Economic Analysis

Economic Analysis
Republic Central Colleges
Graduate School
1
INTRODUCTION TO ECONOMICS
Jamie A. Sigua
I. Rationale
Economics looks at how governments, businesses, societies, households
and individual people make decisions about how, when and where to best
use their natural resources. This research aims to discuss Economics and
its relationship with scarcity. It also aims to give a brief introduction on
Economics such as its foundation, branches, types of analysis, basic
questions and different economic systems. This study could also serve as
guide in assessing the economic growth and development of a country.
II.Objectives
• Define scarcity and economics
• Identify the foundation of economics
• Define and differentiate positive and normative economics
• Identify the four basic economic questions
• Describe the three E’s in economics
• Understand the concept of opportunity cost
• Categorize the different types of economic systems
III.Pre-Test
• What is economics and its relationship to scarcity?
• What is the difference between positive and normative
economics?
• What are the four basic economic questions?
• What are the contributions of the 3 E’s of economics to the
economic development and growth of a country?
• What are the two major branches of economics?

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• What is opportunity cost?
• What are the types of economic system?
IV.Learning Cell
Economics and its relationship to scarcity
• Economics is a science that deals with the management of
scarce resources. It came from a Greek word Oikonomia or Oikonomus
which means “management of household”.
• Scarcity refers to the basic economic problem, the gap between
limited scarce resources and theoretically limitless wants (Chappelow,
2019).
• Human wants and needs are unlimited and available resources
are finite, scarcity gives the society with the problem of allocating and
distributing these resources.
• Economics was introduced to assist the government and the
society in making decisions on how to properly allocate, distribute and
utilize economic resources to satisfy human wants and needs.
• The problem of scarcity has led to the introduction of Economics.
Therefore, economics would not exist if there is no scarcity of
resources.
Foundation of Economics
• Free Market (late medieval and early-modern Europe)
describes a theoretical, idealized, or actual market where the price of
an item is arranged by the mutual non-coerced consent of sellers and
buyers, with the supply and demand of that item not being regulated by
a government

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• Mercantilism (16th - 18th century) suggests that the ruling
government should advance these goals by playing a protectionist role
in the economy, by encouraging exports and discouraging imports,
especially through the use of tariffs. The economic policy based upon
these ideas is often called the mercantile system.
• Classical Economics (1776) is widely regarded as the first
modern school of economic thought. Its major developers include Adam
Smith, David Ricardo, Thomas Malthus and John Stuart Mill.
Sometimes the definition of classical economics is expanded to include
William Petty, Johann Heinrich von Thünen, and Karl Marx. Classical
economists attempted and partially succeeded to explain growth and
development. They produced their "magnificent dynamics" during a
period in which capitalism was emerging from a past feudal society and
in which the industrial revolution was leading to vast changes in society.
These changes also raised the question of how a society could be
organized around a system in which every individual sought his or her
own (monetary) gain.
• Laissez-faire Economics (19th century - 1867 treaty marked
use) it is generally understood to be a doctrine that maintains that
private initiative and production are best allowed to roam free, opposing
economic interventionism and taxation by the state beyond that which is
perceived to be necessary to maintain individual liberty, peace, security,
and property rights. Free-market anarchists take the idea to its full
length by opposing all taxation.
• Neoclassical Economics (1871-1877) refers to a general
approach in economics focusing on the determination of prices,
outputs, and income distributions in markets through supply and
demand.

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• Keynesean Economics (1921-1936) is a theory, which happens
to be the main economic theory of the current economy concludes that
there is no impetus to achieve full employment or drive output and that
the state and private businesses must work toward driving policies to
encourage such ends.
• Natural Capitalism (1990's) is a set of trends and economic
reforms to reward energy and material efficiency and remove
professional standards and accounting conventions that prevent such
efficiencies.
Positive and Normative Economics
• Positive economics is a stream of economics that focuses on
the description, quantification, and explanation of economic
developments, expectations, and associated phenomena. It relies on
objective data analysis, relevant facts, and associated figures
(Fontinelle, 2019).
• Normative economics focuses on the ideological, opinion-
oriented, prescriptive, value judgments, and "what should be"
statements aimed toward economic development, investment projects,
and scenarios (Fontinelle, 2019).
• Positive economics is based on facts and cannot be approved or
disapproved while Normative economics is based on “what should be”
or value judgments.
Four Basic Economic Questions
• The four basic economic questions or problems that must be
answered to address the problem of scarcity are as follows: What to

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produce? How to produce? How much to produce? and For whom to
produce?
• What to produce? The society must determine what goods or
services it would like or need to produce and it needs to account the
resources it possess before making decisions.
• How to produce? The society must choose between the
techniques to produce the goods or services. It needs to check the
availability of the different factors of production before making
decisions.
• How much to produce? The society needs to determine the
number of goods and services that needs to be produced in order to
satisfy the demands of the society.
• For whom to produce? This implies the distribution of produced
goods and services to the members of the society. The society needs to
decide on who gets the share of the good or services produced.
3 E’s in Economics
• Three E’s in Economics have a vital role in the economic
development and growth of a certain country. Three E’s are as follows:
Efficiency, Equity and Effectiveness.
• Efficiency refers to efficient and proper allocation of economic
resources. It is achieved by minimizing inputs in relation to outputs or
by maximizing outputs in relation to inputs. Being efficient in the
production and allocation of goods and services saves time and money
and also increases the level of outputs of the company.
• Equity means justice and fairness. Thus, while technological
advancement may increase production, it can also bear disadvantage
to the employment of workers (Viray et. al, 2018)

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• Effectiveness means the attainment of goals and objectives.
Produced goods or services will be considered if they achieve the goals
of both parties, that is customer satisfaction and profits for the business.
Major Branches of Economics
• Microeconomics is a sub-discipline focuses on economic
dynamics as they exist among consumers (individuals or smaller
groups) as well as specific firms. It analyzes the way these actors make
decisions, why they make them, and what conditions those decisions
produce (Agarwal, 2019).
• Macroeconomics is naturally much bigger than
microeconomics. It similarly looks at how actors make decisions, but
focuses on much larger actors, and the ways that economies behave
on larger scales. In practice, this involves a focus on the economies of
states and regions (Agarwal, 2019).
Opportunity Cost
• Opportunity cost is the price of the next best thing that could
have done had not made the first choice.
• Opportunity costs should be measured based on the own
personal feelings and values.
• Opportunity cost is inextricably linked with the notion nearly
every decision requires a trade-off.
Types of Economic System
• There are four types of economic systems namely: traditional,
command, market and mixed. Each economy has its strengths and
weaknesses, its sub-economies and tendencies.

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• Traditional Economic System is the most traditional and
ancient type of economy. Under Traditional Economy, goods and
services were produced are directly related to the society’s beliefs,
customs, religions and traditions.
• Command Economic System is characterized by a dominant
centralized power which is usually the government that controls a large
part of all economic activity. This type of economy is most commonly
found in communist countries. It is sometimes also referred to as a
planned economic system because most production decisions are
made by the government, and there is no free market at play.
• Market Economic System relies on free market and the
government does not control any resources or other relevant segments.
In this economic system, businessmen determine how the economy
runs by using the law of supply and demand. This system is sometimes
also referred to as laissez-faire capitalism.
• Mixed Economic System is a mixture of market and command
economic system. In this kind of system, the market is more or less free
of government ownership except for a few key areas.
V. Conclusion
Scarcity is the gap between limited scarce resources and the unlimited
human wants and needs. Economics was introduced to help the society
deal with scarcity. Without scarcity, there would be no economics.
Therefore, economics is defined as the science that deals with the
management of scarce resources.
There are two types of economic analysis namely: Positive and
Normative economics. Positive economics consider conditions based
on facts or “as they are”. Normative economics consider conditions
based on judgments or “as it should be”.

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To address the problem of scarcity, the society must answer the
questions: What to produce? How to produce? How much to produce?
and For whom to produce. The society should decide on the goods or
services it would like to produce using its limited resources. It should
also determine on how these goods or services should be produced.
Since it has only limited resources, it should determine the number of
goods or services it should produce to satisfy human wants and needs.
The society should also determine the members of the society who will
be receiving the share of the produced goods or services.
Efficiency, Equity and Effectiveness also known as the 3E’s of
economics plays a vital role in the economic growth and development
of a country. Efficiency refers to productivity and proper allocation of
economic resources. Equity means justice and fairness. Effectiveness
means attainment of goals and objectives.
Economics have two major branches which are Microeconomics and
Macroeconomics. Microeconomics focuses among individuals or
smaller groups and businesses. Meanwhile, macroeconomics focuses
on larger groups, industries or countries.
An Opportunity cost is the price of the next best thing that could have
done had not made the first choice. It should be measured based on
the own personal feelings and values. It is inextricably linked with the
notion nearly every decision requires a trade-off.
There are four types of economic systems namely: traditional,
command, market and mixed. Under traditional economic system,
goods and services were produced are directly related to the society’s
beliefs, customs, religions and traditions. In command economic
system, most production decisions are made by the government, and
there is no free market at play. While in market economic system,
businessmen determine how the economy runs by using the law of

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supply and demand. Lastly, in mixed economic system, the market is
more or less free of government ownership except for a few key areas.
VI. Post-Test
• Describe how scarcity affects the economic system.
• Differentiate positive and normative economics.
• Differentiate microeconomics and macroeconomics.
• Explain opportunity cost.
VII. References
Chappelow, J. (2019). Scarcity. Retrieved October 20, 2019 from
https://www.investopedia.com/terms/s/scarcity.asp
Reisman, J. (2012). History of Economics. Retrieved October 20, 2019
from http://uscentrist.org/platform/docs/history-of-economics
Fontinelle, A. (2019). Positive vs. Normative Economics: What's the
Difference? Retrieved October 20, 2019 from
https://www.investopedia.com/ask/answers/12/difference-between-
positive-normative-economics.asp
Basic Problems of an Economy (n.d.) Retrieved October 20, 2019 from
https://www.toppr.com/guides/business-economics/introduction-to-
business-economics/basic-problems-of-an-economy/
Viray et. al. (2018). Principles of Economics Simplified (With Taxation
and Agrarian Reform). Mandaluyong City: Anvil Publishing Inc.
Agarwal, P. (2019). Introduction to Economics: What is Economics?
Retrieved October 20, 2019 from
https://www.intelligenteconomist.com/what-is-economics/
Kennon, J. (2018). What is opportunity cost? Retrieved October 20,
2019 from https://www.thebalance.com/what-is-opportunity-cost-
357200

