1.

Economics
● From Greek word oikonomos meaning “one who manages the household”
● Limited resources-> accounting for the skills ability and talent when allocating resources.
● Scarcity-> Economics therefore Econ is the study of how manages its scare resources
2. Efficiency, Equity
● Efficiency- the property of society getting the most it can from its resources
● Equality- the property of distributing economic prosperity uniformly among members of
society
3. Economic tools, The Scientific Method
4. Positive and Normative Economics
5. Microeconomics

-------------------------------Lesson 1-------------------------------
10 Principles of Microeconomics
1. People Face Trade-offs
● “There is no such thing as free lunch”
● Efficiency uses fewer resources and does it in a faster
● Equality
2. The cost of something is what you give up to get it
● Opportunity Cost- whatever must be given to obtain something; next best choice
is forgone; best alternative we give up when we make decisions
● Assigning value to the choice by minimizing the opportunity cost
3. Rational people think at the margin
● Economists assume that people are rational
● Rational people will always choose the best choice by thinking of the marginal
changes
● Marginal Changes- small incremental adjustments to an existing plan of action
Marginal means Additional
1. Marginal cost
2. Marginal benefit
4. People respond to Incentive
● Incentive- something that induces a person to act; punishment or reward; can be
negative and positive
5. Trade can make everyone better off
● Allows each person to specialize in the activities he/she does best.
● Be efficient
● Because of trade, they can do what they can, then just trade what they have for
needs and wants
6. Markets are usually a good way to organize economic activity
Producing goods by how much is in demand
3 fundamental problems
● What to produce
● How to produce
 ● To whom to produce
Economy systems
● Market economy- buyers and sellers are allowed to interact with each other; a
delicate balance of the needs and wants of the buyers and sellers; market
decides about the 3 fundamental problems; people are allowed to be efficient so
it is more efficient than Command economy
● Command Economy- basically communism because the government decides
about the 3 fundamental; tries to look at an overall mindset(idealistically)
Laisezz-faire or the invisible hand- everything will be fine even if left alone
7. Government can sometimes improve market outcomes
Market Failure- a situation in which a market left on its own failure to allocate resources
efficiently
Externality-the impact of one’s action on the wellbeing of a bystander; your can actions
can also affect other
Market Power-the ability of a single person(or group) to have a substantial influence on
market prices
8. A country’s standard of living depends on its ability to produce and goods and services
Productivity- the quantity of goods and services
9. Prices rise when the government prints too much money
Inflation- an increase in the overall level of prices in the economy; an indicator of
economic growth; a balancing act( too high and too low is bad)
Seven steps printing money to inflation(as things changes this may be obsolete in the far
future)
10. Society faces a short-run trade-off between inflation and unemployment
More money-> people want to buy -> rise of demand -> business hire more to produce
more->
A delicate balance

-------------------------------Lesson 2 Economic Model-------------------------------

1. Economic resources “capital does not equal to money”
● Land- all natural resources or raw material inputs to produce goods and services
● Labor- workforce, or talent of people that is used
● Capital- tangible assets used to produce goods and services
● Entrepreneurship-talent that people have for organizing resources, seeking new
business opportunity and developing new ways of doing things
2. Scientific method of Economics
● Economics is the social science that deals with efficient allocation of scarce and
limited resources to fulfill man’s unlimited needs and wants
● Uses the essence of science which is the scientifi
3. Positive Economics and Normative Econ
● Posi- Stating Factual basis; always factual or fact based; objective
● Norm- Idealistic without proof; subjective;
4. Two Main Branches of Economics- econ has a l
 ● Microeconomics- the study of how households and firms make decisions and
how they interact in the markets
● Macroeconomics- the study of economic-wide phenomena including inflation,
unemployment, and economic growth.

5. Circular flow diagram- gets more complicated as more entities come into play

● Resource market-Household are sellers

- Factors of production(resources from household to business)
- Factor payments(wages, rent, n payment given to households)

● Goods markets- businesses are sellers

- Goods and services(sold to a household for cash or equivalents)
- expenditure(uses cash or cash equivalent given to business sector for goods and
services)

6. Production possibilities curve

Assumptions:
● Two goods
● Fixed resources
● Fixed technology
● Full employment
 ● The black curve line is the PPC or Production possibility curve
- Represent the maximum amount of product X and Y to be produced on a fixed
amount of resources
- Everything within the line is the number of combinations that the economy can try
to produce product X and Y
- It is curved because substitution of goods is not equal; not all trade-offs are
equal.
● Points A, B, or C represents the combination of ways to maximize resources.
● Point D is a point inside the PPC that represents the combination of products produced
but DOES NOT utilize all resources
● Point E represents combinations that cannot be possible due to the lack of resources
that can accomplish it.

