Applied Economics Reviewer - First Quarter - A.Y. 2024-2025 PDF

In general, science is the systematic body and APPLIED ECONOMICS pursuit of knowledge. FIRST QUARTER REVIEWER Team President, Academics Committee...

In general, science is the systematic body and APPLIED ECONOMICS pursuit of knowledge. FIRST QUARTER REVIEWER Team President, Academics Committee What makes Economics a Science? It uses the Scientific Method: 1. Make an Observation 2. Ask a question LESSON 1.1: NATURE OF 3. Test hypothesis and gather data ECONOMICS & APPLIED 4. Examine test results and form a ECONOMICS conclusion 5. Report Findings Observation What is Economics? - Used to gain information about the problem. Studies demand and supply Hypothesis Studies the three economic processes - - Guess what will happen and consumption, production, and distribution determine a way to test it. of goods and services. Experiment Is a social science that deals with the - Test the hypothesis to determine its correctness. efficient allocation of society’s scarce Results resources with alternative uses in - Record data obtained from the meeting the unlimited human demands. experiment. Etymologically, it comes from the Greek Conclusion word ”oikonomia” which means - Decide if the hypothesis was “household management. It comprises two correct or incorrect; if further words “Oikos” means household, and observation and testing is needed. “nemein” means management. ○ The Ancient Greek used the word What is Social Science? which revealed that it is the study In its broadest sense, it is the study of of human behavior as a society and how people behave and relationship between ends and influence the world around us. means with alternative uses. Robbins: A social science that deals with ○ The study of how society manages the efficient allocation of scarce its scarce resources (Mankiw, resources. Unlimited demand. 2024). What makes Economics a Social Science? ○ Limited resources such as money, It is because economics deals with people time, and materials. and their behavior. ○ Fascinating discipline that Economics deals with managing society’s connects the line between social resources and human demands and applied science. Homoeconomicus - people are insatiable What is Science? → People always want more and are never satisfied. A systematic way of understanding the structure and behavior of the physical and natural world Examples of Economics as a Social Science through unbiased observation and 1. Economics studies the relationship experimentation. between the availability of resources  (supply) and the people’s desire for them - The more efficient and (demand). effective people work, the 2. Economics studies why people buy certain better the quality of life. things and how prices are set. 9. Growth of money leads to inflation. 3. Economics also covers income growth - Too much money causes while studying consumer and producer prices to rise. relationships. 10. Society Faces a short-run tradeoff between inflation and Mankiw’s Ten Principles of Economics unemployment. - Lowering inflation can How do people make their decisions? increase unemployment 1. People face trade-offs and vice versa. - To get something, you What is Applied Science? must give up something A discipline that deals with applying else. existing scientific knowledge based on 2. The cost of an item is what we scientific studies and developing a sacrifice to get it practical application of science - Opportunity cost - Such as technology, methodology, 3. Rational people look to maximize and inventions. their utility Problematizes the means to utilize - People evaluate the extra economic theories, concepts, laws, and benefits before deciding. methods in real-life situations. 4. People respond to incentives The application in everyday life of insights - People’s behavior changes gained from these scientific inquiries to when presented with help in decision-making and rewards. problem-solving. How do people interact with one Economics + Theory + Application/Use = another? Applied Economics 5. Trade makes everyone better off - People can trade for what Examples of Applied Economics they need. Allocating healthcare resources 6. Markets are a good way of Setting fair minimum wage levels organizing economic activity Setting fuel prices - Prices guide what to buy and sell. 7. Governments can sometimes improve market outcomes. - When markets don’t work well, the government steps in to help. How does the entire economy work? 8. A country’s standard of living depends on its ability to produce goods and services. Difference between Social Science and Applied Scopes Science 1. Microecono Look at the smaller units of the 1. Social Studies the “why” and “how” of mics economy, such as individuals Science economic behavior. and firms - e.g. Why do people spend or save money? 