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Gemma, W. (2014). The 4 Types of Economic Systems Explained.
Retrieved October 20, 2019 from https://blog.udemy.com/types-of-
economic-systems/
Zeder, R. (2019). The Four Types of Economic Systems. Retrieved
October 20, 2019 from https://quickonomics.com/four-types-economic-
systems/
Opportunity Cost, Gain from Trade and Market Condition
Jester Aries A. Sagun
I. Rationale
We always say that there is no perfect economic country since no country
have all its resources available in it. One must need to have trade with
different countries to acquire scarce resources in the country which might be
abundant with the other countries. We can maximize producing products
which are available in our country and trade them with the products which are
not available in our country.
Each nation should produce goods for which its domestic opportunity costs are
lower than the domestic opportunity costs of other nations and exchange
those goods for products that have higher domestic opportunity costs
compared to other nations. Benefits of trade include lower prices and better
products for consumers, improved political ties among nations, and efficiency
gains for domestic producers.
Countries benefit when they specialize in producing goods for which they have
a comparative advantage and engage in trade for other goods. (MBAEcon,
n.d.)
II.Objectives
• To understand the essence and how to apply opportunity cost in
our business decisions

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• To review the different factors of production.
• To revisit our knowledge in the different types of economic
system.
• Know how to analyze the risk-return relationship in a portfolio of
assets.
• Understand how different nations need to trade.
• To realize the benefits of specialization and treade
III.Pre-Test
• Why do we need to trade?
• What do we get in estimating the cost of trading?
• How do measure cost and gains in trading?
IV.Learning Cell
OPPORTUNITY COST
Use it for one purpose means giving up the opportunity to use it for
something else. This also refers to the benefit or profit that the company or a
country fails to enjoy by choosing one thing over the other, the foregone value
of one thing in exchange of the other thing.
FACTORS OF PRODUCTION
1. There are 4 types of economic resources that go into making our
products.
2. All of the components are necessary to produce a society’s
goods and services.
1.Natural resources (land)
1. materials used to form products.

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2. The amount of resources available to a country has a
direct effect on its economy
3. A countries economy is based on its natural resources like
Saudi Arabia depends on oil production, Latin America depends
on coffee production.
Resources
■ Renewable resources: Can be reproduced.
– Ex: Cattle, wheat
■ Nonrenewable resources: resources that are limited.
– Ex: Coal, iron & oil
The amount of resources available to a country has a direct effect on its
economy
2. Human resources (labor)
– The knowledge, efforts, and skills people bring to their
work
– Skilled or unskilled
– Physical (blue collar) Intellectual (white collar)
– Labor unions - workers belong to organization,
– Collective bargaining - it negotiates for better pay, working
conditions
3. Capital resources
– Things used to produce goods/services, like buildings,
materials, and equipment.
4. Entrepreneurial resources
– Meets the changing needs/wants of people
– They improve on ways to use resources, or create and
produce new ones.

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Entrepreneurship - process of recognizing a business opportunity, testing the
market and gathering the resources.
Entrepreneur is an individual who undertakes the creation, organization, and
ownership of a business.
Different from labor resources. Being entrepreneurial means acting and
thinking like an entrepreneur.
5. Foreign Exchange
– Refers to the dollar and dollar reserves that the economy
has.
– Part of economic resources because we need foreign
currency, particularly dollars for international trading and buying
of raw materials from other countries.
– Dollar is the international medium of currency used in
engaging business with foreign countries.
TYPES OF ECONOMIC SYSTEM
The basic and general economic systems are:
• Market economy: "hands off" systems, such as Laissez-faire capitalism
• Mixed economy: A hybrid that blends some aspects of both market and
planned economies
• Planned economy: "hands on" systems, such as state socialism or
communism, also known as "command economy“
• Traditional economy: A generic term for older economic systems
Market Economy Free-market Capitalism:

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Prices for goods and services are set freely by the forces of supply and
demand and are allowed to reach their point of equilibrium without intervention
by government policy.
Adam Smith – Free Market
– Philosophical handbook for free market: economies function
most efficiently and fairly when individuals are allowed to pursue their
own interests.
– Private decisions, made by rational, self-interested individuals,
combine to produce a healthy, growing economy.
– Government intervention: the great threat to economic growth:
Government intervention distorted the natural and rational exercise of
free.
– The “invisible hand” of the market.
– Economic decisions are made in the marketplace according to
the laws of supply and demand
– PRICE plays an important role.
o If the price is too low and does not earn businesses a
profit they will produce little or none of the product
o If the price is high enough to earn a profit, they will
produce the good and service
Demand – the amount or quantity of goods and services that consumers are
willing to buy at various prices.
o Generally the higher the price the fewer consumers will
buy an item….the lower the price the more consumers will buy.
Supply – the amount or quantity of goods and services that producers are
willing provide at various prices.

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o Producers want to provide products that will cover their
costs and provide a profit
Equilibrium
o Demand and Supply work together
o When the quantity demanded and the quantity supplied
meet
Command/ Planned Economic System
• Socialism: social ownership of the means of production and co-operative
management of the economy
• The government controls the economy.
• The state decides how to use and distribute resources.
• The government regulates prices and wages
■ Central authority makes the key economic decisions
– Usually controlled by a government or state
■ Communism
– Strong command economy the government makes all
economic decisions
– The state controls all resources
– China, Cuba, Latin America, African countries
■ Socialism
– Moderate command economy
– Some form of private enterprise
– State owns major resources
– France and Sweden
A Traditional Economic System

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• A traditional economic system is shaped by tradition. The work that people
do, the goods and services they provide, how they use and exchange
resources… all tend to follow long-established patterns.
• Economic behaviors and relationships are predictable. You know what you
are supposed to do, who you trade with, and what to expect from others.
• Community interests take precedence over the individual.
Mixed Economic System
• In market economies: Economic decisions are made by individuals.
Marketplace determines how resources are allocated and goods are
distributed. Government is entirely absent from economic affairs.
• A mixed economic system: Combines elements of the market and command
economy. Many economic decisions are made in the market by individuals.
But the government also plays a role in the allocation and distribution of
resources.
• The eternal question: What the right mix between the public and private
sectors of the economy should be.
■ Most Nations have a Mixed Economy a combination of market
and command economy
– State takes care of people’s needs
– Marketplace takes care of people’s wants
■ USA
– the government provides defense and education
– Marketplace provides cars, computers, and fast food
– There is some government regulation of business

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■ In every country one type of economy is dominant, but find a
mixed economy is the best way to manage their limited resources
COMPARATIVE ADVANTAGE
A person or a nation has a comparative advantage in the production of
a product when it can produce the product at a lower opportunity cost than
another person or nation.
■ “You could say…that globalization, driven not by human
goodness but by the profit motive, has done far more good for far more
people than all the foreign aid and soft loans ever provided by well-
intentioned governments and international agencies.” -Paul Krugman,
“The Magic Mountain,” New York Times, January 23, 2001
■ Nearly all economic theories suggest that the benefits of
international trade far exceed the costs.
■ “Specialization and international trade increase the productivity
of a nation’s resources and allow for greater total output than would
otherwise be possible.” -McConnell and Brue, 16th
edition
A person or nation should specialize in the production of a good for which
it has a lower opportunity cost and trade to obtain those goods for which
its opportunity cost is higher.
SPECIALIZATION AND TRADE
■ Gains from trade are based on comparative advantage, not
absolute advantage

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■ Specialization and trade increase productivity, national output, &
standard of living.
■ Everyone can benefit:
– a greater quantity of goods and services
– a greater variety of goods.
Benefits from Specialization and Trade
■ Specialization and trade increase productivity and the standard
of living within a nation.
■ Because of specialization and trade, there will be a larger global
output of goods and services.
■ Everyone can benefit when people trade with one another. Not
only can people enjoy a greater quantity of goods and services, but
they can also enjoy a greater variety of goods.
V.Conclusion
There would be times in our life where we would have to choose between
things and we need to analyze the cost and benefit of that situation. That is
what we call opportunity cost, which can be use as well to our economy, of
producing more products over our scarce resource and rely to other countries
for trade.
There will be different economic systems that would be befitting the need of a
specific country, what is good economic system for one is not good for the
other. There will be benefits also if a country will be having a specific product,
a comparative advantage. There will be the existence of trade since they will
be focusing in producing a specific product. There will be increase in
productivity, a higher standard of living and will also benefit other countries

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because, they will be also producing other products wherein that is their
comparative advantage, the international trade will be lively then.
Everyone can benefit when people trade with one another. Not only can
people enjoy a greater measure of goods and services, but they can also
enjoy a greater selection of goods.
VI. Post-Test
• How can we apply opportunity cost in our daily life?
• Why do countries need to produce a specific good?
• How can trade be beneficial to people?
VII. References
Alchian, Armen. “Cost.” In Encyclopedia of the Social Sciences. New
York: Macmillan. Vol. 3, pp. 404–415.
Buchanan, J. M. Cost and Choice. Chicago: Markham. 1969.
Republished as Midway Reprint. Chicago: University of Chicago Press,
1977. Available online
at: http://www.econlib.org/library/Buchanan/buchCv6.html
Comparative advantage and trade. (n.d.) Provided by: mbaecon
Wikispace. Located
at: http://mbaecon.wikispaces.com/Comparative+advantage+and+trade
Yussof (2014). Economic system. Modul Pengurusan Ekonomi.
National Institute of Public Administratio.

