysis of any subtopic. Microeconomics is the most essential in understanding the economy as
a system. The prefix "micro" refers to small-scale interaction and refers to households as firms
interacting in the market for consumption of goods. Some of the most vital topics in the study of
microeconomics are markets, efficiency, supply and demand, opportunity cost, game theory and
market failure.

Macroeconomics, unlike microeconomics, examines the economy as a whole. The prefix "macro"
refers to large-scale interactions. Some topics included in macroeconomics are inflation, GDP (gross
domestic product), pricing, savings and investment, market growth, development, unemployment and
competition. International Economics International economics analyzes the flow of goods and
services between nations. International economics is concerned with international banking, monetary
exchange rates, tariffs and the effects of different economic and governmental systems. Theory
Economic theory is the field in which the models are derived and applied to current problems. The
goal of economists in developing theories is that they require less information and lead to more
accurate results.

In microeconomics, many theories include supply and demand, opportunity costs, marginality and
game theory. In macroeconomics, theories include money supply, monetary theory of inflation and
the quantity theory of money. History Economic history is the field which focuses on economic
theories and writings of the past. Many decisions of today are made based on the theories and ideas
of former economists and scholars such as Adam Smith, Karl Marx and John Maynard Keynes. What
is the difference between Micro & Macro Economics? Image by Flickr.com, courtesy of Kevin Krejci
writer bio picture By: Shane Hall Updated September 26, 2017 Microeconomics and
macroeconomics--micro and macro, as many economists call them--are the two major subdivisions in
the field of economics. Micro examines the economy in miniature, while macro concerns itself with
economic aggregates, such as gross domestic product or national unemployment rates.
Microeconomics studies the economy in miniature, considering specific sectors or industries, and the
interactions of households and firms within these markets. The major areas of study in
microeconomics include firms' optimal production, the impact of public policy on particular markets,
and issues related to prices. Significance because so much of microeconomics examines issues
related to prices of goods and services, micro are sometimes referred to as price theory.

Macroeconomics takes a "big picture" approach to the economy, studying economy wide phenomena
and issues affecting the economy as a whole. Features of Macro Major Concepts in macroeconomics
include unemployment, inflation, productivity, government budget deficits (or surpluses) and gross
domestic product (GDP). Business cycles, a term for fluctuating periods of economic strength and
weakness, are a major topic of study in macroeconomics.
 3) Discuss the definition and significant of the following:

A. Development of Economic Systems

An economic system, or economic order, is a system of production, resource allocation and
distribution of goods and services within a society or a given geographic area. It includes the
combination of the various institutions, agencies, entities, decision-making processes and patterns of
consumption that comprise the economic structure of a given community. As such, an economic
system is a type of social system. The mode of production is a related concept. All economic systems
have three basic questions to ask: what to produce, how to produce and in what quantities and who
receives the output of production. The study of economic systems includes how these various
agencies and institutions are linked to one another, how information flows between them and the
social relations within the system including property rights and the structure of management. The
analysis of economic systems traditionally focused on the dichotomies and comparisons between
market economies and planned economies and on the distinctions between capitalism and socialism.
Subsequently, the categorization of economic systems expanded to include other topics and models
that do not conform to the traditional dichotomy. Today the dominant form of economic organization
at the world level is based on market-oriented mixed economies.

B. Goals of Economic Development

Economic development is spontaneous process that having a well-life and good economic status
through country, nation, local community and government. The development economics is deal with
the underdevelopment and with policies that may accelerate the rate of growth of the capital of a
nation. It aims that economic development is to improve the material standards of living by a nation.
Significance Studies of both the causes of underdevelopment and of policies and actions that may
accelerate development are undertaken for a variety of reasons. There are those who are concerned
with the developing countries on humanitarian grounds; that is, with the problem of helping the
people of these countries to attain certain minimum material standards of living in terms of such
factors as food, clothing, shelter, and nutrition. For them, low per capita income is the measure of the
problem of poverty in a material sense. The aim of economic development is to improve the material
standards of living by raising the absolute level of per capita incomes. Raising per capita incomes is
also a stated objective of policy of the governments of all developing countries. For policymakers and
economists attempting to achieve their governments’ objectives, therefore, an understanding of
economic development, especially in its policy dimensions, is important. Finally, there are those who
are concerned with economic development either because they believe it is what people in
developing countries want or because they believe that political stability can be assured only with
satisfactory rates of economic growth. The field also examines both macroeconomic and
microeconomic factors relating to the structure of developing economies, and domestic and
international economic growth. Macroeconomics refers to broadly influencing factors such as interest
rates, whereas microeconomics relates to individual influences, Development economics also
examine both macroeconomic and microeconomic factors relating to the structure of developing
economies, and domestic and international economic growth.

