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University of Caloocan City

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basic economics microeconomics macroeconomics economic theory

Summary

This document is an introductory look at basic economics. It covers topics like scarcity, the four factors of production, opportunity cost, and different market types. It provides a basic understanding of economic concepts.

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**BASIC ECONOMICS** ***CHAPTER 1:*** **ECONOMICS -** social science that studies how people make choices under conditions of scarcity and how those choices affect the production, distribution, and consumption of goods and services**.** **MICROECONOMICS:** this focuses on individual and business d...

**BASIC ECONOMICS** ***CHAPTER 1:*** **ECONOMICS -** social science that studies how people make choices under conditions of scarcity and how those choices affect the production, distribution, and consumption of goods and services**.** **MICROECONOMICS:** this focuses on individual and business decisions. **MACROECONOMICS:** this looks at the economy as a whole. ***CHAPTER 2:*** **SCARCITY** - limitation of supply in relation to demand of a commodity. - Unlimited Wants - Limited Resources **FOUR FACTORS OF PRODUCTION:** 1. **LAND** -- refers to all natural resources such as minerals, forests, and water. 2. **LABOR** -- refers to the effort and skills of people who work to produce goods and services. 3. **CAPITAL** -- refers to the tools, machinery, and other physical assets used to produce goods and services. 4. **ENTREPRENEURSHIP** -- combine the other factors of production, land, labor, and capital to make a profit. **ECONOMIZING THE RESOURCES** - refers to making optimum use of available resources. **BUDGET CONSTRAINT** -- all possible consumption combinations of goods that someone can afford, given the prices of goods, when all income is spent; the boundary of opportunity set. **HOW INDIVIDUALS MAKE CHOICES BASED ON THEIR BUDGET CONSTRAINT:** - **OPPORTUNITY COST** - refers to the value of the next best alternative that must be sacrificed or foregone when a decision is made to allocate resources (such as time, money, or labor) to one choice over another. - **MARGINAL DECISION-MAKING -** involves assessing the incremental benefits and costs associated with making small changes in a particular activity, production level, or resource allocation. - **MARGINAL BENEFIT (MB):** this refers to the additional benefit or utility gained from consuming one more unit of a good or service. - **MARGINAL COST (MC):** represents the additional cost incurred by producing one more unit of a good or service or by making an incremental decision. - **DIMINISHING RETURN:** - **DIMINISHING MARGINAL UTILITY (PRINCIPLE) -** as consumers consume more units of a particular good or service within a given time frame, the additional satisfaction or utility derived from each additional unit decreases. - **LAW OF DIMINISHING MARGINAL UTILITY (LAW)-** as individuals consume more of a good or service, the extra satisfaction or happiness gained from each additional unit diminishes. **SUNK COST -** is a financial or time investment that has already been incurred and cannot be recovered. ***CHAPTER 3:*** **DEMAND** - refers to the amount of some good or service consumers are willing and able to purchase at each price.**PRICE** - is what a buyer pays for a unit of the specific good or service. **QUANTITY DEMAND** - the total number of units that consumers would purchase at that price.**LAW OF DEMAND** - the inverse relationship between price and quantity demanded. as the price increases, the quantity demanded decreases, and conversely, as the price decreases, the quantity demanded increases. **DEMAND SCHEDULE** - table that shows the quantity demanded at each price.**DEMAND CURVE** -shows the relationship between price and quantity demanded on a graph, with quantity on the horizontal axis and the price per gallon on the vertical axis.**SUPPLY** - the amount of some good or service a producer is willing to supply at each price. **LAW OF SUPPLY** - the direct relationship between price and quantity supplied. **SUPPLY SCHEDULE** - shows the quantity supplied at a range of different prices.**SUPPLY SCHEDULE** - shows the quantity supplied at a range of different prices.**EQUILIBRIUM** - the situation where quantity demanded is equal to the quantity supplied **SHORTAGE --** excess demand **SURPLUS --** excess supply **CETERIS PARIBUS --** other things being equal **NORMAL GOOD** - a product whose demand rises when income rises, and vice versa.