Air Transport

Economics and
Management

Engr. Niñoel B. Dela Cruz

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 Economy is the large set of inter-related
production and consumption activities that aid in
determining how scarce resources are allocated.

Types of economy:
• Traditional Economic System
• Command Economic System
• Market Economic System
• Mixed Economic System

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 • Traditional economies still produce products
and services that are a direct result of their
beliefs, customs, traditions, religions, etc.

• Vast portions of the world still function under

a traditional economic system. These areas
tend to be rural, second- or third-world, and
closely tied to the land, usually through
farming.

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 Myanmar Mauritius

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Bangladesh 1–4
 • The large part of the economic system is
controlled by a centralized power; often, a
federal government.
• This kind of economy tends to develop when
a country finds itself in possession of a very
large amount of valuable resource(s).
• Often the government will own everything
involved in the industrial process, from the
equipment to the facilities.

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 • These countries are normally communist in
form or is largely patterned to communist
types of economy

• Communism, also known as a command

system, is an economic system where the
government owns most of the factors of
production and decides the allocation of
resources and what products and services
will be provided. The most important
originators of communist doctrine were Karl
Marx and Frederick Engels.

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 China Cuba

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North Korea 1–7
 • It is an economic system where decisions
regarding investment, production, and
distribution are based on the interplay of supply
and demand, which determines the prices of
goods and services.

• The major defining characteristic of a market

economy is that investment decisions, or the
allocation of producer good, are primarily made
through capital and financial markets.

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 • In a capitalist market economy, decision-making
and investment is determined by the owners of
the factors of production in financial and capital
markets, and prices and the distribution of goods
are mainly determined by competition in the
market.

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 US Japan

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Philippines 1 – 10
 • A mixed economic system (also known as a Dual
Economy) is just like it sounds (a combination of
economic systems), but it primarily refers to a
mixture of a market and command economy
• Mixed economies may also have a distinct public
sector, where resources are allocated mainly by
government, such as defence, police, and fire
services. In many sectors, resources are
allocated by a combination of markets and
panning, such as healthcare and, which have
both public and private provision.
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 • Mixed economies may also have a distinct
public sector, where resources are allocated
mainly by government, such as defence,
police, and fire services. In many sectors,
resources are allocated by a combination of
markets and panning, such as healthcare
and, which have both public and private
provision.

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 Russia US

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France 1 – 13
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 • An estimated value of the total worth of a
country’s production and services, within its
boundary, by its nationals and foreigners,
calculated over the course on one year.
• GDP = consumption + investment +
(government spending) + (exports –
imports), or,
• GDP = C + I + G + (X-M)

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 • An estimated value of the total worth of
production and services, by citizens of a
country, on its land or on foreign land,
calculated over the course on one year.

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 • Per capita income or average income
measures the average income earned per
person in a given area (city, region, country,
etc.) in a specified year. It is calculated by
dividing the area's total income by its total
population.

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 • A market is a medium that allows buyers
and sellers of a specific good or service
to interact in order to facilitate an
exchange. This type of market may either
be a physical marketplace where people
come together to exchange goods and
services in person, as in a bazaar or
shopping center, or a virtual market
wherein buyers and sellers do not
interact, as in an online market.

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 • Refers to how much (quantity) of a
product or service is desired by buyers.
The quantity demanded is the amount of
a product people are willing to buy at a
certain price.

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 • The law of demand
states that, if all
other factors remain
equal, the higher the
price of a good, the
less people will
demand that good. In
other words, the
higher the price, the
lower the quantity
demanded.

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 • Represents how much the market can offer.
The quantity supplied refers to the amount of
a certain good producers are willing to
supply when receiving a certain price.

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 • The supply relationship
shows an upward
slope. This means that
the higher the price, the
higher the quantity
supplied. Producers
supply more at a higher
price because selling a
higher quantity at a
higher price increases
revenue.

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 • When supply and demand are equal (i.e.
when the supply function and demand
function intersect) the economy is said to be
at equilibrium. At this point, the allocation of
goods is at its most efficient because the
amount of goods being supplied is exactly
the same as the amount of goods being
demanded. Thus, everyone (individuals,
firms, or countries) is satisfied with the
current economic condition.

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 • Perfect competition – Many firms, freedom
of entry, homogeneous product, normal
profit.
• Monopoly – One firm dominates the
market, barriers to entry, possibly
supernormal profit.
• Oligopoly – An industry dominated by a few
firms, e.g. 5 firm concentration ratio of >
50%. Interdependence of firms

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 • Collusive behavior – firms seek to form
agreement to increase prices.
• Monopolistic competition – Freedom of
entry and exit, but firms have differentiated
products. Likelihood of normal profits in the
long term.
• Contestable markets – An industry with
freedom of entry and exit, low sunk costs.
The theory of contestability suggests the
number of firms is not so important, but the
threat of competition.
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 An association of manufacturers or suppliers
with the purpose of maintaining prices at a
high level and restricting competition.

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 It is defined as a sustained increase in the
general level of prices for goods and services.
It is measured as an annual percentage
increase. As inflation rises, every Peso you
own buys a smaller percentage of a good or
service.