C. Third World Economy

The "Third World" is a phrase that can be used to describe a class of economically inferior nations.
Historical observations have developed a four-part segmentation for dividing the world's economies
by economic status. Defined by high poverty rates, economic changes, less resources and doesn’t
develop as much as other countries economics, social and political also the environmental issues.
Origin: After the fall of the Soviet Union in the early 1990s, the terminology of the “three worlds” has
changed somewhat. Today, the term Third World is used to describe a country that is not developed
as much as other countries and faces economic, social, political, environmental and other issues.
This has led to some confusion as to how the term was originally used. For example, there were
several European countries that were not aligned with NATO or the Communist Bloc that are quite
prosperous today. Going by the historical definition, nations including Finland, Sweden, Ireland and
Switzerland were Third World countries. Based on the definition that is used today, these would not
be considered Third World countries. Instead, what many now interpret “Third World” to mean
encompasses economically poor and non-industrialized countries, as well as newly industrialized
countries. The use of the term “Third World” is being used less frequently because of the confusion
about its definition. Instead, it is being replaced with terms including least developed countries,
developing countries and the Global South. The Least Developed Countries, or LDCs, are based on
United Nations data that have the lowest socioeconomic development and Human Development
Index ratings. These countries have weaknesses in areas including nutrition, education and literacy,
have economic vulnerabilities, and have widespread poverty. After World War II the world split into
two large geopolitical blocs and spheres of influence with contrary views on government and the
politically correct society: The bloc of democratic-industrial countries within the American influence
sphere, the "First World". The Eastern bloc of the communist-socialist states, that the "Second
World". The remaining three-quarters of the world's population, states not aligned with either bloc
were regarded as the "Third World." The term "First World" refers to so called developed, capitalist,
industrial countries, roughly, a bloc of countries aligned with the United States after World War II, with
more or less common political and economic interests: North America, Western Europe, Japan and
Australia. "Second World" refers to the former communist-socialist, industrial states, formerly the
Eastern bloc, the territory and sphere of influence of the Union of Soviet Socialists Republic today:
Russia, Eastern Europe, Poland and some of the Turk States, Kazakhstan as well as China. "Third
World" are all the other countries, today often used to roughly describe the developing countries of
Africa, Asia and Latin America. The term Third World includes as well capitalist and communist
countries, as very rich and very poor countries. Ex: Saudi Arabia, Mali, North Korea, and Venezuela
Significance of Third World It's the countries that are in financial trouble and need help from other
countries to keep their economy sustainable, at least for a short time. Third World countries are often
among those on close watch by the International Monetary Fund (IMF) and World Bank which seek to
provide global aid for the purposes of projects that help to improve infrastructure and economic
systems comprehensively. Third World countries can also be the target of many investors seeking to
identify potentially high returns through possible growth opportunities though risks are also relatively
higher. While Third World countries are generally characterized as inferior economically, innovative
and industrial breakthroughs can lead to substantial improvements in a short amount of time.