The law of Demand and Supply

- Economics is the social science which deals

Efficient Allocation- represent the concept of trade-off

- Wherein a person is assumed to make rational choices that would result or yield the
highest amount of happiness(utility) or satisfaction
- Choosing the lowest opportunity cost(the best choice na di napili)

Unlimited needs and wants- represent the concept of demand

Demand- amounts of products that consumers are willing and able to buy
- Demand schedule- tabular form
- Demand curve- graphical representation
- Demand Funcition- equation
Market Demand- the demand for the whole market. Like a demand schedule but has 3 buyers
and total quantity demanded per pric
Price- Qd P1 - Qd P2- Qd P3- Total Qd

Law of Demand: thinking from a buyers perspective

- As the price goes up, quantity demand goes down *ceteris paribus( all
thing are equal)
- Indirect relationship between price and quantity
- Explanation:
→ price act as an obstacle to buyers- price always indicates the quantity demanded, each person
has a fixed amount of money, so as price goes up, the less they can buy.
→ law of diminishing marginal utility(additional happiness)- the more you consume a
good, the less happy you gain at a certain point
→ income effect and substitution effect
a. Income effect- change in income means a change in demand; more income
more goods you can buy
b. Substitution effect- Finding substitute item that costs less so you can buy more
with the same income
Independent variable- does not change; Price
Dependent variable- depends on the independent variable; Quantity demanded

The Demand Function

Qd=-bP +a or y=mx+b (slope intercept function)
- Y intercept is the value of y when the x is zero
- In Qd -b is negative because of the inverse relationship while a is the Quantity
demanded when the price is zero.
Example: Qd=100-4P. 100 is the y-intercept; -4 is the; P is the price

How to create the demand curve:

0- point of origin
P- price
Qd- quantity demanded
D- demand curve
A, B, C...Z- points on the demand curve
Movement- moving from one point to another in the same demand curve
1. Always devel everything
2.

Changes in demand:
1. Movement- point moves along the line of the demand curve. Change in price causes the
amount of quantity demanded
2. Shifting- Demand curve moves left or right. No change in price but the is a change in
demand curve
Non-price determinant of demands(shifter)- factors that affect demands not based on price
- preference/taste- because of ppl tastes and pref, the demand can shift left or right. This
is dependent on the availability of other similar products.
- Number of buyers- increase in buyers means increase in Qd. Decrease in buyers means
decrease in Qd.
- Income- affect and always show both graphs for superior goods( goods u consume
more if income increases but consume less if income decreases) and inferior
goods(goods that u consume more if income decreases but consume less if income
increases)
- Price related goods
→ substitutes are goods that u consume alternatively
If product A changes in prices(movement), product B increase in demand via
shifting
→ Complements are goods that are only useful or bought if another item is bought; goods that
you consume together
If product A that is connected to product B increase price(movement), product b
demands changes( shift)
- Customer expectations- Ex. If expected na babagyo bukas increase and demand
ngayon.

Limited goods and services- represnts the concept of supply;

Supply- is the various amounts of a product that producers are willing and able to make
available for sale at each of series of possible prices during a specific period;
perspective of seller

Law of Supply
- Dictates as Price of goods increase, quantity supplied also increases. Ceteris Paribus
(all other thing being equal)
- Direct relationship between price and quantity
- Higher pricer, more revenue, more desire to generate profit, more supplied created
- Price is still the independent variable

Ways to represent supply

- Supply schedule
- Supply curve
- Supply function

The Supply Function

Qs= bP + a or y=mx+b (slope intercept function)
- Y intercept is the value of y when the x is zero
- In Qs b is positive because of the direct relationship of Qs and Price. While a is the
Quantity suplliedwhen the price is zero.
Example: Qs=23+4P. 100 is the y-intercept; -4 is the; P is the price

