BE313 – Managerial Economics ECONOMICS

- Branch of knowledge concerned with the

production, consumption, and transfer of
wealth.
- Social science that studies how individuals,
governments, firms and nations make
choices on allocating scarce resources to
satisfy their unlimited wants.
Macroeconomics
- Study of large-scale economic systems.
- National income, employment, and inflation
of nation as a whole.
Microeconomics
Microeconomics
- Study of particular aspects of an economy.
- About how individuals make economic
decisions.

2 Methods of Economics
1. POSITIVE ECONOMICS
- Do not have to be correct, but they
must be able to be tested and
proved or disproved.
- An economic analysis that
considers economic conditions “as
they are”, or considers economics
“as it is”
- Uses objective or scientific
explanation in analyzing the
3 Leakages different transactions in the
economy.
1. Savings - The statement, “government-
2. Tax provided healthcare increases
3. Import earrings public expenditures”
- It is a public economic statement,
Through injections
because it can be proved or
1. Investment disproved by examining healthcare
2. Government expenditures spending data in countries.
3. Export earnings
2. NORMATIVE ECONOMICS
- Statements are opinion based, so
they cannot be proved or disproved.
- The statement, “government should
provide basic healthcare to all
citizens”
- There is no way to prove whether
government “should” provide
healthcare; this statement is based
on opinions about the role of
government in individuals’ lives, the
importance of healthcare and who
should pay for it.
ECONOMIC RESOURCES Specialization
C - Capial - Skills of the person befitting their job.
E - Entrepreneurship Exchange
L - Labor - Example: fare=destination
L – Land
How economics help to manage scarcity?
Production Possibilities Frontier (PPF) a) Economic growth
b) Reduce our wants
- The alternative combinations of two goods c) Use out existing resources wisely
that an economy can produce with given
resources and technology.
- Production Possibilities Curve (PPC)
5 Economic Questions
represents the boundary or frontier of the
economy’s production capabilities. 1. WHAT to produce
- Producing on the curve means resources 2. HOW MUCH to produce
are fully employed, while producing inside 3. HOW to produce it
the curve means resources are 4. FOR WHOM to produce
unemployed. 5. WHO makes these decisions?

TYPES OF ECONOMIC SYSTEMS

Opportunity Cost
- Refers to the value forgone in order to
make one particular investment instead of
another.
- All about the most basic of economic
concepts: trade-offs – compromise
Scarcity
- Is the basic and central economic problem
confronting every society.
- Heart of the study of economics and the
reason behind its establishment
- Authors have defined scarcity in various
ways – some of which are complexly
stated.
Trade-offs
- Value of your sacrifice
1. TRADITIONAL ECONOMY
- Basically, a subsistence economy
- A family produces goods only for its
consumption.
- Decisions on what, how, how much, and for
whom to produce are made by the family
head, in accordance with the traditional
means of production.
2. COMMAND ECONOMY (Communism)
- Opposite of capitalism where the economic
system is based on communal ownership,
and the means of production is owned and
managed by the state.
- Command economy or classless society
3. MARKET ECONOMY (Capitalism)
- Economic system where the means of
production are owned and managed by
private individuals or corporation, rather
than the state or the workers.
Characteristics
1. Profit motive
2. Freedom to compete
3. Private ownership of property
4. Limited role of government
5. Presence of religion
6. Economic freedom

Comparative advantage
- Availability of using the resources
4. MIXED ECONOMY Formula:
- Mixture of market system and the 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑌 𝑜𝑟 𝑟𝑖𝑠𝑒
=
command system. 𝐶ℎ𝑎𝑛𝑔𝑒 𝑖𝑛 𝑋 𝑜𝑟 𝑟𝑢𝑛
- The Philippine economy is described as a
mixed economy since it applies mixture of Where:
three forms of decision-making 𝑛𝑒𝑤𝑌 − 𝑂𝑙𝑑𝑌 𝑃2 − 𝑃1
- It is more market-oriented rather than = =
𝑛𝑒𝑤𝑋 − 𝑜𝑙𝑑𝑋 𝑄2 − 𝑄1
command or traditional

DEMAND THEORY
DEMAND
- Consumer’s desire and willingness to pay
a price for a specific good or service.
2 Types of Demand
1. Absolute Demand
- Actual buying of goods and
services EXAMPLE:
2. Potential Demand
- Desire to buy but can’t afford Point B
275 − 280 −5
𝑆𝑙𝑜𝑝𝑒 𝐷𝑏 = = = −0.5
110 − 100 10
DEMAND SCHEDULE
- Table of the quantity demanded of a good
3 WAYS TO ANALYZE THE RELATIONSIP OF
at different price levels
PRICE AND DEMAND
DEMAND CURVE
1. Demand Schedule
- Graph showing how the demand for a
2. Demand Curve
commodity or service varies with changes
in its price. 3. Slope of Demand

