Week 2 Economics: The Practice of Economizing PDF

Week 2 The Practice of Economizing - is a social science that deals with the efficient allocation of scarce resources to satisfy the unlimited needs and wants of the society. - is concerned with the production, distribution, and consumption of goods and services. - studies how individuals...

Week 2 The Practice of Economizing - is a social science that deals with the efficient allocation of scarce resources to satisfy the unlimited needs and wants of the society. - is concerned with the production, distribution, and consumption of goods and services. - studies how individuals, businesses or firms, governments, and nations make choices about how to allocate scarce resources. Economics ECONOMIZING - To save and lessen the costs - We economize by making decisions with some lower- priced items 5  Land - Refers to natural resources - This refers to the plant (warehouse and production area), office and location of the business - RENT: basic payment made to the owners of the land Four (4) Economic Resources Labor - Human resources or manpower - Refers to the people or employees in a business or firm - WAGES and SALARIES: form of payment given to laborers  Capital - man-made resources used to produce goods and services. - Tools,equipments and machineries - Includes financial resources - INTEREST: the return paid to the owners of capital  Entrepreneur -the person who organizes and manages the business. Characteristics: innovator risk-taker manager or leader Motivator decision-maker  -actof starting and organizing your own business or a tendency to be creative and desire to work for yourself in your own ventures. - is the willingness to start a new business. Entrepreneurship  - Forgone value of the next best alternative - The thing (item or entity) that we give up - Second choice - What ifs Opportunity Cost = FO (returns on best forgone option) − CO (returns on chosen option) Opportunity cost  TRADE-OFFS - the good points that we have to give up in order to get another - It createsOPPORTUNITYCOST - is defined as any situation where making one choice means losing something else, usually forgoing a benefit or opportunity. Week 3 Mixed Economy and other Economic systems Four Basic Economic Questions What to produce? The society determines the kind and quantity of goods they will be producing depending on what the customers want to buy or are willing to pay for Choosing what to produce will determine what will give greater value to the society  How much to produce? After determining what to produce, the society must determine how much of these products should they put on the production line. Here, we justify what is more important, what we discuss mainly is the quantity of goods to be produced over another.  How to produce? The society decides who will produce the good and what process of production will be used. A good or service may be created by the private sector or by the government. The process of production will depend on the cost and availability of resources needed.  For whom to produce? So who will benefit from the goods and services produced? This will depend on the distribution of wealth in a particular society. Therefore, a consumer who is likely to meet the producer’s demands will benefit more than those who cannot afford the products or services Strategies for Addressing Economic Questions The Command Economy is one in which the central government dictates ✓ What will or will not be produced ✓ How much to produce ✓ Who is to get how many of the final products ✓ Ex. Cuba & North Korea Capitalism Economic system where supply and demand determine prices. Mixed Economy A blend of government commands and capitalism Circular Flow Model of the Economy Rent and interest  Circular flow model of the economy shows us how our economy functions, tracing the flow of money, resources, and goods and services.  Economic Systems 1. Capitalism- private individuals own and manage the business and resources. - Same as free enterprise - Production is guided by price system - The government’s role is kept to a minimum Rights of Capitalism: To own property To be engaged in competition To earn profit The right to freedom of choice Adam Smith 1723-1790 is considered the first theorist of what we commonly refer to as capitalism. Father of Modern Capitalism wrote the Wealth of Nations Advocates free trade and free market Law of supply and demand determine prices 2. Communism -Government controls the resources of the nation - Limit or stop the right to own private property - The state would own everything. - China, Cuba, Laos, North Korea - centrally planned rather than market economy  3. Socialism -individuals can still own property and manage small business but government manages the basic industries - Substantial degree of government planning 4. Mixed Economy is a system that combines characteristics of both capitalism and socialism. A mixed economic system protects private property and allows a level of economic freedom in the capital consumption, but also allows for governments to interfere in economic activities in order to attain social objectives. Week 4-5 Demand and Supply Terms to remember Market- a place where buyers and sellers interact and engage in exchange. is a mechanism through which buyers and sellers meet to determine the price and quantity of a good or service. Demand- reflects the consumer’s desire for a commodity. It is the willingness of the consumer to buy goods and services Supply- the amount of commodity available for sale.It is the willingness of the seller to produce goods and services. Terms to remember Price Ceiling- is the maximum limit at which the price of a commodity is set.(protect consumers) Price Floor- is the minimum limit beyond which the price of a commodity is not allowed to fall.(protects sellers) Price is the value of a good in terms of money Pork Supply 1 Seller 1 P 250 Price floor Supply 2 Seller 2 P 300 SRP Supply 3 Seller 3 P 400 price ceiling Law of Demand Assuming all non-price determinants remain constant, as prices increases, quantity demanded decreases.As price decreases, quantity demanded increases. Non-price determinants of Demand: 1. Income- Y ↑ QD ↑ 2. Number of buyers ↑, QD ↑ 3. Consumer’s taste and preference↑, QD ↑ 4. Expectation on future prices 5. Price of related goods Types of related goods Substitutes- are goods that are used to replace( alternatives) the main good. Example: fish to meat Complementary goods- are goods that are used jointly. Example: 1. cellphone and simcard or battery 2. car and tires 3. ink and pen Shift to the left means it decreases Shift to the right means it increases Law of Supply Assuming all non-price determinants remain constant, as prices increases, quantity supplied also increases.As price decreases, quantity supplied also decreases. Non-price determinants of Supply: 1. Costs of Production↑ QS ↓ 2. Number of sellers ↑, QS ↑ 3. Technology↑, QS ↑ 4. Taxes and subsidies 5. Weather conditions  Equilibrium Point It is a point where demand and supply functions are equal. Ceteris Paribus is a Greek term which means “ all other things held constant or all else equal.” This assumption is used as a device to analyze the relationship between two variables while the other factors are held unchanged. Example if Price changes such as increased to 20%, some other factors such as population, income and laws remain constant Surplus- QS > QD If the market price is above the equilibrium price, quantity supplied is greater than quantity demanded Shortage- QD > QS If the market price is below the equilibrium price, quantity supplied is less than quantity demanded QS-QD P26.00, 32units equilibrium point Price(P) QS QD Surplus or shortage 30.00 40 28 surplus 28.00 36 30 surplus 26.00 32 32 equilibrium 24.00 30 34 shortage 20.00 28 40 shortage Three (3) main causes of shortage increase in demand decrease in supply government intervention. Activity # 2 Write A if it shifts to the right and B if it shifts to the left. Demand 1. Increase in number of buyers 2. Decrease in income 3. Increase in consumers’ taste 4. Increase in price of meat, what will happen to the demand on fish? 5. Increase in price of sunglasses, what will happen to demand of contact lens? Supply 1. Increase in costs of raw materials 2. Decrease in number of sellers 3. Increase in taxes 4. Increase in technology 5. Typhoon hits the rice lands, what will happen to supply of rice?