ECONOMICS (Econ.

)
Comes from the greek word “OIKOS” which means
“house”, “NOMIA” which means “management”
def. A social science that deals with man’s problem of
using scarce resources to satisfy human wants
Household and the Economy is faced with a number of
factors to consider in coming up with any decision .

Basic Terms
Goods- anything that yields satisfaction
Economic Goods- goods which are useful and scarce and
can be acquired only at some effort or cost
Economics Resources –inputs used in the production of
goods and services.
Basis of Economics
Material wants are insatiable or unlimited but the
economic resources available are scarce or limited.

Scarcity
Unlimited human needs and wants in a world of
limited resources

All men are born with basic needs and desires. As we

grow older , our wants increase and diversify. This can
apply to an individual, a household, a group or to the
country’s economy.
Our wants are affected by the following factors:
Demonstration Effect- the influence of consumption
behavior of others on our own.
Population Growth- more people every year means
more wants to satisfy
Rising Income-as the income rises, we tend to allocate
a smaller percentage for food expenditures, thereby
increasing our demand for non food items.
Urbanization-agricultural areas that become
progressively industrialized or rural folk moving to urban
areas are exposed to a new environment and tend to
acquire new different wants.
Economizing Problems
Basic Economic Questions
• What goods to produce and how many should be produced?
• What resources should be utilized?
• At what price should goods be sold?

Trade off
losing one quality or aspect of something in return
for gaining another quality or aspect.

Movie vs. Food Leisure vs. work

Efficiency vs. equity

In making decisions require trading off one goal

against another.
Economic Goals

1. Economic Growth
2. Full Employment
3. Price Stability
4. Economic Freedom
5. Equitable Distribution of Income
6. Economic Security
7. Balance of Trade
Economic Resources
1. Land- refers to all natural resources, which
are given by and found in nature
2. Labor-any form of human effort exerted in
the production of goods and services
3. Capital-man made goods used in the
production of goods and services.
4. Entrepreneur-one who decides in the
combination of land, labor and capital
Types of Economic System
1. Traditional Economy-a customary economy in
which production is based in the traditional
manner of doing things
2. Command Economy- means of production is
owned by the government, there exist a
collective determination of economic decisions
3. Market Economy-resources are privately
owned and decisions are made by the people
themselves.
2 Fields of Economics

Macroeconomics
a division that deals with aggregates, the
economy as a whole i.e. income, output,
employment

Microeconomics
a division that studies the economy in parts
i.e. price system, individual consumer
Opportunity Cost
Cost or benefits foregone in the alternative use of a
resource

Consumption Possibilities Line/ Budget Line

connection of possible combinations, downward
sloping line that reflects an inverse relationship
between consumption
 Demand and Supply
Demand-quantity that buyers are willing to buy

Supply-quantity that buyers are willing to sell

Demand Schedule-the quantities consmers are willing

to buy of a good at various prices.

Supply Schedule –the quantities producers are willing

to offer for sale at various prices
Price Ceiling
is the maximum limit at which price of a
commodity is set

Law of Demand
As price increases, the quantity demanded of
the product decreases, but as price decreases
the quantity purchased will instead increase.
Law of Supply

As price increases, the quantity suppliers are

willing to buy also increase, but as price
decreases the quantity suppliers are willing to
sell also decreases.
 Elasticity of Demand and Supply
• Elasticity is the responsiveness of
demand/supply to a change in its
determinant.

• Price Elasticity-the percentage change in

quantity compared to a percentage change in
price.
 Income Elasticity of Demand
• Percentage Change in Quantity demanded
compared to the percentage change in
income.

• Income Elasticity of Demand

Percentage change in quantity demanded
compared to the percentage change in income
 Substitute vs. Complementary
Substitute goods
Goods used in place of each other

Complementary Goods
Goods that supplement each other and are
therefore used together
Price Elasticity of Demand

is the degree of responsiveness of quantity

demanded to a change in price.

Price Elasticity of Supply

Is the degree of responsiveness of quantity
supplied to a change in price
 Consumer Buying Behavior
• Utility is the satisfaction derived from the consumption of
a commodity which determines consumption and demand
behavior.

• Variables in Consumer Buying Behavior

1. Importance of Purchase
2. Personality Traits
3. Financial Status
4. Time Pressure
5. Social and Organizational Setting
6. Social Class
7. Culture
Maslow’s Theory of Motivation
 Marginal vs. Total Utility
• Marginal Utility refers to the additional
satisfaction derived from consuming an added
unit of good per unit of time.

• Total Utility refers to the satisfaction derived

from consuming specific quantities of a good.
Utility Schedules

Consumption Total Utility Marginal Utility

1 10 10

2 15 8

3 17 6

4 20 5

5 22 -4

6 24 -8

7 28 -12
Law of Diminishing Marginal Utility
states that as additional units are consumed,
the additional satisfaction derived from each
additional unit diminishes per unit consumed.

