MQA Economics (TEL) PDF

Lesson 1 Introduction to Economics Opportunity Cost - Defined as the value of the next-best alternative when a decision is Economics - Making wise decisions, made; it’s what is given up. It refers to the concerned wit...

Lesson 1 Introduction to Economics Opportunity Cost - Defined as the value of the next-best alternative when a decision is Economics - Making wise decisions, made; it’s what is given up. It refers to the concerned with using scarce resources to best-forgone alternative. We need to choose obtain the maximum of unlimited wants of where or how we should spend our resources society. wisely. Economics as Social Science - How individuals, governments, firms, and nations Consumption Possibilities - Refer to the make choices in allocating our scarce endless possibilities on how a consumer shall resources to satisfy unlimited wants spend his/her budget. (Inverse - Consumer) Social Science - Is defined as the study of Producer Possibilities - The producer's society or how people collectively behave in perspective also has its own set of limitations society and how society influences the way of when it comes to producing their own living of the people. product. (Inverse - Producer) Economics will come into play in the study of social science when we start Factors of Production: understanding that individuals, 1. Land - This is defined as the natural governments, firms, and nations make resources found in nature. Owners of land choices in allocating our scarce receive payment by way of “rent”. (Properties) resources to satisfy our unlimited 2. Labor - It is defined as any human effort wants. that is exerted in production which includes Two Branches of Economics: manual workers (e.g. machine operators, 1. Macroeconomics - Macro” came from the construction workers, electricians, etc.) and Greek word “makros” which means “large”. professionals. (Human Resources) According to the World Bank Group, 3. Capital - It is defined as man-made goods macroeconomics focuses on the performance used to produce other goods and services of economies - changes in economic output, which include machines, equipment, inflation, interest, foreign exchange rates, and buildings, and constructions. (Financial the balance of payments. Resources) 2. Microeconomics – “Micro” came from the 4. Entrepreneurship - Defined as the factor Greek word “mikros” which means “small”. It of production involved in combining the deals with the behavior of individual different resources/ inputs used to produce components as an economic agent such as goods and services. household, worker, firm, and individual owner of production (producer). Basic Economics Problems of Society: Refers to resources of being finite and Scarcity - Refers to resources being finite and limited. Scarcity means we must limited. Scarcity means we must decide how decide how and what to produce from and what to produce from these limited these limited resources. resources.” It means that even though you are 1. What to Produce - Must be able to the richest or poorest man in the world we all determine what goods and services the have the problem of scarcity. consumers need. It is important to note that the goods and services that you are about to offer are based on the needs of the Step #2 - Systematic observation and consumers. gathering of facts that can prove the theory. 2. How to Produce it - Tackles the economic Step #3 - Application of logic to the observed system where we as economists or business facts owners must be able to select the proper Step #4 - Empirical testing to validate the combination of economic resources hypothesis 3. For Whom to Produce - How the goods Step #5 - Repeat the steps and services will be delivered or distributed Positive Economics - Analyzes the to their consumers cause-effect and interrelationship among factors and events. This is an objective study Lesson 1.2 Introduction to Economics of economic decisions. Normative Economics - It passes judgment 1. Traditional Economy - Defined as the on economic decisions by their outcome (as economy where economic decisions are based established by positive economics), on traditions, customs, and practices upheld determining if they conform to some desired over the years and passed down from standard of what is economically good or generation to generation. sound. 2. Command Economy - Defined as the authoritative system wherein the Lesson 1.3 Measuring The Economy decision-making is centralized or “commanded” by the government or a Gross National Product (GNP) - This is planning committee. Any decisions made are defined as the value of all finished goods and imposed on the people who have no say. services produced by the country’s citizens, 3. Market Economy - This is the most both domestically and abroad. democratic economic system because the Gross Domestic Product (GDP) - The value market economy is based on the workings of of the finished domestic goods and services demand and supply, decisions are made on produced in national borders. In other words, what goods and services to produce. under Gross Domestic Product (GDP) the 4. Mixed Economy - Combination of the three income of the Filipinos in the Philippines only. basic types of economic systems. It combines The expenditure approach - Is where we aspects of both capitalism and socialism. classify its components by their end-use expenditure. The products are considered Importance of Economics: final when they have reached the highest level Understand the needs of society, of processing in the economy in the given including the government, and where period. to allocate the resources to meet society’s needs but by their priorities GNP = C + I + G + (X – M) - Formula using rational decisions. C = Household and government consumption I = Investments The Scientific Approach: G = Government expenditures on goods and Step #1 - Formation of a specific hypothesis services, including labor or forming an intelligent guess. X = Exports M = Import components  Applied Economics - Defined as the Net Inflow (GDP) = Inflow (GNP) – application of core theoretical economics and Outflow (Income from abroad) econometrics to answer questions in a