Basic Economics With Taxation And Agrarian Reform boa

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  • 1.  
  • 2.
    • TOPICS:
    • Consumer Behavior
    • Analysis of Demand
    • Analysis of Supply
    • Market Equilibrium
    • Production and Cost Theories
    • Market Structure and
    • Price-Output Determination
  • 3. CONSUMER BEHAVIOR
    • Needs vs. Wants
    • Analysis of Consumer Behavior
        • Marginal Utility Approach
        • a. Consumer Equilibrium
        • Indifference Curve Approach
        • a. Indifference Curve
        • b. Family of Indifference Curves
        • c. Budget Line
        • d. Consumer Equilibrium
    • Patterns of Filipino Consumption
    • The Responsible Consumer
  • 4.
    • Needs – have to be satisfied for an individual to live.
    • Wants – have to be satisfied in order to live comfortably.
    • Marginal Utility - means the additional
    • satisfaction or utility one gets from
    • consuming an additional unit of a good.
    • Utils – unit of measure to quantify utility or satisfaction.
    • Law of Diminishing Marginal Utility - It asserts that as more and more of a commodity is concerned, his additional utility from every unit consumed tend to become less and less.
    Important Terms
  • 5. Law of Diminishing Marginal Utility
    • Change in TU
    • MU =
    • Change in Q
    • Where;
    • MU – Marginal Utility
    • TU – Total Utility
    • Q - Quantity
  • 6. Relationship between Total Utility and Marginal Utility Table 1 TOTAL UTILITY MARGINAL UTILITY IMPLICATIONS increasing positive satisfied constant zero satiated decreasing negative dissatisfied
  • 7.
    • Equimarginal Principle – states that consumers maximize their utility or satisfaction when the marginal utility they get per price of a certain good is the same as the marginal utility achieved per price of any other good.
    • MU for Milk MU for Bread
    • =
    • Price of Milk Price of Bread
    • Marginal Rate of Substitution (MRS ) - It measures the maximum amount of one good given up in order to consumer more units of the other good. It is also the slope of indifference curve.
  • 8.
    • Law of Diminishing Marginal Rate of Substitution –It indicates that consumer gives up less and less amount of cookies in favor of additional units of candies.
    • Budget/Income – It is the amount allocated for buying the goods.
    • Consumer Equilibrium – It is attained at the point of tangency (the point where the budget line touches but does not cross the indifference curve) between the budget line and the highest possible indifference curve.
    • The Responsible Consumer
    • Awareness
    • Social Concern
    • Action
    • Solidarity
  • 9. CONSUMER RIGHTS
    • Basic Needs
    • Safety
    • Information
    • Choice
    • Representation
    • Redress
    • Consumer Education
    • Healthy Environment
    P15.00
  • 10. ANALYSIS OF DEMAND
    • Price and Quantity Demanded
        • Demand Function
        • Demand Schedule and Demand Curve
        • Other Factors Affecting Demand
    • Change in Quantity Demanded and
    • Change in Demand
    • Price Elasticity of Demand
      • a. Elastic
      • b. Inelastic
    • c. Unit-Elastic
    • d. Perfectly Elastic and Perfectly Inelastic
        • Price Elasticity of Demand and Total Revenue
        • Factors Affecting Demand Elasticity
  • 11.
    • Market exists if there is interaction between buyers and sellers.
    • Buyers - are the ones who exert demand
    • Sellers - are the ones who bring about supply.
    • Price and Quantity Demanded
    • Demand – refers to the various quantities of a good that a consumer is willing and able to buy.
    • Ceteris Paribus (remain constant) – income of the consumers, the prices of related goods, and the number of consumers.
    • Demand Function –It specifies the relationship between the price of the good and the various quantities that a consumer is willing and able to buy.
    Important Terms
  • 12.
    • Demand Schedule - assumption of price levels and for the corresponding quantities demanded.
    • a. Individual Demand Schedule – prices and quantities demanded by one buyer.
    • b. Collective Demand Schedule – prices and quantities demanded by several buyers.
    • Demand Curve – graphical illustration of demand schedule.
    • DOWN SLOPING DEMANDCURVE
    • When the price of the good increases, the demand for that good decreases, keeping other things constant conversely, when the price decreases, the demand increases, keeping everything else constant.
