Economics: Resource Allocation and Market Dynamics

Basic Microeconomics

• Microeconomics is covered
• The first lesson is the nature and scope of economics
• The second lesson is demand and supply

Learning Objectives

• Define economics
• Apply concepts of scarcity, choice, and opportunity costs for smart choices
• Discuss types of factors of production

What is Economics?

• Economics is derived from the ancient Greek words "Oikos," meaning "home or household," and "Nemein," meaning "management"
• Economics involves allocating scarce resources to meet society's limitless needs and wants
• It also concerns the interaction between businesses and consumers

Basic Terms to Understand Economics

• Needs are essential for survival.
• Wants are desires that aren't essential for survival
• Goods are products or services with value and utility for consumers
• Tangible Goods that can be physically touched
• Intangible Goods are non-physical
• Luxury Goods are an indulgence
• Consumer Goods are products/services for personal use or enjoyment
• Capital/Industrial Goods are used to produce other goods and services
• Economic Goods are both useful and scarce, having a value and price

Basic Economic Concept

• Scarcity is the insufficient resources to meet individual desires and needs, a fundamental issue in economics
• Choice involves comparing alternatives, as scarcity forces us to decide which wants to satisfy
• Opportunity Cost is valuing the next best alternative forgone when making choices due to limited resources

Key Economic Relationships

• Scarce resources and unlimited desires lead to scarcity
• Scarcity and alternative uses is why choice exists
• Choice implies that there is an opportunity cost

Central Economic Problems of any Economy

• All modern economies must solve these problems with limited resources to maximize satisfaction
• What to produce requires selecting goods/services and their quantities to meet consumer wants using available resources
• How much to produce is referring to the quantity of each good that has have to compose the total output
• How to produce looks at the production techniques and combining resources for desired output
• For whom to produce addresses the target market for the goods

Three Parts to the Production Process

• Factors of Production
• Producer
• Consumer

Factors of Production

• Land
• Labor
• Capital
• Entrepreneur

Key Questions to Review

• What is Economics?
• What are the Factors of Production?

Scope of Economics

• The divisions of economics/economic activities are production, distribution, exchange, and consumption

Branches of Economics

• Microeconomics deals with individual economic units like consumers, firms, and owners of production factors.
• Microeconomics studies behaviors, product pricing, and factor pricing, is also known as price theory
• Examples include the price of rice, employment in San Miguel Corp., and Purefoods production
• Macroeconomics analyzes behavior of the whole economy, called employment and income analysis
• It looks at overall price levels, national income, international trade, foreign exchange, and unemployment

Economic Theory

• Economic theory consists of ideas and principles that describe how economies function

Approach to Economic Theory

• Positive economics uses provable statements based on facts and figures
• Normative economics uses value judgements

Positive vs Normative Economics

• Positive economics focuses on cause-and-effect relationships, using facts for verification such as increasing the minimum wage results in a higher unemployment rate, or Philippines' GDP being lower than Singapore's in 2018
• Normative economics involves value judgments to formulate economic policies, for example, a government not taxing online businesses or spending more on social works

Economic Model

• The circular flow model is a basic economic model describing the flow of money and products within the economy
• The model represents all economic agents: households and firms
• It divides markets into the markets for goods and services (product market), and the markets for factors of production (resource/factor markets)

Statics and Dynamics

• Statics implies causing to stand or unchanged.
• Dynamics means causing to move, referring to the study of economic change in economics

Demand and Supply

Learning Objectives

• Define what the market is
• Describe and explain the laws of demand and supply
• Determine factors that affect demand and supply

What is a Market?

• A market is where buyers and sellers meet to trade commodities
• Key Components are the buyer and seller

Demand

• Demand is the willingness and ability to buy a product
• It involves the relationship between a good's price and quantity demanded
• Can also be defined as a schedule of the quantities of goods people will buy at different prices

Quantity Demanded

• Quantity demanded is the amount consumers plan to purchase during a specific time period at a specific price

Demand Schedule

• A demand schedule is a table that lists the different quantities demanded of a product at different prices
• Example Schedule:
  • Price of 50, Quantity Demanded of 2,200
  • Price of 45, Quantity Demanded of 2,500
  • Price of 40, Quantity Demanded of 3,000
  • Price of 35, Quantity Demanded of 3,800
  • Price of 30, Quantity Demanded of 5,000
  • Price of 25, Quantity Demanded of 7,000

Demand Curve

• A demand curve is a graph of the change in demand of a good resulting from a change in price over time

Demand Function

• A demand function is a mathematical expression of the relationship between price and quantity demanded
• The formula for demand function is Qd=a-b(P)
• For example Qd=60-2(P)

Data Example for Analysis

• If the Price ($ per gallon) is 1.00, the Quantity Demanded (millions of gallons) is 800
• If the Price ($ per gallon) is 1.20, the Quantity Demanded (millions of gallons) is 700
• If the Price ($ per gallon) is 1.40, the Quantity Demanded (millions of gallons) is 600
• If the Price ($ per gallon) is 1.60, the Quantity Demanded (millions of gallons) is 550
• If the Price ($ per gallon) is 1.80, the Quantity Demanded (millions of gallons) is 500
• If the Price ($ per gallon) is 2.00, the Quantity Demanded (millions of gallons) is 460
• If the Price ($ per gallon) is 2.20, the Quantity Demanded (millions of gallons) is 420

