ECONOMICS REVIEWER

Economics
 Related to human behavior and practices to EFFICIENTLY USE the SCARCE RESOURCES to SUPPLY NEEDS OF MAN
and achieve man’s satisfaction.
 Economic goods – are things that has VALUE OR PRICE like food, clothing and shelter.
 Come from the Greek word IOKOS meaning HOUSE and NOMOS which means HOUSEHOLD MANAGEMENT

Types of Economics
1. Microeconomics
 Economics which is centered in STUDYING SMALL UNITS OF ECONOMY.
 It tackles the individual behavior of the consumers, producers and the market such as products and
services which the consumer would like to consume, and products and services that supplier would like
to supply
2. Macroeconomics
 The study of the behavior of the ENTIRE ECONOMY.
 It focuses on the aggregate activities of the government, industry and households. The whole operations
of the economy is the center of discussion in macroeconomics.

Historical Background of Economy

 Economics was known as political economy. There were no clear ideas and philosophies that explained economics
back then. All studies were focused on the political scenario of the time.

Philosophical View of Economics

a) Xenophon – views economics as EFFIECIENT MANAGEMENT and LEADERSHIP in a
household.
b) Plato – The blueprint for an economy where cities are founded on KEY OF PRINCIPLE OF
SPECIALIZATION and DIVISION OF LABOR.
c) Aristotle – viewed exchange as a WAY TO SATISFY INDIVIDUAL and COLLECTIVE WANTS.
d) Mercantilist – the ultimate goal is to accumulate SILVER AND GOLD by SELLING finished
products of agriculture.
e) Francois Quesnay – believe in the IMPORTANCE OF NATURE and WISE USE of natural
resources.

Economist and their Principles

1) Adam Smith
 FATHER OF MODERN ECONOMICS
 Proponent of the Laissez Faire or the LET ALONE POLICY
 The Laissez fair stressed that the GOVERNMENT SHOULD NOT INTERFERE WITH THE ACTIVITIES OF MAN
TOWARDS FREE MARKET. They should instead concentrate on maintaining peace and order in the country.
 He wrote the book, “AN INQUIRY INTO THE NATURE AND CAUSE OF THE WEALTH AND NATION”
 Pointed out the importance of specialization in achieving the industrialization of the economy.
 Specialization – is CONCENTRATING in ONE PARTICULAR WORK according to one’s skills and activities.

2) David Ricardo
 Known for his brilliant idea about the EFFECT OF NATURAL RESOURCES IN THE DEVELOPMENT OF THE
ECONOMY.
 Proponent of the law he identified as the LAW OF DIMINISHING MARGINAL RETURNS
 Law of Diminishing Marginal Returns – is defined as the increasing number of people will DRIVE MAN TO
CULTIVATE EVEN IN IDLE LANDS to support his necessities of life. This will happened due to the depletion
of fertile lands.
 Law of Comparative Advantage – it is the principle that explained that a COUNTRY BENEFITS MORE IN
PRODUCING THE PRODUCTS WITH LESS PRODUCTION COST THAN ANY COUNTRY.

3) Thomas Robert Malthus

 Proponent of the Malthusian Theory
 Malthusian theory – states that, IF POPULATION INCREASES RAPIDLY THAN FOOD SUPPLY, IT CAN CAUSE
FAMINE AND WILL AFFECT THE ECONOMIC ACTIVITIES OF MAN.

4) John Maynard Keynes

 Known as the FATHER OF MACROECONOMICS
 Proponent of the LAW OF SUPPLY AND DEMANS
 According to Keynes, the government plays a significant role in MAINTANING EQUILIBRIUM in the
economy through public spending and keeping the balance among demand, supply and the market prices.
 5) Karl Marx
 The FATHER OF COMMUNISM
 Believed that the poverty of the WORKING CLASS is CAUSE BY ABUSIVE PRACTICES OF RICH CAPITALIST
THAT SAFEGUARD THEIR OWN INTEREST and THEIR accumulation of wealth.
 According to Marx, all industries and source of wealth should be NATIONALIZED so as to achieve EQUALITY
AMONG PEOPLE.
 Wrote the book DOS KAPITAL – a book that contains TEACHING OF COMMUNISM.