  • 13. OTHER FACTORS AFFECTING THE DEMAND
    • A. Consumers’ Tastes and Preferences
    • B. Consumers’ Income
    • C. Number of Consumers
    • D. Prices of Substitutes and Complements
    • E. Price Expectations
    • F. Traditions
    • CHANGE IN QUANTITY DEMANDED AND CHANGE IN DEMAND
    • Shift of the demand curve may be upward to the right, which means an increase in demand; or downward to the left, which means there is a decrease in demand.
  • 14. PRICE ELASTICITY OF DEMAND
    • It measures how the quantity demanded changes when the price changes. It measures the degree of the responsiveness of quantity demanded to the change in the product price.
    • ∆ Qd / Q
    • E D =
    • ∆ P/ P
    • Where;
    • ∆ Qd – new quantity demanded – old quantity demanded
    • Q – new quantity demanded + old quantity demanded
    • 2
    • ∆ P – new price-old price
    • P – new price + old price
    • 2
  • 15. Types of Demand Elasticity
    • A. ELASTIC DEMAND – Coefficient is less than 1, demand is said to be price –elastic. This means that the percentage change in price results in a greater percentage change in quantity demanded. Goods with many close substitutes are price-elastic.
    • B. INELASTIC DEMAND – Coefficient is greater than 1.Percentage change in quantity demand is smaller than the percentage change in price. Goods that consume a smaller portion of the consumer’s income are price-inelastic.
    • C. UNIT-ELASTIC DEMAND – Coefficient elasticity is equal to 1. Percentage change in quantity demand is equal to the percentage change in price. Goods that are semi-luxury or semi-essential goods.
    • D. PEFECTLY ELASTIC DEMAND & PERFECTLY INELASTIC DEMAND
    • A. Elastic Demand – price elasticity is infinite. Even a slight change in price can result in an infinitely large change in quantity demanded. This implies that consumers face several choices and that a slight increase in the price of one good can result in a large decrease in demand for that good, and an increase in demand for other goods.
    • B. Inelastic Demand – zero price elasticity (Quantity Demanded stays the same, no matter what the change in price is.)
  • 16. The Relationship between Product Price and Total Revenue at various elasticity Table 2 Value of Demand Elasticity Definition Price Total Revenue <1 (inelastic) Percent change in quantity demanded is less than percent change in price If price increases Total Revenue increases If price decreases Total Revenue decreases = 1 (unit-elastic) Percent change in quantity demanded is equal to percent change in price If price increases Total Revenue is constant If price decreases Total Revenue is constant
    • 1 (elastic)
    Percent change in quantity demanded is greater than percent change in price If price increases Total Revenue decreases If price decreases Total Revenue increases
  • 17. PRICE ELASTICITY OF DEMAND AND TOTAL REVENUE
    • TOTAL REVENUE (TR = P x Q) refers to the total expenditure on the product by a consumer or to the total sales by the producer. Revenue depends on price elasticity of demand.
    • Factors affecting Price Elasticity of Demand
    • 1. Availability of Close Substitutes
    • 2. Importance of the goods to consumer
    • 3. Proportion of Income Spent on the Good
  • 18. ANALYSIS OF SUPPLY
    • Price and Quantity Supplied
          • Supply Function
          • Supply Schedule and Supply Curve
          • Law of Supply
          • Other Factors Affecting Supply
    • Change in Quantity Supplied and
    • Change in Supply
    • Price Elasticity of Supply
  • 19. LAW OF SUPPLY
    • As price increases, the quantity supplied also increases, all other things remaining constant.
    • PRICE AND QUANTITY SUPPLIED
    • Supply – refers to the various quantities of a good that a seller is willing and able to sell at all possible alternative prices over a given period of time.
  • 20.
    • Supply Function - The relationship between the price of the good and the various quantities that a seller is willing and able to sell can be expressed in mathematical form which is called the supply function.
    • QSx = f (Px)
    • Where;
    • QSx - Quantity supplied of Good x
    • Px – price of Good x
  • 21.
    • Supply Schedule - It is made up of a listing of prices and quantities. The higher the price, the more incentives for the seller to supply more for a higher profit.
