APECO 084 : FINALS COVERAGE

SUPPLY ANALYSIS
SUPPLY
➔ willingness of sellers to offer a given
quantity of good or service for a
given price
➔ sellers normally sell more at a
higher price than at a lower price
➔ to maximize their profit, they will
increase their supply (produce
more products)

QUANTITY SUPPLIED
- amount of good a seller supply

THE LAW OF SUPPLY

- as the price increases/decreases
quantity of the product also
increases/decreases
- ceteris paribus (direct relationship)

MARKET PRICE CONTROL

- a venue where consumers and
suppliers of goods transact on
buying or selling of any items
- sets the amount of good or service
to be rendered and most
importantly the price that the
output is going to be sold or
bought
MARKET EQUILIBRIUM
- when company experienced
surplus, there is a possibility that
producers will lose
- when market is encountering
shortage, there is a likelihood that
consumers will be abused
- the price may be fixed at a level
below the market equilibrium price
or above the market equilibrium
price

- price agreed by the seller to offer its

good or service for sale and for the
buyer to pay for it
- price at which quantity demanded
of a good is exactly equal to the
quantity supplied
- state of balance between demand
and supply
- D=S
FLOOR PRICE
● above the equilibrium
● legal minimum price imposed by
the government on certain goods
and services
● undertaken by government if a
surplus in the economy persists
● form of assistance to producers
by the government for them to
survive in their business

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PRICE CEILING
● usually below the equilibrium
price
● the legal maximum price
imposed by the government
● undertaken by government if
there is a persistent shortage of
goods
● imposed by the government to
protect consumers from abusive
producers or sellers who take
advantage of situations such as
occurrence of a calamity
SOLVING THE EQUILIBRIUM
DEMAND - 𝑄𝐷=𝑎−𝑏𝑃
SUPPLY - 𝑄𝑠=c+𝑑𝑃
EQUILIBRIUM CONDITION - 𝑄𝐷=𝑄𝑠
ELASTICITIES
PRICE ELASTICITY OF DEMAND (PED)
- measures the sensitivity of
response of the quantity demand
to the change in price of the good
or service
𝐸𝑑=(𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑑)/𝑄1 𝑥100
(𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒)/𝑃1 𝑥100
Change in Qty= Q2-Q1
Q1= “original Qd”
Q2= “new Qd”
Change in price= P2-P1
P1= original price of the good
P2= new price of the good
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INTERPRETATION OF THE
COEFFICIENT PED
1. ELASTIC
➔ PED is greater than 1 = PED
>1
➔ the good is non-essential
➔ buyers are sensitive to its
price
2. INELASTIC
➔ PED is less than 1 = PED < 1
➔ the product is an essential
or important good
➔ buyers show little response
to the change in its price
3. UNITARY ELASTIC
➔ coefficient of price elasticity
is equal to 1 = PED = 1
➔ there is proportional
variation or change in the
Qd and the price of the
product
4. PERFECTLY ELASTIC
➔ PED is = ∞
➔ this signifies when seller
increases the prices of his
product, no one will buy
from him
5. PERFECTLY INELASTIC
➔ PED is = 0
➔ It means that consumers
still buy the exact quantity
of the product regardless of
the price
APECO 084 : FINALS COVERAGE
PRICE ELASTICITY OF SUPPLY (PES) percentage change in price
- how the suppliers respond to the in absolute value
variation of products’ price in the 4. PERFECTLY ELASTIC
market ➔ PES is = ∞
𝐸𝑆=(𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑄𝑠)/𝑄1 𝑥100 ➔ quantity supplied does not
(𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑝𝑟𝑖𝑐𝑒)/𝑃1 𝑥100 respond at all to a change in
price
5. PERFECTLY INELASTIC
Change in Qty= Q2-Q1
➔ PES is = 0
Q1= “original Qd”
➔ quantity supplied is
Q2= “new Qd”
unlimited at a given price,
Change in price= P2-P1
but no quantity can be
P1= original price of the good
supplied at any other price
P2= new price of the good

