Economics WW2 Reviewer PDF

Economics WW2 Reviewer Competencies 1.​ Contemporary Economic Issues Facing the Filipino Entrepreneur 2.​ Introduction and Applications of Supply and Demand 3.​ Market Equilibrium | Price Elasticity of Supply & Demand 4.​ Market Structures 5.​ Principles, Tools, and Techniques...

Economics WW2 Reviewer Competencies 1.​ Contemporary Economic Issues Facing the Filipino Entrepreneur 2.​ Introduction and Applications of Supply and Demand 3.​ Market Equilibrium | Price Elasticity of Supply & Demand 4.​ Market Structures 5.​ Principles, Tools, and Techniques 6.​ Identification of Business Opportunities I.​ Contemporary Economic Issues Facing the Filipino Entrepreneur Definition of Terms 1.​ Inflation - general increase in prices of goods and services over time 2.​ Investment -​ Item acquired to generate an income -​ Process of building capital stock (total value of company’s assets used for production) -​ Value of machinery, plants, and buildings that are bought by firms for production purposes Physical Capital Stock - Tangible assets like machinery and tools Financial Capital Stock - Intangible assets like patents, copyrights, and brand equity Essentiality: ○​ Used to address immediate needs like covering current expenses ○​ Used to expand a business ○​ Investment adds to stock of capital 3.​ Rent -​ typically refers to the use of property for a certain amount -​ price paid for the use of land and other natural resources or factors of production that is in fixed supply -​ Traditionally associated with land -​ Scarcity of land is the concept of rent Rental Price - Price paid for using land or capital for a limited period of time Purchase Price - Price paid to own the factor of production and use it for its lifetime 4.​ Minimum Wage -​ Example of price floor -​ If minimum wage is set above equilibrium wage, then it is binding, and the result is a surplus of labor or unemployment -​ R.A. 6727: Entrepreneurs are mandated to pay their workers no lower than the minimum wage. Otherwise, they may be fined and imprisoned. 5.​ Taxes -​ Lifeblood of the government -​ Taxation: act of levying tax so that the sovereign through its law-making body can raise income to defray the necessary expenses of the government -​ Raises revenue to cover government expenditures on the provision of social services such as education, health, and public infrastructure as well as the salaries of public servants -​ Instrument of fiscal policy in regulating the level of total spending to stabilize the economy -​ Altering distribution of income and wealth -​ Controlling the volume of imports into and sometimes exports of certain goods out of the country Type of Taxes Direct Taxes Levied by the government on the income and wealth received by households and businesses to raise government revenue and to act as an instrument of fiscal policy 1.​ Individual income taxes are taxes that are levied on  households 2.​ Corporate income taxes are taxes on businesses Indirect Taxes Levied on goods and services to raise revenue and act as an instrument of fiscal policy 1.​ VAT are taxes on goods and services 2.​ Excise taxes are taxes included on certain products Progressive Taxes Place a greater burden on those best able to pay and put little to no burden on the poor 1.​ Best example is the individual income tax 2.​ People in higher income brackets pay a substantially higher average tax rate than those in the lower brackets Proportional Taxes Place equal burden on all social classes Regressive Taxes Fall more heavily on the poor than on the rich Levied at a decreasing rate as income rises Economic Problems Inflation 1.​ Increases the cost of production 2.​ Reduces consumer purchasing power 3.​ Difficulty in pricing strategies Investment and Relationship between Investment and Interest Rate: Interest Rate -​ Negative relationship  -​ The higher the interest rates, the lower the investments; the lower the interest rates, the higher the investments 1.​ Cost of Borrowing 2.​ Opportunity Cost 3.​ Expected Return on Investment Rentals 1.​ Higher rental costs 2.​ Limited affordable spaces 3.​ Insecure Tenancy 4.​ Additional costs If the cost of buying is higher compared to renting, then more firms would rent than buy so that rents go up. If the cost of buying is lower compared to renting, then more firms would buy than rent so that factor prices go up. The Minimum Wage 1.​ Increased labor costs 2.​ Reduced hiring capacity 3.​ Price increases 4.​ Reduced competitiveness ○​ High labor costs make Filipino businesses less competitive compared to businesses in other countries with lower labor costs II.