Economics_Q1.pdf

1.1 NATURE OF ECONOMICS AND APPLIED 6: Markets are a good way of organizing ECONOMICS economic activity Nature of Economics 7: Governments can sometimes improve Studies demand an...

1.1 NATURE OF ECONOMICS AND APPLIED 6: Markets are a good way of organizing ECONOMICS economic activity Nature of Economics 7: Governments can sometimes improve Studies demand and supply market outcomes studies the three economics process - - how the entire economy works consumption, production and distribution of 8: A country’s standard of living depends on goods and services its ability to produce goods and services etymologically, comes from the term 9: Growth of money leads to inflation “oikonomia,” which means “household 10: Society faces a short-run tradeoff management.” between Inflation and unemployment What is Economics? Nature of Applied Economics Is the study of how society manages its Applied Science - is a discipline that deals scarce resources (Mankiw, 2024) with applying existing scientific knowledge is a social science that deals with the based on scientific studies and developing a efficient allocation of the society’s scarce practical application of science - such as resources with alternative uses in meaning technology, methodology, inventions. the unlimited human demands.(Robbins) Applied Economics - problematizes that What is Science? means to utilize economics theories, is a systematic way of understanding the concepts, laws, and methods to real-life structure and behavior of the physical and situations. natural world through unbiased observation The application in everyday life of insights and experimentation gained from these decision-making and In general, science if the pursuit of problem-solving knowledge. Economics + Theory + Application/Use = Economics as Science Applied Economics 1. Observation 1.2 SCOPE OF ECONOMICS AND APPLIED 2. Ask a question ECONOMICS 3. Hypothesis and gather data Scope of Economics 4. Examine test result and form a conclusion Microeconomics 5. Report findings - is a branch of economics that studies a social science - in its broadest sense, it is particular unit of economy the study of society and the manner in - Units of the economy - individuals, which people behave and influence the households, firms, or the government world around us. - Study of the economic behavior of firms and Economics a social science - It is a social individuals science because it deals with people and - Concerned with the process of setting their behavior prices of goods that is also known as Price Mankiw's ten principles of economies theory - how do people make their decision Macroeconomics 1: people face trade-offs - is a branch of economics that deals with 2: The cost of an item is what we need to how the economy works as a whole sacrifice to get it - A divisions of economics concerned with the 3: Rational people look to maximize their entire economy’s overall performance utility - Focuses on the overall flow of goods and 4: People respond to incentives resources and studies the cause of change - how people interact with each other in the aggregate flow of money, the 5: Trade makes everyone better off aggregate movement of goods and  services, and the general employment of resources. - The trade-offs between producing two 1.3 BASIC ECONOMIC CONCEPTS different goods. Adam Smith - When you increase the production of one Laissez-faire policies- “leave alone” the less good, you must decrease the production of the government is involved in the economy, the other good as sources are limited the better off business, and society as a Circular Flow Model whole will be Unlimited Human Demands needs - we cannot live without Wants - we can live without Scarcity & Opportunity Cost Scarcity Economic resources - finite Factors of production - land, labor, capital, and Entrepreneurship - Households provide labor and resources to ○ Land - natural resources the Factor Market to earn income in the ○ Labor - efforts and skills form of wages —> The factor Market ○ Capital - man-made factors supplies these labor and resources to the ○ Entrepreneurship - management of Businesses & Firms to operate efficiently the use of other factors —> The Businesses and Firms use these to Scarcity - central problem of economics produce goods and services to sell them in No scarcity, no economics the Product Market —> These goods and Opportunity cost services are purchased by the Households, Referring to the value of gun. Value that you and the cycle continues. have sacrificed Basic Economics Questions The cost of giving up an alternative by What and how much goods and services to selecting another produce? ○ When going to school, do you walk How to produce the goods and services? or ride in a car? For whom are the goods and services? ○ When deciding where to work, will Economic Systems you choose to work here or outside An organized way in which a