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Supply and Demand
Mark Dwayne T. Malonzo
I. Rationale
Supply and demand form the most fundamental concepts of economics.
Whether you are an academic, farmer, pharmaceutical manufacturer, or
simply a consumer, the basic premise of supply and demand equilibrium is
integrated into your daily actions. Only after understanding the basics of these
models can the more complicated aspects of economics be mastered. The
market price of a good is determined by both the supply and demand for it. In
the world, today supply and demand are perhaps one of the most fundamental
principles that exist for economics and the backbone of a market economy.
This section introduces the economic model of demand and supply—one of
the most powerful models in all of economics. The discussion here begins by
examining how demand and supply determine the price and the quantity sold
in markets for goods and services, and how changes in demand and supply
lead to changes in prices and quantities.
II.Objectives
• Understand what a market is
• Define demand and supply
• Understand and compute the change in quantity demanded vs.
change in demand
• Identify the forces that cause the demand and supply curve to
change
• Understand and compute the change in quantity supplied vs.
change in supply
• Explain market equilibrium and disequilibrium

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• Explain partial equilibrium analysis
III.Pre-Test
• What is demand and supply?
• Why do consumers usually buy more when the price falls? Is it
irrational to violate this “law of demand”?
• How important is the “Law of Demand and Supply” to our daily
lives?
IV.Learning Cell
Market
• Markets bring together buyers (“demanders”) and sellers
(“suppliers”).
• Any arrangement that allows buyers and sellers to exchange
things.
• Some markets are local while others are national or international.
• Markets help to determine the prices and quantities bought and
sold of millions of goods and services.
Competition
• Competition: the struggle among producers for the dollars of
consumers.
• Striving against others to reach an objective: “To maximize
profits.”
“The Invisible Hand Theory”
Self-interest allows consumers to purchase certain goods/services, and
firms to produce them

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+
Competition causes firms to produce more, and moderates the desire to
raise price
================================
Consumers get the products they want at prices that reflect the cost of
producing them
The Basic Decision-Making Units
• A firm is an organization that transforms resources (inputs) into
products (outputs). Firms are the primary producing units in a
market economy.
• An entrepreneur is a person who organizes, manages, and
assumes the risks of a firm, taking a new idea or a new product and
turning it into a successful business.
• Households are the consuming units in an economy.
The Circular Flow of Economic Activity
• The circular flow of economic activity shows the connections
between firms and households in input and output markets.
Input Markets and Output Markets
• Output, or product, markets are the markets in which goods and
services are exchanged.
• Input/Factor markets are the markets in which resources—labor,
capital, and land—used to produce products, are exchanged.
Input markets include:
• The labor market, in which households supply work for wages
to firms that demand labor.

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• The capital market, in which households supply their savings,
for interest or for claims to future profits, to firms that demand funds
to buy capital goods.
• The land market, in which households supply land or other real
property in exchange for rent.
Demand
• Demand states how much of a good that buyers are willing to
purchase given each price
• Demand is typically shown on a graph, but it is occasionally
displayed on a table
• Demand is a schedule or curve that shows the various amounts
of a product that consumers will buy at each of a series of possible
prices during a specific period.
• A fundamental characteristic of demand is that as the price of a
good increases, demand typically goes down (all else constant)
Determinants of Household Demand
A household’s decision about the quantity of a particular output to demand
depends on:
• The price of the product in question.
• The income available to the household.
• The household’s amount of accumulated wealth.
• The prices of related products available to the household.
• The household’s tastes and preferences.
• The household’s expectations about future income, wealth, and
prices.

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PRICE
(PER
CALL)
QUANTITY
DEMANDED
(CALLS PER
MONTH)
$ 0 30
0.50 25
3.50 7
7.00 3
10.00 1
15.00 0
ANNA'S DEMAND
SCHEDULE FOR
TELEPHONE CALLS
Quantity Demanded
• Quantity demanded is the amount (number of units) of a product
that a household would buy in a given time period if it could buy all it
wanted at the current market price.
Demand in Output Markets
• A demand schedule is a table
showing how much of a given
product a household would be
willing to buy at different prices.
• Demand curves are usually
derived from demand schedules.
The Demand Curve
• The demand
curve is a graph
illustrating how much of
a given product a
household would be
willing to buy at
different prices.

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The Law of Demand
• The law of demand states that there is a negative, or inverse,
relationship between price and the quantity of a good demanded
and its price.
• This means that demand curves slope downward.
• Demand curves intersect the quantity (X)-axis, as a result of time
limitations and diminishing marginal utility.
• Demand curves intersect the (Y)-axis, as a result of limited
incomes and wealth
Income and Wealth
• Income is the sum of all households wages, salaries, profits,
interest payments, rents, and other forms of earnings in a given period
of time. It is a flow measure.
• Wealth, or net worth, is the total value of what a household owns
minus what it owes. It is a stock measure.
Related Goods and Services
• Normal Goods are goods for which demand goes up when
income is higher and for which demand goes down when income is
lower.
• Inferior Goods are goods for which demand falls when income
rises.
• Substitutes are goods that can serve as replacements for one
another; when the price of one increases, demand for the other goes
up. Perfect substitutes are identical products.
• Complements are goods that “go together”; a decrease in the
price of one results in an increase in demand for the other, and vice
versa.

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Shift of Demand Versus Movement Along a Demand Curve
• A change in demand is
not the same as a change in quantity demanded.
• In this example, a higher price
causes lower quantity demanded.
• Changes in determinants of
demand, other than price, cause a change in demand, or a shift of the
entire demand curve, from DA to DB.
A Change in Demand Versus a Change in Quantity Demanded
• When demand shifts to the right,
demand increases. This causes
quantity demanded to be
greater than it was prior to
the shift, for each and
every price level.
To summarize:

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PRICE
(PER
BUSHEL)
QUANTITY
SUPPLIED
(THOUSANDS
OF BUSHELS
PER YEAR)
$ 2 0
1.75 10
2.25 20
3.00 30
4.00 45
5.00 45
CLARENCE BROWN'S
SUPPLY SCHEDULE
FOR SOYBEANS
Ø Change in price of a good or service leads to Change in quantity
demanded (Movement along the curve).
Ø Change in income, preferences, or prices of other goods or
services, number of consumers, and expectations leads to Change
in demand (Shift of curve).
From Household to Market Demand
• Demand for a good or service can be defined for an individual
household, or for a group of households that make up a market.
• Market demand is the sum of all the quantities of a good or
service demanded per period by all the households buying in the
market for that good or service.
Supply
• Supply states how much of a good that sellers are willing to sell
given each price
• Similar to demand, supply is typically shown on a graph
• Low-cost sellers typically enter a market before high-cost sellers
• Thus, we would expect that the sellers with lowest cost to sell a
particular good
• Supply is then assumed to be upward sloping
Supply in Output Markets
• A supply schedule is a table
showing how much of a product firms will
supply at different prices.
• Quantity supplied represents the
number of units of a product that a firm
would be willing and able to offer for sale at

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a particular price during a given time
period.
The Supply Curve
• A
supply curve is a graph
illustrating how much of a product
a firm will supply at different
prices.
The Law of Supply
• The law of supply states that there is a
positive relationship between price and quantity of a good supplied.
• This means that supply curves typically
have a positive slope.
Determinants of Supply
• The cost of producing the good, which
in turn depends on:
0
1
2
3
4
5
6
0 10 20 30 40 50
Thousands of bushels of soybeans
produced per year
Priceofsoybeansperbushel($)

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• The price of required inputs (labor,
capital, and land),
• The technologies that can be used to
produce the product,
• Number of producers
• Taxes and subsidies
• Expectations
A Change in Supply Versus a Change in Quantity Supplied
• A
change in supply is not the same
as a change in quantity supplied.
• In
this example, a higher price
causes higher quantity supplied,
and a move along the demand curve.
• In this example, changes in
determinants of supply, other than price, cause an increase in supply,
or a shift of the entire supply curve, from SA to SB.
• When supply shifts to the right, supply
increases. This causes quantity supplied to be greater than it was prior
to the shift, for each and every price level
To summarize:

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Ø Change in price of a good or service leads to Change in quantity
supplied (Movement along the curve).
Ø Change in costs, input prices, technology, or prices of related
goods and services leads to Change in demand (Shift of curve).
From Individual Supply to Market Supply
• The supply of a good or service can be defined for an individual
firm, or for a group of firms that make up a market or an industry.
• Market supply is the sum of all the quantities of a good or service
supplied per period by all the firms selling in the market for that good or
service.
Market Equilibrium
• The operation of the market depends on the interaction between
buyers and sellers.
• An equilibrium is the condition that exists when quantity supplied
and quantity demanded are equal.
• At equilibrium, there is no tendency for the market price to
change
• Only in equilibrium is
quantity supplied equal to
quantity demanded.
• At any price level
other than P0, the wishes of
buyers and sellers do not
coincide

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Market Disequilibria
• Excess demand, or
shortage, is the condition that
exists when quantity demanded
exceeds quantity supplied at the
current price.
• When quantity
demanded exceeds quantity
supplied, price tends to rise until equilibrium is restored.
• Excess supply, or
surplus, is the condition
that exists when quantity
supplied exceeds
quantity demanded at the
current price.
• When quantity supplied exceeds quantity demanded, price tends
to fall until equilibrium is restored.
Partial Equilibrium
• A condition of economic equilibrium which takes into
consideration only a part of the market, ceteris paribus, to attain
equilibrium.
• As defined by Leroy Lopes, "A partial equilibrium is one which is
based on only a restricted range of data, a standard example is price of
a single product, the prices of all other products being held fixed during
the analysis.”
• much simpler than in a general equilibrium model which
includes an entire economy.