​ Introduction and Application of Supply & Demand DEMAND - The willingness and ability of the consumer to purchase DETERMINANTS OF DEMAND Income Higher Income, Higher Demand Normal Good - If demand for goods falls when income falls Inferior Good - If demand for goods rises when income falls Size of Market (Population) ​ Rural - Lower demand due to lower population ​ Urban - Higher demand due to higher population Price of Related Goods Become the benchmark for competition ​ Substitute - When a fall in price of one good reduces the demand for another  ​ Complements - When a fall in price of one good raises the demand for another Tastes Age, location, quality and brand name, gender, advertisements, etc. Expectations Expectations about the future may affect your demand for a good/service today Demand Schedule - INVERSE RELATIONSHIP between price and quantity demanded. Demand Curve - Its characteristic is downward sloping. Change in Demand vs. Change in Quantity Demanded Change in Demand denotes a shift of the demand curve. -​ If the demand curve shifts right, it increases. Change in Demand denotes a shift of the demand curve. -​ If demands shift left, it decreases Law of Demand -​ Higher the price, the lower the quantity that consumers are willing and able to buy -​ Lower the price the higher the quantity that consumers are willing to buy SUPPLY - The willingness and the ability of the supplier to supply/sell DETERMINANTS OF SUPPLY Price High Price, Selling Profitable Cost of Inputs Change in the price of inputs leads to a change in the supply, higher price of inputs discourages supplier from supplying Technology The use of technology increases supply but part of it is the cost The more advanced the technology = Bigger the cost Higher cost discourages suppliers from supplying more Productivity Management motivates its workers to do a better job or if trained to work more efficiently, productivity increases Number of Sellers If some suppliers leave the market, fewer goods are offered for sale at all possible prices Taxes & Subsidies If the producer’s inventory is taxed/fees paid to receive a license to produce, the cost of production goes up -​ Subsidies - lowers the cost of production Expectations Anticipation of future events, can affect the supply curve in two ways ​ If producers think the price of their product is likely to go up, they may withhold some of the supply Government The economic role of the government is important as ONE FACTOR Regulation affecting supply Supply Schedule -DIRECT RELATIONSHIP between prices and quantity supplied Supply Curve - Its characteristics is upward sloping Change in Supply vs. Change in Quantity Supplied -​ If the supply curve shifts right, supply increases -​ If the supply curve shifts left, supply decreases Law of Supply  -​ The higher the price, higher the quantity that sellers are willing and able to supply. The lower the price, the lower the quantity that sellers are willing to supply. APPLICATION OF SUPPLY & DEMAND The Labor Market 1.​ Labor - Value workers add to the product/service through their work a.​ In the market for labor, demanders are firms who need labor to produce goods, while suppliers are workers who offer their services in exchange for a wage 2.​ Labor Demand Curve - Downward sloping curve a.​ Reflects an inverse relationship between wages and quantity of labor demanded 3.​ Labor Supply Curve - Upward sloping curve a.​ Reflects a direct relationship between eagles and quantity of labor demanded Shift in Labor Demand The Demand for Output The greater the demand for output, the more workers firms need to hire Productivity How much revenue a worker can generate for the firm Technology Depends on whether it is a substitute or a complement of labor The Number of Firms Increases or decreases the demand for workers Government Regulations Can increase demand for certain workers and reduce demand for others Cost of Inputs Depends upon the inputs necessary in the production process Inward Shift of Labor Demand Curve - decrease in the price of the good/services being produced Outward Shift of Labor Demand Curve - New technology that serves as a complement for labor SHIFT IN LABOR SUPPLY Number of Workers Can increase due to such factors as population growth and immigration Required Qualifications Reduces the supply of labor Fewer people may have the necessary requirements to qualify for the position Government Policies May either increase or decrease the labor supply Inward Shift of Labor Supply Curve - Increase in the wages offered by a substitutable job Outward Shift of Labor Supply Curve - Improvement in worker benefits or other non-momentary rewards received from being employed LABOR MIGRATION AND OVERSEAS FILIPINO WORKER PHENOMENON Labor Migration - movement of people from one country to another for the purpose of employment. -​ The migration of labor affects the labor markets of both their host countries where they work and their home countries where they came from In Host countries - the entry of foreign workers increases the supply of labor, raises, production and lower wages In Home countries - migration of its workers to countries with higher wages reduced the labor force, reduces production and raising wages. Foreign Exchange Market 1.​ Currency - refers to the money in different countries 2.​ Foreign Exchange Market - composed of households, firms, and investors exchanging one currency into another 3.​ Exchange rate - Price of one currency in terms of another 4.​ Floating - changes according to market supply and demand 5.​ Fixed - set by the central bank against one or more currencies a.