ECONOMICS

Economics
It is a study of how
individuals and society
generally make choices
that involve the use of
scarce resources from
among alternative wants
that need to be satisfied.
the study of mankind in
the ordinary business of
life
the study of things that
we have to do with mans
material welfare
the study of the
management of scarce
resources and their use
Economics is concerned with all of
the following:
a. The behavior of individuals or group
of individuals when managing the
use of their available resources.
b. The use of resources either for
consumption (the satisfaction of
human wants) or for production (the
creation of material goods)
c. The values- or the prices- of
resources as determined by the
relative degree of their scarcity and
the intensity of wants for them
through a process of interaction
among the users and suppliers or
owners of those resources.
d. The improvement of the
standard of living over time,
or the process of economic
growth of output and
consumption.
e. The movement of output
and of prices over time
f. The distribution of income or
of output, in the present and
over time among the income
recipients or among those
THEORY
A theory may attempt to
predict as yet unobserved
facts.
A theory may become a
successful theory if its
prediction is confirmed by
actual observations, and
further, if no other theory or
explanations is found to be
consistent with those
One theory is that of
consumption and of
demand.
Another is the theory
of competition and of
the firm.
And theory on
employment and
another on the role of
Is economic a science?
Over several hundreds of years,
economics has developed into a
body of knowledge.
The economists began to
introduce rigorous methods of
inquiry that could be tested and
challenged by others in the field
using methods of inquiry that
are very varied in approaches.
Economics as a Social Science
Economics is a social
science.
It is concerned, like the
other social sciences,
with the study of
individuals, acting alone
or in groups.
Once, economics was
known as political
economy, a reference
to the fact that many
economic questions
have political and public
policy implications.
Economics may have an
advantage over other social
sciences as a scientific discipline
for two reasons:
First: The economic motives of
human beings may be observed
to occur in a regular, almost
persistent fashion that are also
more discernible or predictable.
Their economic decisions can be
tracked down through events
that register as the prices and
quantities of goods and services
Second: Those decisions are
recorded in statistics.
Within the firms or households,
these can be tracked down as
expenses or quantities used.
Governments and business
build their own statistics, on
quantities of outputs, on
amounts traded in commerce,
on prices and costs, and so on.
Normative versus Scientific
Statements
a. (Urban Resident): The price of
rice ought to be low to improve
the well-being of workers.
b. (Farmer): The price of rice
should be high enough to make
farmers prosperous.
c. After a good harvest, the price
of rice will fall. But after a bad
harvest, the price of rice will
increase.
Statements (a) and (b) are
based on the value judgments
of the persons speaking them.
Statement (a) is a sentiment
expressed by an urban dweller
who is not engaged in farming
as a livelihood.
Statement (b) is from a
farmers group, who, naturally,
seeks the well-being of farmers.
The statement (a compromise
of the first two statements) is
a value judgment, as well:
The price of rice ought to
balance the welfare of
consumers and farmers.
A statement based on a value
judgment is also known as a
normative statement.
Value judgments are
formed by many factors:
beliefs- whether they be
philosophical, religious,
cultural, or political
beliefs; self-interest; and
personal experience.
A value judgment is often
based on a personal belief
on what is proper or good
Statement (c) is a scientific
statement, also known as a
positive statement
It follows from the predictions
of the economic theory of
markets
A scientific statement can be
refuted.
To refute it requires an
alternative explanation through
an appeal to facts or theory.
Theory versus Practice
A theory is an attempt to explain
how particular events or
observations relate to one
another, usually explaining one
event as being caused by some
factors or events.
Without theory, there is only a
mass of meaningless events.
Therefore, theory and
obsevations are linked together.
A theory, therefore, must
explain what happens in
practice.
If it fails to do so, then
there must be an
alternative theory that can
better explain what
happens in practice.
Why Economic Problems Arise?
Fundamentally, human
being have many wants that
could be satisfied only at the
sacrifice of other wants or
resources.
In short, there is a price for
obtaining or satisfying those
wants: giving up some other
resource.
This is not the case with goods
that are plentiful and free.
To people living in the country,
the air is taken for granted
even though it is valuable to
living. It is because country air
is plentiful and no amount of
wanting it makes it relatively
more costly to people in the
country.
It is a free good there.
But tell that to the city
folk.
In some ways, the
scarcity of clean, fresh air
makes itself evident as a
scarce good in the big
crowded metropolis.
Given the extent of
environmental pollution.
The air and atmosphere in most
major cities have become full of
pollutants that are caused by
emissions from motor vehicles
and from factories. These fumes
dirty the air.
To get cleaner air, there is need
to use cleaner fuels that do not
give out serious pollutants.
The recommended fuel to be
used to clean the air emissions of
gasoline engines cost more.
In short, cleaner air
means higher costs.
They would have to use
more costly fuel.
Economics and Development
An understanding of economics
can improve ones appreciation
of the processes that can make
a country prosperous.
It can also lead to an awareness
about why some poor countries
fail to overcome their problems
and are trapped in poverty,
sometimes of their own making.
Economic Development
It is a process of change that
takes place in a country over
time, affecting its capacity to
improve its standard of living.
A measure of the standard of
living is the amount of output
that the economy produces
over time, and often this
translates into improved
incomes for the citizens.
Such changes affect many
aspects of a countrys
economic life: they raise
health standards, the
quality of life of the people,
and they surely improve
the level of material goods
that are within their
command to enjoy and use.
Terminologies of Development
One common terminology used
to set countries apart is to
determine whether they are
developed or industrial, or less
developed.
One such distinction- that
between developed and
developing countries- has
signaled the shift to terms that
eliminate such derisive
implications.
Countries: low-, middle-, and
high-income
Classifying countries by income
levels also provides another way
out of this terminological
dilemma.
Countries can range from very
high income to very low incomes,
then the classification using
high-, middle-, and low-income
countries has found greater favor
because it is simply descriptive.
Importance of Economics in
Nation-building
Knowledge of economic
principles is important in nation-
building.
Economics is means to a better
understanding of what needs to
be done more efficiently the
highest possible result at the
level of given resources.
Economics is a means toward
making sound decisions at all
levels- at the smallest economic
Institutions and
Development
Institutions are rules,
enforcement mechanisms, and
organizations that facilitate the
performance of economic activity.
They are the part of the behavior
norms that facilitates how we
manage scarce resources and
how we respond to changes in
economic conditions in the
market.
Standardization of weights,
measures, and currency, and
even expectations of behavior on
the part of those engaged in a
market transaction are part of
institutions.
When rules are clear and the
rights of all those in a
transaction are understood, and
the enforcement of the rules is
anticipated with confidence that
they will be realized, then the
transaction is stable and
A distinctive characteristic of
weak institutions is the
prevalence of excessive
regulations, where
enforcement of contracts is
weak, and there are many rules
of behavior among the
economic participants that
simply raise the transaction
costs of any market decisions.
Economic development is a
process that is often
characterized by the observation
that the economy becomes
increasingly dependent on the
operations and smooth
functioning of market
transactions.
In operational terms, it means
understanding what makes for
greater efficiency of markets.
SUMMARY
1. Economic is a scientific study
concerned with human behavior. It is
therefore a social science.
Its principal concern is with choices,
in the present and over time, on how
available resources can be used.
These choices cover the production of
commodities, their distribution in
terms of rewards to factors of
production and the consumption of
commodities.
It is a study concerned with mans
material welfare, now and in the
2. Economics has an
advantage over other social
sciences because the
economic behavior of human
beings occurs in a regularly
repeated fashion., and is
therefore predictable.
Secondly, there are available
economic statistics that can
be used as the basis of a lot
of theoretical and empirical
verification to help explain
3. Economic problems arise
because of the scarcity of
goods. Goods that are
valuable to life may be
abundant and for that
reason may become free
goods (like air).
Only scarce goods give
way to economic problems
of choice. Such choice is
4. Economics can be useful
in the understanding of
why countries grow or
remain poor.
- Economic development
refers to a complex process
describing changes in
economic and noneconomic
institutions, and also
includes those aspects
BASIC ECONOMIC PROBLEMS
The economic unit
An economic agent is a unit
in society (like an individual
or a firm) that confronts the
problem of how to allocate
resources to achieve what it
wants to do.
All economic agents solve an
economic problem by making
choices or decisions that will
An example of a basic
economic problem is
producing a good.
The individual or the
household is the smallest
economic unit.
The firm is the smallest
producing unit in an
economy.
The grouping of all
households in a country
constitutes the totality of
households (example: all
Filipino households).
The aggregation of all
business units in a country
constitutes the totality of
firms in that country.
Households can be
grouped by regions of one
country, or by age-group
of the head of family, or
by degree of material
possessions or income
(poor, rich, middle
income).
Firms can be grouped by
activity (rice farmers, shoe
For the household or the family,
the most basic problem concerns
the upkeep of the family.
The household undertakes a basic
decision on what mix of goods it
will use (consumption), on a given
budget, for the upkeep of the
family.
On the other hand, the firms main
problem is how to produce goods
at the cheapest possible cost.
BASIC DECISION PROBLEMS
All economic agents have to
make choices from among
alternative courses of actions.
Economics aim to analyze the
behavior of economic agents
how they decide what choices
to make, given the amount of
resources that they have
initially at their disposal.
Of all economic
activities, consumption
and production are the
most basic.
Consumption
Consumption is the
satisfaction of human wants.
It means using up goods to
satisfy those wants.
People eat to satisfy hunger.
They acquire means of
shelter to keep themselves
safe and healthy.
They use clothing for
comfort and other reasons.
From the viewpoint of those
charged with the
responsibility of maintaining
the household, the objective
is to keep the family
members healthy, happy and
secure.
Consumption is always
achieved at the cost of the
use of resources.
Governments also have
consumption decisions to make.
The government has to incur
expenditures in order to keep
performing its functions (to hire
government workers, to pay for
the purchase of materials like
office supplies, to provide books
for schools, medical supplies for
hospitals and so on).
Production
Production is the creation of
goods.
To make goods, resources
have to be used.
The primary factors of
production are labor, capital,
and land.
There are also secondary
inputs that are used in
Labor is the amount of
services rendered by
people in gainful
economic activity (that
is, while employed in a
production process).
Capital represents
machinery and
equipment goods that
are by themselves
manufactured which
are employed in the
process of production.
Land represents the
contribution of land
services that are used in
production the
productive powers of the
soil in agriculture, and
land which serves as
factory sites in industry.
Distribution
Distribution refers to the sharing
of the output among the
resources used in production.
Sometimes also referred to as
income distribution, the scope of
this area of concern covers the
manner of dividing the output of
production among labor, owners
of capital, business management,
and owners of other factors of
production.
Exchange of Goods and
Services
The following words are
interchangeable: exchange, commerce
or trade.
They mean transactions involving the
buying and selling of goods and
resources.
The interaction between the two
essential elements (the purchase of
the buyers and the sale by the sellers)
is determined by the terms of
exchange.
This is the price of the goods, or
The prices for goods and
services are determined by the
interaction of sellers and buyers.
Exchange takes place all the
time.
Trade happens between
consumers and producers;
between producers and suppliers
of services; between businesses;
and between countries.
Growth
The expansion of consumption
and production represents the
problem of economic growth.
Economic growth means
essentially that the available
goods have increased because of
increased production.
This means that the output of
goods and services has enlarged
and the economy has increased
its capacity to produce more
The rate of economic
growth depends on how
economic agents make the
allocation of resources
between the present and
the future.
To achieve growth,
choices must be made
regarding what to spare
from present enjoyment in
SCARCITY AT WORK
All economic problems happen
because of the scarcity of
resources.
Commodities that are
consumed do not come free.
To produce these commodities,
one needs to use resources or
factors of production.
SUMMARY
1. All economic agents solve an
economic problem by
deciding on the choice that
leads to the best of all
possible outcomes.
This optimization pertains to
decisions involving
consumption, production,
distribution, exchange and
growth.
2. Consumption means
using up goods to satisfy
certain wants.
The satisfaction of wants
in the household can be
undertaken in the current
period or at future period.
Businesses and
governments have
consumption decisions to
3. Production is the creation of
goods. The factors of
production are labor, capital
and land.
There are also secondary
inputs that are used in
production the goods that
are themselves raw materials
for production.
The sate of technology that is
used for production
4. Distribution refers to the
sharing of the output
among the resources used
in production.
It is concerned with the
manner of dividing the
output among labor,
owners of capital,
business management,
5. The prices for goods and
services are determined by
the interaction of sellers
and buyers.
Exchange takes place all
the time.
Trades happen between
consumers and producers;
between producers and
suppliers of services;
6. the production possibility frontier
presents the problem of choice.
The frontier represents the trade-
off between production and
consumption of two goods that
compete for the use of resources.
Along the production possibility
frontier, output is produced at full
employment of all resources.
Any point along the production
possibility schedule indicates a
combination of output of the two
goods.
Each outpt level requires the use of
7. Growth of output is the
expansion of the level of output.
Growth can come from several
sources, such as the factors of
production: growth of labor and
expansion of capital.
Technological progress means
that more inputs can be
produced from the same level of
use of the factors of production.
Another source of output growth
is the increase of savings, which
is the source of capital formation
 FUNDAMENTAL
LAWS OF
ECONOMICS
There are three (3) fundamental
laws of economics that are critical to
learning of economic principles.
The firs of these the law of
diminishing marginal utility is a
law governing marginal satisfaction
derived from the consumption of
goods. This law is the cornerstone of
The second law is the law
of diminishing returns.
This law describes the
behavior of production as
inputs are added. It is basic
to am understanding of the
theory of supply.
The third fundamental law the
law of comparative advantage
concerns efficiency in
production. It is the foundation of
the law of gains from commerce
both international and domestic.
It explains why economic agents, if
given the proper opportunity to
value costs of production and what
is available in the market, will
produce the thing they are most
capable of doing at the least
CONSUMPTION: THE LAW
OF DIMINISHING
MARGINAL UTILITY
The satisfaction of human wants is
largely a psychological phenomenon.
For instance, if you love eating mangoes
and you are to eat as many mangoes as
you like on a given day, this law simply
says that there is point in that eating
experience when the last mango does
not give as much pleasure as the earlier
one.
The law of diminishing
marginal utility states that the
consumption of a good yields
increasing satisfaction (utility)
to the consumer, but the
additional satisfaction
received becomes less as
more of the good is consumed.
The additional or marginal
utility from the last good
consumed is less than the
Diminishing Marginal
Utility
The law of diminishing marginal
utility is important in
understanding how a consumer
adjust ones expenditure among
competing goods of consumption.
The idea is that the consumer, or
the household or the family unit,
is free to choose or is sovereign
over what goods to consume.
goods
When there are many goods,
the same of kind of conditions
would have to be followed,
but the art of balancing the
choice is only slightly more
intricate.
Consider the choice of
balancing the budget
between two commodities,
The marginal utilities are measured in
terms of their own prices, then what is
being compared is the marginal utility
from the good per peso of expenditure.
Therefore, it is the additional satisfaction
derived from the goods per peso of
spending that is being compared.
If the MU of sugar per peso of
expenditure is greater than the MU of fish
per peso of expenditure, then there is
greater satisfaction being enjoyed for
sugar consumption. So the consumer will
increase the amount of sugar bought.
To maximize satisfaction from
a number of choices that she
faces, it is enough to think that
she allocates the income spent
on the goods such that each
item of consumption yields the
same level of marginal
satisfaction per peso of
expenditure.
PRODUCTION: LAW OF
DIMINISHING RETURNS
As more units of labor are
added, the output will increase.
There may be a stage in the
productive effort in which the
rise in output will be very high.
The rise of output as more
labor is added begins to taper
off.
The law of diminishing
returns states that the
following: Total output rises
with the addition of more of the
variable input, while other
inputs are held constant. But
the increase in total output
diminishes with each additional
increase of the input.
 THE LAW OF
COMPARATIVE
ADVANTAGE
Comparative vs. Absolute Advantage