Data Example for Analysis

• A company has performed market analysis, including conducting surveys of potential consumers and has pulled together the following demand schedule.
  • Price per TV (in dollars) of 1,500, Estimated Demand is 1000
  • Price per TV (in dollars) of 1,250, Estimated Demand is 1250
  • Price per TV (in dollars) of 1,000, Estimated Demand is 2000
  • Price per TV (in dollars) of 850, Estimated Demand is 3000
  • Price per TV (in dollars) of 750, Estimated Demand is 5000

Changes in Demand

• Changes are shifts in the demand curve
• An increase in demand: a rise in demand at any given price
• A decrease in demand: a fall in demand at any given price.

Factors That Affect Demand

• Income
• Tastes or Preference
• Number of Buyers
• Price of Complementary Goods and
• Price of Substitute Goods
• Expected Future Price

Income

• Normal Goods products or services show increased demand as consumer income rises
• Inferior Goods show decreased demand as consumer income rises

Price of Complementary Goods and Price of Substitute Goods

• Complementary goods are products that naturally go hand in hand
• Substitute goods performance provides the same function and may be used in place of one another

Supply

• Supply is the willingness and ability of sellers to produce and offer goods/services at various prices during a time period
• Entrepreneurs are both suppliers and producers

Quantity Supplied

• Quantity Supplied is the total amount of a good/service that producers/suppliers will offer at a given market price

Law of Supply

• Ceteris Paribus is an assumption that price is the only factor that affects supply

Supply Schedule

• A supply schedule is a table that shows the quantity supplied at different prices in the market
• For example, supply schedule for teddy bear:
• Price of 45, Quantity Supplied of 1000
• Price of 40, Quantity Supplied of 900
• Price of 35, Quantity Supplied of 800
• Price of 30, Quantity Supplied of 700
• Price of 25, Quantity Supplied of 600
• Price of 20, Quantity Supplied of 500

Supply Curve

• A supply curve shows the relationship between a product's price and quantity supplied

Supply Function

Supply Function- is a mathematical expression of the relationship between price and quantity supplied. Formula: Qs=100+20(P)

• For example, supply schedule for teddy bear:
• Price of 45, Quantity Supplied of 1000
• Price of 40, Quantity Supplied of 900
• Price of 35, Quantity Supplied of 800
• Price of 30, Quantity Supplied of 700
• Price of 25, Quantity Supplied of 600
• Price of 20, Quantity Supplied of 500

Changes in Supply

• Changes in supply occur as conditions shift, thereby causing shifts of the entire supply curve
• An increase in supply: a rise in supply at any given price causes the existing supply curve to shift to the right
• A decrease in supply: a fall in supply at any given price, causing the existing supply curve to shift to the left

Factors that affect Supply

• Production Costs
• Number of Producers
• Expected Future Price
• Technology
• Government Tax

Factors that affect Supply - Additional Details

• Factor: Production costs, Effect on Supply: Inverse (more $ less product), increased costs cause less supply, and vice versa
• Factor: Number of Producers, Effect on Supply: More producers supplying something, the supply of that thing increases
• Factor: Expected Future Prices, Effect on Supply: Direct, prices will increase, thus more supply will be made
• Factor: Technology, Effect on Supply: Direct, advancements will increase/shift the supply curve
• Factor: Government Tax, Effect on Supply: Inverse increases tax decreases supply

Marketing Prices and System

• A marketing price system occurs when an economy uses prices to expresses the value of producing, trading, and distributing goods and services
• Price is the monetary value established by supply and demand, which is a signal to help make economic choices

Equilibrium Price

• Equilibrium Price is the "market clearing price"
• This occurs when market price results in equal supply and demand
• This price can be determined by comparing supply and demand schedules

Market Supply and Demand Example

• The amount of products that are availible can be compared the demand for the product
• Surplus the the product in excess, and shortade is whem demand outweighs the producible amount of product
• Surplus can be increased by increasing demand
• Conversely, shortage can be avoided by increasing prices, decreasing demand

Daily Demand and Supply of Train example

• The daily demand for and supply of train tickets from Oxford to London in winter months.
• Price of $50 with a quantity demanded of 2200 and quantity supplied of 6000
• Price of $45 with a quantity demanded of 2500 and quantity supplied of 5000
• Price of $40 with a quantity demanded of 3000 and quantity supplied of 4300
• Price of $35 with a quantity demanded of 3800 and quantity supplied of 3800
• Price of $30 with a quantity demanded of 5000 and quantity supplied of 3600
• Price of $25 with a quantity demanded of 7000 and quantity supplied of 3500

Explore fundamental economic activities, resource allocation, and the interplay between micro and macro perspectives. This quiz addresses positive vs. normative statements, circular flow, and the roles of households and firms. Understand how economic principles shape resource management and market behavior.