    • Supply Curve - It is a graphical representation of the supply function.
    • 1. Sellers are encouraged to sell more at a high price than at a low price since this means more profit. More profits create more goods.
    • 2. At a higher price, even inefficient firms can stay in the industry. But as price declines, efficient firms displace the inefficient ones, triggering their withdrawal from the industry.
  • 22. Other Factors Affecting Supply
    • a. Technology
    • b. Prices of Resources/Inputs
    • c. Taxes and Subsidies
    • d. No. of Sellers
    • e. Price Expectations
    • f. Natural Calamities
    • Change In Quantity Supplied – it refers to the movements of points along the give supply curve. It happens when the price of a good under consideration changes.
    • Change in Supply – it refers to either a downward to the right or upward to the left movement or shift of the entire supply curve.
  • 23. Factors that Cause Supply to Increase
    • 1. Improvement in technology
    • 2. Decrease in the price of resources/inputs used
    • 3. Decrease in taxes imposed on producers
    • 4. Increase in government subsidy
    • 5. Increase in the number of sellers
    • 6. Decrease in the future prices expected by producers
    • PRICE ELASTICITY OF SUPPLY
    • It measures the responsiveness or sensitivity of producers to changes in the price of a good. This refers to the degree to which the quantity supplied responds to changes in price.
  • 24.
    • Various Types of Elasticity
    • A. Elastic Supply – a slight change in price results in a large change in quantity supplied, implying elastic supply.
    • B. Inelastic Supply – the percent change in price is higher than the percent change in quantity supplied.
    • C. Unit-elastic Supply – the percent change in price is the same as the percent change in quantity supplied.
    • D. Perfectly Elastic and Inelastic Supply
    • a. Perfectly Elastic - the price is fixed but the quantity varies infinitely.
    • b. Perfectly Inelastic – whatever the price is, then supply is fixed.
  • 25. MARKET EQUILIBRIUM
        • Market
          • Market Equilibrium
          • Market Surplus and Shortage
          • Effects of Change in Demand on Equilibrium Price and Quantity
          • Effects of Change in Supply on Equilibrium Price and Quantity
          • Effects of Simultaneous Change in Demand and Supply on Equilibrium Price and Quantity
        • Price setting by the government
          • Price Floor
          • Price Ceiling
      • Tax Incidence
  • 26.
    • Market - It refers to the medium in which buyers and sellers interact.
    • Market Equilibrium - It refers to the balance between all quantity demand and quantity supply. When buyers and sellers transact at an agreed price, there is market equilibrium.
    • Equilibrium Price – It is the price at which consumers will be willing to take exactly the amount that sellers want to place in the market. This is also called the “market-clearing price”.
    • Mathematical Solution to Equilibrium
    • Qd = 18 – 2P (demand for cookies)
    • Qs = 2 + 6P (supply of cookies)
  • 27.
    • In solving for equilibrium price and quantity, we equate the demand and supply function :
    • Qd = Qs
    • 18 - 2P = 2 + 6P
    • -2P-6P = 2 – 18
    • -8P = -16
    • -8 = -8
    • P e = P2.00
    • We can substitute the equilibrium price P = P2.00 for the demand and supply function, to get the equilibrium quantity (Q e )
    • 18-2(2) = 2 + 6(2)
    • 18-4 = 2+12
    • 14 = 14
    • Q e = 14 units
  • 28. Table 3 Table 3 shows the demand and supply schedules for cookies. At P2.00, the demand for cookies at 14 units is equivalent to the supply of cookies. Price Quantity Demanded Qd e Quantity Supplied Qs e 0 18 2 1 16 8 2 14 14 3 12 20 4 10 26 5 8 32
  • 29.  
  • 30. Price setting by the Government
    • Price Floor - It is the price set by the government that is
    • higher than the equilibrium level.
    • Price Ceiling - It is the price set below the equilibrium price.
    • Tax Incidence - It refers to the final resting of a tax burden. It crucially depends on how the demand and supply curves are drawn. It is largely dependent on price elasticity of demand and supply; the flatter the demand curve (more elastic) is than the supply curve, the lesser will be the burden on consumers.
