Economics Overview Quiz

Economics

• Studies scarcity and its implications for resource use, goods and services production, growth, and welfare over time.

Positive Economics

• Objective analysis of economic happenings.
• Uses facts and verifiable data to explain economic events.
• Investigates past and present economic activity to predict future trends.

Normative Economics

• Focuses on value-based judgments to improve economic development, projects, and wealth distribution.
• Based on opinions and values rather than empirical data.

Microeconomics

• Analyzes individual economic actors' choices based on incentives, prices, resources, and production methods.

Macroeconomics

• Examines overall economic behavior.

Agricultural Economics

• Studies resource allocation, distribution, and utilization in agriculture.

Cost

• Monetary value of sacrifices made to achieve an objective.
• Includes money expenses incurred by a firm during production.

Fixed Cost

• Remains constant regardless of output levels (e.g., rent).

Variable Cost

• Changes with output levels (e.g., raw materials).

Total Cost

• Sum of fixed and variable costs.

Average Total Costs (ATC)

• Total cost divided by quantity output.

Average Fixed Costs (AFC)

• Fixed cost divided by quantity output.

Average Variable Costs (AVC)

• Variable cost divided by quantity output.

Inventories

• Unsold goods that make up a firm's stock.

The Law of Demand

• Quantity demanded of a good decreases as its price increases, and vice versa (ceteris paribus).

Factors Influencing Quantity Demanded (Besides Price)

• Tastes and preferences
• Income
• Expectations about future prices
• Prices of related goods (substitutes)

Ceteris Paribus

• All other things remain equal.
• Assumption of no change in any other variable.

Shortage

• Occurs when quantity demanded exceeds quantity supplied.

The Law of Supply

• Quantity supplied of a good increases as its price increases, and vice versa (ceteris paribus).

Factors Influencing Supply (Besides Price)

• Cost of production
• Number of firms in the market
• Availability of economic resources
• Technology used
• Government policies

Equilibrium Market

• State where demand equals supply.
• Represents agreement between buyers and sellers on transaction quantities.

Equilibrium Price

• The price at which demand and supply are equal.
• Also known as the "market clearing price".

Disequilibrium

• Occurs when supply and demand are not equal.

Surplus

• Occurs when quantity supplied exceeds quantity demanded.

Elasticity of Demand

• Measures the responsiveness of quantity demanded to changes in market price.

Elasticity of Demand Categories

• Elastic Demand: Large percentage change in quantity demanded due to a price change.
• Inelastic Demand: Small percentage change in quantity demanded due to a price change
• Unitary Demand: Percentage change in price equals percentage change in quantity demanded.
• Perfectly Elastic Demand: Infinite change in quantity demanded with no price change (or a very small change).
• Perfectly Inelastic Demand: No change in quantity demanded despite a price change.

Elasticity Formula (for Demand):

• (Qd1 - Qd2) / (Qd1 + Qd2) / (P1 - P2) / (P1 + P2)

• Where:

  • Q = quantity
  • P = price

Elasticity Coefficient:

• Greater than 1: Elastic demand, quantity changes faster than price
• Equal to 1: Unitary demand
• Less than 1: Inelastic demand, quantity changes slower than price

Determinants of Elasticity of Demand

• Number of substitutes: Products with many substitutes have elastic demand, while those with few substitutes have inelastic demand.
• Price increase in proportion to income: If a price increase has a small impact on a buyer's budget, demand is inelastic. If the price increase is a significant proportion of income, demand is elastic.
• Importance of the product to consumers: Luxury goods are elastic, necessities like food are inelastic.

Elasticity of Supply

• Measures the responsiveness of quantity supplied to changes in market price.

Price Elasticity of Supply (PES) Formula:

• ES = %ΔQs / %ΔP

• Where:

  • %ΔQS = the percentage change in quantity supplied
  • %ΔP = the percentage change in price

Determinants of Supply Elasticity:

• Time: Longer time periods generally allow for greater supply elasticity.
• Ability to produce substitutes: The availability of substitutes for the product influences supply elasticity.

Consumption

• The use of goods and services by households.
• The act of using resources to satisfy current wants and needs.

Consumers

• Individuals who buy or use goods and services to satisfy their wants.
• The final users of an item.

Keynesian Theory

• Suggests that a lack of increased demand for goods and services leads to decreased production.
• Emphasized government intervention to stimulate demand and economic activity.

Inflation

• A sustained increase in the general price level.

Inflation Rate

• The percentage change in the price index from the preceding period.

Consumer Price Index (CPI) Formula:

• CPI = TWP Current / TWP Base Year x 100

Total Weighted Price (TWP)

• Used to calculate the CPI.

Inflation Rate Formula:

• IR = (CPI (Current Yr) - CPI (Past Yr) / CPI of the past year) x 100

Purchasing Power of Peso:

• PPP (Year) = 100 / CPI of the Year

Labor Force

• The portion of the population aged 15 or older, willing to work.

Unemployed

• Individuals aged 15 or older, willing to work, and able to work but unable to find a job.

Underemployed

• Workers who are employed for less than 40 hours per week and are seeking more work.

Visible Underemployment

• The number of individuals working less than 40 hours per week and looking for more work.

Unemployment Rate

• The percentage of the labor force that is unemployed.

Types of Unemployment

• Frictional Unemployment: Occurs when workers are temporarily unemployed while searching for better job matches.
• Structural Unemployment: Results from a mismatch between the available jobs and the skills of the workforce.

The Laissez-Faire Theory

• Advocates for minimal government intervention in the economy, believing that markets will self-regulate.

Malthusian Theory

• Suggests that population growth outpaces food production, leading to resource scarcity and limited living standards.

Money

• Anything widely accepted as payment for goods and services, acts as a store of value and a means of settling debts.

Stages of Payment Evolution

• Autarky: Production and consumption within a family or tribe, money not used.
• Barter: Exchange of goods or services directly for other goods or services.
• Commodity Money: Using uncoined metals (gold, silver, copper) as money.
• Coinage: Standardized metal coins to prevent short weighting (deception in weight).
• IOU: Written promises to pay (I owe you).
• Specialized Bankers: Keeping and lending out a portion of entrusted money.
• Electronic Fund Transfer System/Electronic Money: Transactions through computer terminals and automated systems.

Central Bank of the Philippines

• The country's central bank, publicly owned and a non-profit government institution.
• Responsible for currency issuance, serving as the government's banker, and regulating monetary and financial activities.

Characteristics of the Central Bank of the Philippines

• Publicly owned, non-profit government bank.
• Issues currency and is the ultimate source of money.
• Serves as the government's banker and financial advisor.
• Acts as a "banker's bank" for other banks.
• Serves as the "lender of last resort" to banks in financial emergencies.
• Holds the country's foreign exchange reserves.
• Regulates monetary and financial activities.

The Central Bank of the Philippines was established in 1948

• Formally opened and began operations on January 3, 1949.
• Regulates money supply and supervises the financial system.

Main Objectives of the Central Bank of the Philippines

• Maintaining price stability of the peso.
• Fostering monetary, credit, and exchange conditions conducive to economic growth.

Instruments of Monetary Control

• The Central Bank uses various instruments to regulate money supply and influence economic activity.

Gross Domestic Product (GDP): Formula

• GDP = C + I + G + (X-M)

• Where:

  • C = Consumer spending
  • I = Investment spending
  • G = Government spending
  • X = Exports
  • M = Imports