- Deals with what is

 Normative Economics (Ideal)

- Deals with what should be

ECONOMICS

- It is the branch of knowledge concerned with the production, consumption,

and transfer of wealth. DEMAND
- Study of how individuals and societies make decision about ways to scarce
resources to fulfill wants and needs - is the willingness of a consumer to buy a commodity at a given price
5 ECONOMIC QUESTIONS:
LAW OF DEMAND
 WHAT TO PRODUCE
- the inverse relationship between the price and the quantity demanded of a
 HOW MUCH TO PRODUCE
good or service during some period
 HOW TO PRODUCE IT
 FOR WHOM TO PRODUCE
 WHO GETS TO MAKE THESE DECISION? P↑D↓ P↓D↑
SCARCITY Based on:

- is a condition where there are insufficient resources to satisfy all the needs and 1. INCOME STATEMENT – at a lower price, consumers can buy some of a
wants of a population. product without giving up some goods
2. SUBSTITUTION EFFECT – consumers have the incentive to substitute the
TYPES OF SCARCITY: cheaper good to similar goods
3. DIMINISHING MARGINAL UTILITY – consumers will only buy more of a good
if its price reduced
 RELATIVE SCARCITY – fewer resources
 ABSOLUTE SCARCITY – supply is limited NON-PRICE DETERMINANTS OF DEMAND

ECONOMIC RESOURCES  income

 taste
 Land - soil and natural resources  expectations
 Labor - Physical and human effort exerted in production  prices of related goods
 Capital - man-made resources  the number of consumers

ECONOMICS AS A SOCIAL SCIENCE CHANGES IN DEMAND

- the study of society and how people behave and influence the world around - Price of Related Goods
them
 Substitute Goods
THE STUDY OF ECONOMICS Ex. Butter and Margarine
 Complementary Goods
 MICROECONOMICS Ex. Phone and Simcard
- is a division of economics that is concerned with the behavior of  Independent Goods
individual entities such as the consumer, the producer, and the
resource owner. - Expectations – if buyers expect that the price of the good will be increasing in
 MACROECONOMICS the future, they are likely to buy more today
- is a division of economics that is concerned with the overall - Number of Consumers – the higher the population, the more consumers
performance of the entire economy. - Seasons/weather

BASIC ECONOMIC PROBLEM OF SOCIETY

DEMAND CURVE
1. What to produce and how much
Increase in demand – going to the right
Decrease in demand – left
2. How to produce

3. For whom to produce

SUPPLY
- the various amount of a product that producers are willing and able to supply
BASIC ECONOMIC SYSTEM at various prices during some specific period

 Traditional Economy/Economic System LAW OF SUPPLY

- Decisions based on traditions and practices - direct relationship between the price and product
 Command Economy P↑P↑
- The government will decide the needs of the people
 Capitalism/Market Economy
CHANGES IN SUPPLY
- consumers will decide what goods and services to produce

OPPORTUNITY COST - Represented as a shift of the supply curve

- Caused by changes in determinants of supply
- refers to the value of the best forgone alternative Increase in supply – up right

 Positive Economics (Reality) Decrease in supply – down left

  Price Elasticity – measured by dividing the percentage change in
quantity demanded by the percentage change in price  Competition - is rivalry among various sellers in the market.
 Elasticity – responsiveness/effect of change in price and quantity to  Market – is a situation of diffused, impersonal competition among
demand and supply sellers who compete to sell their goods and among buyers who use
their purchasing power to acquire the available goods in the market.
Demand for good is:

 Elastic – greater than 1 4 types of Market Structure:

 Inelastic – less than 1
 Unitary – equal to 1 1. Pure/Perfect Competition
 Elastic demand – there is a change in demand and price/wants - Large number of buyers and sellers
 Inelastic demand – no change in demand/essential - Identical product/Selling the same thing
-Well informed buyers and sellers
Ex. Mcdo and Jollibee, Soaps
PRICE ELASTICITY OF DEMAND
2. Monopolistic Competition
- meets all condition of perfect competition except for identical
 Arc Elasticity – the coefficient of the price elasticity of demand
products
between two points along the demand curve
- Product Differentiation
 Point Elasticity – more exact than arc elasticity and measures only
Ex. RESTAURANTS
one point on the demand curve
3. Oligopoly
- Market dominated by a small number of strategically interacting
PRICE ELASTICITY OF SUPPLY
firms
- A few or very large sellers dominate the industry
- Measure of responsiveness of the quantity supplied of a good to a change its
- Engage in price wars
price when all other influences on sellers’ plans remain the same
- Standardized or differentiated products
Ex. P&G, Nestle, Coca Cola, Globe, Shell, Petron
 Price Elastic Supply – change price to almost zero
4. Monopoly
 Elastic Supply – change in quantity supply is higher than change in
- Only one seller of a particular product
price
- High barriers to entry
 Unit Elastic Supply – change in the quantity supplied equals the
- Single Seller
percentage change in price
- Unique product
 Inelastic Supply – percentage change in the quantity is less than the
Ex. Microsoft
percentage change in price
 Perfectly Inelastic Supply – line is vertical
MARKET
PRICE CONTROL
- is an interaction between buyers and sellers of trading or exchange
- Control of price done by government
 Good Market – offering products
 Price Ceilings – certain amount that when you go beyond  Labor Market – offering services
it may be illegal  Financial Market – stock market
 Price Floors – go below it, it would also be considered
illegal MARKET EQUILIBRIUM

- occurs in a market when all buyers and sellers are satisfied with their
perspective quantities at the market price

 Equilibrium – a system in equilibrium when there is no tendency for it

to change
 Equilibrium Price – the price of which the intentions of buyers and
sellers match
 Equilibrium Quantity – the quantity demanded and quantity supplied
that occurs at the equilibrium price in a competitive market