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• Léon Walras first formalized the idea of a one-period economic
equilibrium of the general economic system, but it was French
economist Antoine Augustin Cournot and English political economist
Alfred Marshall who developed tractable models to analyze an
economic system. (Jain 2006)
Assumptions
• Commodity price is given and constant for the consumers.
• Consumers' taste and preferences, habits, incomes are also
considered to be constant.
• Prices of prolific resources of a commodity and that of other
related goods (substitute or complementary) are known as well as
constant.
• Industry is easily availed with factors of production at a known
and constant price compliant with the methods of production in use.
• Prices of the products that the factor of production helps in
producing and the price and quantity of other factors are known and
constant.
• There is perfect mobility of factors of production between
occupation and places. (Jhigan 2007)
Applications
• A consumer is in a state of equilibrium when they achieve
maximum aggregate satisfaction on the expenditure that they
make depending on the set of conditions relating to his tastes
and preferences, income, price and supply of the commodity etc.
• Producers’ equilibrium occurs when they maximize their
net profit subject to a given set of economic situations.
• A firm's equilibrium point is when it has no inclination in
changing its production.

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• In the short run: Marginal Revenue = Marginal Cost.
(Mandal 2007)
Limitations
• It is restricted to one particular portion of the economy.
• It lacks the ability to study the interrelations of all the parts
of the economy.
• This analysis will fail if the improbable assumptions, which
disconnect the study of specific market from the rest of the
economy, are not taken into consideration.
• It has been unsuccessful in explaining the outcome of
economic disturbance in the market that leads to demand and
supply changes, moving from one market to another and thus
instigating second- and third-order waves of change in the whole
economy. (Suronic 2004)
Difference between partial and general equilibrium
Partial Equilibrium General Equilibrium
• Developed by Alfred
Marshall.
• Léon Walras was first to
develop it.
• Related to single
variable
• More than one variable or
economy as a whole is taken into
consideration
• Based on two
assumptions:
• Ceteris Paribus
• Other sectors are not
• It is based on the
assumption that various sectors
are mutually interdependent
o There is an effect

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affected due to change in
one sector.
on other sectors due to
change in one.
• Other things
remaining constant, price of
a good is determined
• Prices of goods are
determined simultaneously and
mutually.
• Hence all product and
factor markets are simultaneously
in equilibrium.
V.Conclusion
The law of demand describes the behavior of buyers. In general, people will
demand - that is buy - more of a good or service at lower prices than at higher
prices. When this relationship is graphed, the result is a demand curve. A
change in price results in movement along the demand curve from one point to
another and is called a change in the quantity demanded. When other factors
in the market change, the demand curve shifts to the left or the right. This is a
change in demand.
The law of supply describes the behavior of sellers. Remember sellers and
supply both begin with s. In general, sellers will supply more of a good at
higher prices than at lower prices. When this relationship is graphed, the result
is an upward-sloping supply curve. A change in price results in movement
along the supply curve from one point to another. This is called a change in
the quantity supplied. When factors in the market change, the supply curve
shifts to the left or the right. This is called a change in supply.

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Supply and demand together determine market equilibrium. On a graph,
market equilibrium is the point where the supply and demand curves intersect.
The price at this intersection is the equilibrium price and the quantity are the
equilibrium quantity. When the market for good or service is in equilibrium,
there are no surpluses and no shortages.
As buyers and sellers interact, the market will trend toward equilibrium quantity
and equilibrium price. It's as if an invisible hand pushes and pulls markets
toward equilibrium levels.
VI. Post-Test
• What are appropriate measures of how sensitive the quantity
demanded or supplied is to changes in price, income, and prices of
other goods? What affects those sensitivities?
• If a firm lowers its price, will its total revenue also fall? Are there
conditions under which revenue might rise as price falls and what are
those? Why?
• What is an appropriate measure of the total value consumers or
producers receive from the opportunity to buy and sell goods and
services in a free market? How might government intervention reduce
that value, and what is an appropriate measure of that loss?
VII. References
Case K.E., Fair R.C., & Oster S.M. (2013). Principle of Economics (12th
Edition). New York: Pearson Education
Jain T.R. (2006). Microeconomics and Basic Mathematics. New Delhi:
VK Publications

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Jhingan, M.L. (2007). Microeconomic Theory (6th Edition). New Delhi:
Vrinda Publications
Mandal R.K. (2007). Microeconomic Theory. New Delhi: Atlantic
Publishers
Suronic S. (2004). International Trade and Policy Retrieved October 11,
2019, from, http://internationalecon.com/Trade/Tch90/T90-6A.php
Equilibrium (n.d) Retrieved October 11, 2019 from,
http://www.oocities.org/znuniverse/micro_economics/equilibrium.htm
Course Inclusion (2019) Retrieved October 11, 2019 from,
https://www.econlowdown.org/supply_and_demand?module_uid=120&
p=yes&page_num=2585&section_uid=294
Demand and Supply Analysis(n.d) Retrieved October 11, 2019 from,
https://www.cfainstitute.org//media/documents/support/programs/cfa/pr
erequisite-economics-material-demand-and-supply-analysis-intro.ashx
Economics Online (n.d) Retrieved October 11, 2019 from,
http://netnomics.blogspot.com/2011_05_29_archive.html

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Elasticity
Lumanlan, Darvin M.
I. Rationale
Elasticity is a measure of a variable's sensitivity to a change in another
variable. In business and economics, elasticity refers the degree to which
individuals, consumers or producers change their demand or the amount
supplied in response to price or income changes. Elasticity is an economic
concept used to measure the change in the aggregate quantity demanded
for a good or service in relation to price movements of that good or service.
A product is considered to be elastic if the quantity demand of the product
changes drastically when its price increases or decreases. Conversely, a
product is considered to be inelastic if the quantity demand of the product
changes very little when its price fluctuates.
II.Objectives
• To acquire knowledge on the basic Elasticity.
• To know how to apply Elasticity in determining future values of
marketability.
• Understand how to measure the Elasticity of demand and supply
• Know how to analyze conclusion drawn from the measurements
of elasticity
III.Pre-Test
• What is Elasticity?
• Why do we study the basics of Elasticity?
• How do Elasticity of demand and supply differ from each other?

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IV. Learning Cell
Price Elasticity of Demand
• Price elasticity of demand is an economic measure of the
change in the quantity demanded or purchased of a product in relation
to its price change. Expressed mathematically, it is:
Price Elasticity of Demand = % Change in Quantity
Demanded / % Change in Price
• Price elasticity is used by economists to understand how supply
or demand changes given changes in price to understand the workings
of the real economy. For instance, some goods are very inelastic, that
is, their prices do not change very much given changes in supply or
demand, for example people need to buy gasoline to get to work or
travel around the world, and so if oil prices rise, people will likely still
buy just the same amount of gas.
• On the other hand, certain goods are very elastic, their price
moves because substantial changes in its demand or its supply. (Arc
elasticity is the elasticity of one variable with respect to another
between two given points.) Here, we will look just at how the demand
side of the equation is impacted by fluctuations in price by considering
the price elasticity of demand – which you can contrast with price
elasticity of supply.
Price Elasticity of Supply
• Price elasticity of supply measures the responsiveness to the
supply of a good or service after a change in its market price. According
to basic economic theory, the supply of a good will increase when its

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price rises. Conversely, the supply of a good will decrease when its
price decreases.
Price Elasticity of Supply = % Change in Quantity
Supplied / % Change in Price
• Perfect inelastic supply is when the PES formula equals 0. That
is, there is no change in quantity supplied when the price changes.
Examples include products that have limited quantities, such as land or
painting from deceased artists.
• Unit Elastic Supply has a PES of 1, where quantity supplied
change by the same percentage as the price change.
• A price elasticity supply greater than 1 means supply is relatively
elastic, where the quantity supplied changes by a larger percentage
than the price change. An example would be a product that’s easy to
make and distribute, such as a fidget spinner. The resources to make
additional spinners are readily available and the total cost would be
minimal to ramp production up or down.
• The PES for perfectly elastic supply is infinite, where the quantity
supplied is unlimited at a given price, but no quantity can be supplied at
any other price. There are virtually no real-life examples of this, where
even a small change in price would dissuade, or disallow, product
makers from supplying even a single product.
• The relatively inelastic supply is between 0 and 1. That means
the percentage change in quantity supplied changes by a lower
percentage than the percentage of price change. Inelastic goods
include nuclear power, which has a long lead time given the
construction, technical know-how, and long ramp up process for plants.
Income elasticity of demand

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• Income elasticity of demand refers to the sensitivity of the
quantity demanded for a certain good to a change in real income of
consumers who buy this good, keeping all other things constant. The
formula for calculating income elasticity of demand is the percent
change in quantity demanded divided by the percent change in income.
With income elasticity of demand, you can tell if a particular good
represents a necessity or a luxury..
• Income elasticity of demand measures the responsiveness of
demand for a particular good to changes in consumer income. The
higher the income elasticity of demand in absolute terms for a particular
good, the bigger consumers' response in their purchasing habits — if
their real income changes. Businesses typically evaluate income
elasticity of demand for their products to help predict the impact of a
business cycle on product sales.
V.Conclusion
Elasticity is an important economic measure, particularly for the sellers
of goods or services, because it indicates how much of a good or
service buyers consume when the price changes. When a product is
elastic, a change in price quickly results in a change in the quantity
demanded. When a good is inelastic, there is little change in the
quantity of demand even with the change of the good's price. The
change that is observed for an elastic good is an increase in demand
when the price decreases and a decrease in demand when the price
increases.