RELATIONSHIP OF ECONOMICS AND OTHER SCIENCES

a) Economic and Sociology
 Sociology is the study of the COMPOSITION OF THE SOCIETY, SOCIAL RELATIONSHIPS and SOCIAL
INSTITUTIONS.
 Economic conditions affect the actions, relationship, living conditions and foresight of people in a society.

b) Economics and Political Science

 Political science is the STUDY OF GOVENRMENT STRUCTURE, FUNCTION, RESPONSIBILITIES and LAWS.
 Political issues and debates such as Tax reforms, agrarian reforms, budget deficits, government spending,
electoral reforms, political dynasty and form of government requires understanding of economics.

c) Economics and History

 History is the RECORDED STRUGGLE of and PROGRESS MADE by man from PAST TO THE PRESENT.
 History has brought important lessons in both local and world economies and how economic events form
our world today.

d) Economic and Ethics

 Ethics talks about the MORALS OF INDIVIDUAL and DOING WHAT IS RIGHT IN LIFE.
 The knowledge of what is right and wrong in any activity will guide citizens who are partners of the
government in the development of the economy.

e) Economics and Psychology

 Psychology is the SCIENTIFIC STUDY OF THE MIND and how it influences HUMAN BEHAVIOR.
 Human behavior affects economic activities of man.

f) Economics and Geography

 Geography is the study of PHYSICAL FEATURES OF A COUNTRY as well as its PRODUCTS and POPULATION
which affects the economic activities of man.
 Economic activities vary with geography. The economy and product output of a certain place varies
because of Geography.

g) Economics and Chemistry

 Chemistry is focused in the study of COMPOSITION OF CHEMICALS FOR a CREATION OF VARIETY OF
GOODS.
 The creation of and production of new chemical compounds support or boost efficiency and production
for products or services, essential to be competitive in global market and economy.

h) Economics and Physics

 Physics is the study of MATTER and ENERGY
 Technology, invention and innovation are the outcome of scientific study – through the use of modern
technology, the economy is able to sustain and provide the needs of the people. It shows how important
physics is to our lives and economy.

i) Economics and Biology

 Biology is the study of LIVING THINGS like humans, animals and plants.
 This living things are necessary in development of the economy.

j) Economics and Mathematics

 Mathematics is the science of NUMBERS and ITS OPERATIONS.
 The study of economics is facilitated by the use of number, statistics and mathematical equations,
formulas and graphs.
 Statistics it is the science of LEARNING FROM DATA.
Economics: The Science of Making Choices

Cost and Benefits

o In everything that we do, there are costs and benefits. These guide each individual and our society in their
choice process.

Choice and decisions

 Choice is the ability to SELECT base on an individual’s preference.
 When choices are made, it depicts a person’s DECISION.
 People make choices as a result of scarce resources and unlimited needs.

Individual Choice – decisions made by people acting SEPARATELY FROM ONE ANOTHER.
Social Choice – the decision made by the GOVERNMENT to satisfy the NEEDS of the people.

Opportunity and Benefits

 Opportunity cost – refers to the VALUE OF ALTERNATIVE given up to obtain another item.
 Benefit is what one GAINS FROM CHOICES.
EX.
Choice A ( Value Meal A) Choice B (Value Meal B)
2 boxes of Pizza x 200 = 400 1 box of pizza x 200 = 200
2 soda in can x 50= 100 6 soda in can x 50 = 300

ROLE OF SCARCITY
 Scarcity is the condition wherein the RESOURCES ARE LIMITED to SATISFY the Unlimited needs and wants of
people.
 It is said that scarcity can be a powerful thing which forces people to make difficult choices, to find the best
alternatives.
Shortage
 The LACK OF SUPPLY of goods caused by NEGATIVE STRATEGIES of some of the individuals resulting to the so
called artificial shortage because of HOARDING (he practice of obtaining and holding scarce resources, with the
intention to sell to customers on a high profit in future.)
 Cartel – a GROUP OF BUSINESSMEN who CONTROLS the distribution, consumption and pricing of certain products,
so as to demand for a higher price.

