Economics and Other Related

Laws
What is Economics?

 Oikonomia: Greek word meaning “management of the

household”
 Is a Social Science concerned with how individuals and
society choose to use its scarce resources to achieve
maximum satisfaction of human material wants.
 Economics is the social science that studies the production,
distribution, and consumption of goods and services.
TRADE-OFF
a situation that involves losing one quality or aspect of
something in return for gaining another quality or aspect.
More colloquially, if one thing increases, some other thing
must decrease.

OPPORTUNITY COST
the loss of potential gain from other alternatives when one
alternative is chosen.
Why study economics?
 To learn a new way of thinking
 To understand society
 To understand global affairs
 To become an informed voters
Two major Division of Economics

 Microeconomics: the branch of economics that

examines the functioning of individual industries
and the behavior of individual decision-making
units.
 Macroeconomics: the branch of economics that
examines the economic behavior of aggregates.
Looks at the economy as a whole.
Basic Economic Problems
 What to produce?
 How to produce?
 Who will get what is produced?
Economic Systems
 Command Economy: the basic economics questions are
answered by a central agency. Through the combination
of government ownership of state enterprise and central
planning, the government either directly or indirectly,
sets output targets, income and prices
 Open-market/free market/ laisez-faire economy: individuals
and firms pursue their own self-interest without any
central direction or regulation.
 Mixed system: market and government co-exist
Production: the process of making goods and services to
satisfy human material wants
Factors of Production
 Land: includes all resources found on land, on the sea.
 Labor: it can be define as any kind of work, either mental or
manual in nature, which has the sole purpose of receiving
rewards
 Capital: refers to the stock of goods made by the people to
help them in the production of goods and services.
 Entrepreneurship: coordinates all the factors of production to
produce goods and services.

Market: Is a mechanism by which the buyers and
sellers interact to determine both price and quantity
of goods and services
Demand: Is a market expression of the cumulative
willingness and ability of the household to buy
different amount of a product at different prices.
Law of Demand: Ceteris paribus, when price increase,
quantity demanded decrease, when price decrease,
quantity demanded increase. Relationship is inversely
proportional or negative
Factors of Demand
 Changes in income
 Tastes and Preferences
 Price of substitute goods (replacement)
 Price of complimentary goods
 Expectation of future price
 expectation of future income
 Population
 Seasonality
 Supply: Is a market expression of the cumulative
willingness and ability of all firms to produce different
amount of a product at different prices.

 Law of Supply: ceteris paribus, when price increase,

quantity supply increase, when price decrease, quantity
supply decrease
Factors of Supply
 Cost of production
 Price of related goods
 No. of firms in the industry
 Seasonality (weather condition)
 Expectation of future price
Market Equilibrium
 The objective of the market is to reach a state in which the
quantity of goods that producers are willing and able to
supply and the quantity of goods that a buyers are willing and
able to buy are equal at the same price
 Disequilibrium Conditions
Shortage
Surplus
Objectives of Macroeconomics

 Sustained growth
 Stability of prices
Measuring Growth
National Income Account
 Gross National Product (GNP)
The market value of all the goods and services produced by
the citizens of a nation in a given period

 Gross Domestic Product (GDP)

The market value of all the goods and services produced in
the country
Inflation: Is a sustained and general increase in
prices in all or nearly all the markets in the
economy
Types of Inflation
 Demand-pull inflation – state of excess aggregate
demand.
 Cost push inflation – cause by a significant and
continued increase in some cost of production
(labor, raw materials, profit)
Effects of Inflation
 Decrease in the value of money (Purchasing Power of the
Peso)
Inflation losers
 Fixed salary worker and retirees living on pension
 Creditors and savers
Inflation gainers
 Speculators
 People with flexible income
 Debtors
Government Role in Combating
Inflation

 Fiscal Policy – is the manipulation of

government spending and imposition of taxes
 Monetary Policy – manipulation of savings and
investment of the financial sector to achieve the twin
objectives of the macroeconomy ( sustained growth and
stability of prices ).
Central Bank of the Philippines – Considered as bank
of all banks and tasked to supervise and regulate all banks
and other financial institutions in the country.
TAXATION
 It is an inherent power of the state to impose and collect
revenues to defray the necessary expenses of the
government.
 It is compulsory contribution imposed by a public authority
irrespective of the amount of services rendered to the payer
in return.
 It is compulsory level on private individuals and organization
by the government to raise revenue to finance expenditure
on public goods and services.
Purpose of Taxation

 To collect revenue for the government

 To redistribute income
 To combat inflation
 To check consumption of goods which are considered
undesirable
 To protect local infant industries
 To improve unfavorable terms of trade
 To reallocate resources
Classifications of Tax System
 Progressive Income Tax – the Higher the income the
higher the tax rate.
 Proportional Tax – The tax rate is constant and unaffected
by the level of income.
 Regressive Tax – The higher the income the lower the tax
rate.
Types of Taxes

 Direct Taxes
 The burden cannot be shifted to the third party
 Direct taxes are based on income and wealth
 In most cases, direct taxes are progressive in nature
 Direct taxes are compulsory in nature
 Examples: income tax, residence tax, real state, immigration
tax, estate/gift/inheritance tax.
 Indirect Taxes
 The tax burden can be shifted to the third party
 Indirect taxes are based on expenditure and consumption
 Indirect taxes are optional in the sense that they can be avoided
 Examples: sales tax, import tax, VAT/EVAT
Characteristics of a Sound Tax System
 Efficiency – must generated revenue greater than the
amount of money the government must spend to collect
taxes.
 Equity – individual and groups belonging to the same
income bracket must be taxed equally while belonging to
different income groups must be taxed differently.
 Convenience – to set up measures and procedures that will
make it more convenient for taxpayers to pay.
 Stability – tax system must not be too often or it will
encourage tax payers to withhold tax payment until a more
preferred system is put in place
Thank you!