2. Macroecono Look at the economy as a whole mics 2. Applied Uses the theories to develop Science practical decisions and policies - e.g. What is the most effective way to design tax LESSON 1.3: BASIC ECONOMIC policies to reduce income inequality? CONCEPTS Father of Economics LESSON 1.2: SCOPE OF ECONOMICS AND APPLIED Adam Smith ECONOMICS Laissez-faire policies- “leave alone” the less the government is involved in the economy, Microeconomics the better off business, and society as a whole will be. Is a branch of economics that studies a particular unit of the economy Law of Demand and Supply Units of the economy - individuals, households, firms, or the government Alfred Marshal Study of the economic behavior of firms Introduction of supply and demand curves Concept of price elasticity of demand and individuals Analysis of market equilibrium Concerned with the process of setting prices of goods that is also known as Difference between NEEDS and WANTS PRICE THEORY. Needs - we CANNOT live without Macroeconomics Wants - we CAN live without Is a branch of economics that deals with * Recall: how the economy works as a whole. A division of economics concerned with the entire economy’s overall performance. Focuses on the overall flow of goods and resources and studies the cause of change in the aggregate flow of money, the aggregate movement of goods and services, and the general employment of resources What is Scarcity? Economic resources - finite Central problem of economics  NO scarcity, NO economics Unlimited wants but limited resources Factors of Production Land Natural Resources Labor Efforts and skills Capital Man-made factors Entrepreneurship Management of the use of other factors The trade-offs between producing two different goods. When you increase the production of one What is an Opportunity Cost? good, you must decrease the production of the other good as sources are limited. The cost of giving up an alternative by selecting another. Circular Flow Model Use the concept of opportunity cost to determine if people can benefit from Households provide labor and resources trading with one another. to the Factor Market to earn income in the form of wages → The Factor Market E.g. When going to school, do you walk or ride supplies these labor and resources to the a car? Businesses & Firms to operate efficiently → The Businesses and Firms use these Answer: I walk to school. to produce goods and services to sell Opportunity cost: The time and them in the Product Market → These convenience of riding a car. goods and services are purchased by the Alternative Answer: I ride a car. Households, and the cycle continues. Opportunity cost: The physical exercise of walking to school. Opportunity Cost: Production Possibilities Frontier Basic Economic Questions What and how much goods and services to produce?  How do we produce the goods and Factors of production and distribution are services? owned and managed publicly and For whom are the goods and services? privately Some private property What is an Economic System? Quasi- free competition An organized way in which a state or Economic Freedoms nation allocates its resources and Public and profit motive distributes goods and services in the Presence of central planning then laissez national community. faire Ideals and philosophy: Socialism Traditional Economic System Transitionary Economic System A primitive system which functions basics and generates and utilizes few resources A transition economy or transitional Government - tribal system economy is an economy which is Nomadic resource gathering changing from a centrally planned Barter System economy to a market economy. No Surplus - produced what to consume Transition economies undergo a set of structural transformations intended to Market Economic System develop market-based institutions Factors of production and distribution are Autarkic Economy (Closed Economy) owned and managed by the people Private property Refers to the policy of a country to be a Free competition self-sufficient, closed economy without Economic freedoms any external trade. Profit motive No Imports and Exports. Presence of laissez-faire Economic Systems Ideals and philosophies: Capitalism Command Economic System Factors of production and distribution are owned and managed by the state No private property No free competition No economic freedoms Public motives Presence of central planning Ideals and philosophy: Communism Mixed Economic System  Simplified version of certain economic