state or nation the country allocate its resources and distributes goods Opportunity Cost: Production Possibilities and services in the national community Frontier ○ Traditional economy ○ Market economy ○ Mixed economy ○ Command economy  ○ Transitionary economy from a centrally planned economy to a Traditional Economic System market economy A primitive system which functions basics of Transition economies undergo a set of the basics and generate and utilize few structural transformations intended to resources develop market-based institutions. Government - tribal system Macroeconomics Goals Nomadic resource gathering What are the different macroeconomics goals? Barter system Full employment [employment stability] - No Surplus - produces what to consume transpires when the economy maximizes its Market Economic System productive resources, including labor Factors of production and distribution are Fair income distribution - is concerned with owned and managed by the people how to distribute income in the economy Private property among the population Free competition Price stability - is concerned with Economic freedoms maintaining currency’s purchasing power Profit motive High and sustainable economic growth - Presence of laissez faire essential to increase people’s income and Ideals and philosophy: Capitalism standard of living Command Economic System Balance of Payments (BoP) equilibrium Factors of production and distribution are [external stability] - The foreign currency owned and managed by the state entering a country is equal to the foreign No private property currency leaving the same country. No free competition No economic freedoms NOTES: Public motives Economics can be used in evaluating the Presence of central planning choices and alternatives in our lives. Ideals and philosophy: Communism Economics can be defined as a social Mixed Economic System science that studies the allocation of limited Factors of production and distribution are resources to satisfy unlimited human wants owned and managed publicly and privately The notion of scarcity is central to the study Some private property of economics and because of scarcity, Quasi-free competition people must make choices. Economic freedoms The satisfaction of our unlimited wants as a Public and profit motive society vis-à-vis the scarcity of our Presence of central planning then laisses resources gives rise to the economic faire problem of allocation. Ideals and philosophy: Socialism 1.4 METHODS OF ANALYZING ECONOMIC DATA Methods of Economic Analysis Theories and Models in Economics Economic Theories - simplified version of certain economic Transitionary Economic System phenomena or relationships between A transition economy or transitional economic variables economy is an economy which is changing Economic Models  - representations of empirically tested 1.5 SOCIO-ECONOMIC CONDITIONS OF THE economic social phenomena CONTEMPORARY PHILIPPINES Assumptions Macroeconomic Statistics - conditions set in an economic analysis - “ceteris paribus” Philippine Development Plan 2023-2028 (NEDA) Tools in Illustrating Economic Phenomena Medium and Long-Term Goals Economic Variable AmBisyon Natin 2040: Long Term - Elements of data in a study that can change - By 2040, the Philippines shall be a - Functions - State of the relationship prosperous, predominantly middle-class between variable society where no one is poor. Our peoples D=f(P) “Demand is a function of Price” will enjoy long and healthy lives, are smart Economic Equations and innovative, and will live in a high-trust - mathematical expression of an economic society. concept - Filipinos aspire to have a life that is strongly Y = C + I “Income income to consumption rooted, comfortable, and secure (matatag, and investment” maginhawa, at panatag). Graphs A Plan for Economic & Social - visual representation of the relationship of Transformation: Medium Term two or more variables - Since the articulation of this vision in 2015, there have been improvements in key indicators, notably in the reduction of Economics Equations Sample poverty incidence and increase in per capita GDP GDP = Consumer income. However, the coronavirus disease Spending + Investment (COVID-19) pandemic has rolled back some + Government of these gains and revealed the fragility of Spending + these achievements … Thus, what we need (Exports-Imports) is a coherent Plan for Economic and Social UNEMPLOYMENT Unemployment Rate= Transformation (henceforth, the Plan) that RATE (Number of accelerates economic and social recovery Unemployed / Labor toward inclusive and resilient prosperity. Force) x 100 Underlying Themes of Plan Digital Transformation Ways of Stating Economic Analysis - Government will result in more efficient and Positive Statements faster service delivery to the people, more - “what is”, employed in qualitative and transparency, and fewer opportunities for quantitative