4) Differentiate the following and discuss their advantages and disadvantages

a. Sole Proprietorship

Definition: A business that legally has no separate existence from its owner. Income and losses are
taxed on the individual's personal income tax return.
The sole proprietorship is the simplest business form under which one can operate a business. The
sole proprietorship is not a legal entity. It simply refers to a person who owns the business and is
personally responsible for its debts. A sole proprietorship can operate under the name of its owner or
it can do business under a fictitious name, such as Nancy's Nail Salon. The fictitious name is simply a
trade name--it does not create a legal entity separate from the sole proprietor owner.
The sole proprietorship is a popular business form due to its simplicity, ease of setup, and nominal
cost. A sole proprietor need only register his or her name and secure local licenses, and the sole
proprietor is ready for business. A distinct disadvantage, however, is that the owner of a sole
proprietorship remains personally liable for all the business's debts. So, if a sole proprietor business
runs into financial trouble, creditors can bring lawsuits against the business owner. If such suits are
successful, the owner will have to pay the business debts with his or her own money.
The owner of a sole proprietorship typically signs contracts in his or her own name, because the sole
proprietorship has no separate identity under the law. The sole proprietor owner will typically have
customers write checks in the owner's name, even if the business uses a fictitious name. Sole
proprietor owners can, and often do, commingle personal and business property and funds,
something that partnerships, LLCs and corporations cannot do. Sole proprietorships often have their
bank accounts in the name of the owner. Sole proprietors need not observe formalities such as voting
and meetings associated with the more complex business forms. Sole proprietorships can bring
lawsuits (and can be sued) using the name of the sole proprietor owner. Many businesses begin as
sole proprietorships and graduate to more complex business forms as the business develops.
Because a sole proprietorship is indistinguishable from its owner, sole proprietorship taxation is quite
simple. The income earned by a sole proprietorship is income earned by its owner. A sole proprietor
reports the sole proprietorship income and/or losses and expenses by filling out and filing a Schedule
C, along with the standard Form 1040. Your profits and losses are first recorded on a tax form called
Schedule C, which is filed along with your 1040. Then the "bottom-line amount" from Schedule C is
transferred to your personal tax return. This aspect is attractive because business losses you suffer
may offset income earned from other sources. The disadvantages of a sole proprietorship include:
Owners are subject to unlimited personal liability for the debts, losses and liabilities of the business.
Owners cannot raise capital by selling an interest in the business. Sole proprietorships rarely survive
the death or incapacity of their owners and so do not retain value.
One of the great features of a sole proprietorship is the simplicity of formation. Little more than buying
and selling goods or services are needed. In fact, no formal filing or event is required to form a sole
proprietorship; it is a status that arises automatically from one's business activity.

b. Partnership

A partnership is a form of business organization in which owners have unlimited personal liability for
the actions of the business, though this problem can be mitigated through the use of a limited liability
partnership. The owners of a partnership have invested their own funds and time in the business, and
share proportionally in any profits earned by it. A partnership can also refer to the following: The
individuals who work together to operate a business as its owners. A group of corporations or
individuals who are acting together to operate another business is possibly including investments in
that business. The resulting business may not legally be a partnership, but the action of the partners
in creating the business may be considered a partnership. Advantages of a partnership are as
follows: Source of capital. With many partners, a business has a much richer source of capital than
would be the case for a sole proprietorship. If there is more than one general partner, it is possible for
multiple people with diverse skill sets to run a business, which can enhance its overall performance.
In general, this may mean that there is more expertise within the business.
Minimal tax filings however are the Form 1065 that a partnership must file not a complicated tax filing.
No double taxation. There is no double taxation, as can be the case in a corporation. Instead, profits
flow straight to the owners. The Disadvantages of a partnership are as follows: Unlimited liability. The
general partners have unlimited personal liability for the obligations of the partnership, as was the
case with a sole proprietorship. This is a joint and several liabilities, which means that creditors can
pursue a single general partner for the obligations of the entire business. Self-employment taxes are
a partner’s share of the ordinary income reported on a Schedule K-1 is subject to the self-
employment tax. This is a 15.3% tax (social security and Medicare) on all profits generated by the
business that are not exempt from these taxes. Self-employment taxes are a partner’s share of the
ordinary income reported on a Schedule K-1 is subject to the self-employment tax. This is a 15.3%
tax (social security and Medicare) on all profits generated by the business that are not exempt from
these taxes.

