Basic Microeconomics

Microeconomics, analyzes the choices and actions of the individual parts of the economy – household, firms and the government. Microeconomics, which examines the behavior of basic elements in the economy, including individuals’ markets and agents such as consumer and firms, buyers and sellers. Microeconomics, aggregates of quality demanded by buyers and quantity supplied by sellers at each possible price per unit. It weaves these together to describe how the market may reach equilibrium as to price and quantity or respond to market changes overtime. Such analysis includes the theory of supply and demand. It also examines market structures such as perfect competition and monopoly for implications as to behavior and economic sufficiency.

The Law of Supply and Demand
The theory of supply and demand is an organizing principle for explaining how prices coordinate the amounts produced and consumed.

The Theory of Demand - describes individual consumers as rationally choosing the most
preferred quantity of each good, given income, prices, tastes and etc.

The Meaning of Demand

Demand is the relation of the quantity that all buyers would be prepared to purchase at each unit price of the good. Demand is often represented by a table or a graph showing price and quality demanded.

The Law of Demand

States that, in general, price and quality demanded in a given market are inversely related. That is, the higher the price of product, the less of it people would be prepared to buy of it (other things unchanged).

The Theory of Supply

Producers, for example business firms hypothesized to be profitmaximizers, meaning that they attempt to produce and supply the amount of goods that will bring them the highest profit.

The Meaning of Supply

Supply is the relation between the price of a good and the quantity supplied. It may be represented as a table or graph relating price and quantity supplied.

The Law of Supply

Supply is typically represented as a directly proportional relation between price and quality supplied (other things unchanged). That is, the higher the price makes it profitable to increase production/demand.

Competition among the Few and the Many
The Public Welfare is usually best protected if there are many sellers competing for the limited purchasing power of the consumer. The Law of Supply and Demand states that the equilibrium point is where quantity supplied and equals quantity demanded and where both buyers and sellers and quality satisfied.

Competition among the Few
A most controversial move of the Marcos Administration during the second half of the seventies was the establishment of the monopolies in sugar, coconut and grains. For the economic point of view, such monopolies were completely unwarranted. At best the government could have fostered an atmosphere of competition among few. Most of the industries in the Philippines are characterized by competition among a few or oligopoly, a type of market structure where there are only few firms competing within a given industry. Equilirium -occurs when quantity supplied equals quantity demanded, the intersection of the supply and demand curves.

Competition among the Many
Pure Competition A market is said to be purely competitive when it has these five characteristics: 1. the output of all firms are indistinguishable from products of other existing firms (Homogeneity) 2. there are large numbers of sellers and buyers of a commodity (Plurality) 3. there is a perfect mobility of firms and resources (Mobility) 4. consumers, resource owner, and firms have full knowledge of present and future price and cost (Full Knowledge) 5. No artificial obstacles prevent new firms from entering or existing firms from leaving the industry (Free Entry and Exit) •

Monetary Policy is one of the main types of government macroeconomic policy. Monetary is the deliberate control of the money supply, and, in some cases, credit conditions for the purpose of achieving macroeconomics goals. The control of money supply is normally vested in the monetary authority known as the Central Bank. The Central Bank tries to influence the economy by operating on such monetary variables as the quantity of money and the rate of interest.

Central Bank

Central Bank is the central monetary authority which provides policy direction in the areas of money, credit, and banking. It also supervises the operation of banks and regulates the activities of non-bank financial institutions or intermediaries. Before, commercial banks were supervised by the Bureau of Treasury and later, by the Bureau of Banking. Central Bank was created through Republic Act No. 265, otherwise known as the “The Central Bank Act” and took effect on June 15, 1948. it was opened for business in 1949 wherein Miguel Cuaderno was the first governor. During the time of President Ramos, he signed Republic Act No. 7563 into law on June 10, 1993, otherwise known as the “New Central Act”, upon which the said law established and organized the “Bangko Sentral ng Pilipinas” or the “BSP”. Objectives of the Bangko Sentral ng Pilipinas (BSP) or Central Bank: 1. to maintain monetary stability in the Philippines; 2. to preserve the international value of the peso and the convertibility of the peso into other freely convertible currencies; and 3. to promote a rising level of production, employment, and real income in the Philippines.

Functions of a Central Bank

Central Banks of different nations share major functions. Enumerated below are some of the most important: Bank of Currency Issue. The BSP is the sole institution that has the power to print and issue paper money and mints the coins. Aside from these, the BSP also provides cash such as checks that the public will accept for various transactions. Acts as Government Banker Agent and Adviser. The BSP may conduct the banking account of agencies and instrumentalities of government. It also provides precious foreign exchange to the government to carry out its importing activities and servicing debt. The BSP also gives advice to the government by giving information on matters of monetary and price

development here and abroad and the relation of public expenditures with monetary requirements. Banker’s Bank. The BSP also service different banks by maintaining accounts for other banks. But its main function is to be the custodian of bank reserves and serve as a clearing house for other banks. If other banks do this function, the BSP is monitoring it closely. Leader of Last Resort. In case a bank faces a problem on its liquidity, the BSP can provide loan facilities to that particular bank. The BSP would extend assistance to a bank in desperate need of cash provided the bank would oblige to follow the terms and condition laid down by the BSP sus as an overhaul on the bank’s management. Custodian of the Country’s Foreign Exchange Reserves. The BSP is the keeper of our international reserves. This function has evolved from a mere note issuing function to caretaker of reserves. International reserves include holdings of gold and other major currencies such as U.S. dollar, Japanese yen and other euro.

Administrati on of Economic System (SSC 005) Group 2
Flores, Mary Adelita Boter, Manilyn Berol, John Gerald Bautista, Jaybee BPA 3-B Dr. Sigeldina Bañaga Professor-in-Charge

Administrati on of Economic System (SSC 005) Group 3
Gueta, Janzen Mark Bravo, Jerwin Cumpa, Mark Anthony Dela Cruz, Ricky Jun BPA 3-B Dr. Sigeldina Bañaga Professor-in-Charge

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