Microeconomics 2nd Sem Preliminary Notes PDF

**MICROECONOMICS** *2^nd^ Sem Preliminary Notes* **Introduction** - **Economics**: Economics studies how individuals utilize their limited resources to satisfy their unlimited wants. **Traditionally, Economics is divided into:** 1. Consumption 2. Production 3. Exchange 4. Distribut...

**MICROECONOMICS** *2^nd^ Sem Preliminary Notes* **Introduction** - **Economics**: Economics studies how individuals utilize their limited resources to satisfy their unlimited wants. **Traditionally, Economics is divided into:** 1. Consumption 2. Production 3. Exchange 4. Distribution 5. Public Finance 6. Economic Planning 1. **Consumption** 2. **Production** 3. **Exchange** 4. **Distribution** 5. **Public Finance** 6. **Economic Planning** **Modern Economists divide the subject into:** 1. Microeconomics 2. Macroeconomics - These terms were coined by Ragnar Frisch in the year 1920. **Microeconomics** - The term microeconomics is derived from the Greek word "MIKROS," which means small. In microeconomics, attention is concentrated on a very small part of individuals. **Definitions** - K. E. Boulding: "Microeconomics is the study of particular firms, particular households, individual prices, wages, incomes, individual industries, particular commodities." - Prof. Hansen: "Microeconomics is that branch of economics which is concerned with individual firms, their output and costs, the production and pricing of single commodities, wages of individuals, etc." - Prof. McConnell: "In microeconomics, we examine the trees, not the forest. Microeconomics is useful in achieving a worm's-eye view of some very specific components of our economic system." **Features of Microeconomics** 1. **Study of Individual Aspects**: It studies individual behavior, firms, product prices, and the equilibrium of consumers and producers. 2. **Use of Partial Equilibrium**: It deals with the equilibrium of a consumer, producer, or firm at a time. 3. **Price Theory**: Price theory is central to microeconomics, considering price as the cause for both consumption and production. 4. **Study of Isolated Variables**: It studies individuals and firms, avoiding aggregates like income and employment. 5. **Unrealistic Assumptions**: Microeconomics depends on unrealistic assumptions like ceteris paribus. 6. **Does Not Consider Time**: The influence of time is neglected, making it static in nature. 7. **Analysis of Factor and Product Prices**: Microeconomics studies factor prices and product prices separately. 8. **Provides Worm's Eye View**: Microeconomics provides a detailed view of economic activities. **Scope of Microeconomics** - Gardner Ackley: "Price and value theory of households, firms, and industries; most of the production and welfare theories are of microeconomic variety." **Scope Includes:** - Theory of Product Pricing - Theory of Factor Pricing - Theory of Economic Welfare **Theory of Product Pricing** - It includes theories of consumption and demand, production and cost, and market equilibrium. **Microeconomics tries to solve three fundamental problems:**\ A. How are resources allocated for the production of goods and services?\ B. How are goods and services distributed among people?\ C. How efficiently are goods and services distributed? - The allocation of resources is determined by relative prices of goods and services. Price determines resource allocation and is influenced by demand and supply. **Microeconomics analyses price determination and resource allocation in three stages:** 1. The equilibrium of individual consumers and producers. 2. The equilibrium of a single market. 3. The simultaneous equilibrium of all markets. **An individual is in equilibrium when his satisfaction from consumption is maximized.**\ **A producer is in equilibrium when he is capable of maximizing profit.** **Market** - A market is a place where goods and services are exchanged, broadly classified into: 1. Product Market 2. Factor Market **Product Market**: Deals with products/goods. **Factor Market**: Deals with factors of production. - Product market equilibrium occurs when the quantity supplied equals the quantity demanded, while factor market equilibrium implies equality of factor supply and demand. **Theory of Factor Pricing** - It rewards factors of production and includes theories of rent, wages, interest, and profit, showing the relative share of factors in national income. **Microeconomics also studies the interrelation between product and factor markets.