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Elasticity also communicates important information to consumers. If the
market price of elastic good decreases, firms are likely to reduce the
number of goods or services they are willing to supply. If the market
price goes up, firms are likely to increase the number of goods they are
willing to sell. This is important for consumers who need a product and
are concerned with potential scarcity. Companies that operate in
fiercely competitive industries provide goods or services that are elastic
because these companies tend to be price-takers or those who must
accept the prevailing prices. When the price of a good or service
reaches the point of elasticity, sellers and buyers quickly adjust their
demand for that good or service. The opposite of elastic is inelastic.
When a good or service is inelastic, sellers and buyers are not as likely
to adjust their demand for a good or service when the price changes.
VI. Post-Test
• Explain the significance of supply and demand in Elasticity
• Why does income distribute as factor in demand?
• How can elasticity define the current and future market?
VII. References
Kenton W. (2019). Elasticity. Retrieved October 10, 2019 from,
https://www.investopedia.com/terms/e/elastic.asp
Kenton W. (2019). Income Elasticity of Demand. Retrieved October 10,
2019 from,
https://www.investopedia.com/terms/i/incomeelasticityofdemand.asp
Sean R. (2019). How Price Elasticity Affect Supply. Retrieved October 10,
2019 from, https://www.investopedia.com/ask/answers/040615/how-
does-price-elasticity-affect-
supply.aspttps://www.investopedia.com/terms/i/incomeelasticityofdemand.
asp

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Consumer Choices and Utility Maximization
Cherryl Anne Evangelista
I. Rationale
When market analysts talk about consumer choice, what they are
saying is the blend of merchandise and enterprises a purchaser buy. To
see how a family unit will settle on its decisions, financial experts take a
gander at what customers can bear, as appeared in a spending
imperative (or spending line), and the complete utility or fulfillment got
from those decisions. At the point when we diagram a spending
requirement, the amount of one great is on the even hub and the
amount of the other great on the vertical pivot. The spending
requirement line demonstrates the different mixes of two products that
are reasonable given a spending plan (or level of purchaser salary).
Utility is the term financial experts use to portray the fulfillment or joy an
individual gets from devouring a decent purchase.
The utility of a decent or administration is controlled by how much
fulfillment a specific purchaser acquires from it. Utility is not a quality
intrinsic in the great or administration itself. All out utility is an applied
proportion of the quantity of units of utility a purchaser gains from
devouring a decent, administration, or action. As a purchaser devours
increasingly more of a decent or administration, its peripheral utility
falls. Utility boost requires looking for the best all out utility from a given
spending plan. Utility is amplified when all out expenses equivalent the
financial limit accessible and when the proportions of minimal utility to
cost are equivalent for all merchandise and ventures a shopper
expends; this is the utility-amplifying condition.

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II. Objectives
• Define consumer and consumer choices
• Define what economists mean by utility.
• Distinguish between the concepts of total utility and marginal utility.
• State the law of diminishing marginal utility and illustrate it
graphically.
• State, explain, and illustrate algebraically the utility-maximizing
condition.
III. Pre-test
• How does an increase in income affect a consumer’s budget
line?
• How is satisfaction affecting consumer demand?
IV. Learning Cell
The theory of consumer choice is the part of microeconomics that relates
inclinations to utilization consumptions and to buyer request bends. It breaks
down how customers expand the allure of their utilization as estimated by their
inclinations subject to confinements on their consumptions, by boosting utility
subject to a buyer spending requirement.
Utilization is isolated from generation, sensibly, in light of the fact that two
diverse monetary operators are included. In the principal case utilization is by
the essential individual; in the subsequent case, a maker may make
something that he would not expend himself. In this manner, various
inspirations and capacities are included. The models that make up shopper

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hypothesis are utilized to speak to tentatively noticeable interest designs for an
individual purchaser on the theory of compelled improvement. Noticeable
factors used to clarify the rate at which the great is obtained (requested) are
the value per unit of that great, costs of related merchandise, and abundance
of the customer.
The law of interest expresses that the pace of utilization falls as the cost of the
great ascents, in any event, when the buyer is financially made up for the
impact of the more significant expense; this is known as the substitution
impact. As the cost of a decent ascents, customers will substitute away from
that great, picking a greater amount of different options. On the off chance that
no pay at the cost rise happens, as is common, at that point the decrease in
by and large obtaining force because of the value rise leads, for most
merchandise, to a further decrease in the amount requested; this is known as
the pay impact.
‘Consumer choice theory’ is a hypothesis about why people buy things. Put
simply, it says that you choose to buy the things that give you the greatest
satisfaction, while keeping within your budget. At the heart of this theory are
three assumptions about human nature.
The first assumption is that when you shop, you choose to buy things based
on calculated decisions about what will make you happiest. In economics
language, this is known as utility maximization. (Economists really like to put
quite simple concepts into long complicated terms.)
Secondly, the theory assumes that no matter how much you shop, you will
never be completely satisfied. In other words, you will always be happier
consuming a little bit more. This is known as the principle of non-satiation.
Thirdly, even though you always get more happiness from more consumption,
the amount of pleasure you get from each good decrease with the more you

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consume. So, if you eat two ice creams rather than one, you get more overall
pleasure, but the second ice-cream won’t be as satisfying as the first. This is
known as decreasing marginal utility.
Consumer choice theory has influenced everything from government policy to
corporate advertising to academia.
But the theory has been criticized for not being the most accurate description
of how people make choices. A whole new branch of economics, called
‘behavioral economics’, has emerged essentially to use findings from
psychology to disprove the assumptions behind consumer choice theory. This
has also led others to argue that consumer choice theory is less about
describing how we do actually behave, and is more about describing how
people should behave.³ In other words, by portraying people as self-interested
shopaholics, economists are saying that is it okay and natural for us to be avid
consumers.
Preferences are complete
Consumer choice theory is based on the assumption that the consumer fully
understands his or her own preferences, allowing for a simple but accurate
comparison between any two bundles of good presented. That is to say, it is
assumed that if a consumer is presented with two consumption bundles A and
B each containing different combinations of n goods, the consumer can
unambiguously decide if (s)he prefers A to B, B to A, or is indifferent to both.
The few scenarios where it is possible to imagine that decision-making would
be very difficult are thus placed "outside the domain of economic
analysis". However, discoveries in behavioral economics has found that actual
decision making is affected by various factors, such as whether choices are
presented together or separately through the distinction bias.
Preferences are reflexive

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Means that if A and B are in all respect identical the consumer will consider A
to be at least as good as (i.e. weakly preferred to) B. Alternatively, the axiom
can be modified to read that the consumer is indifferent with regard to A and
B.
Preference are transitive
If A is preferred to B and B is preferred to C then A must be preferred to C.
This also means that if the consumer is indifferent between A and B and is
indifferent between B and C she will be indifferent between A and C.
This is the consistency assumption. This assumption eliminates the possibility
of intersecting indifference curves.
Preferences exhibit non-satiation
This is the "more is always better" assumption; that in general if a consumer is
offered two almost identical bundles A and B, but where B includes more of
one particular good, the consumer will choose B.
Among other things this assumption precludes circular indifference curves.
Non-satiation in this sense is not a necessary but a convenient assumption. It
avoids unnecessary complications in the mathematical models.
Indifference curves exhibit diminishing marginal rates of substitution
This assumption assures that indifference curves are smooth and convex to
the origin.
This assumption is implicit in the last assumption.
This assumption also set the stage for using techniques of constrained
optimization. Because the shape of the curve assures that the first derivative is
negative and the second is positive.
The MRS tells how much y a person is willing to sacrifice to get one more unit
of x.
This assumption incorporates the theory of diminishing marginal utility.
Goods are available in all quantities

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It is assumed that a consumer may choose to purchase any quantity of a good
(s)he desires, for example, 2.6 eggs and 4.23 loaves of bread. Whilst this
makes the model less precise, it is generally acknowledged to provide a useful
simplification to the calculations involved in consumer choice theory,
especially since consumer demand is often examined over a considerable
period of time. The more spending rounds are offered, the better
approximation the continuous, differentiable function is for its discrete
counterpart. (Whilst the purchase of 2.6 eggs sounds impossible, an average
consumption of 2.6 eggs per day over a month does not.)
Note the assumptions do not guarantee that the demand curve will be
negatively sloped. A positively sloped curve is not inconsistent with the
assumptions.
• Law of diminishing marginal utility - As a consumer increases
consumption of a good or service, the marginal utility obtained from
each additional unit of the good or service decreases
• Total utility - The total amount of satisfaction derived from the
consumption of a single product or a combination of products
• Marginal utility - The extra utility a consumer obtains from the
consumption of one additional unit of a product.
• Rational behavior - Human behaviour that seeks to maximize total
utility.
• Budget constraint - The limit that a consumer's income (and the prices
that must be paid for goods or services) imposes on the ability of that
consumer to obtain goods and services.

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• Utility-maximizing rule - To obtain the greatest utility, the consumer
should allocate money income so that the last dollar spent on each
good or service yields the same marginal utility.
• Income effect - A change in the price of a product changes a
consumer's real income (purchasing power) and thus the quantity of the
product purchased.
• Substitution effect - A change in the price of a product changes the
relative expensiveness of that product and hence changes the
consumer's pending willingness to buy it rather than other goods.
• Status quo - The current situation from which gains and losses are
calculated.
• Prospect theory - An explanation of how consumers plan for and deal
with life's ups and down, as well as of why they often appear narrow
minded and fail to see "the big picture."
• Framing effects -Changes in people's preferences that are caused
by new information that alters the frame used to define whether
situations are gains or losses.
• Mental accounting - The idea that people sometimes look at
consumption options in isolation, thereby irrationally failing to look at
all f their options simultaneously.
• Endowment effect - The tendency that people have to put a higher
valuation on anything that they currently possess (are endowed
with) than on identical items that they do not

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If we could measure utility, total utility would be the number of units of
utility that a consumer gains from consuming a given quantity of a good,
service, or activity during a particular time period. The higher a consumer’s
total utility, the greater that consumer’s level of satisfaction. The amount by
which total utility rises with consumption of an additional unit of a good,
service, or activity, all other things unchanged, is marginal utility. Economists
assume that consumers behave in a manner consistent with the maximization
of utility. To see how consumers, do that, we will put the marginal decision rule
to work. First, however, we must reckon with the fact that the ability of
consumers to purchase goods and services is limited by their budgets.
Because consumers can be expected to spend the budget they have, utility
maximization is a matter of arranging that spending to achieve the highest
total utility possible. If a consumer decides to spend more on one good, he or
she must spend less on another in order to satisfy the budget constraint.
The theory of consumer behavior uses the law of diminishing marginal utility
to explain how consumers allocate their incomes. The utility maximization
model is built based on the following assumptions:
1. Consumers are assumed to be rational, trying to get the most value for
their money.
2. Consumers’ incomes are limited because their individual resources are
limited. They face a budget constraint.
3. Consumers have clear preferences for various goods and services, thus
they know their MU for each successive units of the product.
4. Every item has a price tag. Consumers must choose among alternative
goods with their limited money incomes.