One concerns the matter of

absolute advantage.
It can be defined as superior ability
compared to others in producing a
commodity or in performing specific
tasks.
If one has absolute advantage in
performing a particular task over
anybody else, then he will most
Consequence: Cheaper
goods
After specialization, the goods
produced cost less in terms of
labor costs.
A consequence of this cheaper
production cost is that the goods
can be exchanged at terms of
trade that are relatively cheaper
than the domestic trade-offs in
production under self-sufficiency.
Another consequence:
Increased labor income
Since no labor was used in the
less productive sectors, labors
productivity has increased
compared to the case under self-
sufficiency.
Labors income could only
increase, since it is likely to be
rewarded in terms of output that
it produces.
 The Three
Fundamental
Laws are
Linked to Each
Other
Consumption and the Law of
diminishing Marginal Utility
In general, a consumer would
buy more of a good at a low
price than at a high price.
The more a good is
consumed the more it yields
satisfaction. But the
satisfaction level diminishes,
because of the law of
The law of diminishing
marginal utility allows the
optimizing consumer to obtain
the highest degree of
satisfaction from the
commodities consumed in
proportion to the prices that
are paid for them.
Production and the Law
of diminishing Returns
The law of diminishing
returns arises from the
technological and physical
behavior of the production
process when a factor of
production increases while
other factor are held
This is in contrast to the
phenomenon of diminishing
marginal utility which is
psychological and subjective.
The producer, as an
economic agent, endeavors to
employ the factors of
production at the least
possible cost, to produce a
given level of output.
Efficiency and Law of
Comparative Advantage
The law of comparative
advantage provides an
explanation for the efficiency of
production across the range of
goods that are produced and
traded.
When production choices are
based on comparative
advantage, then the costs of
Specialization of activity among
factors of production becomes a
consequence of comparative
advantage.
Since their cost become cheaper in
production. The consumer Is thus able
to afford more goods in the
consumption basket.
The effects on production are likewise
beneficial.
The goods produced from the
application of comparative advantage
SUMMARY
1. The three fundamental laws of
economics are:
The law of diminishing marginal utility
which is the foundation of the law of
demand;
The law of diminishing returns which is
critical to the determination of costs of
production and therefore, to the
understanding of supply; and
The law of comparative advantage
which concerns efficiency in production
2. All these three fundamental laws
of economics are the main building
blocks, or foundation, for many of
the other laws of economics.
3. The law of diminishing marginal
utility states that the consumption of
a good yields increasing satisfaction
(utility) to the consumer, but the
additional satisfaction received
becomes less or more of the good is
consumed.
4. The law of diminishing
marginal utility is important in
understanding how a consumer
adjusts expenditure from among
competing goods. A good is
bought up to the point where the
marginal utility per peso spent on
it is the same as the marginal
utility per peso used on any other
good.
5. The law of diminishing returns is a
physical law of production. It states the
following: Total output rises with the
addition of a factor of production while
other factors are held constant. But
the increase ion total output
diminishes with each additional
increase of the factor of production.
This law depends on the state of
technology of production. The
technology might shift that is, the
state of the art of producing a
particular product could change. But
6. A factor of production will be put
into use so long as its marginal
product per peso of cost is equal to
the marginal product of the other
factor per peso of cost.
7. If all factors of production are
increased in the same proportion and
output increases by the same
proportion, then output production
obeys constant returns to scale. If
inputs are doubled and total output
increases by more than doubling,
8. None of the phenomena related to
returns to scale violates the law of
diminishing returns. Under returns to
scale, all the inputs are varied. Under
the law of diminishing returns, only
one factor or production is varied
while all other inputs are held fixed.
9. The law of comparative advantage
explains efficiency in the choice of
production and specialization. If a
region or a country can undertake to
produce a given product more cheaply
10. The law of comparative
advantage is powerful explanation
for international trade and the
economic gains that take place
when specialization happens.
Specialization in production allows
for a productive use of economic
resources. It raises the
consumption choices of the
inhabitants of different countries
that choose to engage in trade. It
ELEMENTS OF
SUPPLY AND
DEMAND
The Market
Market is the term applied for
the interactions between buyers
and sellers.
Interaction often involve
contracts involving the change in
ownership of specific amounts of
commodities or services for an
agreed price.
Different Types of
Markets
Market may be thought of in
relation to specific types of
commodities.
Markets are still commonly
perceived as specific locations such
as the public market place where
buyers and sellers meet physically
for transactions on the spot.
Some markets do not involve the
actual presence of the good
being bought or sold.
There are many situations where
a particular transaction involves
a future promise of delivery of
the good for instance, the
delivery of corn, rice, or wheat
three months from today.
Another type of market is
one where the buyer makes a
schedule of future payments.
People who buy durable
goods refrigerators, TV sets,
furniture and even houses
on installment are in this
category.
This might be called the debt
Demand Schedule
Buyers will buy less of a good
at a high price and more of it at
a lower price.
This general statement is often
referred to as the law of
demand.
Demand for the good implies
that there is corresponding
capacity to buy the good.
Shape of the demand schedule:
Why the law of demand?
At a high price, buyers who
cannot afford to buy the good
drop out of buying. At a low
price, more buyers who can
afford to buy the good, enter
the market so that more
goods are bought.
At a high price, it becomes more
attractive to buy other goods
that are substitutable to it. This
reduces the demand for the
good. of course, at a low price, in
relation to other substitutes, the
reverse substitution may follow,
and this in part accounts for a
larger quantity demanded.
What happens when the price of
rice becomes unaffordable for
families with limited budget?
One reason is that the higher
price has an immediate effect on
their income: The income effect
makes them relatively poorer,
and thus unable to buy the same
amount of goods. The other
reason is the substitution of the
good that is being bought in
favor of other commodities the
From individual demand
to industry demand
The behavior of the individual
consumer generally conforms to
the law of demand.
Each persons demand schedule
for a good differs from that of
others owing to the various
subjective influences on consumer
behavior. Total demand for the good
Supply Schedule
A schedule of quantities that
sellers are willing to sell at
specific prices is a supply
schedule.
the supply schedule is
upward sloping. At a high
price, more goods are offered
for sale; at a low price, less
Explaining the upward
sloping supply schedule
The supply schedule is upward
sloping because of the following
reasons
At a low price for a
commodity, only the low-cost
producers are able to
maintain operations that yield
profits or do not sustain any
losses.
At a high price, even high-
cost producers are able sell
their products.as a result,
more output is offered for
sale.
The higher price, the more
earnings or profits are
earned by the seller. For
the producer, therefore, it
From the individual
supplier to industry supply
Some sellers offer to sell a
lot of goods when the good
is high-priced. But they sell
nothing if the price is too
low for them.
INTERACTION OF SUPPLY
AND DEMAND
The industry demand and
supply schedules represent
the two relevant components
of the market between buyers
and sellers. Each buyer from
among the many competes in
the purchase of the good. In
the same manner, each seller
is a competitor of all the other
In situation of excess supply,
the price will fall and output
bought by buyers will increase
in the direction of the arrow
along the demand schedule.
In short, when there is
excess supply, the price will
fall.
When there is excess
demand, the price will rise.
The equilibrium price is a
stable equilibrium.
If the price level were above
the equilibrium price, excess
supply happens.
Then, the price will fall.
If the price were below the
equilibrium price, excess
demand results. Then the
price will rise.
Changes in Supply and Demand
Permanent and disruptive
disturbances cause shifts in supply
or demand.
These changes reflect a switch to a
different demand or supply
schedule.
If the pattern of behavior is related
to a mere price adjustment that
seeks to determine the amount of
goods to be bought or sold, then
Factors that cause shifts in demand
At any given time, demand
depends on preferences or
tastes, on incomes, on the
size of population, on
expectations about the future,
and on natural and
unexpected events. Any of
these factors can increase or
decrease the demand for a
(1) Preference
patterns
Preference of people for the
things that they buy are steeped
in custom tradition, psychology
and history.
Filipinos by tradition, geography
and preference tend to eat a lot
of fish. The same might explain
the preference of Japanese and
other Asians for fish. Compare
this to Americans and Europeans,
Climatic factors may also
explain preferences. You
dont see people wear
clothing in the tropics;
Their clothes of are made
of lightweight fabrics,
some of which barely cover
the body.
Yet, preferences can be
Diverse fads in womens and
mens wear are good
examples. Todays clothing
fashions pit the loose fitting
clothes against the tight
fitting, and the formal look
against the casual look.
(2) Changing Incomes
An increase in income raises
the demand for goods.
A fall in income leads to a fall
in demand.
A man with more income buys
more clothes, more shoes,
more of other goods compared
to a man with less income.
(3) Effects of distribution of Income
This implies that what
households would consider
necessities will differ
depending on the income level.
The demand for goods
therefore, is broadly spread
according to the ability of the
population to buy the goods.
(4) Population size
A country with a population size
of 40 million has a given scale
of demand for food, clothing,
shoes, schools, roads, cars,
diapers, paper and so on. But a
country with 80 million people
has a much bigger, perhaps
twice as much demand for all
these commodities.
Of itself, a large population creates
a wide demand base. But to make
that market size effective, the level
of income ought to be able to
support the needs of majority of the
population.
When the income level is low, a
large population size, contributes in
making the population poorer, more
especially, so if income are not
equitably distributed.
When this happens, the large
(5) Changes in
expectations
Expectations about the future
can alter demand for a specific
commodity.
If people expect hard times (like
impending unemployment), they
cut down their consumption
purchases and they postpone
plans of larger spending.
(6)Natural calamities and
other unexpected events
A typhoon, a drought, a strong
earthquake, or a fire can alter
demand swiftly.
A major crop failure can change
the attitude of people about how
much of food to store.
Expectation of price increases
may induce people to buy more
of a good, even if temporarily.
The expectation of a typhoon
might cause households to stock
up on groceries and other
necessities, so that certain goods
are in high demand quickly and
momentarily.
A war could change the
circumstances of family in may
ways. In an effort to protect their
savings, they could reduce
demand for most goods. Or they
might buy more of some goods
Reason for changes in
supply
Several reasons may
cause the supply schedule
to change:
(1) Increase in factors of production