Survival
 One of the GOALS of people in the society.
 The attainment of the goal depends on the ability of the government to provide basic needs of the people.

Basic Economic Problem

A. Production Problem
Key Questions
a. What to produce?
o The Country produces goods ACCORDING TO THE NEEDS of the economy.
o There are factors that should be considered in relation to economic goals.
b. How to produce?
o Labor intensive technique – more labor forces are used in the production of goods so HUMAN
RESOURCES are utilize
o Capital Intensive technique – more MACHINERIES are used in the production of goods thus
PHYSICAL RESOURCES of the economy are utilized
c. How much to produce?
o The economy DECIDES on what to produce and the QUANTITY that will be produced.

B. Distribution Problems
Key Questions
a. For whom are the goods to be produce?
o It is very essential to IDENTIFY the people who will receive the final products of the economy.
b. How to distribute the goods?
o Delivery of good will go to the places where people are interested to buy.

ALLOCATING THE RESOURCES

 Allocation – refers to the mechanism that deals with the DISTRIBUTIO of the natural resources, human resources,
and physical resources to diverse uses in order answer the problem of scarcity.
Market
 Considered as one of the IMPORTANT MECHANISM of ALLOCATION because it shows how the resources are being
used in production
STEPS OF EXPANSION
1) Conservation
 The first step
 It is the WISE USE OF RESOURCES
2) Investment
 Refers to the ADDITION OF CAPITAL STOCKS.
 Can be done in HUMAN and PHYSICAL resources.
 The government plays a vital role in implementing this step.
3) Use of Modern Technology
 Technology is the TECHINICAL PROCESS and know how in certain field of knowledge.
 Technology will make production easier and faster.

DIFFERENCE OF WANTS AND NEEDS

A. Needs
 Things which are NECESSARY in order to survive.
 Needs are the services which are important to live and exist like FOOD, SHELTER and CLOTHING (basic
NEEDS OF MAN)
B. Wants
 Things which people consume to SATISFY THEIR DESIRES AND PLEASURES.
 Wants becomes needs because of the environment, the people, and even circumstances around us. As
the country develops, human needs and wants changes. People start to look for more goods to satisfy
themselves.

HIERARCHY OF HUMAN NEEDS by Maslow

 By Abraham Harold Maslow – according to him, human needs have DIFFERENT DEGREES depending on the abilities
of the individual to achieve these needs and be satisfied.
 According to the theory, the PRIMARY NEEDS OF MAN MUST BE SATISFIED FIRST BEFORE CONSIDERING OTHER
HIGHER NEEDS. (Hierarchy of Needs)

Levels of the Hierarchy of Needs

I. Physiological Needs
 Mechanism of the human body to FUNCTION NORMALLY.
 Our body should be given sufficient nourishment to make them strong,
functional and healthy.
THE PRIMARY NEEDS
II. Security Needs
OF MAN
 In order to have feeling of security, some people buy insurances like
health plan, memorial plan, pension plan and educational play. By having
these insurances, they do not worry about their future.
 All of us wants to feel secured and safe all the time.

III. Need to belong, to be loved, associate and to build friendship

IV. Appreciation by others / Self – esteem
THE SECONDARY NEEDS V. Self-actualization
OF MAN  In this level humans SHOW who they are and what they achieved as a
person.
 There is SELF – FULFILMENT in our life because all our dreams, aspirations
and ambitions have been realized.

Factors that Change the Needs and Wants

1. Education
 The needs of men differ according to educational attainment.
 Those who ACHIEVED HIGHER EDUCATION have different needs than those who are not able to finish
schooling.

