SPABM7 – 3RD QUARTERLY EXAM REVIEWER economy.

Therefore,
understanding the behavior of
REVISITING ECONOMICS AS A SOCIAL SCIENCE decision-making of individuals.
HARD SCIENCES
ECONOMICS AS AN APPLIED SCIENCE
Any of the natural or physical sciences in which
aspects of the universe are investigated by Applied economics is the study of economics
means of hypotheses and experiments. relative to real-life situations. This is done by
observing how theories work in practice. (Jean-
SOFT SCIENCES Baptiste Say (1767-1832) & John Stuart Mill (1806-
Any of the specialized fields or disciplines that 1873))
interpret human behavior, institutions, society,
etc. NEEDS
The basic necessities that a person must have in
ECONOMICS order to survive.
• Came from the Greek word “oikonomia”
which means household management. MASLOW’S HIERARCHY OF NEEDS
• Study of allocation of scarce resources
to satisfy the needs of the society.
RELATIONSHIP OF ECONOMICS TO OTHER
SCIENCES
• BUSINESS MANAGEMENT
- Business basically provides
employment opportunities to
members of society, and it is an
important vehicle in the balance
of economic activity.
• HISTORY
- History of economics provides WANTS
information regarding theories Are desires that people have.
that can be revisited in order to
ADAM SMITH (1723-1790)
evaluate present and future
economic issues. • Considered as the “Father of Economics”
• FINANCE • “An Inquiry into the Nature and Causes of
- A system that includes the the Wealth of Nations” (1776)
circulation of money, credit and • “Laissez-faire” – abstention by
investment decisions, and governments from interfering in the
provision of banking facilities. workings of the free market.
• PHYSICS
- A country’s economic activity SCARCITY
speeds up through inventions and A commodity or service is in short supply,
relative to its demand.
technological advancements in
energy, transportation, and FOUR FACTORS OF PRODUCTION
communication.
• SOCIOLOGY • LAND
- Essentially deals with the behavior - Used as space to create the
of economic subjects like the products or services.
behavior of the aggregates of the • LABOR
economy thru macroeconomics. - Any mental or physical effort and
• PSYCHOLOGY its compensation are wages and
- Primarily useful in the study of salaries.
microeconomics, which focuses
on the smallest units of the
 • CAPITAL
- Physical Capital – investment in
machinery and other physical
needs of the market.
- Financial Capital – money
invested in business.
• ENTREPRENEURIAL ABILITY
- A necessary skill in order for the
production to prosper.
OPPORTUNITY COST
• The cost of the lost alternative.
• The one that was given up.
BRANCHES OF ECONOMICS
2 BRANCHES OF ECONOMICS:
• MICROECONOMICS
- It attempts to understand the
decision-making behavior of firms
and households.
• MACROECONOMICS
- Concentrates on the behavior of
the entire economy of nation.
FIELDS OF ECONOMICS
• INTERNATIONAL ECONOMICS
- Discusses the concepts of
globalization and the mechanics
of the open economy system.
• DEVELOPMENT ECONOMICS
- Focuses on improving economic
and social conditions in
developing countries.
• BEHAVIORAL ECONOMICS
- Study of psychology as it relates to
the economic decision-making
processes of individuals and
institutions.
• FINANCIAL ECONOMICS
- Analyzes the use and distribution
of resources in markets in which
decisions are made under
uncertainty.
• ECONOMETRICS
- Uses mathematical equations,
statistics, and calculus in
explaining economic
phenomena.
MODEL BUILDING
“Creative Destruction”
Process of revolutionizing the economic
structure, continuously destroying the old one
and creating a new one. (Joseph Schumpeter)
PRODUCTION POSSIBILITY FRONTIER
Shows the limits that the community can
produce from its available resources.
3 KEY INGREDIENTS
• 4 Factors of Production
• Technology
• Education
MEASURING THE ECONOMY
GROSS DOMESTIC PRODUCT
Measures the value of commodities produced
within the country’s borders.
SECTOR CONTRIBUTIONS TO GDP
• Services
• Industry
• Agriculture
2 TYPES OF GDP
• Nominal GDP
- Nominal GDP is an assessment of
the value of goods and services
using current prices in its measure.
• Real GDP
- Real GDP takes into consideration
the adjustments for changes in
inflation.
2 APPROACHES IN COMPUTING GDP
EXPENDITURES APPROACH
GDP = C + G + I + (X – M)
• C = Household Consumption
• G = Government Spending
• I = Investment
• X = Export
• M = Import
INCOME APPROACH
GDP = W + i + R + PR + Tax + Dep
• W = Wages
• i = Interest Income
• R = Rental Income
• PR = Business Profits
• Tax = Indirect Business Taxes
• Dep = Depreciation
GROSS NATIONAL PRODUCT in an increase (or decrease) in demand
Refers to the value of goods and services because of other factors.
produced by a country’s citizens.
CAUSES OF CHANGE IN DEMAND CURVE
MEASURING GNP
GNP = C + G + I + (X – M) + NFFI + SD • TASTE OR PREFERENCE
- Pertains to personal likes or
• C = Household Consumption
• G = Government Spending dislikes of consumers for certain
• I = Investment goods and services.
• X = Export • CHANGING INCOMES
• M = Import - Changing incomes of households
• NFFI = Net Foreign Factor Income raises/reduces the demand for
• SD = Statistical Discrepancy goods and services.
• OCCASIONAL OR SEASONAL PRODUCTS
THE MARKET: DEMAND - Various events or seasons in a
given year may also cause a
MARKET movement on the demand curve.
A place where buyers and sellers meet and • POPULATION CHANGE
trade/exchange goods and services. - An increasing population leads to
TYPES OF MARKET an increase in the demand for
• Physical Market some types of good and service.
• E-Commerce Platforms • SUBSTITUTE AND COMPLEMENTARY
GOODS
DEMAND - A consumer tends to look for
Pertains to the quantity of a good or service that closely related commodities.
people are ready to buy at a given price within • EXPECTATION OF FUTURE PRICES
a given time period. - If the buyer expect the price of
METHODS OF DEMAND ANALYSIS good or service to rise/fall, it may
cause the demand to
• DEMAND SCHEDULE increase/decrease.
- A table that shows the relationship
between prices and quantities THE MARKET: SUPPLY
demanded. SUPPLY
Pertains to the quantity of a good or service that
firms are ready and willing to sell at a given
price within a given time period.
METHODS OF SUPPLY ANALYSIS

