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Economics- is the study of how individuals and societies choose to use scarce resources to produce commodities that satisfy human wants, and is also a social science because it deals with human behavior. Microeconomics- is the branch of economics that studies the behavior of individual decision-making units such as firms and households. Macroeconomics- is the branch of economics that examines the behavior of economic aggregates— total income, output, employment, prices, and etc on a national scale. Positive Economics- studies economic behavior and situations without making any judgment. Ex. By increasing the prices of a normal good, the demand will decrease. Normative Economics- deals with what ought to be or what suggestions could be made for the situation. Criteria for Economic Outcomes: Equity- the fairness Efficiency- producing what we want at the least cost Economic Problem Factors of Production • • • Terms: Consumer goods- goods produced for present consumption Investment- increase in capital stock Production- process where resources (inputs) are made into useful goods and services (outputs). Opportunity Cost- is that which we give up or forgo when we make a decision or a choice. Production Possibilities Frontier- is a graph that shows all of the combinations of goods and services that can be produced if all of society’s resources are used efficiently. Economic Growth- refers to the increase in total output of an economy. Happens when new resources are acquired or the present resources are used more efficiently. (Land, labor, and capital) Also, when new technology is acquired, grow can be experienced. 3 Basic Questions Because of Scarcity Land- refers to the natural resources Labor- both quality and quantity of labor Capital- man made goods used to produce more goods
used by the societies to solve the economic problem. Firms and Households Firm. Reasons For Government Intervention • • Market failures (monopolies. The bases of trade are comparative advantage and opportunity costs.The basic coordinating mechanism in a free market system is price. imperfect competition.is an organization that transforms resources into products. Provide public goods Redistribute income Reduce inefficiencies Stabilizing the economy Interdependence and Trade • • Interdependence occurs because people are better off when they specialize and trade with others.institution where buyers and sellers interact • • Factor market Product Market Free market system. etc) Inequitable income distribution Goals of the Government in Intervention 1. 4. . (consumer sovereignty) There are no pure planned economies or pure laissez-faire economies. • • • Command economies Laissez-faire economies. Mixed economies Market. Consumers dictate what will be produced.• • • What gets produced? How des it get produced? Who gets what is produced? Economic Systems. distribution is decentralized and the amount of goods that a household gets depends on wealth and income.goods that are going to be brought to other countries Imports.free market system. Patterns of production and trade are based upon differences in opportunity costs. 3. Exports. 2. Price is the amount that a product sells for per unit. It reflects what society is willing to pay.goods that are brought in a country from another.
Monopolistic Competition.is where there are many buyers and sellers such that one action would have a negligible impact in price. when the price of a good rises.is the person responsible for managing. Oligopoly. the quantity demanded falls. and seller determine supply Concept of Competitive Market. Demand Schedule. organizing and assuming the risks for the firm. the demand for a normal good increases while the demand for an inferior good decreases. Competitions 1.Entrepreneur.the amount of a good that buyers are willing to buy or are able to Law of Demand.can be a shift to the left (decrease in demand) or the right (increase in demand) • • • • • Consumer income Price of related goods Taste Expectation. 2. the two goods are called complements. Perfect Competition. the two goods are called substitutes.a table that shows the relationship between the price and the quantity demanded Demand Curve.products are the same. When a fall in the price of one good increases the demand for another good.there is only one seller who controls the price 3. When a fall in the price of one good reduces the demand for another good. Monopoly. Demand Quantity Demanded. Supply and Demand.the amount of a good that sellers are willing to sell at a given price . As the income increases.many sellers selling slightly differentiated products which are sold at different prices. etc.all things held constant.consume the products or goods produced by the firms in an economy. Households.sum of all the individual demands for a particular good or service Shifts in the Demand Curve.buyers determine demand. Supply Quantity Supplied.few sellers 4.a graph of the demand schedule Market Demand. buyers and sellers are price takers which means that they have no influence over price.
This is because every firm’s objective is to maximize the profits. and is manifested in the upward sloping supply curve. and sell more if the price of a good is high.total cost Total revenue is the total amount collected by the firm which is price x quantity. and is manifested in the upward sloping supply curve. Profit= total revenue.when the price is < the equilibrium price then the Qs <than the Qd Law of Supply and Demand. Surplus-when the price is > the equilibrium price then the Qs > than the Qd Shortage.table that shows he relationship between the price of a good and the amount that sellers are willing to sell Supply Curve. and sell more if the price of a good is high. Equilibrium Price. Supply Schedule. Economic and Accounting Profit .The quantity supplied and the quantity demanded at the equilibrium price.the level where the price has reached the point where quantity supplied equals quantity demanded. it states that firms will increase their output.sum of all individual supplies for a certain good or service Shifts in the Supply Curve.can be to the left or to the right. While total cost is the total value of the input products used to make the products. and together with market equilibrium. In the Law of Supply.the price of a good adjusts to bring the quantity supplied and the quantity demanded for that good into balance Cost of Production Supply and demand are the two things that we consider in economics. shifts can happen by a change in determinant except the price • • • • Input Prices Technology Expectations Number of Sellers Equilibrium.graph of the supply schedule Market Supply.where the Quantity supplied and the quantity demanded meet.In the Law of Supply. This is because every firm’s objective is to maximize the profits. Equilibrium Quantity. it states that firms will increase their output. they explain microeconomics.Law of Supply.
Production Function It basically shows the relationship between he quantity of inputs used and the quantity of outputs. Cost Curves and their Shapes The ATC is U shaped The bottom of the U shaped curve is where the ATC is at its lowest and is referred to as the efficient scale.is the increase in output for every additional unit of input. Ex. Such would be the rent and etc. Marginal Product. while the accounting profit includes only the explicit costs. Variable costs.ones that vary when production or the quantity produced changes. it is the total revenue minus the explicit costs. Average cost is basically the firm’s cost divided by the quantity produced. economic profit is always lower than the accounting profit. this is because the workspace may be limited and less and less work falls to each worker. This is because of the diminishing marginal product. Total-Cost Curve shows the relationship between the quantity of the product produced and the cost of producing the product. the marginal product decreases. To solve for the accounting profit. When graphed.ones that o not change regardless of the output. ATC= AFC + AVC Marginal Cost Measures the increase in cost for every additional unit of output produced. ( marginal cost curve crosses the average total cost curve) . This determines the pricing of a good.Economic includes both the implicit and the explicit costs so it is the total revenue minus the explicit and implicit costs. Total Cost = total fixed costs + total Variable costs. Diminishing Marginal Product The marginal product of an input decreases as the amount of input increases. Implicit costs are the forgone alternative actions without an actual payment Explicit costs are the payments made by a firm (direct need to pay or outlay) Because both implicit and explicit costs are considered. As more and more workers are hired. the slope in the marginal product becomes flatter and flatter. 2 types of costs: Fixed costs. M C = (c h a n g e in to ta l c o s t) (c h a n g e in q u a n tity ) = ∆ T C ∆ Q - The marginal cost rises when more is produced.
M. Guide to Economics for Filipinos. Economies of Scale. ATC is rising Short run and Long run.in the short run. Philippines: University of As .a property where the long run ATC falls as the output increases Diseconomies of Scale. all fixe costs become variable costs. ATC is going down MC>ATC.- ATC is high at when very little is produced because the AFC is spread over a small quantity ATC declines as output increases The ATC rises because the AVC also rises Marginal Cost and Average Total Costs MC<ATC. B.a property where the long run ATC rises as the output increases Constant Return to Scale-a property where the long run ATC remains the same as the output increases Source: Villegas. but in the long run. (2001). most costs are fixed.