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The Utility Maximization rule states: consumers decide to allocate their
money incomes so that the last dollar spent on each product purchased yields
the same amount of extra marginal utility.
The algebraic statement is that consumers will allocate income in such a
way that:
MU of product A / price of A = MU of product B / Price of B = MU of product
C / price of C = etc.
It is marginal utility per dollar spent that is equalized. As long as one good
provides more utility per dollar than another, the consumer will buy more of
that good; as more of that product is bought, its MU diminishes until the
amount of MU per dollar just equals that of the other products.
In the following example, it illustrated the consumption possibilities of this
consumer under various income levels at fixed prices of Good X and Y.
GOOD X (PRICE=$1) GOOD Y (PRICE = $2)
QUANTIT
Y
MU MU/P
TL
UTILITY
QUANTIT
Y
MU MU/P
TL
UTILITY
1 8 8 8 1 10 5 10
2 7 7 15 2 8 4 18
3 6 6 21 3 6 3 24
4 5 5 26 4 4 2 28
5 4 4 30 5 3 1.5 31
6 3 3 33 6 2 1 33

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7 2 2 35 7 1 0.5 34
BY FOLLOWING UTILITY
MAXIMIZATION RULE:
MUx / Px = MUy / Py
X Y Mu/P
A 4 1 5
B 5 2 4
C 6 3 3
D 7 4 2
INCOME: UTILITY SUM
A: X=4, Y=1, $1x4+$2x1 =
$6
26+10=36
B: X=5, Y=2, $1x5+$2x2 =
$9
30+18=48
C: X=6, Y=3, $1x6+$2x3 =
$12
33+24=57
D: X=7, Y=4, $1x7+$2x4 =
$15
35+28=63
As the income increases, total utility increases also. Therefore, higher
income groups in our society usually enjoys more products and have higher
total utility levels.
V. Post-test
• How does an increase in income affect a consumer’s budget line?

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• Suppose that you are a utility maximizer and so is your economics
instructor. What can you conclude about your respective marginal rates
of substitution for movies and concerts?
VI. Conclusion
The social suspicion of the purchaser hypothesis proposed in this is all
customers look to augment utility. In the standard financial aspects
convention, this action of boosting utility has been considered as the
"reasonable" conduct of chiefs. All the more explicitly, according to financial
specialists, all customers look to boost an utility capacity subject to a
budgetary constraint. At the end of the day, business analysts expect that
buyers will consistently pick the "best" heap of products they can afford.
Consumer hypothesis is in this manner dependent on creating refutable
theories about the idea of purchaser request from this conduct postulate.
So as to reason from the focal hypothesize towards a valuable model of
shopper decision, it is important to make extra suspicions about the specific
inclinations that customers utilize when choosing their favored "group" of
products. These are moderately severe, taking into account the model to
create progressively helpful speculations with respect to customer conduct
than more fragile suppositions, which would enable any exact information to
be clarified as far as idiocy, numbness, or some other factor, and
subsequently would not have the option to produce any forecasts about future
interest at all. For the most part, in any case, they speak to articulations which
would possibly be negated if a purchaser was acting in (what was broadly
viewed as) an unusual manner.
VII. Reference

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Berliant, M.; Raa, T. T. (2008). "A foundation of location theory: Consumer
preferences and demand". Journal of Economic Theory. 44 (2):
336. doi:10.1016/0022-0531(88)90008-7.
Edgeworth, F. (2017). The Analysis of Consumer Choice. Retrieved October
10, 2019, from https://2012books.lardbucket.org/books/microeconomics-
principles-v1.0/s10-the-analysis-of-consumer-choic.html.
Thaler, R. (2010). What is 'consumer choice theory'? Retrieved October 10,
2019, from https://www.ecnmy.org/learn/your-home/consumption/what-is-
consumer-choice-theory/.
Market Structure
Perfect Competition: The Profit Maximizing Firm
Mary Ann Q. Bondoc
I. Rationale
Market Structure is one of the important elements to understand
how market will function, determine the behaviour of firms in the
market and the outcome that will be produced by the market. In
economics term, market structure is the number size, kind and
distribution of buyers and sellers. It is a tool to analyse a company’s
market structure, which includes the bargaining power of buyers,
bargaining power of suppliers, threat of new competitors’ entering
into the market, threat of substitutes and intensity of competition.
Overall, we will be discussing and determining the characteristics of
each market structure as well as the differences in the number of
firms in the industry, the similarity or standardization of good they
produced, the way firm decide the price, the barrier to enter and exit
each market and the freedom to make decisions. By understanding
each characteristic, we can understand the behaviour of the firm
and the market system as the principal element of the economy.

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II. Objectives
• To know the Market Structure and Basic Market Models
• Understanding Perfect Competition
• Production, Inputs and Outputs
• The Production Faction
• Total, Marginal and Average Product
• Labour Intensive and Capital Intensive
• Short Run and Long Run Period
III. Pre-Test
1. What do you understand about Market Structures?
2. How do you describe a competitive market in a perfect
competition?
3. What are the possible best combinations of factors of
production in order to come up with the best possible output?
IV. Learning Cell
INTRODUCTION TO MARKET STRUCTURE AND BASIC
MARKET MODELS
Market Structure is the interconnected characteristics of a market,
such as the number and relative strength of buyers and sellers,
degree of freedom in determining the price, level and forms of
competition, extent of product differentiation and ease of entry into
and exit from the market.
The types of Market Models include:
1.Perfect Competition
2. Monopoly
3.Monopolistic Competition
4.Oligopoly
What is a Market System?

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The Market System allocates goods and services through the
mechanism of demand and supply. The members of society obtain
their goods and services in the market in the basis of their ability
and willingness to buy.
MARKET MODELS DEFINED
PERFECT COMPETITION
1. All firms sell an identical product.
2. All firms are price takers.
3. All firms have a relatively small market share.
4. Buyers know the nature of the product being sold and the
prices charged by each firm.
5. The industry is characterized by freedom of entry and exit.
It is also referred as “PURE COMPETITION”.
Goods are sold in markets where all vendors sell homogenous
products at homogeneous prices.
Ex. potatoes
MONOPOLY
A Monopoly is a market structure in which there is only one
producer/seller for a product. In other words, the single business is
the industry.

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Entry into such a market is restricted due to high costs or other
impediments, which may be economic, social or political.
MONOPOLISTIC COMPETITION
Monopolistic competition is a type of imperfect competition such that
one or two producers sell products that are differentiated from one
another as goods but not perfect substitutes (such as from branding,
quality, or location).
In monopolistic competition, a firm takes the prices charged by its
rivals as given and ignores the impact of its own prices on the prices
of other firms.
Consumers may like some special thing in the particular brand.
Shoes are produced by many producers but consumers may feel that a
particular company is branded or the quality produced by one company is
better than the other.
Different company’s shoes can be easily differentiated and despite
differentiation each product remains close
substitute for the rival product.
There is no pure competition.

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Shoes come under monopolistic competition because there are many
producers and consumers choose according to the brand, quality, location,
trademark, design, color, packaging, etc. and not on the basis of price only.
OLIGOPOLY
It is a situation in which a particular market is controlled by a small group of
firms.
An Oligopoly is a market form in which a market or industry is dominated by a
small number of sellers (oligopolists). Because there are few sellers, each
oligopolist is likely to be aware of the actions of the others.
The decisions of one firm is influenced by the decisions of other firms.
These companies produce instant noodles.
Earlier Maggi used to enjoy monopoly in this sector but with the entry of the
other three companies Maggi now comes in Oligopoly.
These four companies majorly rule the market in instant noodles so they come
in Oligopoly.
WHAT IS PERFECT COMPETITION?
Perfect competition is a market structure that leads to the Pareto-efficient
allocation of economic resources.
Perfect competition is a benchmark, or "ideal type," to which real-life market
structures can be compared.
Under perfect competition, there are many buyers and sellers, and prices
reflect supply and demand. Companies earn just enough profit to stay in
business and no more. If they were to earn excess profits, other companies
would enter the market and drive profits down.
Do Firms Make Profits in a Perfectly Competitive Market?
The short answer to that question is no. Profits may be possible for brief
periods in perfectly competitive markets. But the market’s dynamics cancel out
the effects of positive or negative profits and bring them towards an
equilibrium. Because there is no information asymmetry in the market, other
firms will quickly ramp up their production or reduce their manufacturing costs
to achieve parity with the firm which made profits.
Does Perfect Competition Exist in the Real World?
Real-world competition differs from the ideal primarily because
of differentiation in production, marketing, and selling.