Types of Economies phenomena or relationships between Traditional Based on customs and economic variables traditions. Economic Models Market Driven by supply, demand, and competition. Representations of empirically tested Command The government controls economic and social phenomena economic decisions. Assumptions Mixed Combines market aspects and ○ “Ceteris paribus” government intervention Conditions set in an Economic Analysis Transitionary Shift from centrally planned economy/command economy Tools in Illustrating system to a market economy Economic Phenomena Autarkic No external trade Economic Variables Different Macroeconomic Goals Elements of data in a study that can change Full employment (Employment Stability) Functions Transpires when the economy maximizes ○ State of the relationship between its productive resources, including labor variables Fair Income Distribution ○ D=f(P) “Demand is a function of Is concerned with how to distribute Price” income in the economy among the Economic Equations population Price Stability Mathematical expression of an economic Is concerned with maintaining currency’s concept purchasing power ○ Y=C+I “Income is equal to High and Sustainable Economic Growth consumption and investment” Essential to increase people’s income and Graphs standard of living ○ Visual representation of the Balance of Payments (External Stability) relationship of two or more The foreign currency entering a country is variables equal to the foreign currency leaving the same country Economics Equations Sample LESSON 1.4: Methods and Economic 1. GDP GDP = Consumer Spending + Investment + Analysis Government Spending + (Exports-Imports) Theories and Models in Economics 2. Unemployment Rate = Unemployment (Number of Unemployed Economic Theory Rate / Labor Force) x 100  Ways of Stating Economic Analysis Positive statements “What is” Employed in qualitative and quantitative approaches Example: ○ “Gross domestic product measures the productivity of a nation.” Normative Statements Employment Rate “Should be”; “ought to be” ○ 15 years old and Over Value judgments on economic phenomena or policies Example: ○ “The government should increase taxes on sugar to decrease mortalities due to diabetes” Economic Statistics ○ Youth (15-24 years old) Shows the data of the imports and exports of the country, region, or industry. Macroeconomic Statistics Numerical data that describes an entire economy’s overall flow, performance, and behavior. It may include Gross Domestic Product Inflation Rate (GDP), Inflation, Unemployment Rate, Interest Rates, Balance of Payments, etc. Gross Regional Product Poverty Rate  Enrollment Rate Philippine Development Plan 2023-2028 (NEDA) AmBisyon Natin 2040: Long Term ○ The Philippines shall be a prosperous, predominantly middle-class society where no Violence and Number of Seats in one is poor. Women Rate Our people will enjoy long and healthy lives, are smart and innovative, and will live in a high-trust society A Plan for Economic & Social Transformation: Medium Term ○ Since the articulation of this vision in 2015, there have been improvements in key indicators, notably in the reduction of poverty incidence and increase in per capita income. ○ What we need is a coherent plan for economic and social transformation that accelerates economic and social recovery toward inclusive and resilient prosperity.  ○ Larger private sector participation Underlying Themes of Plan in areas can free up public funds for investments in human capital Digital Transformation to address ○ Government will result in more ○ Examples: efficient and faster service the scarring from the delivery to the people, more pandemic in health care transparency, and fewer and education. opportunities for corruption at various levels LESSON 1.5: Contemporary Economic Servicification Issues and Challenges for Filipino ○ Fosters inter-sectoral linkages to Entrepreneurs create synergies for more value-adding opportunities, expansion of products and External Financing markets, and more efficient ○ Refers to sourcing funds from delivery networks third-party investors who are ○ Can be targeted toward the willing to provide the required industries of ICT, creatives, capital in exchange for a share tourism, and logistics to move up in the ownership of the idea. the global value chain. Owns Funds Dynamic Innovation Ecosystem ○ The fund may come from the ○ Translate knowledge and ideas entrepreneur’s savings, loans into new products and new and from family members, or personal better processes. securities investments. ○ The government will support the Crowdsourcing creation of innovation ecosystems ○ Looks for data and labor and their