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 A business owned and operated by a single
individual. It is also the most common business
in the Philippines.

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 A business that is owned and operated by two
or more people — and the least used form of
business organization in the country.

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 It is a legal entity that is separate and distinct
from its owners. Corporations enjoy most of the
rights and responsibilities that an individual
possesses; that is, a corporation has the right to
enter into contracts, loan and borrow money,
sue and be sued, hire employees, own assets
and pay taxes.

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  Private Corporation are owned by the
company's founders, management or a
group of private investors.
 Public Corporation are companies that
has sold a portion of itself to the public
via an initial public offering of some of its
stock, meaning shareholders have claim
to part of the company's assets and
profits.

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  They are not listed in the Philippine Stock
Exchange

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  They are normally listed in the Philippine
Stock Exchange

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  A holding company is a company that
owns other companies' outstanding
stock. The term usually refers to a
company that does not produce goods or
services itself; rather, its purpose is to
own shares of other companies to form a
corporate group.

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  A conglomerate is the combination of two
or more corporations engaged in entirely
different businesses that fall under one
corporate group, usually involving a
parent company and many subsidiaries.
Often, a conglomerate is a multi-industry
company.

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  Revenue is the total amount of income
generated by the sale of goods or
services related to the company's
primary operations.

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  Profit, conversely, is the infamous bottom
line. This is called net profit, because it is
the amount of income that remains after
accounting for all expenses, debts,
additional income streams and operating
costs.
 Profit = Revenue – (Expenses + Debts)

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  Plain and simple, stock is a share in the
ownership of a company. Stock
represents a claim on the company's
assets and earnings. As you acquire
more stock, your ownership stake in the
company becomes greater. Whether you
say shares, equity, or stock, it all means
the same thing.
 A stock is represented by a stock
certificate.

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  The stock market is the market in which
shares of publicly held companies are
issued and traded either through
exchanges or over-the-counter markets.

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  Face value is the nominal value or Peso
value of a security stated by the issuer.
For stocks, it is the original cost of the
stock shown on the certificate. For
bonds, it is the amount paid to the holder
at maturity,

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  Common stock is, well, common. When
people talk about stocks they are usually
referring to this type. In fact, the majority
of stock is issued is in this form. We
basically went over features of common
stock in the last section. Common shares
represent ownership in a company and a
claim (dividends) on a portion of profits.
Investors get one vote per share to elect
the board members, who oversee the
major decisions made by management.

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  Preferred stock represents some degree
of ownership in a company but usually
doesn't come with the same voting rights.
With preferred shares, investors are
usually guaranteed a fixed dividend
forever. This is different than common
stock, which has variable dividends that
are never guaranteed.
 Another advantage is that in the event of
liquidation, preferred shareholders are
paid off before the common shareholder.
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  A dividend is a distribution of a portion of
a company's earnings, decided by the
board of directors, to a class of its
shareholders.
 Dividends can be issued as cash
payments, as shares of stock, or other
property.

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  A bond is a debt investment in which an
investor loans money to an entity
(typically corporate or governmental)
which borrows the funds for a defined
period of time at a variable or fixed
interest rate.
 Bonds are used by companies,
municipalities, states and sovereign
governments to raise money and finance
a variety of projects and activities.

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  Corporate Bonds
 Government Bonds
 Treasury Bonds (more than 10 years)
 Treasury Notes (1 to 10 year
 Treasury Bills (90 days to 1 year)
 Junk Bonds - refers to high-yield or
noninvestment-grade bonds

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  A coupon rate is the yield paid by a fixed-
income security; a fixed-income
security's coupon rate is simply just the
annual coupon payments paid by the
issuer relative to the bond's face or par
value. The coupon rate is the yield the
bond paid on its issue date.

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  It is the chance that companies or
individuals will be unable to the required
payments on their debt obligations.
Lenders and investors are exposed to
default risk in virtually all forms of credit
extensions.

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  It is the amount charged, expressed as a
percentage of principal, by a lender to a
borrower for the use of assets. Interest
rates are typically noted on an annual
basis, known as the annual percentage
rate (APR).

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  Capital gain is an increase in the value of
a capital asset (investment or real estate)
that gives it a higher worth than the
purchase price.
 The gain is not realized until the asset is
sold.

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  It is an asset that can be converted into
cash quickly, with minimal impact to the
price received in the open market. Liquid
assets include money market
instruments and government bonds.

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  It occurs when an individual investor,
business or financial institution cannot
meet short-term debt obligations. The
investor or entity may be unable to
convert an asset into cash without giving
up capital and/or income due to a lack of
buyers or an inefficient market.

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  A mutual fund is an investment vehicle
made up of a pool of funds collected from
many investors for the purpose of
investing in securities such as stocks,
bonds, money market instruments and
similar assets.
 Mutual funds are operated by money
managers, who invest the fund's capital
and attempt to produce capital gains and
income for the fund's investors.

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  It is an investment company that offers a
fixed portfolio, generally of stocks and
bonds, as redeemable units to investors
for a specific period of time. It is
designed to provide capital appreciation
and/or dividend income.

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