Greater investment poured into an

economy increases the amount of
capital. That raises available
capacity to increase supply.
An increase in population leads to
an expansion of the labor force.
That means more labor can be
employed to help raise the supply
of goods.
(2) Technological
change
A change in technology
means that more output can
be produced for every unit of
factors of production.
The introduction of cost
reducing innovations in
production technology
increases supply.
(3) Competition from low-cost
producers
The entry of low-cost
producers puts a pressure on
existing suppliers to reduce
costs.
The entry of low-cost
producers to an industry
assures potential for increases
in supply.
(4) Natural events and
unexpected developments
As in the case of demand, natural events
can change supply.
For instance, a typhoon that hits a rice-
producing region is likely to disrupt the
supply of rice.
Natural calamities like earthquakes and
typhoons can ruin major structures in the
country such as buildings, factories and
transport facilities like roads, bridges and
ports.
(5) International trade
The importation of a commodity will
increase the domestic supply of
good. If there is a shortage for rice
and corn, one way to increase supply
is by importing.
The exportation of a commodity
decreases the domestic supply.
Increases and decreases in domestic
supply of a good might reflect the
international position of a country
The concept of price
response: ELASTICITY
The price elasticity of demand
tries to measure the response
of quantity demanded to the
change in price.
The price elasticity of supply
measures the response of
quantity that suppliers sell to
a change in price.
THE PRICES of
GOODS and
SERVICES
In a market economy or
capitalists economy, prices of
goods and services are
determined by the interaction
between supply and demand of
goods and services.
Whenever demand is greater
than supply, prices increase. On
the other hand, if supply is
greater than demand, prices
decrease.
Price is the value of a
product or service.
It is expressed in terms of a
monetary unit like peso,
dollar, or yen.
The price system is very
important in the economy.
It determines the allocation
of goods and services among
the members of society.
This simply means that
goods and services are
being acquired by the
people by paying them
with their money.
Naturally, more money
means more goods and
services.
Demand
Demand is the schedule of various
quantities of commodities which buyers
are willing and able to purchase at a
given price, time and place.
It is determined by factors such as:
1. Income
2. Population
3. Taste and preferences
4. Price expectation
5. Prices of related goods.
Determinants of Demand Explained

Consumers are most likely

to buy more goods and
services as price decreases,
and buy less goods and
services as price rises.
This is the law of
demand.
Such general tendencies of consumers
can be explained by two reasons:
1. Income effect at lower prices, an
individual has a greater purchasing
power. This means he can buy more
goods and services. But at higher
prices, naturally, he can buy less.
2. Substitution effect consumers
tend to buy goods with lower prices. In
case the price of a product that they
are buying increase, they look for
Validity of the Law of
Demand
The law of demand states: as price
increases, quantity demanded
decreases, and as price decreases,
quantity demanded increases.
Such theory is only true if the
assumption of ceteris paribus is
applied.
It means all other things equal or
constant.
The law of demand is correct if the
Changes in Demand vs Changes in
Quantity Demanded
Changes in demand refer to
changes in the determinants of
demand like income, population,
price expectation, and so forth.
For instance, an increase in
population also increases demand
for goods and services, or a
decrease in income also reduces
demand.
Determinants of Supply Explained

Technology. This refers

to the technique or
methods of production.
Modern technology
which uses modern
machines increases
supply 0f goods.
Cost of production. In producing
goods, raw materials are needed,
together with laborers. If the price
of raw materials or the salaries of
the laborers increase, it means
higher cost of production.
When cost of production increases,
price also increases. So there is
always profit.
When prices are very high, most
consumers reduce their purchases.
Number of sellers.
More sellers or more
factories mean an
increase in supply.
Conversely, smaller
number of sellers or
factories means less
supply.
Prices of other goods.
Changes in the price of
goods affect the supply of
such goods.
A decrease in the price of
rice may likely encourage a
rice farmer to produce
more corn if this gives him
Price expectations. If
producers expect prices to rise
very soon, they usually keep
their goods and then release
them in the market when the
prices are already high.
This creates artificial shortage
due to hoarding.
In case producers expect
prices to fall next week, they
Taxes and subsidies.
Certain taxes increase cost of
production.
Higher taxes discourage
production because it reduces
the earnings of businessmen.
That is why the government
extends tax exemptions to a
number of new and necessary
Similarly, tax incentives
are granted to foreign
investors in order to
increase foreign
investments in the
Philippines.
Subsidies which are
financial grants or financial
assistance are likewise
Law of Supply
As price increases, quantity
supply also increases, and as
prices decreases, quantity
supply also decreases.
This direct relationship
between price and quantity
supplied is the law of supply.
Producers are willing
and able to produce and
offer more goods at a
higher price than at a
lower price.
Sellers offer more
goods at higher price
because they make
Changes in Quantity
Supplied
Changes in supply pertain to
changes in the determinants of
supply.
For example, a decrease in the
cost of production increases
supply.
More subsidies result to more
supply.
The Law of Supply and Demand
In the market, supply and demand
interact freely.
Supply is represented by producers
or sellers while demand is represented
by buyers.
Producers are willing and able to offer
more goods at higher prices. This is
the law of supply.
On the other hand, buyers are willing
and able to purchase at lower prices.
In the process of
interaction between buyers
and sellers, an equilibrium
price, (meaning in balance
or at rest) is established.
This is a situation where
quantity supplied and
quantity demanded are
equal.
Law Defined
The law of supply and demand
states that when supply is greater
than demand, price decreases. When
demand is greater than supply, price
increases. When price is equal to
demand, price remains constant.
This is the market price or
equilibrium price.
It means both sellers and buyers
have mutual agreement.
Analysis of the Price
System
A price system is a mechanism of
allocating goods and services
through the rise or fall of prices
caused by interplay of supply and
demand forces.
One favorable argument for the
price system is its efficiency in
distributing goods and services.
On the part of the producers, they
tend to produce those goods which
Consumers are
inclined to purchase
those goods which
provide them
maximum
satisfaction.
Criticisms Against the Price System
Free competition does not really
exist long enough.
Self-interests of businessmen
force them to drive away their
rivals through cut-throat
competition.
Another strategy is to merge their
companies for market advantage.
Another case against the
price system is the unfair
distribution of goods and
services.
In a society where there is
unjust distribution of
wealth and income, only
the very few rich can have
a decent life under the
The Role of the
Government
In view of the limitations of the
price system, the government has
to regulate and supervise
production, distribution and
consumption of goods and
services.
The government provides
incentives in the production of
goods and services that greatly
contribute to the socioeconomic
It interferes in the
allocation of goods and
services in order to
protect and promote the
welfare of the poor.
 SUMMARY
1. Demand refers to the number of goods
and services which consumers are willing
to buy at a given price, time, and place.
It is determined by income, population,
tastes, price expectations, and prices of
related goods.
2. The law of demand is the opposite
relationship between price and number
of goods and services. At higher prices,
less number of goods and services are
bought, assuming the determinants o
3. Supply refers to the number of
goods and services which producers or
sellers are willing and able to offer at a
given price, time, and place. It is
determined by technology, number of
sellers, cost of production, prices of
their goods, price expectations, taxes
and subsidies.