​ Government/central bank will intervene to keep the price fixed Application of Law of Demand on Forex Markets -​ Cheaper the dollar, higher demand -​ Expensive the dollar, lower demand -​ INVERSE RELATIONSHIP If the PH significantly increases its imports from US, then the PH Peso will appreciate against the dollar Factors that Shift the Supply and Demand Curve Balance of Trade The difference between the values of a country’s exports and the value of its imports for a given period A country that imports more than exports in terms of value has trade deficit A country that exports more than imports has a trade surplus Interest Rate Differential The difference between the interest rate of two different countries The motivation for investment whether domestic or foreign is to earn a return. If rates of return in a country look relatively high, then that country will tend to attract funds from abroad. Relative Inflation High inflation rate than other countries, buying power of its currency is eroding. It will tend to discourage anyone from wanting to acquire / to hold the currency Expectations Housing Market -​ The demand for housing at any given time follows the law of demand -​ Higher cost of the house = lower is the quantity of housing demanded  FACTORS THAT SHIFT HOUSING DEMAND Population Example: Increase in Population Income Example: Higher Income Interest Rate Example: Low Interest Rates Expectations of Future Prices Example: People expect housing prices to go up The Philippine Housing Shortage Shortage - the quantity demanded is more than the quantity supplied Real Estate Boom and Bust -​ Unemployment is falling and incomes are rising which leads to Real Estate Boom. -​ Increase in demand for housing significantly outspaces the increase in supply -​ Boom could end abruptly and turn into a bust when economic growth slows down or grinds to halt Rent & Price Structure -​ Price structure of housing is directly related to rents -​ The higher the rent a house commands, the highers its price -​ First reason - people can choose between buying and renting -​ Second Reason - housing is not only a good that is consumed, but also an investment III.​ Market Equilibrium Market - interaction between buyers and sellers determined by price Market Equilibrium -​ Intersection of demand and supply means that demand is equal to supply -​ It is at the point of intersection that suppliers agreed to supply at a certain  quantity and prices and buyers agree to buy it for that quantity and price -​ Above equilibrium point = surplus -​ Below equilibrium point = shortage -​ Note: prices adjust to equalize supply and demand, thereby eliminating surplus and shortages Surplus Shortage -​ Excess supply -​ Excess demand -​ Supply > demand -​ Demand > supply -​ Solution: lower price until such time -​ Solution: increase the price until that the market will reach its such time that the market reaches its equilibrium equilibrium Price Control -​ Price floor: minimum price below which exchange is not permitted (if price floor is above the equilibrium price, the result will be excess supply) -​ Price ceiling: maximum price that sellers may charge for a good usually set by government Price ceiling is below the equilibrium: ○​ Several economic consequences can occur ○​ Price ceilings help consumers by lowering prices ○​ Consumer protection: primary reasons for implementing a price ceiling below equilibrium to protect consumers, particularly those with lower incomes ○​ Affordability and Access: price ceiling below equilibrium is often employed for goods and services deemed essential for the well-being of the population, such as housing, food, or healthcare ○​ Reduction of Inequality: can be a strategy to  reduce income inequality ○​ Market of Intervention: governments may intervene in markets to address perceived market failures or to achieve social objectives ○​ Preventing Price Gouging: Used during emergencies or crises to prevent excessive pricing Price floor above equilibrium: -​ Helps producers by raising prices -​ Establishes minimum cost for something -​ Keeps a price from falling below a particular level -​ Income Support for Producers: primary reason for implementing a price floor above equilibrium is to provide income support to producers, particularly in industries where producers may face financial challenges due to low market prices -​ Maintaining Agricultural Sector Stability: price floors are often used in the agricultural sector to stabilize farmer’s incomes -​ Encouraging Investment: Encourages investment and production in a particular industry IV.​ Price Elasticity of Supply and Demand ​ Price elasticity of demand is a measurement of the change in the demand for a product as a result of a change in its price ​ Tells us how much the demand for a product changes when its price changes ​ Tells us whether the demand curve is steep or flat Slope vs. Elasticity -​ Slope: measures the steepness of demand curve at a specific point -​ PED: Measures the responsiveness of quantity demanded to a change in price Price Elasticity of Supply -​ Measures the responsiveness of the quantity supplies of a good or service to a change in its market price -​ Quantifies how much the quantity supplied changes in response to a price change V.