c. Corporation

A corporation is a legal entity, organized under state laws, whose investors purchase shares of stock
as evidence of ownership in it. Once you register as a corporation, along with the name of the
corporation that should be used in all legal structures. In a company, Directors and other top officers
vested with the power to purchase shares for the Business concern. If we register a new business
name and after completing the legal formalities stipulated therein, the new corporation will
commence. It has got its own tax structure. For a business, becoming a corporation will be very
useful to get funds from various organizations that will make shareholders. However, Shareholders,
Directors hold limited liability and do not risk their personal assets unless it is asked to provide for any
investments or personal debts. Corporations are managed by the board of directors who are
appointed by their shareholders. However, since becoming a corporation has a complex structure,
hence it is not advisable for very small businesses in certain countries. The advantages of the
corporation structure are as follows: Limited liability. The shareholders of a corporation are only liable
up to the amount of their investments. The corporate entity shields them from any further liability, so
their personal assets are protected. Source of capital is a publicly-held corporation in particular can
raise substantial amounts by selling shares or issuing bonds. Ownership transfers. It is not especially
difficult for a shareholder to sell shares in a corporation, though this is more difficult when the entity is
privately-held. Perpetual life has no limit to the life of a corporation, since ownership of it can pass
through many generations of investors. Pass through. If the corporation is structured as an S
corporation, profits and losses are passed through to the shareholders, so that the corporation does
not pay income taxes. The disadvantages of a corporation are as follows: Double taxation.
Depending on the type of corporation, it may pay taxes on its income, after which shareholders pay
taxes on any dividends received, so income can be taxed twice. Excessive tax filings is depending on
the kind of corporation, the various types of income and other taxes that must be paid can require a
substantial amount of paperwork. The exception to this scenario is the S corporation, as noted
earlier. Independent management, if there are many investors having no clear majority interest, the
management team of a corporation can operate the business without any real oversight from the
owners. Stock Corporation is a for-profit corporation which has shareholders (stockholders), each of
whom receives a portion of the ownership of the corporation through shares of stock. These shares
may receive a return on their investment in the form of dividends. Shares are used for voting on
matters of corporate policy or to elect directors, at the corporation's annual meeting and at other
meetings of the corporation. If you are considering incorporation of your business (that is, forming a
corporate business entity), you have several decisions to make. One of these decisions is the type of
corporation you want, based on whether or not you want to have or sell shares of stock in the
corporation. The Advantages of Stock corporations are legal entities. They are considered separate
from their owners and have the ability to issue unlimited shares. Stock corporations can last as long
as the owners wish.
Stock corporations are the most popular type of business entity for several reasons:
• They allow owners to raise capital by selling stock.
• They can do business on a global scale.
• They have the ability to acquire other businesses for the purpose of expansion.
• They can become publicly traded at a later date if they wish.
Stock corporations are also a good choice for companies that want to pursue venture capital funding.
Because corporations are separate from their owners, the company is liable for all its actions.
The Disadvantages of a Stock Corporation
The biggest disadvantage of forming a stock corporation is that these entities face double taxation.
First, the corporation is taxed on any profits that it earns. Second, if the shareholders receive
dividends, then the money must be reported and taxed as income. Fortunately, with the right
planning, corporations should be able to avoid double taxation and third bankruptcy once a company
becomes insolvent, it is usually required by a bankruptcy court to use remaining assets to pay
creditors. Typically, this means that a company's suppliers are paid first, followed by holders of the
company's debt. Even preferred shareholders are paid before any potential remaining funds are
distributed to common shareholders in short the remaining assets of the company will be share of
shareholders equally but in low amount.

Non-Stock Corporation
A Non-Stock Corporation is basically a corporation that does not issue shares of stock. It can be
formed as either a for-profit or non-profit corporation. Since the Non-Stock Corporation has no
shareholders, it is owned by its members- meaning a member-owned corporation that does not issue
shares of stock. The qualification for membership and members are defined in the corporation by-
laws. There can be different classes of members such as voting and non-voting members.

Reasons of forming a non-stock corporation

• A corporation created solely to act as nominal owner of some property might not need to have
shares of stock because all of the directors or members would have been co-owners. For example,
owning a safe deposit box in a corporate name: if the corporation is non-stock, the directors of the
corporation are not its owners, and thus have no personal ownership of shares of stock of the
corporation, and as the safe deposit box is in a corporate name, it is not listed as belonging to the
directors either.
• By not filing as a non-profit, it is not necessary to obtain IRS registration and fees. For corporations
being operated for short-term purposes, this may be adequate.

