Basic Economics with Taxation and Agrarian Reform

I. INTRODUCTION

1. NATURE OF ECONOMICS

a. It is a social science concerned with the efficient use of scare resources to achieve the maximum satisfaction of economic wants.
b. It is concerned with obtaining maximum satisfaction through the efficient use of scare resources
c. Area study by Economic are the economic behavior and economic relationship
d. The economic perspective stresses:
Resources scarcity and the necessity of making choices
The assumption of rational behavior
Comparisons of marginal benefit and marginal cost
e. Economic wants far exceed the productive capacity of our limited or scarce resources
f. The complete satisfaction of societys economic wants is impossible
g. Rational Behavior
it means that the same person may make different choices under different circumstances
economics assumes that human behavior reflects rational self-interest
individual look for and pursue opportunity to increase their utility- that is pleasure, happiness, or satisfaction
it also means that choice will vary greatly among individuals
h. Marginal Analysis
Comparison of marginal benefits and marginal cost
Marginal means extra, additional or change in

2. METHODOLOGY OF ECONOMICS

a. Economic relies on scientific method
b. It consist of number of elements
Observation of facts
Based on those facts, the formulation of a possible explanation of cause and effects (hypothesis)
The testing of this hypothesis by comparing the outcomes of specific events to the outcome predicted by the hypothesis
The acceptance, rejection, or modification of the hypothesis, based on these comparisons
The continued testing of the hypothesis against the facts
c. Theoretical Economics
It involves formulating theories (or laws and principles ) and using them to understand and explain economic behavior and the
company ;
d. Economic principles
Expressed as the tendencies of typical or average consumers, workers, or business firms
e. Abstractions
Simplifications that omits irrelevant facts and circumstances
Leads some people to consider economic theory impractical and unrealistic
f. Policy Economics
Recognizes that theories and data can be used to formulate policies-courses of action based on economic principles and
intended to resolve a specific economic problem or further an economic goal
Involves using the theories to fix economic problems or promote economic goals
The instrument that use to attain economic goals and objectives
Economic theories are the foundation of economic policy
It is normally applied to problems after they arise
Economic Policy- the creation of policies to achieve specific goals is no simple matter. Here are the basic steps in policymaking
(requires a clear statements of goal, a thorough assessment of option, and an unbiased evaluation of results)
State the goal
is to make a clear statement of the economic goal
the goal must be specific
Determine the policy option
Formulate alternative policies designed to achieve the goal and determine the possible effects of each
policy
This requires a detailed assessment of the economic impact, benefits, costs, and political feasibility of the
alternative policies
Implement and evaluate the policy that was selected
Evaluate how well it worked
g. Positive Economics
Focuses on facts and cause-and-effect relationship
It includes description, theory development, and theory testing (theoretical economics)
It avoids value judgments, tries to establish scientific statements about economic behavior and deals with what the economy is
actually like
Concern what is
h. Normative Economics
Incorporates value judgment about economic about what the economy should be like or what particular policy actions should be
like or what particular policy actions should be recommended to achieve a desirable goal.
It looks at the desirability of certain aspects of the economy
Embodies subjective feelings about what ought to be

Note: Some of societys economic goals are complementary, while others conflict; where conflicts exist, tradeoffsarise.
3. BASIC ECONOMIC PROBLEMS
Four Economic Problem
What are the products and services to produce?
How to produce?
For whom to produce?
Availability of the produce?

a. Production make of something out of nothing
Scarcity and Choice
Since human and property resources are scare (limited)
It follows that the goods and services we produce must also be limited
Scarcity limits our option and necessitates that we make choice
Economic Resources
Used for the production of economic goods
Characteristics of Resources (1) alternative uses and (2) productive uses
Factors of Production
Land all natural resources. Used in the production process
Capital includes all manufactured aids use in producing consumer goods and service
1) Included are all tools, machinery, and distribution facilities
2) The process of producing and purchasing capital goods is known as investment
3) Consumer goods satisfy wants directly, while Capital goods do so indirectly by aiding the production of consumer
goods
Labor is broad term for all the physical and mental talents of individual available and usable in producing goods and services.
Entrepreneurial Ability special human resources, distinct from labor
1) he is the person who combines the other economic resources for the use in the production of goods and service

b. Distribution the transfer of product from one place to another
c. Consumption
d. Growth over time

4. BASIC ECONOMIC GOALS
If economic policies are designed to achieve certain economic goals, then we need to recognize a number of goals that are widely accepted
in the United States and many countries.