approaches corruption at various levels - ”Gross domestic product measures the Servicification productivity of a nation.” - Fosters inter-sectoral linkages to create Normative statements synergies for more value-adding - “should be”,”ought to be” opportunities, expansion of products and - value judgements on economic phenomena markets, and more efficient delivery or policies networks - ” The government should increase taxes on - Can be targeted toward the industries of sugar to decrease mortalities due to ICT, creatives, tourism, and logistics to diabetes.” move up the global value chain. Dynamic Innovation Ecosystem  - Translate knowledge and ideas into new In contrast to crowdsourcing, which looks products and new and better processes. for data or labor, crowdfunding looks for - The government will support the creation of funding for individuals, nonprofit innovation ecosystems and their evolution organizations, or start-up businesses. to become a dynamic ecosystem that Rent eventually generates quality jobs Rent expense is the price a company pays Enhanced Connectivity to use a building or site as a factory, - Digital connectivity as physical connectivity warehouse, office, or retail space. through infrastructure and transport is Instead of being a variable expense, rent similarly important to link markets to each expense is a form of fixed operational cost other. or absorption cost for a corporation. Greater Collaboration between Local and A one or two year contract between the National Governments lessor and lessee that includes the option of - Mandanas-Garcia Ruling of the Supreme renewal often governs rental costs. Court in 2018. One of the significant Entrepreneurs must decide on the most developments in the governance landscape strategic location to put up their business to of the Philippines maximize potentian returns. Some of the Partnership with Private Sector factors that drive changes in rent are the ff: - Larger private sector participation in areas ○ Real estate prices and location can free up public funds for investments in ○ Foot traffic - number of people human capital to address passing by the business; heavier - Examples: the scarring from the pandemic foot traffic, higher rent, but more in health care and education. exposure. Minimum Wage 1.6 ISSUES AND CHALLENGES FACING THE Wages also drive up business' operating FILIPINO ENTREPRENEUR expenses. Higher wage rates, lower profit, Investment, Interest, and Financing vice versa. An entrepreneur can choose between using Following the country’s mandated minimum one’s own funds or through external wage is essential financing In July 1989, the Philippine Congress The first option is to personally bankroll the enacted into law Republic Act No. 6727, idea or use one’s own funds. The fund may also known as the Wage Rationalization come from the entrepreneur’s savings, Act. The Act established a new mechanism loans from family members, or personal for minimum wage determination through securities investments. the creation of the National Wages and External financing refers to sourcing funds Productivity Commission (NWPC) and the from the third party investors who are willing Regional Tripartite Wages and Productivity to provide the required capital in echange Boards (RTWPBs) in all regions of the for a share in the ownership of the idea. country. The NWPC is an attached agency Crowdsourcing is the process of gathering, of the Department of Labor and viewpoints or creative output from a large Employment (DOLE). number of individuals, typically online Through the use of crowdsourcing, businesses may access individuals with a variety of skills and viewpoints from aroung the world while also saving time and money.  It is a form of sales tax imposed on the sale of capital assets such as real estate properties and stocks. The real estate tax is on 6%, while tax on gains from the sale of stocks ranges from 5% to 10%. Income Tax It is a tax on a person's income, Taxes emoluments (salary), profits arising from Taxes are mandatory contributions levied on property, practice of profession, conduct of individuals or corporations by a government trade or business or on the pertinent items entity—whether local, regional, or national. of gross income specified in the Tax Code of In economics, taxes fall on whoever pays 1997 (Tax Code), as amended, less the the burden of the tax, whether this is the deductions if any, authorized for such types entity being taxed, such as a business, or of income, by the Tax Code, as amended, or the end consumers of the business’s goods. other special laws. A business in operation has local and For sole proprietors and business partners, national taxes to settle. Local taxes are they need to settle the personal income tax. typically paid at the city or municipality of On the other hand, corporations file operation, while national taxes (such as corporate income