The Advantages of Non-Stock Corporation:

1. Tax exemption/deduction: Organizations that qualify as public charities under Internal Revenue
Code 501(c) (3) are eligible for federal exemption from payment of corporate income tax.
2. Formal structure: A nonprofit organization exists as a legal entity in its own right and separately
from its founders. Incorporation puts the nonprofit’s mission and structure above the personal
interests of individuals associated with it.
3. Limited liability: Under the law, creditors and courts are limited to the assets of the nonprofit
organization. The founders, directors, members, and employees are not personally liable for the
nonprofits debts. However, there are exceptions. A person cannot use the corporation to shield illegal
or irresponsible acts on his/her part.

The Disadvantages of Non-Stock Corporation

1. Cost: Creating a nonprofit organization takes time, effort, and money. Fees are required to apply
for incorporation and tax exemption.
2. Paperwork: As an exempt corporation, a nonprofit must keep detailed records and submit annual
filings to the state and IRS by stated deadlines in order to keep its active and exempt status.
3. Shared control: Although the people who create nonprofits like to shape and control their creations,
personal control is limited. A nonprofit organization is subject to laws and regulations, including its
own articles of incorporation and bylaws.
4. Scrutiny by the public: A nonprofit is dedicated to the public interest; therefore, its finances are
open to public inspection.

5) What is Demand? What are the factors influencing individual demand and market
demand?

Demand is an economic principle referring to a consumer's desire to purchase goods and services
and willingness to pay a price for a specific good or service and holding all other factors constant, an
increase in the price of a good or service will decrease the quantity demanded, and vice versa.
Businesses often spend a considerable amount of money to determine the amount of
demand the public has for their products and services. How much of their goods will they be
able to sell at any given price? Incorrect estimations either result in money left on the table if
demand is underestimated or losses if demand is overestimated. Demand is what helps fuel
the economy, and without it, businesses would not produce anything.

The factors of influencing the individual demand is the demand of one individual or firm. It also
represents the quantity of a good that a single consumer would buy at a specific price point at a
specific point in time. While the term is somewhat vague, individual demand can be represented by
the point of view of one person, a single family and a single household. However, the market demand
provides the total quantity demanded by all consumers. In other words, it represents the aggregate of
all individual demands. There are two basic types of market demand which is the primary and
selective. What is the Primary Demand? It is a total demand for all the brands that represent a given
product or service, such as all phones or all high-end watches. Moreover, what is Selective Demand?
It is a demand for one brand of product or service, such as the iPhone or a Michele watch. Market
demand is an important economic marker because it reflects the competitiveness of a marketplace, a
consumer’s willingness to buy certain products and the ability of a company to leverage itself in a
competitive landscape. If market demand is low, it signals to a company that they should terminate a
product or service or restructure it so that it is more appealing to consumers.
 6) What is Law of Demand. What are the exceptions and assumptions underlying Law of
Demand?

When discussing the law of demand, it is the equilibrium which is the supply and demand that which
is the demand increases then the supply decreases and vice versa. Now the law of demand states
that all other things being equal, the quantity bought of a good or service is a function of price. If the
amount bought changes a lot when the price does, then it's called elastic demand. An example of this
is chocolate. You can easily get a different dessert if the price rises too high.

When discussing primarily the exceptions of the law of demand. Of course, there are two exceptions
to the Law of Demand. First one is the Giffen and the other one is the Veblen goods which are
exceptions to the Law of Demand. However, they are extreme cases and can be quite difficult to
prove. But economists generally agree that there are rare cases where the Law of Demand is
violated. The Law of Demand states that the quantity demanded for a good or service rises as the
price falls, ceteris paribus or with all other things being equal. Therefore, the Law of Demand is an
inverse relationship between price and quantity demanded. However, the main assumptions of the
law of demand are as follows: Prices of the related goods do not change. Incomes of the consumers
do not change. Tastes and preferences of the consumers remain constant.

7) What is the Law of Diminishing Returns and how do you combat it influence on input?

This question discusses the diminishing returns; however, this diminishing return is also called law
that’s why it is the law of diminishing returns or a principle of diminishing marginal productivity.
Economic law stating that if one input in the production of a commodity is increased while all other
inputs are held fixed, a point will eventually be reached at which additions of the input yield
progressively smaller, or diminishing, increases in output. In the classic example of the law, a farmer
who owns a given acreage of land will find that a certain number of laborers will yield the maximum
output per worker. If he should hire more workers, the combination of land and labor would be less
efficient because the proportional increase in the overall output would be less than the expansion of
the labor force. The output per worker would therefore fall. This rule holds in any process of
production unless the technique of production also changes.