wide Net Inflow (GDP) = -Inflow (Income from range of fields which includes finance, abroad) + Outflow (Factor Payments) political, psychological etc. In other words, it is the study of how theories work in practice. GNP and GDP ( Income approach) - Under As mentioned in the previous topics, this approach, we classify its components by having a clear and solid resource contributions up the production understanding of economic principles, stages. The difference between the income especially with the term of scarcity approach and expenditure approach under can help us address the country’s this approach we account for every economic problems. contribution we made in the production Economic Growth - One of the things that we stages. need to consider when we are talking about applied economics is how far we have come compared to what happened in the past. Five Economic Problems in the Philippines: 1. Poverty - It is a condition where people's basic needs are not being met. Absolute poverty - Occurs when people cannot obtain adequate Lesson 1.4 Economic as Applied Science resources. Relative poverty - Occurs when Ever since the 17th and 18th centuries, many specific people do not enjoy a certain economists have tried to come up with minimum level of living standards as possible answers on how to measure the determined by the government. growth of a country and have a concrete 2. Unemployment - When someone actively explanation behind it. seeking work cannot find employment. Adam Smith emphasized the role of Job Mismatch - Any of the markets in promoting economic unemployed individuals are college efficiency and wealth creation. You students who lack the qualifications have Jean-Baptiste Say, who spoke of for a specific job. applying the general principles of Underemployment - Defined as political economy to ascertain the where people are working but the job rules of action of any combination of that they are currently working on circumstances presented to us. You doesn’t match their skills or abilities, also have John Stuart Mill, who wrote in his book Principles of Political Economy.  Population growth - A factor in the basic economic problem. Since we have scarce 3. Poor Quality of Infrastructure - The resources, as the population grows, the Philippines is ranked 61st out of all nations resources become limited, which may later on poor quality of infrastructure. result in an economic problem where resources may no longer be enough to support the population. Lesson 1.5 Basic Principle of Demand and Supply Market - Defined not as a place but rather as a medium of interaction between buyers and sellers of products. Products can be either 4. Income Inequality - Refers to the gap in tangible (e.g., goods) or intangible (e.g., income between the rich and the poor. services). Income – Is the money that an In a market, buyers and sellers meet individual earns from work or to exchange products and purchasing business and receives from power (i.e., money), but they are investments. guided by the market price, which is most often set either by the people or by the government. Demand - Defined as the amount of a product that consumers are willing and able to purchase at a given price. It is assumed under the concept of "effective demand," meaning demand is backed by the consumer's money and their ability to buy. if the price is high, the demand will be lower. But if the price is low, the demand will go up. Demand Schedule - Shows various quantities the consumers are willing to buy at various prices. It lists the specific number of units that consumers are willing to buy at a The schedule lists the specific number of given price point. quantities that the producer/seller will offer Demand Function - An equation that for sale at different prices. indicates how the quantity demanded for a Supply Function - The dependence of supply good (i.e., the dependent variable) depends on the various determinants that affect it. The on its determinant. formula for the supply function is Qd=f(P) Qs = f(P). Law of Demand - The assumption of “ceteris paribus” means that all other related Movement along Supply Curve - The change variables are held constant. There is an in quantity supplied, refers to the same inverse relationship between price and supply curve; however, the reason for the quantity demanded. change is the price, whether it increases or decreases. Movements Along the Demand Curve - Commonly known as "a change in quantity Shift to Supply Curve - Influenced by a demanded," are due to price changes. The non-price determinant (yes, supply also has movement is from one point to another but its own non-price determinants, but more on remains within the same demand curve. that later). The entire supply curve will shift rightward or leftward to reflect the Shifts of the Demand Curve - Commonly corresponding increase or decrease known as "a change in demand," are caused by a change in a non-price determinant. This Cost Production - Refers to the expenses results in a shift in the demand curve. incurred to produce the products. An increase in cost will normally result in lower supply or Nonprice Determinants - These include a shift leftward in the curve because the income, taste, expectations of future price and producer/seller would be less motivated to income, prices of related goods, and produce it. If the seller/producer. population. Technology - Use of improved technology in A decrease or increase in income, or a the production of a good, which will result in person's ability to buy even when the an increased supply of that good. price remains unchanged, can cause a Improved Availability - Raw materials and significant shift in the demand curve. resources can cause a shift in the supply 1. Market Income curve, as the former affects the cost and 2. Taste and Preference capacity to produce the product. 3. Price of Substitutes 4. Expectation of Future Prices Supply - Refers to the quantity of goods that the seller is willing to offer for sale. It is the amount of a specific good or service that is made available to consumers at a specific price. Supply Schedule - Different quantities that the seller is willing to sell at various prices.