Movement and shifting in supply is simple the same. Movement- as price changes, Qs moves
along the supply curve. Shifting is affected by non price determinants.
Non-Price Determinants of Supply(shifters)
- Resource Prices- As it increases, the less quantity supplied. In terms of budget, the
more u expend per supply, the less supply can be created. But a decrease in resource
prices increases the quantity supplied
- Technology- better equipment or tools, more quantity can be produced and supplied.
Like fertilizer increase the amount of yield of crops.
- Taxes and Subsidies- people respond to incentives(positive and negative)
a. Taxes- government negative incentives; can act as a cost in production; is also a
way to prevent an increase in supplies in some products like tobacco;
b. Subsidies- government positive incentives; incentives by the government for u to
produce more. Ex. gov gives u money,
- Price of other Goods/ related goods- as a seller u dont adjust for the buyers, the buyers
adjust to you.
a. Substitute- If substitute(item B) increase in price(move right), means more
revenue per item substitute, so seller would prefer to sell more of it. So supply for
item A would then decrease(shift left) to make way for an increase in production
of Item B. (be in the mindset of a supplier na magbebenta ng item a and b)
b. Complement-
- Producer Expectations- expected future events that will affect the supply of goods.
- Number of Seller- dont really concern with competition. So more sellers, more QS. less
Sellers, less QS.

“Allways try to analyze for today, unless asked otherwise”

Market Equilibrium
- Buyers want to buy at lower price while sellers want to sell in higher price.
- ME is where both buyers and sellers agree as to the price off the good, how much is the
amount that would be demanded by buyers and how much supply
- Elements(?) of Market equilibrium
a. Equilibrium price- optimal price for both sellers and buyers. Where price is not
too low for the seller and not to high for the buyer
b. Equilibrium quantity- optimal amount that the sellers are willing to supply and the
amount the buyers are willing to buy
- ME expressed in:
a. Functional- Qd=Qs or -bP+a= bP+a
b. Graphical- at note
- Complex cases- discusses the graphical form:
- Movement: Changes in price have no effect on the equilibrium. Even if price
decreases or increases, they eventually return to equilibrium
 - Surplus and Shortage
a. Surplus- High Supply, low demand; above equilibrium
b. Shortages- High demand, low supply; below equilibrium
- Shifting: affects equilibrium price and quantity. If either Demand curve or supply
curve shifts left, more/less Qe and/or Pe. While If they move right, more or less Qe
and/or Pe.
a. For shift in demand curve only
- Shift left
- Shift right
b. For shift in supply curve only
- Shift left
- Shift right
c. For shift in both demand and supply curve
- Dc left, Sc left
- Dc right, Sc right
- Dc left, Sc right
- Dc right, Sc lef

Price Controls- government interventions that is done with usually good intentions; distortions
that does not allow the market to reach market equilibrium, so it does not reflect the true cost of
goods and services
a. Price Floor- minimum amount of price that a seller can set price;
- usually favors the sellers like farmers;
- imposed above equilibrium price

b. Price Ceiling- maximum amount of price a seller can sell;

- To protect consumers
- Usually imposed below equilibrium price

Inelastic demand- however price changes demand is still the same

Lizes fair/invisible hand- even if walang gov, the market will still return to normal

-------------------------------Lesson 3 -------------------------------

Elasticity
- The measure of how much buyers and sellers respond to changes in market conditions,
or the variables that effect demand and supply
- How sensitive/ reactive are buyers and sellers to the changers

Price Elasticity of Demand

- Measures how much quantity Demanded Response to a change in Price
- Formula:
 | |
Qd ❑
2 −Qd 1 P❑1 + P❑2
❑ ❑∗
P❑2 −P❑1 2
1. Midpoint formula: e d =
Qd❑1 +Qd❑2
2
2. Elasticity ewan
3. dunno

Degrees of Elasticity
1. Elastic- demand and supply may be described as Elastic if Qs and Qd responds
substantially; ep>1
2. Inelastic- demand and supply may be described as Elastic if Qs and Qd responds
slightly; ep<1
3. Unit Elastic- demand and supply may be described as Elastic if Qs and Qd are equal;
ep=1

Income Elasticity
- Measures how much quantity Demanded Response to a change in Income
- Positive Elasticity means its for an Superior good
- Negative Elasticity is a for a Inferior good

| |
❑
Qd 2 −Qd 1 I ❑1 + I ❑2
∗
I ❑❑2 −I ❑❑
1
2
- Formula: e I =
Qd ❑1 +Qd ❑2
2

Cross Price Elasticity of Demand

- Measures how much the d changes with respect to the price of its related goods
- If e c is positive then it is a substitute good
- If e c is negative then it is a complement goods

| |
❑
Qdx 2−Qd x 1 P ❑ y1 + P❑ y 2
❑ ❑ ∗
P❑ y 2−P❑ y 1 2
- Formula e c =
Qd❑ x1 +Qd❑ x2
2