**INFERIOR GOOD** - a. product whose demand falls when income rises, and vice versa. **OTHER FACTORS THAT SHIFT DEMAND CURVES (GOODS AND SEVICES):** 1. **BUYERS --** changes in the number of consumers. 2. **INCOME --** changes in consumers' income. 3. **TASTE/TRENDS --** changes in preferences or popularity of product/ services. 4. **EXPECTATIONS --** changes in what expect to happen in the future. 5. **RELATED GOODS --** compliments and substitutes. **OTHER FACTORS THAT SHIFT SUPPLY CURVES (GOODS AND SERVICES):** 1. **SUBSIDIES/ TAXES --** government policies such as subsidies for producers or taxes on goods can impact the cost of productions for suppliers. 2. **TECHNOLOGY --** advances in technology can lead to more efficient and cost effective productions methods. 3. **OTHER GOODS --** the prices of goods that are alternative outputs for producers can affect their decisions about what to supply. 4. **NUMBER OF SELLERS --** the total number of sellers or producers in a market can influence the overall supply. 5. **EXPECTATION --** expectation about future market condition such as changes in prices or demand can influence current supply decisions. 6. **RESOURCE COST --** cost of resources including raw material and labor, affect production cost and consequently supply. **PRICE CEILING --** a legal maximum price. a price ceiling keeps a price from rising above a certain level (the "ceiling"). **PRICE FLOOR --** a legal minimum price. a price floor keeps a price from falling below a given level (the "floor"). **CONSUMER SURPLUS --** the extra benefit consumers receive from buying a good or service, measured by what individuals would have been willing to pay, minus the amount that they actually paid. **PRODUCER SURPLUS --** the extra benefit producers receive from selling a good or service, measured by the price the producer actually received minus the price the producer would have been willing to accept. **SOCIAL SURPLUS --** the sum of consumer surplus and producer surplus. ***CHAPTER 4:*** **LABOR MARKET --** are market for employees or job. **DEMAND --** firms and other employers. **SUPPLY --** individuals, workers, or employees. **FINANCIAL MARKET --** are market for saving or borrowing. **DEMAND --** individual or firm/ lenders. **SUPPLY --** person, firm, or government/ loaners. **FACTORS THAT SHIFT DEMAND IN LABOR MARKET:** - **DEMAND FOR OUTPUT** - **EDUCATION AND TRAINING** - **TECHNOLOGY** - **NUMBER OF COMPANIES** - **GOVERNMENT REGULATIONS** - **PRICE AND AVAILABILITY OF OTHER INPUTS** **FACTORS THAT SHIFT SUPPLY IN LABOR MARKET:** - **NUMBER OF WORKERS** - **REQUIRED EDUCATION** - **GOVERNMENT POLICIES** **PRICE FLOOR IN THE LABOR MARKET -** is a government-imposed minimum wage, which is the lowest legal amount that employers are required to pay their workers. **MINIMUM WAGE --** compulsory pay an employer must pay the employees. **LIVING WAGE --** total amount required to cover basic living expenses. **WHO DEMANDS AND SUPPLIES IN FINANCIAL MARKETS:** - SUPPLIERS RECEIVES THE PRICE - DEMANDERS PAY THE PRICE **PRICE CEILING IN FINANCIAL MARKET -** is a regulatory limit imposed by government on how high a price can be charged for a product or service. **USURY LAW -** laws that imposed an upper limit on the interest rate that lenders can charge. A. PROTECT BORROWERS B. STABILIZE ECONOMY C. FAIRNESS +-----------------+-----------------+-----------------+-----------------+ | | **GOODS/SERVICE | **LABOR | **FINANCIAL | | | S** | MARKET** | MARKET** | +=================+=================+=================+=================+ | **LAW OF | PRICE INCREASE | WAGE INCREASE | INTEREST | | DEMAND** | | | INCREASE | | | DEMAND DECREASE | DEMAND DECREASE | | | | | | DEMAND DECREASE | +-----------------+-----------------+-----------------+-----------------+ | **LAW OF | PRICE INCREASE | WAGE INCREASE | INTEREST | | SUPPLY** | | | INCREASE | | | SUPPLY INCREASE | SUPPLY INCREASE | | | | | | SUPPLY INCREASE | +-----------------+-----------------+-----------------+-----------------+ ***CHAPTER 5:*** **ELASTICITY --** an economics concept that measures responsiveness of one variable to changes in another variable. **ELASTIC DEMAND --** when the elasticity of demand is greater than one. **INELASTIC DEMAND -** when the elasticity of demand is less than one. **ELASTIC SUPPLY -** when the elasticity of supply is greater than one. **INELASTIC SUPPLY -** when the elasticity of supply is less than one. **PED --** price elasticity on demand **PES --** price elasticity on supply **MIDPOINT METHOD:** \ [\$\$QD = \\frac{Q2 - Q1}{(Q2 + Q1)/2} \\times 100\$\$]{.math.display}\ \ [\$\$P = \\frac{P2 - P1}{(P2 + P1)/2} \\times 100\$\$]{.math.display}\ \ [\$\$PED = \\frac{\\text{QD}}{P}\$\$]{.math.display}\

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