NON-PRICE DETERMINANTS OF DEMAND

1. Income
- If income increases, it increases the
buying power, moves the curve to the
right.
- The amount of money or its equivalent
received during a period of time in
exchange for labor or services, from the
sale of goods or property, or as profit
from financial investments. People buy
more goods and services when their
income increases, but will buy less if
SLOPE OF DEMAND their income decreases, thus affecting
the demand for goods and services
- Change in the variable on the y-axis
divided by the change in the variable on the
x-axis.
2. Population 6. Special influence
- If population increases, it increases - Weather or season
demand, thus the curve moves to the - There is certain development that
right influence D for certain goods and
- More people mean more demand for services.
goods and services. There are more
buyers in the city stores than in the
A CHANGE IN DEMAND
barrio stores. Conversely, less people,
means less demand for goods and - Caused by a change in one of the five
services demand determinant and is indicated by a
shift of the demand curve.
3. Tastes and preferences
- If the consumer’s T&P decreases, it
decreases demand, thus, moves to
curve to the left.
- Demand for goods and services
increases when people like or prefer
them. Such tastes and preferences are
greatly influenced by advertisement or
fashion. On the other hand, if a certain
product is out of fashion, the demand
for it decreases.

4. Price expectations A CHANGE IN QUANTITY DEMANDED

- It was announced that the price of rice
will increase by 10 pesos in 3 days, - Caused by a change in the demand price
within those 3 days, the demand will and is indicated by a movement along the
increase, thus moving the curve to the demand curve from one point to another.
right.
- When people expect the prices esp. the
basic commodities like rice, soap,
cooking oil or sugar to increase
tomorrow or next week, they will buy
more goods. In the same manner, they
decrease their demand for each
product if they expect price to decline
tomorrow or in a few days. The reason
for such consumer’s behavior is to
economize.

5. Prices of related goods

- When the prices of related goods
increases, people tends to buy
substitute products.
- Ex. If the price of Colgate increases,
people buy less Colgate and more of
close substitute like Close-up, etc. This
means that if the price of goods
increases, the demand of other goods
increases.
Colgate – P8 decides to increase price to P10
Demand will decrease
Hapee – P8
Demand will increase
LAW OF SUPPLY
SUPPLY
- Amount of some product that producers are
willing and able to sell at a given price.
- Fundamental principle of economic theory
which states that, all else equal, an
increase in price results in an increase in
quantity supplied.
- Direct relationship between price and
quantity: quantities respond in the same
direction as price changes.
SUPPLY SCHEDULE DETERMINANTS OF SUPPLY
- Tabular depiction of the relationship a) Number of seller
between price and quantity supplied.

b) Prices of resources
SUPPLY CURVE
- Graphic representation of the relationship
c) Taxes and subsidies
between product price and quantity of
product that a seller is willing and able to
supply.
d) Technology

e) Supplier’s expectation

f) Prices of related goods

g) Prices of joint products

SLOPE
- Change in the variable on the y-axis
divided by the change in the variable on the
x-axis.
SHIFTS IN SUPPLY CURVE
- Position of a supply curve will change
following a change in one or more of the
underlying determinants of supply.
- Example, a change in costs, such as a
change in labour or raw material costs, will
shift the position of the supply curve.
CHANGES IN QUANTITY SUPPLIED
- Refers to the movements of points along
the given supply curve. It happens when
the price of a good under consideration
changes.
CHANGES IN SUPPLY
- It refers to either a movement to the right or
to the left movement or shift of the entire
supply curve.
MARKET EQUILIBRIUM
Market
- Interaction of buyers and sellers.

RISING COSTS Market Equilibrium

- If costs rise, less can be produced at any - When the quantity demanded equals, the
given price, and the supply curve will shift quantity supplied – when buyers’ and
to the left. sellers’ plans are consistent.
Equilibrium Price
- The price at which the quantity demanded
equals the quantity supplied.
Equilibrium Quantity
- The quantity bought and sold at the
equilibrium price.
PRICE: A Market’s Automatic Regulator PRICE FLOOR
Law of Market Forces - Price set by the government that is higher
- When there is a shortage, the price rises. than the equilibrium level.
- When there is a surplus, the price falls.
Surplus / Excess Supply PRICE CEILING
- Quantity supplied exceeds the quantity - Price set below the equilibrium price.
demanded.
Shortage / Excess Demand
- Quantity demanded exceeds the quantity
supplied.