Price Elasticity of supply

- Measures how much Qs changes with respect to change in price

| |
Qs❑
2 −Qs 1 P❑1 + P❑2
❑ ❑∗
P❑2 −P❑1 2
- Formula e s=
Qs❑1+ Qs❑2
2
 -------------------------------Lesson 4 -------------------------------

Utility- the satisfaction one gets from consuming a good or service.

- Not the same as usefulness-- somehow brings happiness even if not useful
- Subjective- depends from person to person
- Difficult to quantify- because it is subjective
- types:
- Nomina utility- assigned numbers
- Ordinal utility- basing the order from increasing to decreasing utility

Law of Diminishing Marginal Utility

- Marginal means additional
- As consumption of a good or service increases, the marginal utility obtained from each
additional unit of a good or service decreases
- Explains downward sloping demand curve- due to the fact that pag bumaba ang presyo
di ka continuosly bumibili. So dminishing utility. Then bibili ka ulit pag

Total Utility and Marginal Utility

- Util is one unit of satisfaction or pleasure
- Total utility is the total amount of satisfaction
- Formula:
TU ❑2 −TU 1
- MU =
Q ❑❑ ❑
2 −Q ❑1

Graphin total and marginal Utility

- At 0 consumption u have 0 Total Utility
- As you increase Total utility increases, but marginal utility decreases
- But at one point, there are no more changes in Total Utility, then it starts to decreases
- A graph for total utility increases then decreases. While a graph for marginal utility is just
downwards.

Theory of consumer behavior

- Rational behavior
- Is the consumption
- Budget constraint
- At any point in time the consumer has a limited, fixed amount of money to spend.
- Scarcity exists
- In graph form
- There are 2 goods(good x and good y), you only have a fixed income,
and there is a downslope line called the Budget line
- The budget line represents the different combinations of good x and good
y subject to your budget constraint
Utility Maximizing Rule
- Utility maximizing rule- the consumer equilibrium
- Consumer allocated his or her income so that the last dolla spent on each
product yields the same amount of extra(marginal) utility
- Formula: (MU of goodx/Product of goodx)=(MU of good y/Product of good y)
- At the table, find the optimal combination, that uses all your income t
Budget Line
-
Indifference Curve

-------------------------------Lesson 4 -------------------------------
The 4 market structures:
- Theory of producers
Perfect Competition
- In the Market equilibrium Treat this as a market equilibrium where producers and
customers have concontrol on the price. If seller increases price, lilipat si customers.
- Same type of good, easily substitutable.
- Avg rev = proce of the good. Bawal lumampas ang avg rec sa price of the good.
- A free market
- In the real world this does not exits. This is more of a theory or concept of heaven. We
cannot realize it on earth because everyone is happy.
Monopoly
- Sole seller and no substitutes
- Barrier of entryL masyadong mahal and pagpasok
- Meralco is natural monopoly/ Nagging monopoly nlnag sya over time.
- Monopoly resource: sya lang ang may access/ capacity to access that
resource.
- Gov. Regulation: to prevent the monopoly from exploiting the makret. Ike
antitrust laws.
- Production process:
Monopolistic Competition
- Perfect competition+monopoly over a product.
- Similar products but not the same
- Product differentiation- important
- Companies will keep trying to bring something unique, because that is the goal of the
company.
Oligopoly
- SOmewhat similar to monopoly pero may at lest afew no. of sellers
- The barrier to entry: mahal ang pagpasok.
- Action of one seller in one market can affect all
 - Game theory: people work and do things in favor of them.
- Collution: nagtutulong tulongan sila. If mag promo si cebu pacifi, promo din si Phil. Air
Lines. They need to collude para maximize profits. Pagandahan nlang sila ng benefits.
- Collusive- if nagkakasundo sundo sila. Cooperatte with one another.
- Oligopolu is interesting kasi sa possibility ng dayaan, pero madaming consequences din.
If ung isa di sumunod sa usapan, madaming cinseqences dun.
Finals:
Elasticity,