4. The law of supply is the direct

relationship between prices and the
number of goods and services. When
price increases, quantity supplied also
5. The law of supply and demand
determines the prices of goods and
services in a free-market economy. The
law states that when demand is
greater than supply, price increases.
When supply is greater than demand,
price decreases. This law also applies
to the prices of the factors of
production. In our country, wages are
very low due to the oversupply of
labor.
 CONSUMER
BEHAVIOR
Base on the law of demand, buyers are
willing and able to purchase more
goods and services at lower prices than
at higher prices.
Such reactions vary depending on the
importance and availability of the goods
and services.
These varying reactions are known as
demand elasticities.
In the case of producers or sellers,
they have also their reactions to price
changes.
Clearly, they tend to sell more goods
and services when prices are higher.
Their reactions also vary depending
on their ability to produce in a given
time.
For instance, they cannot take
advantage of higher prices if they
cannot produce the goods and
services.
Elasticity of Demand
Demand elasticity refers to the reaction
or response of the buyers, to changes in
price of goods and services.
Buyers tend to reduce their purchases
as price increases, and tend to increase
their purchases whenever price falls.
Such reactions vary in accordance with
the nature of the products and the
particular needs of the buyers.
For example, if the product is
very important to the consumers,
they have to buy it despite the
big increase in its price.
On the other hand, there are
products in which with just a
slight increase in their prices,
many consumers are reluctant to
buy such products.
These products are not
important to them.
There are five (5) types of demand
elasticity or type of reactions of
buyers to price changes of goods and
services:
1. Elastic demand. A change in price
results to a greater change in quantity
demanded. This shows, buyers are
very sensitive to price change.
They are easily discouraged to buy
the products if their prices increase.
However, they are easily encouraged
to buy the same products if their
prices decrease.
2. Inelastic demand. A change in
price results to a lesser change in
quantity demanded.
This means buyers are not
sensitive to price change.
Products in under this category
are very essential to buyers.
They cannot live without them; it
is hard to live without such
products like rice, medicine, or
3. Unitary demand. A change in
price results to an equal change in
quantity demanded.
Goods or services under this
category are considered semi-
luxury or semi-essential goods.
Some type of clothing, or shoes
are either luxury or essential
goods.
4. Perfectly elastic demand.
Without change in price, there is an
infinite change I quantity demanded.
Such demand applies to a company
which sells in a purely competitive
market.
5. Perfectly inelastic demand. A
change in price creates no change in
quantity demanded. This is an extreme
situation which involves life or death to
an individual. Regardless of price, he
has to buy the product like a medicine
Determinants of Demand
Elasticity
1. Number of good substitutes.
Demand is elastic for a product with
many good substitutes. An increase
in the price of such product induces
buyers to look for good substitutes.
On the other hand, product without
good substitutes have an inelastic
demand.
Buyers have no or little choice except
to purchase them if they really need
2. Price increase in proportion to income. If
the price increase has very little effect on the
income or budget of the buyers, demand is
inelastic.
Example, a 40 percent increase in the price of a
needle or candy means only a few centavos.
Thus, the result is only a slight decrease in
quantity demanded.
But if the price increase involves a substantial
amount in proportion to the income of
consumers, deamnd is elastic.
A 40 percent increase in tuition fees is likely to
discourage many very poor families from
sending their children to college.
In the Philippines, university education has
3. Importance of the product to
the consumers. Luxury goods are not
very important to many Filipinos. So,
these are elastic.
Examples are diamond rings, sports
car, expensive wines, elegant
clothing, etc.
Rice is important to all consumers.
Electricity is important to factory
owners.
Gasoline is important to the
transportation industry. All of these
are inelastic.
Economic significance
of Demand Elasticity
Here are some practical examples of
economic significance of elasticity of
demand:
1. Wage determination. If the product
has an elastic demand, a reduction in
its price increases quantity demanded.
This means more sales and more
profits.
- The company is in a position to raise the
2. Farm production guide. Most
agricultural products like rice, coconut,
and sugar are inelastic.
Whenever the is an overproduction of
farm crops due to good harvest,
prices of said products decrease.
As a result, total revenue or income
of the farmers also declines.
Measures are therefore prepared to
control production to protect the
interests of the farmers.
3. Maximize profits. A reduction in
price causes more quantity demanded.
Businessmen can estimate how far
they can cut their prices to be able to
generate their target sales.
Even if the profit per unit is only 5
centavos but millions of it are bought
daily this is in a better position to
attain profit maximization than
another product which gets a profit of
P5 per unit but only hundreds are
bought daily.
Evidently, a substantial price
4. Imposition of sales taxes. It is not
advisable to increase taxes on goods with
high elastic demand. A tax is an
additional price.
So, this greatly decreases quantity
demand for the product.
For example, a P1 tax is imposed on a
certain product, and 1,000 units are
sold; so tax revenue is P1,000.
supposing the tax has been increased to
P2 because of the increase in tax, the
price of the product also increases.
The result is that only 400 units have
Elasticity of Supply
Supply elasticity refers to the
reaction or response of the
sellers/ producers to price
change of goods. Base on the law
of supply, producers are willing
and able to offer more goods at a
higher price, and less goods at a
lower price.
Like demand elasticity, there are also five
types of elasticity of supply or types of
responses of producers to price changes:
1. Elastic supply. A change in price results to
a greater change in quantity supplied. This
means producers are very responsive to
price change.
2. Inelastic supply. A change in price results
to a lesser change in quantity supplied.
For example, if the price of coconut
increases, producers cannot respond
immediately in a short time.
It takes about 5 years or more to produce
coconut.
3. Unitary supply. A change in price
results to an equal change in quantity
supplied.
For instance, a 15 percent change in price
creates 15 percent change in quantity
supplied.
4. Perfectly elastic supply. Without
change in price, there is an infinite change
in quantity supplied.
- Example, in a poor country where
massive unemployment prevails, an
unlimited number of jobless individuals are
willing to work at a fixed wage even if
5. Perfectly inelastic supply. A
change in price has no effect on
quantity supplied. An example of
this is land in a community.
- Land area is fixed regardless of
price.
Determinant of Supply Elasticity