evolution to become a ○ Process of gathering viewpoints dynamic ecosystem that or creative output from a large eventually generates quality jobs number of individuals Enhanced Connectivity ○ Businesses may access ○ Digital connectivity as physical individuals with a variety of skills connectivity through infrastructure and viewpoints from around the and transport is similarly world while also saving time and important to link markets to each money. other. Crowdfunding Greater Collaboration between Local ○ In contrast to Crowdsourcing and National Governments ○ looks for funding for individuals, ○ Mandanas-Garcia Ruling of the nonprofit organizations, or Supreme Court in 2018 start-up businesses. One of the significant Rent Expense developments in the ○ a form of fixed operational cost governance landscape of or absorption cost for a the Philippines corporation. Partnership with Private Sector ○ Factors that drive changes in rent:  Real estate price and in the Philippines and on location importation of goods into the Foot Traffic: number of Philippines. people passing by the Capital Gains Tax business (high foot traffic ○ It is a form of sales tax imposed = more exposure) on the sale of capital assets such Minimum Wage as real estate properties and ○ Wages also drive up business’ stocks. The real estate tax is 6%, operating expenses: higher wage while the tax on gains from the rates, lower profit, vice versa. sale of stocks ranges from 5% to ○ Republic Act No. 6727 10%. Also known as Wage Income Tax Rationalization Act ○ it is a tax on a person's income, Established a new emoluments (salary), profits mechanism for minimum arising from property, practice of wage determination profession, conduct of trade or business or on the pertinent items of gross income specified in the Tax Code of 1997 (Tax Code), as amended, less the deductions if any, authorized for such types of income, by the Tax Code, as amended, or other Special laws Taxes ○ mandatory contributions levied on individuals or corporations by a LESSON 2: Demand and Supply government entity ○ A business in operation has local (2.1) Law of Demand and national taxes to settle. ○ Taxes fall on whoever pays the DEMAND → refers to the goods and burden of the tax services buyers desire; are willing; and Percentage Tax have the ability to purchase at a given ○ It is a business tax imposed on price within a given period. persons, entities, or transactions Law of Demand - states that specified under Sections 116 to when price (P) rises, the quantity 127 of the National Internal demanded (Qd) falls, and vice versa, Revenue ceteris paribus. Code of 1997 (also known as Tax The relationship between price and Code), as amended, and as quantity demand is inversely required under special laws. proportional or negative. Value-Added Tax Demand Function ○ It is a form of sales tax. It is a tax 𝑄𝑑 = 𝑓(𝑃) on consumption levied on the When the demand curve is plotted in a sale, barter, exchange or lease of graph, the curve is always downward goods or properties and services  sloping. (Price → y-axis, Quantity → (2.3) Disequilibrium x-axis) SURPLUS → quantity demanded is less than quantity supplied. (Qd < Qs) Law of Supply SHORTAGE → quantity demanded is greater than quantity supplied. (Qd > Qs) SUPPLY → refers to the goods and services sellers desire; are willing; and have the ability to sell at a given price Given: Qd = 30 - 0.5P and Qs = 20 + 0.5P; P = 12 within a given period. Law of Supply - states that when price (P) rises, the supplies (Qs) Solution: also increase, and vice versa, ceteris 𝑄𝑑 = 𝑄𝑠 paribus. Substitute 𝑄𝑑 , 𝑄𝑠, and P Supply Function 30 − 0. 5𝑃 = 20 + 0. 5𝑃 30 − 0. 5(12) = 20 + 0. 5(12) 𝑄𝑠 = 𝑓(𝑃) 24 = 26 ∴𝑄𝑑 < 𝑄𝑠 → SURPLUS (2.2) Equilibrium When Qs and Qd meet in the graph. The Given Qd = 30 - 0.5P and Qs = 20 + 0.5P; P = 5 so-called market equilibrium is reached. When the quantity supplied and quantity Solution: demanded meet, this is the point in the 𝑄𝑑 = 𝑄𝑠 market where both the buyers and sellers are satisfied/happy. (WIN-WIN situation) Substitute 𝑄𝑑 , 𝑄𝑠, and P 30 − 0. 5𝑃 = 20 + 0. 5𝑃 Solving for Equilibrium 30 − 0. 5(5) = 20 + 0. 5(5) 27. 5 = 22. 5 Equilibrium states that: ∴𝑄𝑑 > 𝑄𝑠 → SHORTAGE 𝑄𝑑 = 𝑄𝑠 Given: Qd = 100 - 0.5P and Qs = 70 +0.8P Government Intervention: Implementation of Price Controls Solution: 100 − 0. 5𝑃 = 70 + 0. 8𝑃 PRICE FLOOR → supports the producers (− 0. 8𝑃) − 0. 5𝑃 = 70 − 100 → SURPLUS (Qd < Qs) – usually above − 1. 3𝑃 =− 30 the equilibrium price 𝑃𝑒 = 23. 077 PRICE CEILING → supports the Substitute: 𝑃𝑒 into the demand and supplies consumers → SHORTAGE (Qd > Qs) – usually below the equilibrium price functions 𝑄𝑑 and 𝑄𝑠. 𝑄𝑑 = 88. 