2. Income
 Giving emphasis to our primary needs vary based on the income of an individual.
 Poor families are satisfied with small and simple house while reach families can afford beautiful and
pompous house.
 The big DIFFERENCE between the rich and the poor is the GAP in their INCOME.
 3. Age
 As a person GROWS older his/ her needs and wants change.

4. Tastes and Preferences

 Each individual differs in the choices of things and needs that they want.
 Your parents like Simple phones, you prioritize IPhones.

5. Profession
 Professionals do have different needs from each other.
 Managers do have different needs compared to the workers.

THREE HUMAN NEEDS THAT THE GOVERNMENT SHOULD ADRESS

1) Material things
2) Freedom – the type of freedom that an individual experiences is DETERMINED BY the form of Government.
3) Dignity in life.

Economic System
 Covers the structure of governance composed of institutions and mechanisms that deal with activities that answer
basic questions on the needs of an economy.
Types of Economic System
1) Traditional Economy
 This economic system answers the problem based on customs, traditions, beliefs and norms of the society.
 Individuals do not have the right to decide on the good and services to have but the SOCIETY DECIDES on
the goods and services they want to have.

2) Market Economy
 Individuals in the private sectors make decision to answer the WHAT, HOW and FOR WHOM to produce?

Types of Market Economy

a) Feudalism
 An economic and political system that deals with EXTENSIVE LAND
OWNERSHIP.
 The basis on man’s power depends on the OWNERSHIP OF LAND.
 It is the RELATIONSHIP between the LANDLORDS and the VASSALS.
 The vassals provide services to the landlords known as FUEDAL LORDS
like military services, managing all the activities inside the manor and
protecting the feudal lord at all times.
 FIEF – a piece of land given by the feudal lord as a reward from the
services of the vassal.
 Feudalism weakened when towns and trade were developed.

b) Mercantilism
 Prevailed in Europe in the 16th – 18th century
 Gold and silver were very essential.
 Everyone wanted to ACQUIRE GOLD AND SILVER to become POWERFUL.
 Gold and silver became the YARDSTICK for POWER and SUPREMACY.
 Many countries in Europe focused their attention in accumulating more
gold and silver by COLONIZING WEAKER NATIONS.

c) Capitalism
 The Industrial Revolution paved the way for the recognition of rights of
the private sector in developing the industries.
 Capitalism is an economic system in which the ownership of factors of
production – land, capital, labor and entrepreneur – is in the HANDS OF
THE PRIVATE GROUP or INDIVIDUAL.
 Private property and profit motives are the foundation of Capitalism.
 Any individual or group is free to engage in any business activity, dictate
the price of the commodity and produce the desired goods and services
(Also called as the FREE ENTERPRISE)
 3) Command Economy
 The government DECIDES in ADRESSING the ECONOMIC PROBLEMS under this type of Economy
 Economic decisions come from a CENTRAL AUTHORITY and people are EXPECTED to abide or to follow by
those decisions.
A. Communism
 Karl Marx – proponent of Communism
 It is an economic system of which the GOVERNMENT or the STATE CONTROLLED
and OWNED ALL THE INDUSTRIES AND RESOURCES OF A COUNTRY.
 A Central Planning Board plans and decides on the different economic activities.
 There is NO PRIVATE PROPERTY.
 Individuals work according to their abilities and paid according to their needs.
B. Socialism
 An economic system which is a COMBINATION OF CAPITALISM AND
COMMUNISM.
 Main industries are OWNED AND CONTROLLED BY THE GOVERNMENT and SMALL
INDUSTRIES can be OWNED BY INDVIDUALS of which the state can interfere.
 Collective ownership of resources is dune under this system in order to have
equality of people in the society. The government through the welfare state
provides all the needs of the people who do not have the capacity to fulfil it.
Socialist would like to avoid the abuses and the injustices to the people
particularly the laborers.
 People receive equal and same benefits from the state.
C. Fascism
 Resources and industries are controlled by the government under a DICTATOR.
 Benito Mussolini started fascism in Italy in 1922.
 “THE PEOPLE ARE FOR THE STATE, NOT THE STATE FOR THE PEOPLE”
 People are OBLIGED to follow the rules, laws and regulation set by the state.
 Individuals have NO RIGHT to complain and defy rule of laws of the state.