The principal determinant of

supply elasticity is the time
involved in the ability of producers
to respond to price changes.
If it takes a short time to produce
the products to take an advantage
of an increase in price, then
supply is elastic.
On the other hand, if it takes a
long time to produce the
products, the supply is inelastic.
Agricultural or farm products are
usually highly inelastic. It takes
months or years to produce
vegetables, fruits, and crops.
Clearly, this is one of
disadvantages of agriculture or
farming. Producers cannot
immediately respond to a price
Theory of Consumer
Behavior
1. Law of diminishing marginal
utility. Utility means satisfaction.
Marginal utility refers to the additional
satisfaction of a consumer whenever
he consumes one more unit of the
same good. Consumption of more
successive units of the same good
increases total utility, but at a
decreasing rate because marginal
utility diminishes.
2. Indifference curve. The word
indifference means showing no
bias or neutral.
- By definition, an indifference
curve is a curve which shows
different combinations of two
goods which yield the same level
of satisfaction.
 Budget Line
A budget or consumption possibility
line indicates the various combinations of
two products which can be purchased by
the consumer with his income, given the
prices of the products.
A consumer has fixed budget, and he has
to spend his money wisely to be able to
maximize his satisfaction.
He has several combinations of two
products to choose. However, his choice is
confined within the limit of his budget.
The equilibrium of the Consumer
A consumer has several
combinations of two products to
choose from.
Any consumers tries to maximize
utility.
S, his equilibrium behavior is to
choose the combination which
maximizes his satisfaction.
This means he can afford to
 Summary:
1. When goods and services are needed by
consumers, and these have no substitutes,
they buy them even if there is a big
increase in their prices. On the other hand,
if goods and services are not important and
there are substitutes, buyers tend to
abandon them whenever their prices go
up.
2. The concept of demand elasticity has
practical applications in business and
economic policies. Therefore, a good
knowledge of demand elasticity serves as a
3. Additional satisfaction decreases an
additional units of the same products are
consumed in one sitting. Another
assumption for additional satisfaction to
fall is that such products have the same
quality. Of course, there are individuals
whoa appear not to be affected by the
law of diminishing marginal utility. These
are the addicts.
4. Our ability to satisfy our human wants
depends on your budget or purchasing
power. If we have more money, then we
can buy more goods and services. This
PHILIPPINE
AGRARIAN
REFORM
PROGRAM
It is a package of services
extended to the farmers in
the form of credit,
infrastructure, farm
extension, legal assistance,
electrification, and the
development of rural
institutions.
The program is envisioned to
uplift the farmers from
poverty, ignorance, and
stagnation; and to make them
productive, responsible and
dignified, and progressive
partners in nation-building.
The major components are:

Land tenure improvement

Compact farming
Cooperative farming
Agro-industrial estate
Land consolidation
Institutional development
Samahang nayon (cooperative
association)
Kilusang bayan (cooperatives)
Farmers associations
Financial institutions