But the early economists, neglecting the possibility of scientific and technical progress that would
improve the means of production, used the law of diminishing returns to predict that
as population expanded in the world, output per head would fall, to the point where the level of misery
would keep the population from increasing further. In stagnant economies, where techniques of
production have not changed for long periods, this effect is clearly seen. In progressive economies,
on the other hand, technical advances have succeeded in more than offsetting this factor and in
raising the standard of living in spite of rising populations.

8) What are the factors influencing Elasticity of Demand? Discuss each one.

There are factors on which the elasticity of demand depends. These factors influence the elasticity of
demand of a commodity either individually or cumulatively.

1. Nature of the Commodity Influence Elasticity of Demand

Why is it that demand for some goods is elastic while the demand for others is inelastic?

It mainly depends on the nature of the commodity and the degree of necessity. The elasticity of
demand depends on whether a commodity is necessity, comfort or luxury. Normally the demand for
necessaries of life such as rice, wheat, salt, etc., will be inelastic as these are essential for existence.
So, everyone will demand a minimum quantity whatever be the price. On the other hand, the demand
for comforts and luxuries may not have inelastic demand. When the prices of these fall, generally,
more of the commodities will be demanded. In this discussion, we should remember that there is
nothing inherent in the quality of a commodity to be called necessity, comfort or luxury. Even in
necessities, commodities having substitutes will have elastic demand and commodities having no
substitute will have inelastic demand. Though wheat is a necessity as food for people, a rise in price
may make the consumers go in for other cereals. This is not the case with salt which has no
substitute. So, the demand for wheat may not be so inelastic as that of demand for salt. Further in the
case of luxuries, it should not be concluded that the elasticity of demand for luxuries will be always
large. It depends on the type of luxury. For instance, diamonds and articles of jewelry are luxuries
used by richer classes. Any minor changes in prices will not affect its demand as these commodities
are demanded only by richer people. So much so, we should make it clear that the elasticity of
demand may vary from commodity to commodity and from group to group. What is luxury to one
group may be comfort for another group and necessity for yet another group. Hence the elasticity
based on nature of commodity can be studied only on a comparative basis.

2. Uses of the Commodity influence Elasticity of Demand

If a commodity has only one use, a change in price will not affect the demand much and so it will
have inelastic demand. If the commodity has several uses, change in price will affect the demand for
the commodities in many uses. When a commodity is put to various uses, it will have elastic demand.
If the price of that commodity is increased, the commodity will be demanded only in essential uses,
and in other uses, substitute materials will be utilized. For instance, a fall in price of coal may make
everyone including the householders to demand coal and the demand will be elastic. A rise in price
will result in the curtailment of the purchases and householders will shift to either firewood or oil. Here
too, the statement that a commodity having several uses will have elastic demand has to be
understood with a restrictive sense. For example, coal will have elastic demand in houses but
inelastic demand in Railways.

3. Existence of Substitutes influence Elasticity of Demand

Commodities having substitutes will have elastic demand and goods with no substitutes will have
inelastic demand. When the price of a commodity rises, the people would shift their preference to
substitute commodities and demand the substitutes with the hope that the price of substitutes will not
rise. Consequently, the demand will fall heavily for the commodity for which the price has been
increased. Suppose the commodity does not have substitute at all like salt, any change in price will
not affect the demand and so the demand will be inelastic.

4. Postponement of Demand influence Elasticity of Demand

Another important factor affecting the demand in a bigger way is postponement of demand for a
commodity. If the demand can be postponed, then the commodity will have elastic demand. If the
demand cannot be postponed, it will have inelastic demand. The demand for rice or medicines
cannot be postponed while the demand for mangoes, oranges and apples can be postponed, if the
prices of these rise. Hence demand for rice and medicines will be inelastic and the demand for the
fruits will be elastic, that is, more will be purchased when the prices come down.   Of course, this
factor, postponement of demand is only a corollary of the kind or nature of commodities already
discussed. In the case of necessities, the demand cannot be postponed, and so demand becomes
inelastic. In the case of commodities which are not necessities, demand can be postponed and so the
demand becomes elastic.