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For example, in agriculture, the owner of a small organic products shop can
talk extensively about the grain fed to the cows that made the manure that
fertilized the non-GMO soybeans—that's differentiation. Through marketing,
companies seek to establish "brand value" around their differentiation and
advertise to gain pricing power and market share.
PRODUCTION: INPUTS AND OUTPUTS
What is production?
Production is the creation of goods and services to satisfy human wants. The
factors of production are called the inputs of production and the goods and
services that have been created by the inputs are called outputs of production.
The factors of production are classified as fixed factor (fixed input) and
variable factor (variable input). A fixed factor remains constant regardless of
the volume of production. This means whether you produce or not, the factor
of production is unchanged. Examples are land and capital.
In the case of variable factor, it changes in accordance with the volume of
production. No production means no variable factor. More production means
more variable factors. Examples are labor and entrepreneur.
Fixed Inputs are those factors the quantities of which remains constant
irrespective of the level of output produce by a firm. Examples are Land,
Buildings, Machines, Tools, Equipments, and Top Management etc.
Variable Inputs are those factors the quantity of which varies with the
variations in the levels of output produced by a firm. Examples are Raw
Materials, Power fuel, Water, Transport, Labour and Communication etc.

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The process of transforming both fixed and variable inputs into finished goods
and services is called theory of production. The quantity and quality of goods
and services being produced depend on the state of technology. Obviously,
modern techniques of production are more efficient than primitive technology.
Such technical relationship between the application of inputs (factors of
production) and the resulting maximum obtainable output is known as
Production Function.
What is production function?
The production function relates the maximum amount of output that can be
obtained from a given number of inputs.
In economics, a production function relates physical output of a production
process to physical inputs or factors of production. It is a mathematical
function that relates the maximum amount of output that can be obtained from
a given number of inputs – generally capital and labor. The production
function, therefore, describes a boundary or frontier representing the limit of
output obtainable from each feasible combination of inputs.
Mathematically such basic relationship between inputs and outputs may be
expressed as:
Q = f(L, C, N)
where Q = Quantity of Output
L = Labour
C = Capital
N = Land
Hence, the level of output (Q) depends on the quantities of different inputs (L
C N) available to the firm. In the simplest case where there are only two
inputs, labour (L) and capital (C) and one output (Q) the production function
becomes
Q = f(L,C)
FEATURES OF PRODUCTION FUNCTION

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1. SUBSTITUTABILITY. The factors of production or inputs are
substitutes of one another which makes it possible to vary the total
output by changing the quantity of one or a few inputs are held
constant.
2. COMPLEMENTARITY. The factors of production are also
complementary to one another, that is the two or more inputs are to be
used together as nothing will be produced if the quantity of either of the
inputs used in the production process is zero.
3. SPECIFICITY. It reveals that the inputs are specific to the production
of a particular product. Machines and equipment’s specialized workers
and raw materials are a few examples of the specificity of factors of
production. The specificity may not be complete as factors may be used
for production of other commodities too. This reveals that in the
production process none of the factors can be ignored and in some
cases ignorance to even slightest extent is not possible if the factors
are perfectly specific.
TOTAL, MARGINAL AND AVERAGE PRODUCT
TOTAL PRODUCT OR OUTPUT (TP)
It refers to the total volume of goods produced during a specified period
of time.
Total product (TP)can be raised only by increasing the quantity of
variable factors employed in production.
AVERAGE PRODUCT (AP)
The AP of an input is the TP divided by the amount of input used to
produce this amount of output. Thus AP is the output-input ratio for
each level of variable input usage.
AP = Q/L
where:
Q = Total Product
L = Number of workers
MARGINAL PRODUCT (MP)
The MP of an input is the addition to TP resulting from the addition of
one unit of input, when the amounts of other inputs are constant.
MP = WQ/WL
where:
W means “the change in”

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Let’s try this one!
Number of
Workers
Total Output (TP)
(thousands per
year)
Marginal Product
MP=WQ/WL
Average Product
AP=QL
0 0 - -
1 10 10 10
2 28 18 14
3 54 26 18
4 76 22 19
5 90 14 18
6 96 6 16
7 96 0 13.5
8 92 -4 11.5
Law of Diminishing Returns
(Diminishing Marginal Products)
Holding all factors constant except one, the law of diminishing returns says
that: As additional units of a variable input are combined with a fixed input, at
some point, the additional output (i.e., marginal product) starts to diminish.
The Law of Diminishing Returns is also known as the law of diminishing
marginal productivity. It is a basic law of economics and technology. The law
states that when successive units of a variable input combined with a fixed
input, beyond a certain point the additional product (output) produced by each
additional unit of a variable input decreases.
Technology: Labour Intensive or Capital intensive
WHAT IS LABOR INTENSIVE?
Labor intensive refers to a process or industry that requires a large amount of
labor to produce its goods or services. The degree of labor intensity is typically
measured in proportion to the amount of capital required to produce the goods
or services; the higher the proportion of labor costs required, the more labor-
intensive the business.
Less developed economies, as a whole, tend to be more labor intensive. This
situation is rather common because low income means they cannot afford to
invest in expensive capital, but with low income and low-wages, they can
remain competitive by employing many workers.
WHAT IS CAPITAL INTENSIVE?

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Capital Intensive refers to business processes or industries that require large
amounts of investment to produce a good or service, and therefore have a
high percentage of fixed assets (property, plant, and equipment (PP&E)).
Companies in capital-intensive industries are often marked by high levels of
depreciation.
Their high operating leverage makes capital intensive industries much more
vulnerable to economic slowdowns compared to labor-intensive businesses
because they still have to pay fixed costs, such as overhead on the plants that
house the equipment, depreciation on the equipment, Et al. These costs must
be paid even when the industry is in recession.
Labor Intensive Capital Intensive
Use of manpower in production with
little technology.
Use of technology with little
manpower in production.
Larger portion of total costs is due to
labour.
Larger portion for costs incurred in
purchase, maintenance and
depreciation of capital equipment.
Requires relatively high level of labour
compared to capital investment.
Requires heavy capital investment in
buying assets relative to the level of
sales or profits that those assets can
generate.
EXAMPLES OF LABOR/CAPITAL INTENSIVE INDUSTRIES
LABOR INTENSIVE CAPITAL INTENSIVE
1. Hotel and Restaurants 1. Oil Extraction and Refining
2. Fruit Farming 2.Car Manufacturing
3. Hair Dressing 3.Web Hosting
4. Coal Mining 4.Automobile Manufacturing
5. Food Processing 5.Steel Production
SHORT RUN VERSUS LONG RUN
Variable Factors or inputs like labour, raw materials, electricity, oil and so
forth take a shorter time in adjusting them to the production process. These
can be increased or decreased to fit the requirements of production.
In the case of Fixed Factors or inputs like machines, buildings, heavy
equipment or manufacturing plant capacities it takes a longer period of time for
their adjustments in accordance with the needs of production. It is not easy to
increase or decrease such fixed inputs to suit business conditions.
Short Run refers to a period of time which is too short to allow an enterprise
to change its plant capacity, yet long enough to allow change in its variable
resources.
Long Run refers to a period of time which is long enough to permit a firm or
enterprise to alter all its resources or inputs (both fixed and variable factors).

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There is no specific number of months or years in determining short-run and
long-run periods. In small scale industries it takes a shorter time to make
adjustments in their plant capacities than in large scale industries.
Under a short-run period, a firm has both fixed cost and variable cost. Under
what conditions would a businessman operate or shut down his firm? The rule
is: If total revenue is greater than variable cost, operate; if total revenue is less
than variable cost, shut down.
For example, the fixed cost of the firm is P10,000 and its variable cost is
P5,000. Total Cost is therefore P15,000. Supposing total revenue is
P7,000;this is greater than the variable cost but less than the total cost. If the
firm operates, its loss is P8,000; but if it closes down, its loss is P10,000 which
is its fixed cost. A firm under a short run incurs a fixed cost whether it operates
or not. So, it is better to operate because the loss is only P8,000. This is much
better than losing P10,000. Besides, a part of the total revenue pays for some
of the total cost.
LONG RUN
In the case of long run, all costs are variable. This means total cost is
equivalent to variable cost. When does a firm under a long run period operate
or close down? The rules are:
If Total Revenue (TR) is more than the Total Cost (TC): Produce More
If Total Revenue (TR) is less than the Total Cost (TC): Stop Production
If Total Revenue is equal to Total Cost (TC): Maintain Production
When TR is greater than TC, there is pure profit; it is wise therefore to produce
more. In case TR is lesser than TC, it means the firm is losing; so it is better to
stop production. However, when total revenue is equal to total cost; just
maintain production. The firm gets a normal profit and such profit is part of the
cost of production as payment for the entrepreneur.
SUMMARY
1. Firms and industries are important because they supply goods
and services to society.
2. The various market structures are represented by four market
models: Pure Competition, Monopoly, Monopolistic Competition and
Oligopoly.
3. Such market structures are determined by government laws and
policies, technology, business policies and practices and economic
freedoms.
4. The productive resources are land, labor, capital and
entrepreneur. In a perfect competition or free market economy, the

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prices of these inputs are established by the forces of demand and
supply.
5. The demand for the productive resources depends on the
following: demand for goods and services, productivity of the productive
resources and the prices of the factor substitutes and complementary
resources.
6. In a highly competitive industry, pure profits attract the entry of
new firms until profits are eliminated in the process of free competition
among the increasing number of firms.
7. Factors of production which are abundant relative to demand
have very low prices. In poor countries, labour is abundant; thus, they
use labour intensive technology while in rich countries capital is
abundant which is why they utilize capital intensive technology.
8. During short-run period, an efficient firm and other firms enjoy
pure profits. This attracts the entry of new firms. In the long run, only
normal profit remains and only the efficient firms stay in business in a
competitive market.
V. Conclusion
The various market structures are represented by four basic market
models. These are theoretical frameworks for existing firms and
industries and it helps us understand the real world where the
market system is the principal element of the economy. The market
system allocates goods and services through the mechanism of
supply and demand. Firms and industries play a vital role in our
economy. They always seek ways of reducing costs of production
and of improving the quality of their goods and services, especially
in a competitive market. Also, firms and industries should strive to
maximize their employment and production. It is their responsibility
to pursue economic efficiency as their objective which is the
relationship between input (factors of production) and output (goods
and services produced by the factors of production). It is also
equally important to look at social equity alongside with economic
efficiency to make sure the fair allocation of the productive