INCOME ELASTICITY OF DEMAND

- sensitivity of quantity demanded to
the % change in income of the
consumers

INTERPRETATION OF THE
COEFFICIENT PES
1. ELASTIC
➔ PES is greater than 1 = PES >
1
➔ producers can increase
output without a rise in
cost or a time delay
2. INELASTIC
➔ PES is less than 1 = PES < 1
➔ Firms find it hard to change
production in a given time
period. Supply is relatively
unresponsive to a change in
demand. Producers may
find it easier to put up prices
3. UNITARY ELASTIC
➔ coefficient of price elasticity
is equal to 1 = PES = 1
➔ percentage change in
quantity of a quantity
supplied is the same as the

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1. NUMBER & SIZE OF BUYERS &

CROSS PRICE ELASTICITY OF
DEMAND SELLERS
- determines the market
➔ how the demand quantity of a
concentration
certain product changes as the
- more suppliers and sellers in the
price of a related good changes
market signifies less concentrated
market
- fewer producers indicates a more
concentrated market

MARKET CONCENTRATION

LESS MORE
Concentration Concentration

More suppliers Less suppliers

Less market More market

power power

2. TYPE OF PRODUCT
MARKET STRUCTURES - making the product unique
- Homogenous – undifferentiated or
same products
FACTORS DETERMINING THE
- Niche – differentiated or unique
DEGREE OF COMPETITION AND
products
MARKET POWER:

● Number and size of buyers and TYPE OF PRODUCT

sellers
● Type of products
● Entry and exit of firms in the
market Undifferentiated Differentiated
● Pricing power
Homogeneous Unique
● Degree of knowledge of
economic agents regarding
Horizontal Inelastic demand
prices, costs, demand and supply
demand
condition
Very responsive to Not responding to
price change price change

Huge costs Huge profits

Low market High market

power power

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APECO 084 : FINALS COVERAGE
3. ENTRY OR EXIT OF FIRMS IN
THE MARKET
- strength of barriers that may hinder
the entry of firms or suppliers in the
market
- inherent features of the industry
and different methods
KINDS OF BARRIERS TO ENTRY
● SCALE BARRIERS
- requirements for a large
production plant for a
feasible operation in the
industry
● LEGAL BARRIERS
- proprietary rights and
their corresponding legal
protection extended to
existing market players in
the production and
distribution of products
4. PRICING POWER
- market power of the firm or the
ability to set or control the price of
products in the market
- level of pricing power depends on
whether the firm can regulate the
level of demand and supply of the
products
- price-setters - can manipulate the
level of supply or demand
- price-takers - cannot control the
level of supply or demand
5. DEGREE OF KNOWLEDGE OF
ECONOMIC AGENTS
- availability or limitation of
economic information to the
players in the market
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CLASSIFICATION OF MARKET
STRUCTURES
PERFECT COMPETITION
1. lot of customers and suppliers in
specific market, but they only
show a very little or no impact on
the prices of items
2. highly similar products or
homogenous products are sold
by the sellers in perfect
competition
3. sellers have ease of entry or exit
from the markets as there are no
barriers to enter into or exit from
the industry
4. in a perfectly competitive
environment, the market players
are price takers
5. buyers and suppliers are
well-informed of the pricing,
costs, and other relevant
information for them to come up
with their economic decision
IMPERFECT COMPETITION
➔ exists when there are concepts of
perfectly competitive
environment that are not met
● Monopoly
- when a single or one seller
has control of entire
supply of raw materials
- no close substitute or no
alternative store or firm for
the monopolist
● Monopolistic Competition
- many firms offer similar
items in the market but
may have different brands
- sell heterogenous or
differentiated products
● Oligopoly
- firms interact with each
other and
interdependence among
them exists
APECO 084 : FINALS COVERAGE