5. Amount of Money Spent influence Elasticity of Demand

Elasticity of demand for a commodity also depends on the proportion of consumer’s money spent on
the commodity. If the consumer spends only a little amount on the consumption of a commodity, the
demand for that will be inelastic. In the case of items like clothing or food, the consumer spends a
large proportion of his income and therefore any increase in price will result in sizeable increasing his
total expenditure. So, to keep himself fairly within his means, the consumer will reduce the quantity
purchased. The demand for these commodities will be elastic.
6. Habits of Consumers influence Elasticity of Demand

If the consumers are addicted to some habits and customs, then, the demand of the commodity will
be inelastic. But if the rise in price persists for a long time, even addicts would try to reduce the
demand either by resorting to some alternative substitutes or curbing the habit. Generally,
commodities and drugs which are stimulants will have inelastic demand.

7. Range of Prices of Commodities influence Elasticity of Demand

Elasticity of demand for a commodity depends on the range of prices at which the commodity is sold
in the market. At a very high range of prices, the demand will be inelastic; so also, at a very low range
of prices, the demand will be inelastic. For example, the price of motor car is in the high range in
which only the very rich can buy motor cars. At the price-range of Rs.80,000 any drop-in price says
by Rs.400 or Rs.500 nor any rise in price by that amount will not affect the demand for cars, since the
demand comes from a limited group. At this level, the demand will be inelastic. In the same way, if
the price of a commodity is very low, whoever wants to buy, will be able to do so. Any small change
in the price at the low level will not affect the demand. At low range prices, the demand will be
inelastic, as also at high range of prices. Only in the middle range of prices demands tend to be
elastic or moderate.

8. Time factor in Elasticity influence Elasticity of Demand

Time plays a vital role in the elasticity of demand for a commodity. Demand for commodity exists for
a period, say, a day, week, month or year or several years. The supply and demand may also confine
to a season. Generally, demand for any commodity will be inelastic during the short period and it will
be comparatively elastic during the long period. During the short period, the demand cannot be very
responsive to the changes in prices because of the following reasons: Suppose the price of a
commodity falls, the demand may not immediately rise because it will take some time for consumers
to come to know about the fall in price. Even if they come to know about the fall, the tendency will be
to wait and watch for further fall in price. So, the response will not be immediate. Further, during the
short time, the consumers may not be able to change their habit or pattern of expenditure. It will take
some time. Moreover, there are many goods which are of a durable nature and so even if the prices
fall, the demand may not be immediately fortshcoming from the existing consumers. For example, a
fall in the price of fountain pens will not make us demand fountain pens unless the pen we are using
becomes worn out and useless. So, in the short period whenever there is a fall in price, it may not
lead to increase in the quantity demanded suddenly. In the same way, a rise in price will not
immediately result in the reduction of the quantity demanded during the short time. The consumer will
find it very difficult to adjust with substitute commodities. A rise in price of coal or firewood used as
fuel will not result in the quantity demanded suddenly falling, even though the substitute like kerosene
or gas may be cheap. To make necessary arrangement for a substitute fuel, the consumer should
make a capital expenditure like purchasing kerosene stove or gas oven so that the substitute fuel
may be used. Initially the demand for coal and firewood will be inelastic. But after a long period, the
consumers will adjust and have their own stoves, oil or gas, and the demand for coal and firewood
will become elastic. So, the elasticity of demand is greatly influenced by the time element. Therefore,
in studying the elasticity of demand, we cannot decisively say which factor is influencing in a bigger
way. The net result of demand being either elastic or inelastic will depend on the interplay of all these
influences stated above.

9) What do you say about issuing without the resident’s consultation a development
strategy by local authorities? Does it really work or not?

Based on my perception regarding this issue on the issuing the local development strategy without
the residents’ consultation is against the transparency principles. I think the government decisions
should be available for the residents not only at the stage of the final documents but also at the stage
of plans and the participation by society in government planning is an essential input into policy
making that helps render plans responsive to the real needs of people thus enhancing effectiveness
and efficiency. Therefore, residents will more likely support government’s decision when it’s their own
decision too, when they took part in the discussion. But it works only when local governments took
into consideration residents’ point of view. When government asks the opinion but does the opposite
this system does not work. Is difficult to receive people’s support for necessary but unpopular
decision which is often the case in transition economies. In that case, governments prefer to develop
documents without consultation as they know in advance that residents would be against. But after
the publication of the documents local authorities for sure should explain their position to the
residents.