** **Welfare Economics** - Microeconomics examines the efficient allocation of scarce resources among the people of a country. Efficiency in resource allocation is part of welfare economics, which includes individual and social welfare. **Individual welfare** is maximized when reallocating resources makes a consumer better off without making someone else worse off. **Producer welfare** is maximized when reallocating resources in production increases output without reducing the output of other commodities. **Social welfare** refers to the overall efficient reallocation of resources, increasing when society benefits without negatively impacting individuals. **USES OF MICROECONOMICS** 1. Helps to understand the working of the economy. 2. Aids in understanding price determination. 3. Assists in resource allocation. 4. Guides business executives. 5. Provides tools for policy formulation. 6. Supports international trade. 7. Helps in public finance. 8. Assists in examining welfare conditions. 9. Provides a base for production. 10. Aids in model building. **LIMITATIONS OF MICROECONOMICS** 1. Provides a partial picture of the economy. 2. Assumes full employment. 3. Laissez-faire policy beliefs may not apply. 4. Inadequacies in analysis. **Differences Between Micro and Macroeconomics** **MICROECONOMICS** **MACROECONOMICS** ------------------------------------------------- --------------------------------------------------------------------------- 1\. Study of individual units 1\. Study of the economy as a whole 2\. Uses partial equilibrium technique 2\. Uses general equilibrium technique 3\. Price theory is central 3\. Income theory is central 4\. Deals with small parts of the system 4\. Embraces the entire economic system 5\. Deals with micro variables 5\. Deals with macro variables 6\. Focus on pricing and distribution problems 6\. Pertains to national income, economic growth, and general price level 7\. Covers theory of value and economic welfare 7\. Covers income, employment, and monetary theory 8\. Provides a worm's-eye view 8\. Provides a bird's-eye view **Functional Relationships** **Constants and Variables** - Economics studies the relationships among variables. Functional relationships explain the cause-and-effect relationships. **Example**: - D=f(P)*D*=*f*(*P*) - Here, demand is dependent on price; demand is the dependent variable, and price is the independent variable. **USES OF FUNCTIONAL RELATIONSHIPS** 1. To find out relationships. 2. To determine determinants. 3. To simplify descriptions. 4. To present diagrammatically. 5. To increase clarity and accuracy. **Constants and Variables** - Economics deals with measurable quantities. Constants remain the same throughout analysis, while variables change values. **Example**: - D=f(P)*D*=*f*(*P*) - Both demand and price can be variables, but in some cases, either may remain constant. **AN ECONOMIC HISTORY OF THE PHILIPPINES**\ ONOFRE D. CORPUZ **ONOFRE D. CORPUZ** - A writer born in Camiling, Tarlac. - Served as Secretary of Education from 1968-1971 and 1979-1983. - The 13th President of UP from 1975-1979. **Some of his publications include:** 1. **The Roots of the Filipino Nation** 2. **National Glories: The Events of 1872** (editor) 3. **Historia de Uno de los Iniciadores de la Revolucion Filipina** (English translator) 4. **Keeping the Spirit of 1896 Alive** 5. **Saga and Triumph: The Filipino Revolution Against Spain** 6. **An Economic History of the Philippines** **OUTLINE:** - **1565:** Pre-colonial Native Society - **1570+300:** Spanish Colonization - **1896-1903:** War Economy - **1900-1940:** The American Enterprise **1565: PRE-COLONIAL NATIVE SOCIETY** Population estimates were a little over half a million (J.F. del Pan, Revista de Filipinas) -- this number is questionable due to: 1. Difficulty in counting in an archipelago 2. Only "tribute-paying" natives were counted 3. Parish or pueblo populations recorded by friars may have omitted many - Southeast Asia was influenced by trade from China, India, and Arabia, which also brought religion. - Islam spread towards the outskirts of Visayas, Palawan, Batangas, and Tondo-Manila. - There are no native writings or accounts on economy or politics, including the Tarsila of the Sultanate of Sulu or Maguindanao. **BARANGAY** - Indigenous settlement - The name originated from the vessel that carried the founding group to the island, according to Juan de Plasencia. - Barangay culture served as a form of indigenous governance, organized by kinship. - The existence of particularism is shown by the hundreds of languages spoken, even today. - The barangay economy was closely linked to water resources. - Technology included boat-making, pottery, ornament-making, spinning and weaving, fish corrals, fowl, swine, goat-raising, fermentation, and rice cultivation. - Governance was overseen by the datu. - There are no records of inter-barangay trade, and coinage was absent; barter was the norm. - The archipelago