462 𝑄𝑠 = 88. 462  Consumer’s Expectations ○ When consumers anticipate the price of a product to rise, they will tend to buy more of that product now Taste and Preference ○ Some consumers will be inclined LESSON 2.4: Movements and to buy a certain brand because of the perceived status of owning it Determinants of Demand and Supply Determinants of Demand Movement Along the Curve Determinants Supply Curve Supply Curve goes left goes Right Population of Few consumers Many consumers Consumers Income of Income Income decreases, Consumers increases, price price tolerance tolerance increases decreases Taste and Disliking the Liking the goods Law of Diminishing Marginal Utility Preferences goods Expectation Price will Price will increase Economic law states that, all else being decrease and/or Supply will equal, as consumption increases, the and/or Supply decrease will increase satisfaction derived from each additional unit decreases. Price of Related Substitute is Substitute is more Substitute Goods cheaper expensive Determinants of Demand Price of Related If the Complementa-ry Complement-ary Complementar-y goods decrease in Income Goods good increases price, in price, then demand for ○ Additional money is what drives a then demand for the primary good consumer’s desire to buy or the primary good increases. purchase more goods decreases. Substitutes ○ Goods that meet the same Determinants of Supply requirements or fulfill the same Technology needs as another ○ Advancement in computer Complementary goods technology has enabled firms to ○ Generally consumed or used be more profitable by increasing together. efficiency, while reducing costs of ○ Shows interdependence between production these two goods Input Prices  ○Firms must determine the right (2.5) Simultaneous Movements balance of inputs to achieve maximum returns Case Pe Qe Price of other goods ○ Manufacturers often produce Supply remains the Increases Increases several products in the same or same, demand increases related in line Producer Expectation Supply remains the Decreases Decreases ○ Producers who anticipate surge in same, demand factor process tend to increase decreases production before the higher input Supply increases, Decreases Increases prices become in effect demand remains the Government policy same ○ Taxes, subsidies, and import Supply decreases, Increases Decreases quotas imposed by government demand remains the impact quantity supplied of goods same but different ways Determinants of Supply Case Pe Qe Determinants Supply Curve Supply Curve Supply Decreases more Indeterminate goes left goes Right increases, than ↑S > ↓D = ↑Qe demand that of single or Population of Few producers Many producers decreases change ↑S < ↓D = ↓Qe Suppliers or sellers or sellers from either forces Cost of Cost increases, Cost decreases, Production producible producible decreases increase Supply Increases more Indeterminate decreases, than ↓S > ↑D = ↓Qe Technology of Efficiency Efficiency demand that of a single or Production decrease, increases, increases change ↓S < ↑D = ↑Qe producible producible from either decrease increase forces Expectation and Price will Price will Supply Indeterminate Increases more Seasonal increase and/or decrease and/or increases, ↑S > ↑D = ↓Qe than Consideration demand will demand will demand or that of a single decrease increase increases. ↑S < ↑D = ↑Qe change from either Returns or Profit Alternative goods Local goods is force of Alternative is better over better over Goods local goods, alternative Supply Indeterminate Decreases sellers will goods, sellers decreases, ↓S > ↓D = ↑Qe more than produce will produce local demand or that of single alternative goods goods instead decreases. ↓S < ↓D = ↓Qe change instead from either force Taxes and Too strict or Too loose or Policies unsupportive, supportive, new local sellers will sellers will join move to local into local market market  Example Scenario: Scenario ∆ in S & D Pe Qe Case Tax Increase, Supply Indeterminat Decreases population of decreases, e more than that consumers demand of a decrease decreases single change from either forces Cost remains Supply Increases Increases the same, remains the expected price same, increases demand increases Expected cost Supply Indetermin Increase increases, increases, a more than price of demand te that of a substitute increases single change increases from either forces Efficiency Supply Increases Decreas decreases, es income of consumers remains the same References: Content from Ma’am Alminda Dacoco’s Presentations Sir Von Marano’s Presentations Sir Jaycar Espinosa’s Presentations Proofread by the Team Secretary, Team President, and Team Vice President