Consumption
 Deals with the BUYING AND USING of goods and services to satisfy our needs.
 Consumption is a major concern of economics because many of our activities are influence by it.

Consumer
 A PERSON who PURCHASES and USES products and services to satisfy his or her personal needs through direct
consumption.
Consumer Products – the goods and services USED BY CONSUMERS for their PERSONAL AND
HOUSEHOLD NEEDS (food, clothing and others)

Consumer Services – the SERVICES RENDERED by the different business firms to repair and improve
the consumer products.

Characteristics of a Wise Consumer

A. Alert
 A wise consumer is ALWAYS WATCHFUL OVER HIS TRANSACTIONS in the market place to avoid being cheated
or defrauded
B. Budget Conscious
 A wise consumer is NOT an IMPULSIVE BUYER
 Evaluating things before buying is very important.
 Buys things ONLY WHAT IS NEEDED and SHOULD BE ACCORDING TO the BUDGET
C. Reasonable
 The consumer should evaluate the BALANCE between price and quality.
D. Not Affected by Advertisement
 The endorsement of a product by a CELEBRITY HAS NO EFFECT to a wise consumer
 The value, quality and price of the product are the selling points to a wise consumer, NOT THE ENDORSER.
E. Analytical
 The consumer patiently EXAMINES the QUALITY, PERCIEVABLE VALUE and BENEFITS that can be expected
of the product and compares them with other products available.
F. Looking for Alternative/Substitute
 Looking for alternative products when the ideal product is not available
G. Avoiding Panic Buying
 A wise consumer always exercise RATIONAL BUYING and DOES NOT make a BUYING DECISION out of FEAR,
PANIC or EXCITEMENT.
Consumerism
 A movement that PROMOTES and PROTECTS the RIGHTS OF THE CONSUMERS TO FAIR BUSINESS
PRACTICE.

Rights of a Consumer

1. Right to have Basic Need

 In order to meet the consumer’s basic needs, AMPLE SUPPLY and REASONABLE PRICES must be endured.

2. Right to Choose
 All consumers CAN CHOOSE the products they like to buy.
 NOBODY CAN FORCE the consumers to purchase products they don’t like.
 If the products they CHOSE ARE DEFECTIVE, THEY CAN RETURN THIS.

3. Right to Security
 Consumer must be PROPERLY INFORMED regarding the PRESENT CONDITION of the commodities in the
market.

4. Right to Clean and Orderly Environment

 To ENSURE THE SAFTER OF CONSUMERS FROM ILLNESS and ANY HEALTH HAZARDS even from products
that they will buy, INSPECTIONS of the market places and HEALTH PERMITS is REQUIRED

5. Right to Proper Information

 Every consumer must have KNOWLEDGE and INFORMATION about the product so that he will NOT BE
DECIEVED BY ADVERTISEMENTS.

6. Right to Organize
 Consumers can organize to have a social and economic policies
 Consumerism is a collaboration of consumer groups that protects the rights of consumers against abusive
business practices.

Responsibilities of Consumers
1. Critical Awareness
 The responsibility to be more alert and questioning about the use of, and the price and quality of goods and
services we use.

2. Action
 The responsibility to assert ourselves and act to ensure that we get a fair deal. Remember that as long as we
remain passive consumers, we will continue to be exploited.

3. Social Concern
 The responsibility to be aware of the impact of our consumption on other citizens, especially the poor, exploited,
disadvantaged or powerless groups, whether in the local, national or international community.

4. Environment Awareness
 The responsibility to understand the environmental consequences of our consumption. We should recognize our
individual and social responsibility to conserve natural resources and protect the earth for future generations.

