Economic system
MARKET EQUILIBRIUM
Traditional Economy- decisions are based on
traditions and practices passed from generations to
generations.
- Primitive and backward civilizations
( tribes)
- Practice of barter in the trading system.
Command Economy- authoritative system wherein
decision-making is centralized in the government of a
planning committee.
.
- Dictatorial
- Socialist
- Communist
Market Economy- most democratic form of
government. Decisions on what goods to produce are
determined based on demand and supply and prices
depend on people's preferences and willingness to
pay in the market.
UTILITY AND APPLICATION OF APPLIED
ECONOMICS TO SOLVE ECONOMIC ISSUES
AND PROBLEMS
Basic Economic Problems of the country
What to produce? The society must decide the type
and quantity of goods/services to be produced to meet
the immediate needs of the society.
How to produce? The production of goods or
services needs effective methods and processes The
production requires more labor and capital
investment.
For whom to produce? The society would always
consider the immediate beneficiary of the goods.
What provisions/laws should be made for
economic growth? A society uses all its resources
for current consumption. If a society uses all its
resources, then its production capacity will not
increase. The society must also decide on the part of
the resources to be saved for future progress.
MARKET DEMAND, MARKET SUPPLY, AND
Demand- amount of goods or service consumers are
willing to purchase to each price. If customer cannot
pay for it, there is no effective demand
Price- is what the buyer pays for a unit of the specific
good or services.
Quantity Demanded- total number of units
purchased at that price.
Law of supply and demand
- Explains the interaction between the sellers
of a product and the buyers
The law of demand
- If all other factors remain equal, the higher
the price of a good, the fewer people will
demand that good. “The higher the price, the
lower the quantity demanded” and vice
versa
Factors affecting demand
a. Income of buyers
b. Number of potential buyers
c. Preferences
d. Complementary products
The law of supply
- Demonstrates the quantities that will be sold
at a given price. The higher the price, the
higher the quantity supplied and vice versa.
- Producers will supply more at a higher price
because selling at higher quantity at a higher
price increases revenue
Factors affecting supply
a. Production capacity
b. Production costs such as labor and materials
c. The numbers of competitor
d. Ancillary factors such as e.) material
availability, f.) weather, and
g. Reliability of supply chains
How do supply and demand create an equilibrium
price?
Equilibrium price or market- clearing price is the
price at which the producer can sell all the units he
wants to produce and the buyers can buy all the units
he wants.

MARKET PRICING ON MAKING ECONOMIC

DECISIONS

The market pricing system

- A shortage is when there is an excess
demand for the quantity supplied. While
surplus is excess in supply

Price system in a market economy

Demand is the willingness of the consumers to buy
goods and services
Purchasing Power- willingness to buy goods and
services should be accompanied by the ability to buy