Physical development
Infrastructure
Land distribution
Agricultural development
Farm management services
Green revolution
Crop diversification
Home management
Youth participation
Human resources
development
Personnel development (pre-
service and in-service
training)
Clientele development (farm
family education, landowner
orientation, and continuing
community education and
Program Objectives
1. To establish owner-cultivatorship
among those who live and work
on the land as tillers;
2. To create a truly viable, social,
and economic structure in
agriculture conducive to greater
productivity and higher farm
income through a cooperative
system of production,
processing, marketing,
3. To provide a more vigorous and
systematic land settlement program and
public land distribution;
4. To achieve a dignified existence for
the small farmers, free from pernicious
institutional restraints and practices;
5. to make small framers more
independent, self-reliant, and responsible
citizens, and a source of genuine
strength in our democratic society;
6. To apply all labor laws equally without
discrimination to both industrial and
agricultural wage earners;
7. to give first priority to
measures for adequate and
timely financing of the
agrarian reform program; and
8. to involve local
government in the
implementation of the
agrarian reform program.
 Land Reform vs.
Agrarian Reform
Land reform means the improvement
of the farmers relationship to the
land he cultivates.
When a farmer is transformed from a
tenant into landowner, then this is a
great improvement.
In addition, he should be assisted by
the government on how to improve
his production technique and
marketing channel.
The concept of agrarian reform.
It is concerned with the total
development of the farmers
economic, social and political
transformation.
If this is successfully attained,
then the small farmer becomes a
source od genuine strength in our
democratic society.
Socio-economic
Implications of the
Program
In all the countries where the
peasants have been exploited, there
have been uprisings, rebellions, or
even revolutions.
For instance, famous revolutions like
those in France, Mexico, Russia, and
China, were led by peasants.
In our country, there were agrarian
unrests in several regions due to
However, we are one of the very
few countries which have
developed a land reform program
without a bloody revolution.
Evidently, their transformation
into landownership has greatly
changed their social status.
They feel free and equal to any
other members of the
community.
They have no more masters to
command them. Instead, they
are now the managers of their
farms.
They make their own plans and
decisions.
Such condition stimulates them
to improve their productivity
because the fruits of their labor
all go to them.
 Key Information (P.D.
27)
1. Share tenancy was abolished. It
covers only rice and corn farming.
2. Family-size farms were established.
Tillers were given three (3) hectares
if irrigated or five (5) hectares if
unirrigated. The land owner may
retain not more than 7 hectares. If
he does not personally till his land, it
is to be farmed by others on
leasehold arrangement.
3. the farmer pays the land given to
him in 15 yearly amortizations plus
6% interest.
4. the price of the land granted to
the farmer is equivalent to 2 times
the average annual harvest of 3
consecutive normal years (if crops
are not destroyed by floods,
typhoons, or pests) before October
21, 1972. Then multiply the number
of cavans with the prevailing
5. The Land Bank of the Philippines,
which is the financial arm of the
agrarian reform program, pays the
landowners in any of the following
manner:
a. Cash payments of 10% and the
balance in 25-year Land Bank bonds
at 6% interest, tax-free.
b. Payment of 30% in preferred shares
of stocks issued by the Land Bank,
and the balance in 25-year LB bonds
at 6% interest, tax-free.
c. Exchange arrangement for
government stocks in in government-
owned or controlled corporations or
private corporations where the
government has holdings.
d. Cash payments of 20% and the
balance in 25-year LB bonds at 6%
interest, tax-free for landowners with
less than 25 hectares. However,
small landowners may get an
additional 10% cash payment if they
use such amount for the security of
their childrens future, education, and
6. No land acquired by the
farmer through the agrarian
reform is transferable, except by
hereditary succession. If there is
no heir, he can sell it to the
government for redistribution to
other qualified tillers.
7. Conversion of tenanted rice
and corn farms into non-
agricultural use or any other
crops in order to avoid the
 Key Information (CARP No. 6657)
1. The comprehensive Agrarian Reform
Program covers all public and private
agricultural lands, including other lands of
the public domain suitable for agriculture.
2. Ownership of agricultural lands is based
on a family-size farm which is not more
than 3 hectares. The landowner can retain
5 hectares. Three (3) hectares may be
awarded to each child of the landowner, if
he is not less than 15 years old and if he
is actually cultivating, or directly
managing his farm. Landowners under
3. Qualified beneficiaries in the following order of
priority are the agricultural lessees and share
tenants, regular farmworkers, seasonal farmworkers,
other farmworkers, actual tillers or occupants of
public lands, collectives or cooperatives of the
aforementioned beneficiaries and others directly
working on the land.
4. The distribution of all lands covered by CARP shall
be implemented within 10 years effective
immediately upon signing of the law by President
Corazon C. Aquino on June 10, 1988. however, the
application of CARP on private commercial lands,
such as livestock, poultry, piggery, aquaculture
(fishponds, saltbeds, and prawn ponds), fruit farms,
orchards, vegetable, and cut-flower farms, and
cacao, coffee, and rubber plantations, has been
deferred for 10 years.
5. exemptions and exclusions include
lands for wildlife, forest reserves,
reforestation, fish sanctuaries, and
breeding grounds, watersheds and
mangroves, national defense, school
sites and campuses, experimental
farm stations, seeds and seeding
research and pilot production centers,
church sites and convents, mosque
sie and islamic centers, cemeteries,
penal colonies, penal farms, and
government and private research and
6. Payments to landowners:
25% cash and 75%
government bonds for above
50 hectares; 30% cash and
70% government bonds for
above 24 hectares and up to
50 hectares; and 35% cash
and 65% government bonds
for 24 hectares and below.
Payments are made in 10
7. Beneficiaries pay Land Bank
of the Philippines in 30 annual
amortization at 6% interest per
annum.
8. Valuation of lands is
determined by PARC (Presidential
Agrarian Reform, Council headed
by the President of the
Philippines). The value of the
lands depends on the costs of
their acquisition, current values,
Critical Analysis of the
Agrarian Reform Program
The main goal of the Philippine
agrarian reform program is to increase
the harvests and income of the poor
farmers.
Therefore, they are required to apply
modern agricultural technology (or
American technology) and to join
farmers, cooperatives.
This means they have to buy the farm
The World Bank finances the
productivity objective of the
agrarian reform program. But the
social and economic justice
aspect of the program has been
neglected.
It appears that the real objective
of the United States or World
Bank in supporting the program
is to be able to channel the farm
inputs of the malnutritional
corporations into the farms of the
The rationale of the agrarian reform program is
that when a poor farmer owns the land he is
cultivating, he is naturally more interested to
improve his harvest. This is true if:
1. The owner has sufficient area of land to till for
the adequate support himself and his family;
2. The agrarian reform provides permanent
security of tenure to beneficiaries.
3. The necessary credit is made available to the
new landowners on the benevolent terms which
do not make them slaves of the lenders; and
4. The agrarian reform program allows the small
farmers to make decisions as to what and how
to produce and what and how to sell their
products.
COVERAGE
Section 4. Scope The
Comprehensive Agrarian Reform
Law of 1989 shall cover,
regardless of tenurial
arrangement and commodity
produced, all public and private
agricultural lands, as provided in
Proclamation No. 131 and
Executive Order No. 229,
including other lands of the
public domain suitable for
More specifically the following lands
are covered by the Comprehensive
Agrarian Reform Program:
(a) All alienable and disposable lands
of the public domain devoted to or
suitable for agriculture. No
reclassification of forest or mineral
lands to agricultural lands shall be
undertaken after the approval of this
Act until Congress, taking into
account ecological, developmental
and equity considerations, shall have
determined by law, the specific limits
(b) All lands of the public domain in
excess of the specific limits as
determined by Congress in the
preceding paragraph;
(c) All other land owned by the
Government devoted to or suitable
for agricultural;
(d) All private lands devoted to or
suitable for agriculture regardless of
the agricultural products raised or
that can be raised thereon.
Implementation the distribution
of all lands covered by this Act
shall be implemented immediately
and completed within 10 years
from the effectivity thereof.
May it be argued that distribution of all
lands under R.A. 6657 must be
implemented and covered within the
original 10 year period rather than
extended period?
Yes, because Section 5 and Section 7
of the CARL are clearly mandatory.
However, while R.A. 6657 was
enacted on June 10, 1988 and the 10
year period would have expired on
June 10, 1998, RA 8532 was enacted
also in 1998 apparently extending
the period for implementation up to
2008 by amending section 63 of the
CARL, to read as follows: The
amount needed to implement this Act
(CARL) until 2008 shall be funded
from the Agrarian Reform Fund.
Note that RA 8532 expressly
amended section 63 of RA
6657 (CARL) by providing
additional funding to implement
RA 6657. However, there is no
mention of extending the 10 year
period for the distribution of
lands acquired under RA 6657.
What aspects of agrarian reform still
require funding and implementation if the
distribution should have already been
completed by 1998?
(1) Every year, portions of bonds issued for
the payment of land mature, and these
must be funded.
(2) Support services are needed to maintain
the viability of lands previously acquired
for agrarian reform.
(3) There is still so much land covered under
the law for which no payment of just
compensation has been made. There are
some just compensation cases still being
Note also that Section 11 of RA 6657
provides for a shift in the types of land
placed under DARs coverage from
lands covered by section 4 in relation to
section 5 (during the ten years from