  • 31. PRODUCTION AND COST THEORIES
    • Production Theory
      • Production Function
      • Production Periods
      • Short-run Production
      • a. Total produce and Average Product
      • Marginal product and Law of Diminishing Returns
    • Cost Theory
      • Cost Concepts
      • Short-run Costs
      • a. Total Cost : Fixed and Variable
      • b. Average Cost : Fixed and Variable
      • c. Marginal Cost
  • 32.
    • The goal of a producers is to maximize profits (sales minus costs) and, at the same times, minimize costs.
    • Production - It refers to the process of creating goods and services with the use of productive resources or factors of production.
    • Production Function - It refers to the relationship between inputs that are required and outputs that are obtained.
    • Inputs – refer to the different ingredients used to produce goods and services.
    • Outputs – refer to the goods and services that result from the production process.
    • “ How many units of input must be combined to produce so much of an output?”
    Important Terms
  • 33.
    • Production Period - It is the length of time within which the firm can vary the amount of production inputs to be used.
    • 3 Classifications of Production Period
    • 1. Immediate period – the time is too short for the firm to vary the quantity of its inputs. This is why it is sometimes called the very short run , or the market period.
    • 2. Short-run period – the time is long enough for the firm to vary some – but not – all of its inputs. Thus, some inputs are variable while others are fixed. Land, buildings, machinery, and heavy equipment are usually held fixed in the short-run period; raw materials, laborers, and power supply are available.
    • 3. Long-run period – is extensive enough for the firm to vary the quantity of all inputs used. Therefore, in the long run, all inputs are variable. No fixed inputs exist.
  • 34. SHORT RUN PRODUCTION
    • For the production of children’s dresses (output), one of the inputs is permanent (fixed input) while the other one is changing (variable input) .
    • Variable input increases or as more dressmakers are hired, more dresses are produced. Total Product (TP) increases, keeping capital constant.
    • Average Product – refers to the total output produced divided by the total units of inputs used.
    • Total Product
    • Average Product =
    • Variable Input
  • 35.
    • Law of Diminishing Returns for Labor – there is a decrease in the number of additional dresses produced per additional dressmaker hired.
    • Marginal Product – pertains to the additional output produced when 1 unit of input is added, keeping other inputs constant.
    • Change in Total Product
    • Marginal Product =
    • Change in Variable Input
  • 36. Production Schedule of Children’s Dresses Table 4 Dressmakers Dresses (TP) Marginal Product (MP) Average Product (AP) 0 0 1 5 5 5 2 9 4 4.5 3 12 3 4 4 14 2 3.5 5 15 1 3 6 15 0 2.5
  • 37.
    • At this point, the firm should stop hiring dressmakers.
    • That is six labor is enough to be combined with the fixed input,
    • sewing machine.
  • 38.
    • Cost Theory - Production involves cost. The inputs used in producing goods and services are paid for by the business firm that uses them.
    • Cost Concepts
    • Private Costs – are expenses shouldered by individual producers. The firm incurs them when it acquires resources for use in the production process. Example – Wages, rent, and cost of materials.
    • Social Costs – are additional costs that are not paid for by the producers but are borne by society. Example – a cement manufacturer causes pollution in the environment.
  • 39.
    • Social Cost/benefit - can either be positive or negative in terms of effect on society. Sometimes, production may involve the benefits to the community and not negative costs.
    • Example: The residents in a community wherein industries are put up will benefit through jobs generated and business opportunities created, like canteens, dormitories for workers. However, they suffer in terms of pollution and a possibly high crime rate in the area.
  • 40.
    • The private cost of the producer can either be explicit or implicit in nature.
    • Explicit or expenditure cost – consist of actual payments made by the firm for resources bought or hired. Examples : Payments for raw materials and salaries of hired workers.
    • Implicit Cost – costs of self-owned or self-employed resource.
  • 41.
    • Variable Costs – are incurred for variable inputs.
    • Example : Wages of ordinary laborers, cost of raw materials, and transportation.
    • Fixed Costs – are spent for fixed inputs.
    • Example : Salaries of those in top management, rent, and insurance payments.
  • 42. SHORT-RUN COSTS
    • In the short run, the firms has insufficient time to vary all its inputs.
    • Total Cost: Fixed and Variable
    • Total Fixed Costs – refer to the costs of fixed inputs used by the firm.