• DEMAND CURVE • SUPPLY SCHEDULE

- A graphical representation - A table that shows the relationship
showing the relationship between of prices and quantities supplied.
the prices and quantities
demanded.
• DEMAND FUNCTION
- Qd = a – b(P)
CHANGE IN QUANTITY DEMANDED • SUPPLY CURVE
There is a change in quantity demanded if there - A graphical representation
is a movement from one point to another along showing the relationship between
the same demand curve. the prices and quantities supplied.
CHANGE IN DEMAND • SUPPLY FUNCTION
There is a change in demand if the entire - Qs = a + b(P)
demand curve shifts to the right (or left), resulting
CHANGE IN QUANTITY SUPPLIED FLOOR PRICE
There is a change in quantity supplied if there is Legal minimum price imposed by the
a movement from one point to another along government.
the same supply curve.
SURPLUS
CHANGE IN SUPPLY A condition in the market where the quantity
There is a change in supply if the entire supply supplied is more than the quantity demanded.
curve shifts to the right (or left), resulting in an
increase (or decrease) in supply because of EQUILIBRIUM CONDITION
other factors. Determining the equilibrium price and quantity.
QD = QS
CAUSES OF CHANGE IN SUPPLY CURVE
• OPTIMIZATION IN THE USE OF FACTORS OF
PRODUCTION
- If resources are used efficiently/
inefficiently, there will be an
increase / decrease in supply.
• TECHNOLOGICAL CHANGE
- Innovations in the production
technology increases supply.
• FUTURE EXPECTATIONS
- If there is rise in prices in the future,
seller will hold back their supply to
take advantage.
• NUMBER OF SELLERS
- The more sellers are in the market,
the greater the supply of goods
will be available.
• WEATHER CONDITIONS
- Natural disasters reduce the
supply of goods and services.
• GOVERNMENT POLICIES
- Lower trade restrictions and lower
quotas and tariffs boost imports.
MARKET EQUILIBRIUM
MARKET EQUILIBRIUM
Pertains to a balance that exists when quantity
demanded is equals to quantity supplied.
PRICE CONTROL
Government’s specification of minimum or
maximum prices for certain goods and services.
PRICE CEILING
Legal maximum price imposed by the
government.
SHORTAGE
A condition in which the quantity demanded is
higher than the quantity supplied at a given
price.