tax. capital gains tax) are being settled at the Income Tax - Personal regional offices of the Bureau of Internal Revenue (BIR). Percentage Tax It is a business tax imposed on persons, entities, or transactions specified under Sections 116 to 127 of the National Internal Revenue Code of 1997 (also known as Tax Code), as amended, and as required under special laws. It is being paid by entities that are exempted Income Tax - Corporate from Value-Added Tax (VAT), with gross annual sales not exceeding a limit prescribed by BIR (PhP550,000.00), and subject to additional guidelines. Specific industries and businesses have varying percentage tax that range from 3% to 15%. Value-Added Tax It is a form of sales tax. It is a tax on 2.1 LAW OF SUPPLY AND DEMAND consumption levied on the sale, barter, Law of Demand exchange or lease of goods or properties Demand - refers to the goods and services and services in the Philippines and on buyers (1) desire;(2) are willing; and (3) has importation of goods into the Philippines. It the ability to purchase at a given price within is an indirect tax, which may be shifted or a given period of time passed on to the buyer, transferee or lessee Law of Demand - state that when price (P) of goods, properties or services. The VAT rises, the quantity demanded (Qd) falls, vice rate is currently at 12% versa, ceteris paribus Capital Gains Tax  kapag nagbago ang price(bumaba) - Equate Qd and Qs quantity demanded will increase substiture Qd and Qs ceteris paribus - all other thing are constant combine like term price and quantity = inversely proportional, divide both sides opposite. Substitue P Demand function - Qd = f(P) Price - independent variable; what happens sa price will effect the demand (demand curve) - always slope downward y axis = price ; x = Quantity P Law of Supply Supply - refers to the goods and services sellers (1)desire; (2) are willing; and (3) has the ability to sell at a given price within a given period. Law of Supply - states that when price (P) 2.3 Market Disequilibrium rises, the quantity supplied (Qs) also Disequilibrium increases, Vice versa, ceteris paribus Surplus - quantity demanded is less than Supply Function quantity supplied. (Qd < Qs) Qs = f(P) Shortage - quantity demanded is greater Supply curve always upward slope. than quantity supplied.(Qd > Qs) 2.2 MARKET EQUILIBRIUM Equilibrium When Qs and Qd meet, the so-called market equilibrium is reached Government Intervention: Price Controls where supply and demand meet Price Floor - supports the producers win-win situation for both (Surplus) Solving Equilibrium Price ceiling - supports the consumers Qd = 100-0.5P Qs =70 + 0.8P (Shortage)  Technology - Advancements in computer 2.4 MOVEMENT OF MARKET FORCES technology has enabled firms to be more Movement Along the Curve profitable by increasing efficiency, while reducing cost of production Input Prices - Firms must determine the right balance of inputs to achieve maximum returns Price of other goods - Manufacturers often produce several products in the same or related line, there could be a shift in prioritizing a certain business line as the price of this certain product rises Movement of the Curve Producer expectation - Producers who anticipate a surge in factor process tend to increase production before the higher input prices become in effect Government Policy - Taxes, subsidies, and import quotas imposed by the government impact quantity supplied of good but in different ways Determinants of Demand Income - This additional money is what drives consumer’s desire to buy or purchase more goods Substitutes - Goods that meet the same requirements or fulfill the same needs as another Complementary - Generally consumed or 2.5 SIMULTANEOUS MOVEMENTS used together. Shows interdependence between these two goods CASE Pe Qe Consumer Expectations - When consumers anticipate the price of a particular product to Supply Increase Increases rise, they will tend to buy more of that remains the product now same, Taste and Preference - Some consumers demand will be inclined to buy certain brand because increase of the perceived status of owning it Supply Decreases Decreases remains the same, demand decreases Supply Decreases Increases increases, demand remains the Determinants of Supply same Supply Increases Decreases decreases, demand remains the same Supply Decreases Indeterminate increases, more than that ↑S > ↓D = demand of a single ↑Qe or increases change from ↑S < ↓D = ↓Qe either forces Supply Increases Indeterminate decreases, more than that ↓S > ↑D = ↓Qe demand of a single or increases change from ↓S < ↑D = ↑Qe either forces Supply Indeterminate Increases increases, ↑S > ↑D = ↓Qe more than demand or that of a single increases ↑S < ↑D = ↑Qe change from either forces Supply Indeterminate Decreases decreases, ↓S > ↓D = ↑Qe more than demand or that of a single decreases ↓S < ↓D = ↓Qe change from either forces