5. Solidarity
 The responsibility to organize together as consumers to develop the strength and influence to promote and
protect our interests.
 Support local industries by PATRONIZING LOCAL PRODUCTS.

LAWS THAT PROTECT CONSUMERISM

1) RA 7394 (CONSUMER ACT OF THE PHILIPPINES)

 Protect the consumers from hazardous products
 To provide consumers education and information
 To protect consumers from business malpractices and deception

2) RA 7851 (PRICE ACT)

 Approved to ENSURE that the PRICES of basic commodities are ACCORDING TO THE GOVERNMENT
PRICING especially during CALAMITY.
 3) RA 71 (PRICE TAG LAW)
 Price Tag – a MARKING attached to products TO INDICATE their prices.
 The law REQUIRES that all goods and services ready for sale SHOULD BEAR A PRICE TAG and DISPLAY
THEM CONSPISCUOUSLY on the products.
 Aside from price tags, some establishments uses BARCODES to reveal the price of products, though it
is not required by the law.

4) National Food Authority

 Based for PD 1770 (Named as National Grains Authority)
 The National Food Authority is bestowed with the function of GUARANTEEING THE FOOD SECURITY of
the country and the STABILITY of SUPPLY and price of the STAPLE GRAIN – RICE.

5) RA 3740 (Law on LABELING, ADVERTISING and BRANDING)

 This law was enacted to PROTECT CONSUMERS FROM FRAUDELENT ADVERTISING, MISLABELING or
MISBRANDING of any products.
 Advertising FAKE PRODUCTS and SERVICES is strictly prohibited under this law.

6) RA 6675 (GENERIC ACT of 1988)

 This law promotes, encourages and requires the use of GENERIC NAME in the importation, manufacture,
distribution, advertising and prescription of DRUGS.
 It also ensures the adequate supply of drugs with generic name at a lowest possible cost and make them
available for FREE FOR INDIGENT PATIENTS.

7) Article 1546, Civil Code of the Philippines (LAW ON SALES)

 This law GUARANTESS that there is NO HIDDEN DEFFECTS in the products.

8) Article 2187, Civil Code of the Philippines (LAW ON EXTRA CONTRACTUAL OBLIGATIONS)
 Producers and processors of products are LIABLE FOR ANY DEATH OR INJURY suffered by the consumer
as a RESULT OF USING THEIR PRODUCTS.
 Expiration date signifies until when the product is safe to consume, and it is found in the label of the
product.

9) Article 118, Revised Penal Code (LAW ON TRADEMARK)

 Law that PENALIZES those who will use the brand, container, wrapper or trademarks of other registered
products.

Factors that Influence Consumption

1. Pricing
 Price is the AMOUNT TO BE PAID for goods and services and is a factor that limits consumption.
 The AFFORDABILITY OF THE PRODUCT is the DECIDING FACTOR whether to buy or not.
2. Advertisement
 Advertisement MOTIVATE and CONVINCE consumers to buy, try out or use a certain products.
 People buy and use certain products due to the emotional or intellectual appeal of the advertisement.
3. Income
 Our consumption depends on HOW MUCH INCOME WE HAVE.
 According to Ernst Engel, a large proportion of man’s income is spent for FOOD when HIS INCOME IS LOW.
But when his INCOME INCREASES, LESSER PROPORTION of his income is spent on food even if actual
expenditure on food rises.
4. Occasion
 Special occasions are a reason for increase spending.
5. Imitation / BANDWAGON EFFECTS
 Some people would want to ASSOCIATE OR LEVEL THEMSELVES with the status, personality and popularity
of the person who uses or endorses the product, HENCE PEOPLE BUY the product to satisfy their wants.
6. Values
 Our own values, which reflect our attitude and behavior, are manifested even in our purchase and
consumption.
 If we practice frugality, we plan out the things that we need to buy and only purchase them and not buy
on impulse
7. Seasons
 It affects consumption since some things are bought depending on the WEATHER – for example, umbrella
and jackets during rainy season, which we don’t usually buy during summer.