had limited participation in Southeast Asian trade, primarily supplying pearls and slaves from Jolo. **1570+300: SPANISH COLONIZATION** - - - Laws declaring that due to voyage costs and the expenses of the regime and church in the Indies, tributes previously paid to datus were now directed to the king. Conquistadors who supported the king were rewarded through this tribute system. - Awards to conquistadors were often unsatisfactory, as some districts remained unconquered. - Communities organized by the Spaniards, larger than old barangays, housing around 500 families. - Featured a central square with a church, convent, town hall, and residences. - Aimed to keep natives contained while ensuring they produced food surpluses for their colonizers. - Pueblo lands introduced a new land system, granting each family a house and fields. - Natives were employed in agriculture and required to raise livestock. - The carabao was trained to pull plows and harrows. - Plows were of Fukienese design, with plow-making becoming a monopoly. - Friars spread new technology by bringing trained farmers to other parishes. - The pueblo system and agriculture led to significant socio-economic transformation, reducing pueblo families to a single occupational class. - Present-day haciendas originated from large land grants awarded by the king to church orders, laypersons, and loyal subjects. - Friars built manor houses on these estates and brought natives and mestizos as workers. - Eventually, these haciendas evolved into pueblos, with farmers referred to as inquilinos or renters. - A basic contribution of 8 reales (12.5 per real). - Exemptions included gobernadorcillo, cabezas, soldiers, the sick, those with failed crops, and individuals aged 60 and over. - Tribute commodities primarily consisted of foodstuffs like rice or palay, salt, chicken, eggs, meat, swine, and liquor. - A system mandating compulsory labor services from natives, typically domestic tasks for the encomendero. - Service roles included bearers, rowers, or fighters, with daily rice rations as compensation. 1. Legal trade involved Chinese and lay Spanish encomenderos. 2. Prohibited trade included transactions by friars and provincial alcaldes. - Facilitated trade between Chinese and Spanish through Manila. - Two galleons per year from Manila, each with a cargo limit of 250,000 pesos. - Officially ended in 1813. - The economy was influenced by: 1. The archaic king\'s estate institution 2. Land tenure and pueblo agriculture conditions 3. A decline in the tributary population - Foreigners were permitted to reside and engage in any occupation.\ **1884** -- Tribute replaced by fees for identity (cedula). - The lack of a strong manufacturing sector resulted in a division of society and economy into impoverished and wealthy classes. - Four significant conflicts occurred: 1. Christian Filipino revolution against Spain 2. Spanish-American war 3. Hostilities initiated by the US in the Filipino-American War in 1899 4. US conflict against Muslim Filipinos in Mindanao from 1899-1912 - Rural workers, small farmers, and hacienda tenants comprised the majority of fighting men. - Local economies were disrupted due to fighting and port closures. - Tax collection was hindered in many provinces, leading to land dispossession of families on friar haciendas. - Severe disruptions were noted in pueblo agriculture. - The carabao was reported to have been slaughtered for food, and rice production dropped to 25% of pre-war levels. - There was no formal administrative experience during the Spanish era. - A secret society formed by Filipinos, evolving from pueblo chapters united by the common goal of independence. 1. Autonomy and authority for people to manage their affairs and resources. 2. Taxation on domestic trade adopted as a rational fiscal policy. 3. Establishment of a modern cadastral system with land titling and reform policies. - A historical necessity for a new approach to land arose as fighting men were dispossessed by friar haciendas. - The 1899 Constitution addressed friar hacienda lands, declaring all properties in possession of religious corporations as belonging to Filipinos. - The US occupation government in Manila aimed to expand American trade by making the Philippines a market for US exports and a source of cheap raw materials. - Foreign trade grew from P63,779,640 in 1895 to P515,995,136 in 1940, subjecting the country to significant economic changes. - Increased Filipino participation in government and the establishment of a modern civil service. - Abolishment of obligatory contributions from Spanish friars. - Provincial and municipal governments were granted fiscal autonomy. 1. Land tax 2. Customs revenues 3. Local government revenues