​ Market Structures -​ Organizational and competitive characteristics of a market -​ Framework that shapes how firms interact and compete within a specific industry Definition of Market Structure: The organizational and competitive characteristics of a market. ​ Key Factors: ○​ Number of firms ○​ Product differentiation ○​ Barriers to entry ○​ Control over price Perfect Competition ​ Characteristics: ○​ Many buyers and sellers ○​ Homogeneous products ○​ Perfect information ○​ Easy entry and exit ​ Price Taker: Firms have no control over price; they must accept the market price. ​ Long-Run Equilibrium: Firms earn zero economic profit. ​ Real-world Example: Agricultural markets (e.g., wheat, corn) Monopoly ​ Characteristics: ○​ Single seller ○​ Unique product with no close substitutes ○​ High barriers to entry ​ Price Maker: The monopolist can set the price. ​ Long-Run Profit: Monopolists can earn positive economic profits in the long run. ​ Real-world Example: Public utilities (e.g., water, electricity) Monopolistic ​ Characteristics: Competition ○​ Many sellers ○​ Differentiated products ○​ Relatively easy entry and exit ​ Price Maker: Firms have some control over price due to product differentiation. ​ Long-Run Profit: Firms may earn positive economic profits in the short run, but in the long run, profits are driven to zero. ​ Real-world Example: Restaurants, clothing stores, hair salons  Oligopoly ​ Characteristics: ○​ Few sellers ○​ Homogeneous or differentiated products ○​ Significant barriers to entry ​ Interdependence: Firms' decisions are influenced by the actions of other firms. ​ Price Rigidity: Prices tend to be stable, but firms may engage in strategic pricing behavior. ​ Real-world Example: Automobile industry, telecommunications industry Conclusion ​ Market Structure Implications: Different market structures have significant implications for consumer welfare, economic efficiency, and government regulation. ​ Policy Implications: Understanding market structure helps policymakers design appropriate regulations to promote competition and protect consumers. VI.​ Principles, Tools & Techniques in Industry and Environmental Analysis The Principles of Industry Competition 3 Types of Competitors 1.​ Competitors have the same qualities and characteristics 2.​ Competitive Advantage 3.​ Colluding a.​ This occurs when competitors conspire as one having the same objectives. This is so that there are few competitors that it is easier for them to coordinate and control prices and output to give equal benefits to all Customers Customers are the heart of any business -​ Knowing and understanding your customers are essential to identify the good and  service to present to the market Suppliers The source of materials used in production by a producer, seller or manufacturer Suppliers affect how a business operates. Reliable and cost-effective suppliers ensure smooth business operations EXAMPLE: A bakery sourcing flour from a consistent supplier can deliver products on time. Competitors Businesses should always analyze their rivals. Knowing their strengths and weaknesses can help in finding opportunities Example: Shopee and Lazada constantly innovate their platforms to attract more users. Substitutes These are the alternative products or services that customers might choose instead An increase in the price of one good increases the quantity demand of the substitute If a consumer finds good A and B to be similar, then an increase in the price of good A will make the consumer turn to good B Tools and Techniques ○​ SWOT Analysis - used to analyze an organization or process to evaluate the internal and external factors which may prove favorable or unfavorable in achieving its objectives. ○​ This analysis helps you understand your business’s current position ​ Strengths - What are our advantages? What’s working well? What resources can we deploy? ​ Weaknesses - What abilities are we lacking? Where are we starting to struggle? How can we overcome them? ​ Opportunities - Who might most value our strength? What trends work in our favor? What prizes are withing reach? ​ Threats - What headwinds do we face? Who might challenge us? What could go wrong? ○​ TOWS Analysis - a tool that helps you think strategically by systematically matching the external factors with your internal factors. Developed by Heinz Weihrich in 1982, the TOWS Matrix often called the “next step” after SWOT. ○​ TOWS helps by prodding you to consider how you might use your strengths to take advantage of opportunities (SO), use strengths to avoid threats (ST), Overcome weaknesses by taking advantage of opportunities (WO), minimize weaknesses and avoid threats (WT) ○​ This is a matching tool. It encourages you to pair internal factors with external factors to generate strategic options ​ Strengths/Opportunities - What opportunities match our strengths? Who else would benefit from our current skillset? What are we well-placed to do today? ​ Strengths/Threats - Along what lines can we best compete? What resources can we use to win? How can our strengths let us dodge the threat? ​ Weaknesses vs. Opportunities - What trends might make our weaknesses less relevant? What opportunities are so big, we should address our weaknesses head-on? ​ Weaknesses/Threats - What threats aims directly at our weak points? How can we makes these points stronger? How can we swerve these threats altogether?