1988 to 1998), to commercial farms
mandated under Section 11 to be subject
to immediate compulsory acquisition and
distribution after 10 years from the
effectivity of this Act. Note the clear
shift in Section 11 of lands to be acquired
after expiry of the first ten years.
Section 11. Commercial Farming
Commercial farms, which are private
agricultural lands devoted to
saltbeds, fruit farms, orchards,
vegetable and cut-flower farms,
and cacao, coffee and rubber
plantations, shall be subject to
immediate compulsory acquisition and
distribution after 10 years from the
effectivity of this Act.
In the case of new farms, the 10-
year period shall begin from the first
year of commercial production and
During the ten-year period, the
government shall initiate the
steps necessary to acquire these
lands, upon the payment of just
compensation for the land and
the improvements thereon,
preferably in favor of organized
cooperatives or associations,
which shall hereafter manage the
said lands for the worker-
beneficiaries.
Section 6. Retention Limits Except
as otherwise provided in this Act, no
person may own or retain, directly or
indirectly, any public or private
agricultural land, the size of which
shall vary according to factors
governing a viable family-size farm,
such as commodity produced, terrain,
infrastructure, and soil fertility as
determined by the Presidential
Agrarian Reform Council (PARC)
created hereunder, but in no case
shall retention by the landowner
Three hectares may be awarded to each child
of the landowner, subject to the following
qualifications: (1) that he is at least fifteen
years of age; and (2) that he is actually tilling
the land or directly managing the farm:
Provided, that landowners whose lands have
been covered by Presidential Decree No. 27
shall be allowed to keep the areas originally
retained by them thereunder: Provided,
further, that original homestead grantees or
their direct compulsory heirs who still own the
original homestead at the time of the approval
of this Act shall retain the same areas as long
as they continue to cultivate said homestead.
The right to choose the area to be
retained, which shall be compact or
contiguous, shall pertain to the
landowner: Provided, however, that in
case the area selected for retention by
the landowner is tenanted, the tenant
shall have the option to choose whether
to remain therein or be a beneficiary in
the same or another agricultural land
with similar and comparable features.
In case the tenant chooses to remain in
the retained area, he shall be
considered a leaseholder and shall lose
his right to be a beneficiary under this
In case the tenant chooses to be a
beneficiary in another agricultural land,
he loses his right as a leaseholder to
the land retained by the landowner. The
tenant must exercise this option within
a period of one year from the time the
landowner manifests his choice of the
area for retention.
In all cases, the security of tenure of
the farmers or farmworkers ion the land
prior to the approval of this Act shall be
respected.
Upon the effectivity of this Act, any sale,
disposition, lease, management, contract or
transfer of possession of private land
executed by the original landowner in
violation of the Act shall be null and void:
Provided, however, that those executed prior
to this Act shall be valid only when registered
with the Register of Deeds within a period of
three months after the effectivity of this Act.
Thereafter, all Registers of Deeds shall inform
the Department of Agrarian Reform (DAR)
within 30 days of any transaction involving
agricultural lands in excess of five hectares.
 retention limit reasonable and
beneficial to the landowners, the
farmers and the country as a
whole?
At the time when the CARP was enacted in
1987, 88% of private agricultural lands were
owned by small landowners of which at least
66% were in at poverty level.
During the deliberations of the CARP, it was
pointed out that if the retention limit was fixed
at 24 hectares, only 5% of private agricultural
land would be affected. In the language of
Cong. Cojuangco, in other words, 95% of
private agricultural land are owned by people
owning 24 hectares and below. Are these the
In September 1993, the Social Weather
Station, Inc. conducted a national
survey in the countryside and found
that, on the average, only 18% were
better off after launching of the CARP
while 38% were worse off. Furthermore,
only 10% of agricultural workers
claimed they were better off while 47%
stated they were worse off.
Apparently, because the farms were of
smaller sizes, even agricultural workers
hired by these farms were
disadvantaged, because their
employers could no longer expand
 to determine the proper retention
limits?
Article XIII, section 4 of the Constitution explicitly
provides that the just distribution of all
agricultural lands shall be subject to such
priorities and reasonable retention limits as the
Congress may prescribe. It is Congress then and
not any other entity which is authorized and
required to fix the priorities and retention limits.
Although legislative power may be delegated, such
delegation is not constitutionally permissible where
the Constitution itself requires Congress to deal
with specific matter. Even in those instances where
delegation is possible, Congress must establish a
standard fully in accord with the Constitution.
However, section 6 of RA 6657
delegates effectively to the PARC
authority to fix the retention limit.
And not only is the authority
delegated to PARC, but the factors
which PARC is required to consider
are not limited to those provided by
the Constitution itself which are the
ecological, developmental or equity
considerations.
This is, apparently, an undue delegation of
legislative power in that the discretion to
set the standards and priorities, conferred
by the Constitution upon Congress, is
further delegated by Congress to PARC. It is
well-established that the law which is
incomplete and confers upon the delegate
the discretion to determine what the law
should be, is void. As the Supreme Court
has explained:
what valid delegation presupposes and
sanctions is an exercise of discretion within
specific or designated limits provided by
law, the absence of which will constitute
such exercise as undue delegation, if not an
Is it the issuance of CLOAs to
the landowners children
legally correct?
The law specifically provides that
in no case shall the retention by
the landowners exceed five
hectares. Three hectares may be
awarded to each child of the
landowner provided that he is at
least 15 years of age and he is
actually tilling the land or directly
managing the farm.
DAR AO No. 8, series of 1997,
states:
No beneficiary who is related to
the LO up to the second degree of
consanguinity shall be considered
as an awardee under CRAP, unless a
tenancy relationship with the
landowner actually exists or has
been established prior to June 15,
1988, the effectivity date of the
Comprehensive Agrarian Reform
Law.
of 1997 of the requirement of a tenancy
relationship between the LO and his
child (relative to the second degree) a
valid and effective amendment of the
law?
RA 6657, section 6 provides that
Three hectares may be awarded to
each child of the landowner, subject
to the following qualifications: (1)
that he is at least fifteen years of
age; and (2) that he is actually tilling
the land or directly managing the
farm.
Both actually make the application of
the term preferred beneficiary to
It should be noted that the provision
did not impose the same age limit of
15 years if age when CARL took
effect on June 15, 1988. imposing this
age requirement on the preferred
beneficiary, in addition to the
requirement that the tenancy
relationship should exist during the
effectivity of CARL, actually places
the preferred beneficiary in a more
disadvantageous position than the
tenant or the latters children.
a uniform retention limit for
all types of lands?
The uniform redistribution formula applied
by the CARP on all lands; i.e., the same
retention limit for each landowner and the
same area of each beneficiary, ignores the
profound technical and economic
differences between agricultural areas.
This undiscriminating approach, in fact,
enlarges even more the need for well-
planned and well-executed support services,
since much of these will have to aim all at
compensating at enormous cost, for the
distortion effects of treating rice, sugar,
Is a homestead subject to CARL?
Section 6 above, among others,
provides that the original homestead
grantees or their direct compulsory
heirs who still own the original
homestead at the time of the approval
of the CARL shall retain the same area
as long as they continue to cultivate
said homestead. Therefore, a
homestead shall not be subject to
compulsory coverage if the following
conditions are present:
(1)The original homestead grantee
or his direct compulsory heir still
owns the original homestead at
the time of the effectivity of the
CARL;
(2)The original homestead grantee
or his direct compulsory heir(s)
was cultivating the homestead as
of the effectivity of the CARL on
June 18, 1989.
infirmities in section 6 of
CARL?
Yes, they are as follows:
> Article XIII, section 4, of the
Constitution explicitly provides
that the just distribution of all
agricultural lands shall be subject
to such priorities and reasonable
retention limits as the Congress
may prescribe.
Does failure to apply for
retention constitute an
estoppel or waiver of the
rightof retention?
No. the failure of the landowners to
apply for retention of this agricultural
landholdings does not constitute an
estoppel or waiver of their respective
right of retention. A timely protest
against the issuance of the
certificates of land transfer to the
petitioners cures the omission.
Is personal cultivation a
mandatory precondition to be
entitled to retention?
No, personal cultivation is not a
mandatory precondition for retention.
The landowner is not disqualified to
retain his share of the agricultural
lands of the estate for failure to
comply with the requirement that
such landowner is cultivating such
area, or will now cultivate it.
The Secretary of Agriculture himself
interpreted that provision to mean
that the tenants on the exempted
and retained areas shall remain as
agricultural lessees therein.
In other words, while ownership of
the exempted and retained areas
shall pertain to the landowner, the
tenants, as agricultural lessees, shall
remain as such and cultivate the
same.
What happens if the area that
the landowner chooses to
retain is tenanted?
In case the area selected for
retention by the landowner is
tenanted, the tenant shall have the
following options:
(1)Remain in the retained area: the
tenant shall be considered as
leaseholder and shall lose his right
to be a beneficiary; or
(2)Be a beneficiary in other agricultural
land: the tenant shall lose his right
What can be done if, after
Certificates of Land Transfer
have been issued, it is
discovered that the landowner
has been illegally denied his
right of retention?