Law of Diminishing Returns-”the gain is not

worth the pain”
states that as a firm uses more and more units
of one factor of production with other factors
remaining constant, the additional
productivity of every new unit of that input
will be diminishing.
 Income and Substitution Effects
• One of the two effects caused by a price
change (the other is income effect), it induces
a consumer (whose income has remained the
same) to buy more of a relatively lower-priced
good and less of a higher-priced one.
• Substitution effect is always negative:
consumers always switch from spending on
higher-priced goods to lower-priced ones as
they struggle to maintain their living standards
in face of rising prices.
Marginal product- additional product brought
about by adding an additional resource output
Productivity-ratio of output over input

Profit- difference between revenue and cost

Returns to Scale –measures how output changes relative

to resource inputs

Isoquant- combinations of resource input that produce

the same level of output

Isocost-combinations of production resources that a given

budget can buy
Theory of Production
the cost-of-production theory of value is the belief
that the value of an object is decided by the
resources that went into making it

Cost and Benefit Analysis

weighing the total expected costs against the total
expected benefits of one or more actions in order to
choose the best or most profitable option
Market-collection of Suppliers and Buyers

Types of Market Structure

1. Pure Competition
• The market consist of buyers and sellers trading in a uniform commodity .

Example of goods such as wheat, copper, or financial securities. No single

buyer or seller has much effect on the going market price. A seller can not
change more than the going price, because buyer can obtain as much they
need at the going price. In a purely competitive market, marketing research,
product development, pricing, advertising, and sales promotion play little or no
role. Thus, sellers in these markets do not spend much time on marketing
strategy
Pure monopoly:
• In economics, an industry with a single firm that produce a product, for which
there are no close substitutes and in which significant barriers to entry prevent
other firms from entering the industry to compete for profit is called pure
monopoly.

Example: When the ‘PLDT’ Telecommunications service company first started

their business they were the only telecommunications provider then. Before
the ‘Globe lines, Digitel, and Eastern Telecom came into the market, they
enjoyed pure monopoly.

There are two types of pure monopoly:

1. Regulated monopoly
2. Nonregulated monopoly
• Regulated monopoly: The government permits the company to set rates that
will yield a “fair return”. Example: Power Company and Oil Companies
• Nonregulated monopoly: Company is free to price at what the market will
bear.
Monopsony
• This is the market situation where there is only one
buyer in the market against a number of sellers.

Monopolistic competition
• In economics, the market consist of many buyers and
sellers who trade over a range of prices rather than a
single market price is called monopolistic competition. A
range of price occurs because sellers can differentiate
their offers to buyers. Sellers try to develop difference by
using – customer segments, and in addition to price,
freely uses branding, advertising, and personal selling to
set their offers apart.
Oligopsony
In economics, oligopsony is a market where there is a small number of
buyers for a product or a service. In this market structure, buyers have
power over the seller. Because as there are small number of buyers, if they
are united and pressure the seller to sell the product or service in a
reasonable and affordable price, the seller must have to consider that.

Price discrimination
In economics, if one product or service has different price for different buyers
which is provided by the same provider, then we call that price discrimination
market strategy. A good example of this strategy could be the airlines
company-“Philippine Airlines”.

It has offered different prices for different category of passengers for the same
destination. Such as, it has “Student package” for the students, “Honeymoon
package” for the couples which are of lower price than their regular one.
Gross National Product
The market value of all final products produced by the
resources of the economy during a specified period of time

3 important limitations
– Excludes products not produced by the resources of the
economy as imports
– Includes only those products that can no longer be used
for higher stages of production , those that reached the
higher level of transformation
– Products can be considered final once they flow directly
from the producing units to consumption, government and
the rest of the world.
Gross Domestic Product (GDP)

the market value of all final goods and services

produced within a country in a given period of time

Consumer Price Index (CPI)

provides a general measure of the change in the
average retail price of commodities bought by a
specific group of consumers of a given area and a
given period of time
Phillips Curve

• In economics, the Phillips curve is a historical

inverse relationship between the rate of
unemployment and the rate of inflation in an
economy. Stated simply, the lower the
unemployment in an economy, the higher the
rate of inflation

• Inflation
is a rise in the general level of prices of goods and
services in an economy over a period of time
Labor Economics
Study of economic behavior of employer and
employees in response to changing prices, profits,
wages and working conditions

Managerial Economics
studies the application of the theories, tools and
findings of economic analysis to managerial decision
making
Monetary Policy
that which affects savings, investment, and
money supply

Fiscal Policy
that which controls taxes and government
expenditures

Trade Policy
that which affects a country’s exports and
imports