5. INTEREST RATES
MARKET STRUCTURES &
IMPLICATIONS FOR ● The price you pay to borrow
ENTREPRENEURS money
● Cost of borrowing
1. INVESTMENT (borrower’s point of view)
- involves employment of ● Reward for lending (lender’s
funds with the aim of point of view)
achieving additional income
2. RETURN - When interest rates rise,
Depends on: banks charge more for
● Nature of investment business loans
● Maturity period - When interest rates are low,
● Other factors businesses can borrow more
Received in the form of: readily
Yield{dividend or interest] + capital
appreciation [difference between
sales price and purchase price]

3. RISK
● Inherent in any investment
● Risk and return of an
investment are related
● The higher the risk, the
higher is the return THE GOAL OF A FIRM
Risks may be: ➔ to maximize shareholder’s wealth
● Loss of capital or firm’s long-run value
● Delay in repayment
● Non-payment of interest
FORMS OF BUSINESS
● Variability in returns
ORGANIZATIONS

4. SAFETY 1. PROPRIETORSHIP
- every investor expects to get - unincorporated business
back his capital on maturity owned by one individual
without loss and without 2. PARTNERSHIP
delay - unincorporated business
- another feature an investor owned by two or more
desires for investments people
- certainty of return of capital 3. CORPORATION
without loss of money or - legal entity created by state
time

IMPORTANT BUSINESS TRENDS

1. Globalization
2. Improving information
technology

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APECO 084 : FINALS COVERAGE
TAXATION
➔ inherent power of the state to
demand enforced contributions
from the people for public purposes
TAX
➔ levy imposed by government on
the income, wealth and capital
gains of persons or businesses, on
spending on goods and services,
and on properties
WHY IS TAXATION NECESSARY?
➔ for the government to be able to
finance its expenditures
PURPOSES OF TAXATION
➔ Taxes are used by the government
for a variety of purposes:
1. to raise revenue for the government
to cover its own expenditure
2. instrument of fiscal policy in
regulating the level of total
spending (or aggregate demand) in
the economy so as to stabilize the
economy
3. to alter the distribution of income
and wealth
4. to control the volume of imports
MAJOR DIVISION OF TAXES
DIRECT TAXES
- taxes levied by government on the
income and wealth received by
households and businesses in order
to raise government revenue and as
an instrument of fiscal policy
INDIRECT TAXES
- taxes levied by government on
goods and services in order to raise
revenue and as an instrument of
fiscal policy
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APPROACHES TO TAXATION
1. The ability to pay principle states
that taxation should be levied
according to an individual’s ability
to pay. This approach to taxation is
usually the basis for progressive
taxation
2. The benefit approach proposes
that taxation should be levied
broadly in relation to the benefits
that people receive in public
services
3. The tax incidence approach
proposes that the major duty of a
tax system is to analyze the effect of
a particular tax on the distribution
of tax welfare
MINIMUM WAGE
● Statutory Monetary Benefits are
employee benefits required by law
to be given to the employees
● The ones giving the benefits are:
The employer or the government
REGIONAL WAGE ORDERS
➔ the daily minimum wage rates per
industry per locality within the
region and in some instances
depending on the number of
workers and capitalization of
enterprises
➔ The basis of the minimum wage
rates prescribed by law shall be the
normal working hours of eight
hours a day
APECO 084 : FINALS COVERAGE
EXEMPT FROM INCOME TAX
● Statutory Minimum Wage (SMW)
inclusive of COLA (Cost of Living
Allowance)
● Holiday pay
● Overtime pay
● Night shift differential pay
● Hazard pay

SWOT ANALYSIS

STRENGTH

1. What advantages do they have

that others don’t?
2. What do they do better?
3. What personal resources do
they have access to?
4. What do other people see as
their strengths?

WEAKNESSES

1. What should they avoid?

2. What could the employees
improve?
3. What things do other people
see as weaknesses?

OPPORTUNITIES

1. Do co-workers out-perform in
key areas?
2. Employees’ strengths and see
opportunities there

THREATS

1. What obstacles do they face?

2. Is their job (demand) changing?
3. Is changing technology
threatening their position?
4. Could their weaknesses
threaten them?

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