The said certificates may be

cancelled by the Secretary of
Agrarian Reform
Reform still have authority or
jurisdiction to cancel
Certificates of land Transfer or
Certificates of Land Ownership
Awards after their issuance to
tenants-beneficiaries?
Yes. The issuance, recall or cancellation
pf Certificates of Land Transfer and
Certificates of Land Ownership Awards
fall within the Secretarys administrative
jurisdiction as implementor of the
agrarian reform laws.
May the landowner who fails to
secure his retention rights
under PD 27 acquire the same
under RA 6657?
Yes, in the case of Association of Small
Landowners in the Philippines, Inc., et al. v.
Honorable Secretary of Agrarian Reform,
the Supreme Court ruled:
landowners who were unable to exercise
their rights of retention under PD No. 27
shall enjoy the retention of rights granted
by the RA No. 6657 under the conditions
therein prescribed.
rulings, the following guidelines
were prescribed by DAR under
Administrative Order No. 04
(1991):
(1) Landowners covered by PD 27 are entitled to
retain seven hectares, except those who entire
tenanted rice and corn lands are subject of
acquisition and distribution under Operative Land
Transfer (OLT). An owner of tenanted rice and
corn lands may not retain to these lands under
the following cases:
(If he as of October 21 1972 owned more than 24
hectares of tenanted rice or corn lands; or
(By virtue of LOI 474, if he as of October 21, 1976
owned less than 24 hectares of tenanted rice or
corn lands but additionally owned the following:
Other agricultural lands of more that
7 hectares whether tenanted or not,
whether cultivated or not, and
regardless of the income derived
therefrom; or
Land used for residential,
commercial, industrial or other urban
purposes, from which he derives
adequate income support himself and
his family.
(2) Landowners who filed their
applications for retention before
August 27, 1985, the deadline set by
Administrative Order No. 1 Series of
1985, may retain not more than 7
hectares of their landholdings
covered by PD 27 regardless of
whether or not they complied with
LOI Nos. 41, 45 and 52.
(3) A landowner who ahs died must have
manifested during his lifetime his
retention to exercise his right of retention
prior to August 23, 1990 (the finality of
the Supreme Court decision in the case
Association of Small Landowners of the
Philippines, Inc., et al. versus Honorable
Secretary of Agrarian Reform) to allow
his heirs to now exercise such right under
these guidelines. Said heirs must show
proof of the original landowners
intention.