10) What are the examples of experimental research that is highly effective in informing
guiding public policy?

As this entity responds to requests from legislative or administration policymakers, specific policy
examples might be offered and specific findings of research would be presented, but the purpose of
doing so would be to demonstrate how certain actions and consequences are related. This resource
would not advocate for a specific policy for a specific problem. Suppose, for example, that a
policymaker is concerned about the consequences and costs of elevated high school drop-out rates.
This resource would provide a venue for policymakers to learn about how social scientists have
examined the issue, what attributes of the problem are most and least likely to be affected by various
policy alternatives, and what mistakes or successes researchers have documented. If the resource
could provide this type of information to policymakers in an accessible and actionable way, it could
help them make more effective decisions.
Our purpose in this endeavor would be to transform how individual policymakers and their staffs
understand and use directly relevant scientific methods, findings, and concepts in their thinking and
actions. To make this project work, however, it is essential that we focus not just on how to educate
policymakers about science but also to help social and behavioral science researchers better
understand the situations that policymakers regularly face. This resource will be of value to
policymakers only if researchers understand enough about policymakers’ needs to provide the kinds
of information that policymakers can use.

11) In your opinion, what are the biggest problems of our Local Government Units face in
the new Millennium?

Today’s generation, Local Government Unit faced a lot of challenges. Almost every day there is
always an emerging problem, some issues are about delivering services, managing staff, forming
new staff, rapidly evolving technologies and socioeconomic demographic and etc. But for me, the
most obviously seen problem of our country is lack of finance or budget. Sadly, we cannot deny the
fact that we need other countries’ help. We borrowed money from them that sometimes served as a
fund by our government official projects such as free health and social care, education, road and
infrastructure. Aside from that, we are also facing uncertain disasters or calamities which really need
a huge amount of funds for recovery. As a result, we will be having a problem about our funds,
considering the fact that low budget decrease productivity and limits one’s economic efficiency.
In addition to that, some of the people who serve in the Local Government Unit are very entitled.
They think that just because they are in the position, they act like “kings.” Also, there are only a few
very smart leaders. The delivery of basic services has no enough focus. Local government officials
often develop mediocre projects that cost millions of budgets. The ‘projects’ will be planned for a long
time and when it is time to be executed or built, it will not be properly maintained or worse, it can be
demolished and build another one. So as long as we elect the right people in the position, I think
problems will be solved, little by little.

12)How does Managerial Economist help the Manager in decision making and financial
planning?

A managerial economist helps the management by using his analytical skills and highly
developed techniques in solving complex issues of successful decision-making and future advanced
planning. Studies the economic patterns at macro-level and analysis its significance to the specific
firms he/she is working in. He/She has to consistently examine the probabilities of transforming an
ever-changing economic environment into profitable business avenues. He/She assists the business
planning process of a firm. He/She also carries cost-benefit analysis. He/She assists the
management in the decisions pertaining to internal functioning of a firm such as changes in price,
investment plans, type of goods or services to be produced, inputs to be used, techniques of
production to be employed, expansion or contraction of firm, allocation of capital, location of new
plants, quantity of output to be produced, replacement of plant equipment, sales forecasting,
inventory forecasting, etc. He/She has to analyze changes in macro-economic indicators such as
national income, population, business cycles, and their possible effect on the firm’s functioning.
He/She is also involved in advising the management on public relations, foreign exchange, and trade.
He/She guides the firm on the likely impact of changes in monetary and fiscal policy on the firm’s
functioning. He/She also makes an economic analysis of the firms in competition. He/She has to
collect economic data and examine all crucial information about the environment in which the firm
operates. The most significant function of a managerial economist is to conduct a detailed research
on industrial market. In order to perform all these roles, a managerial economist has to conduct an
elaborate statistical analysis. He/She must be vigilant and must have ability to cope up with the
pressures. He/She also provides management with economic information such as tax rates,
competitor’s price and product, etc. They give their valuable advice to government authorities as well.