    • Total Variable Costs – refer to the costs of variable inputs used by the firm. These are costs of labor as well as raw materials. VC changes as output changes. VC is zero when output is zero.
    • Total Cost – is composed of total fixed costs(FC) and total variable costs (VC)
  • 43. Average Cost : Fixed and Variable
    • Average Fixed Cost – decreases continuously as output increases. The greater the output, the smaller the AFC. This is due to a fixed cost that is spread to more output levels.
    • Total Fixed Cost
    • Average Fixed Cost =
    • Output
    • or
    • TFC
    • AFC =
    • Q
  • 44.
    • Average Variable Cost – refers to the variables costs per unit of output produced by the firm. It is obtained by dividing VC by the level of output.
    • Total Variable Cost
    • Average Variable Cost =
    • Output
    • Or
    • TVC
    • AVC =
    • Q
  • 45.
    • Average Cost - is obtained by dividing TC by the level of output. It is also obtained by adding the sum of AFC and AVC.
    • Total Cost
    • Average Cost =
    • Output
    • Or
    • TC
    • AC = or AC = AFC + AVC
    • Q
  • 46.
    • Marginal Costs – refer to the additional costs incurred by the firm in producing an additional unit of output.
    • Change in Total Cost
    • Marginal Cost =
    • Change in Output
    • Or
    • ∆ TC TC 1 – TC 0
    • MC = MC =
    • ∆ Q Q 1 – Q 0
  • 47. MARKET STRUCTURE AND PRICE-OUTPUT DETERMINATION
    • Perfect Competition
    • Monopoly
    • Monopolistic Competition
    • Oligopoly
    • Determinants of Market Structure
  • 48. PERFECT COMPETITON
    • It is characterized by the presence of several sellers or producers in the market who offer homogeneous or identical goods. Examples are sellers of farm products like rice, corn, coconuts, and sugar.
    • Since numerous firms are engaged in farm products, a single seller is relatively small in comparison to the entire market or industry. Because of this, a single seller under perfect competition is a price taker , who cannot affect the market price.
    • Under perfect competition, there is complete mobility of goods and resources, which means that producers and sellers can freely enter into or leave the market whenever they wish.
  • 49.
    • Total Revenue – price multiplied by quantity produced
    • Average Revenue – total revenue divided by quantity produced.
    • Marginal Revenue – additional revenue a producer gets when an additional unit of quantity is produced.
  • 50. Profit Maximization of Perfectly Competitive Firm
    • TR > TC = Profit
    • TR < TC = Loss
    • TR = TC = Breakeven or 0 profit
    • MR>MC = produce more until MR =MC
    • MR=MC = profit maximized
    • MR<MC = produce less until MR=MC
  • 51. MONOPOLY
    • It comes from two Greek words – mono, meaning “one”, and polist, meaning “seller”. Therefore, it refers to one seller dominating the market. This type of market structure is the exact opposite of perfect competition.
    • Example: Public Utility firms (Meralco)
    • Patent - It is the exclusive right granted an inventor to enable him to control the use of his invention – also hinders other firms from penetrating the market.
    • Profit Maximization of Monopolist
    • P > MR = MC
  • 52. MONOPOLISTIC COMPETITION
    • In this kind of competition, there are many firms competing and it is easy for a firm to enter and exit the market. Note that these characteristics are the same as those of perfect competition.
    • The difference is that the products sold in monopolistic competition are not completely homogeneous. Different producers/firms make it appear as if their own product was unique and different from the rest, but in reality, the products available in the market are close substitutes.
  • 53. OLIGOPOLY
    • In an oligopoly, only a few sellers control a big share of the market. In this market structure, there is some degree of control over the market price and the sellers are interdependent – a phenomenon called collusion.
    • Oligopolists forge price agreements to promote their own economic interests. The biggest producer among them is the price leader. In the case of oil, the price leader is Saudi Arabia. There is also some sort of output agreement among oligopolists to avoid surplus, which will cause a decline in the price of their products.
  • 54. DETERMINANTS OF MARKET STRUCTURE
    • A. Government Laws
    • B. Technology
    • C. Business Policies
    • D. Economic Freedom
  • 55. E N D H O M E Thank You!