a. Economic growth produce more and better goods and services, or, more simply, develop a higher standard of living
b. Full employment provide suitable jobs for all citizens who are willing and able to work
c. Economic efficiency achieve the maximum fulfillment of wants using the available productive resources
d. Price-level stability avoid large upswings and downswings in the general price level; that is, avoid inflation and deflation
e. Economic freedom guarantees that businesses, workers, and consumers have a high degree of freedom in their economic activities
f. Equitable distribution of income ensure that no group of citizens faces poverty while most others enjoy abundance
g. Economic security provide for those who are chronically ill, disabled, laid off, aged, or otherwise unable to earn minimal levels of
income
h. Balance of trade seek a reasonable overall balance with the rest of the world in international trade and financial transactions

5. MACROECONOMICS

Examines either the economy as a whole or its basic subdivisions or aggregates, such as the government, household, and business
sectors.
Aggregate is a collection of specific economic units treated as if they were one unit
Using aggregates, macroeconomics seeks to obtain an overview, or general outline, of the structure of the economy and the
relationships of its major aggregates
It speaks of such economic measure as total output, total employment, total income, aggregate expenditure, and the general level of
prices in analyzing various economic problems
It examines the beach, not the sand, rocks, shells

6. MICROECONOMICS

Look at specific economic units
It examine the sand ,rocks and shells, not the beach

Note: Both macro and micro distinction does not mean that economics is so highly compartmentalized that every topic can be readily labeled as either macro or micro;
many topics and subdivisions of economics are rooted in both.

7. ECONOMIC SYSTEM
A particular set of institutional arrangements and a coordinating mechanism to respond to the economizing problem
Economic system is differ as to:
a) who owns the factors of production
b) the method used to coordinate and direct economic activity
market places where buyers and sellers come together
Traditional Economy
is a very backward type of economy
characterized by a system where the production of products, trading and distribution of incomes are sanctioned by custom
referring to the traditional manner of doing things makes decisions on what, how and for whom to produce
methods of production are carried over by the system of the forefathers
religious and cultural values are over and above economic activity
Capitalism or Market System
Market system refer to capitalism system
Resources are privately owned and the people themselves make decisions
Also known as market economy
There are many independent buyers and sellers of each product and resources therefore competition arises giving height to
consumer sovereignty
Price of a good is basis for the producers to know
The Command Economy
Government owns the means of production
Government dictates what, how, and for whom to produce
All the capital resources and consumer goods are being divided to its citizenry
No private or individual production and consumption
Government dictates the price
Mixed System
There are only few country that has a pure economic system
The Philippines applies three form of economic system
Pure Competition
Also known laissez-faire capitalism
Governments role would be limited to protecting private property and establishing an environment appropriate to the
operation of the market system and keep government from interfering with the economy


II. MARKET MECHANISM

Economic Model is a simply representation of economic reality its purpose is to explain economic reality

Production Possibilities or Transformation, Frontier, Curve





Economic growth by sacrifies






Production possibilities






Production is less when the time is not use efficiency and fully use.
More resources improved technologies skills.

2 Relationships
a) Master-slave relationship (b) friendly-cooperative relationship

Interest of the Capitalist low wages, long time
Interest of the worker high wages, short time contradiction

Thesis vs. Antithesis Dialectical idealism and Dialectical Materialism


Market Economy = Market System



Price System consideration for the problem

Cost of production (wage of labor, electric wage, raw material, rent and etc.)

Price social determine by interaction of buyer and seller


Buyer Seller

Market










F
M
b
c
d
a
d
f
E
P





Price





Q

Manifestation of Human Behavior

Demand is a schedule or a curve that shows the various amounts of a product that consumers are willing and able to purchase at each of a series
of a series of possible prices during a specified period of time
Simply a statement of a buyers plans, or intention, with respect to the purchase of a product
Law of demand as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls, cheteris paribus
There is negative or inverse relationship between price and quantity demanded
This inverse relationship is the law of demand
Cheteris paribus all other things are constant
Price determine by the buyer and seller
Obstacle that deters consumer from buyer
Higher the obstacle, the less of product they will buy
Lower the obstacle, the more of product they will buy
Sales evidence of their belief n the law of demand
Income effect indicates that a lower prices increase the purchasing power of a buyers money income, enabling the buyer to purchase more of
the product than she or he could buy before
Demand Curve connected the points with a smooth curve
Its downward slope reflects the law of demand
Determinants of Demand the other factor can and do affect purchase
Price of goods
Price of related goods
Income
Taste/preference
Change in demand a change in the demand schedule or graphically a shift in the demand curve is called a change in demand

Qx = (Px, Py, Y, T/P, etc)
Qx quantity of good
Px price of goods
Py price of related goods
Y income
T/P taste or preference

Qx = f (Px)
Px Qx P= stimulus Q= response

Px Qx


Note: end with cheteris paribus

Demand Schedule
Qx = f (Px)
Qx = 11 Px

Px Qx

1 10
2 9
3 8 QUANTITY DEMANDED
4 7
5 6


Py price of related goods x and y
2 kinds of related goods
Substitute goods competing goods Px Qx


Complementary goods goods consumes together Px Qx



Demand consumer behavior
Supply supplier behavior