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resources like land, capital and management among the members
of society.
VI. Post Test
1. What are the characteristics of pure monopoly, pure
competition, monopolistic competition and oligopoly?
2. Is there a need to advertise products under pure
competition? Explain your answer.
3. Why should be a firm operated under short-run when TR
is greater than VC but less than TC?
VII. References
Feliciano R. Fajardo: Economics Revised Edition
Social Studies in Perspective: Economics IV; Jan Phillip Mallari
Allen, R.C (1983). Collective invention. Journal of Economic
Behavior & Organization 1-24
http://ideas.repec.org/a/eee/jeborg/v4y1983i1p1-24.html
MONOPOLY
Janine D. Zapanta
I. Rationale
A monopoly (from Greek μόνος, mónos, 'single, alone' and πωλεῖν,
pōleîn, 'to sell') exists when a specific person or enterprise is the
only supplier of a particular commodity. This contrasts with a
monopsony which relates to a single entity's control of a market to

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purchase a good or service, and with oligopoly which consists of a
few sellers dominating a market. Monopolies are thus characterized
by a lack of economic competition to produce the good or service, a
lack of viable substitute goods, and the possibility of a high
monopoly price well above the seller's marginal cost that leads to a
high monopoly profit.The verb monopolise or monopolize refers to
the process by which a company gains the ability to raise prices or
exclude competitors. In economics, a monopoly is a single seller. In
law, a monopoly is a business entity that has significant market
power, that is, the power to charge overly high prices Although
monopolies may be big businesses, size is not a characteristic of a
monopoly. A small business may still have the power to raise prices
in a small industry.
II. Objectives
• To define Monopoly
• Explain why monopoly arises
• Explain how monopolies make production and pricing
decisions
• Determine the welfare cost of Monopolies
• Understand Price discrimination
• Explain Public policy toward monopolies

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III. Pre-Test
I. What is Monopoly?
II. How Monopoly arises?
IV. Learning Cell
A monopoly is the sole supplier of a product with no close substitutes
The most important characteristic of a monopolized market is
barriers to entry è new firms cannot profitably enter the market
Barriers to entry are restrictions on the entry of new firms into an
industry
the control of a key resource, government-granted monopolies, or
economies of scale over the entire range of output
Monopoly Resources
When one company exerts sole control over a resource that is
necessary for the production of a specific product, the market may
become a monopoly. For example, the only medication deemed
acceptable to treat a disease comes from a particular ingredient X, and
knowledge of this ingredient X is owned by a single family owned
company. The company can, therefore, be said to have a monopoly
over ingredient X that is needed to cure the disease because it is the
only company that can produce a product deemed acceptable.
E.g., DeBeers owns most of the world’s
diamond mines
Government created monopolies
a monopoly may be explicitly created by the government if it grants a
single company, e or government-owned, the right to conduct business
in a particular market.
For example, when a national railways transportation service is created
by the government, in most cases they are granted a monopoly on the
operation of passenger trains in the country. As a result, other firms are
only able to offer passenger train services with the cooperation and/or
permission of the government-owned provider.

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E.g., patents, copyright laws
Natural monopoly
a monopoly in an industry in which high infrastructural costs and other
barriers to entry relative to the size of the market give the largest
supplier in an industry, often the first supplier in a market, an
overwhelming advantage over potential competitors.
This frequently occurs in industries where capital costs predominate,
creating economies of scale that are large in relation to the size of the
market; examples include public utilities such as water services and
electricity.
Revenue for the Monopolist
a monopoly, by definition, supplies the entire market, the demand
for goods or services produced by a monopolist is also the market
demand
The demand curve for the monopolist’s output therefore slopes
downward, reflecting the law of demand
Demand, Average and Marginal Revenue
Suppose De Beers controls the entire diamond market and
suppose they can sell three diamonds a day at $7,000 each è total
revenue of $21,000
Total revenue divided by quantity is the average revenue per
diamond which is also $7,000
Thus, the monopolist’s price equals the average revenue per diamond
The Monopolist’s Price and Output
• If MR > MC, the monopolist gains profit by increasing output
• If MR < MC, the monopolist gains profit by decreasing output.
• If MC = MR, the monopolist is maximizing profit.
Profit-Maximization
Like a competitive firm, a monopolist maximizes profit by producing the
quantity where MR = MC.
Once the monopolist identifies this quantity,
it sets the highest price consumers are willing to pay for that quantity.
It finds this price from the D curve.

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Profit Maximization for a Monopolist
The Welfare Cost of Monopoly
Recall: In a competitive market equilibrium,
P = MC and total surplus is maximized.
In the monopoly eq’m, P > MR = MC
The value to buyers of an additional unit (P)
exceeds the cost of the resources needed to produce that unit (MC).
The monopoly Q is too low –
could increase total surplus with a larger Q.
Thus, monopoly results in a deadweight loss. It is the geometric representation
of the welfare cost in terms of misallocated resources that are caused by
monopoly.
Price Discrimination
Discrimination: treating people differently based on some characteristic, e.g.
race or gender.
Output Price TR MR TC MC ATC Profit
0 36 0 — 47 — –47
1 33 33 33 48 1 48.00 –15
2 30 60 27 50 2 25.00 10
3 27 81 21 54 4 18.00 27
4 24 96 15 62 8 15.50 34
5 21 105 9 78 16 15.60 27
6 18 108 3 102 24 17.00 6
7 15 105 –3 142 40 20.29 –37
8 12 96 –9 196 56 24.75 –102
9 9 81 –15 278 80 30.89 –197

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Price discrimination: selling the same good
at different prices to different buyers.
The characteristic used in price discrimination
is willingness to pay (WTP):
A firm can increase profit by charging a higher price to buyers with higher
WTP.
The Price-Discriminating Monopolist
A price-discriminating monopolist can increase both output and
profit.
• It
can charge customers with more inelastic demands a higher
price.
• It
can charge customers with more elastic demands a lower price.
Price Discrimination in the Real World
In the real world, perfect price discrimination is not possible:
No firm knows every buyer’s WTP
Buyers do not announce it to sellers
So, firms divide customers into groups
based on some observable trait
that is likely related to WTP, such as age.
Examples of Price Discrimination
Movie tickets
Discounts for seniors, students, and people
who can attend during weekday afternoons.
They are all more likely to have lower WTP
than people who pay full price on Friday night.

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Airline prices
Discounts for Saturday-night stayovers help distinguish business travelers,
who usually have higher WTP, from more price-sensitive leisure travelers.
Quantity discounts
A buyer’s WTP often declines with additional units, so firms charge less per
unit for large quantities than small ones.
Example: A movie theater charges $4 for
a small popcorn and $5 for a large one that’s twice as big.
Thus, it will produce the same quantity as will a perfectly competitive firm.
For perfectly price-discriminating monopolist, P = AR = MR.
Public Policy Towards Monopoly
Making monopolized industries more competitive/antitrust laws
• Re
gulating the behavior of monopolies
• Tu
rning some private monopolies into public enterprises
• Do
ing nothing at all
Policy Towards Monopoly
It tries to prevent monopoly abuses such as:
– imposition of unfair prices
– limitation of production
– tie-in sales
– restriction of technology transfer

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The target of this policy is to regulate behavior of monopolies that exclude
competition by eliminating rivals, designing tie-in contracts or practicing
predatory pricing
SUMMARY
A monopoly firm is the sole seller in its market. Monopolies arise
due to barriers to entry, including: government-granted
monopolies, the control of a key resource, or economies of scale
over the entire range of output.
A monopoly firm faces a downward-sloping demand curve for its
product. As a result, it must reduce price to sell a larger quantity,
which causes marginal revenue to fall below price.
Monopoly firms (and others with market power)
try to raise their profits by charging higher prices
to consumers with higher willingness to pay.
This practice is called price discrimination.
V. Post Test
1) Explain how Monopoly firms raise their profits
2) Give examples of Monopoly in our country
VI. References
Monopoly
https://en.wikipedia.org/wiki/Monopoly
Monopoly Definition - investopedia.com
https://www.investopedia.com/terms/m/monopoly.asp

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MACROECONOMICS FUNDAMENTALS
Jamie A. Sigua
I. Rationale
Macroeconomics is the study of how a society can best increase its
country’s wealth using the limited and available resources like land, labor
and capital which is being converted to different outputs by the
entrepreneurs to satisfy the demands of human wants and needs.
Macroeconomics can be associated with making choices, facing trade-offs,
government fiscal and monetary policies and how it can best help a
country’s economic health. It covers other aspects of the economy, like
aggregate production, general prices of goods and services, and
employment. This research aims to discuss the role of the government in
the economy and contribution of fiscal and monetary policies to the
economy’s growth and development. It also aims to discuss the reasons
and stimulators of a country’s economic growth and to be able to grasp
some important concepts in economics.
II. Objectives
• Understand the role of the government
• Learn about production possibilities frontier
• Identify the reasons for economic growth
• Appreciate the circular flow model
• Understand Normal and Real Values
• Differentiate Positive and Normative statements
III. Pre-Test
• What is the role of the government?
• What is production possibilities frontier?

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• When does economic growth occurs?
• What are the reasons and contributors for economic growth?
• What is circular flow model?
• What is the difference between normal and real values?
• How do positive economic statements differ from normative economic
statements?
IV. Learning Cell
Role of Government
• The ultimate goal of the government is to promote human welfare in the
country and works as an agent of economic development.
• Government provides the legal and social framework, maintain the
competition, provides public goods and services, national defense,
income and social welfare, correct externalities and stabilize the
economy.
• The government also provides policies that help support the functioning
of markets and policies to correct situations when the market fails.
• Government is also guiding the overall pace of economic activity,
attempting to maintain steady growth, high levels of employment, and
price stability.
Production Possibilities Frontier
• Production–possibility frontier (PPF) or production possibility
curve (PPC) is a curve which shows various combinations of the
amounts of two separate goods which can be produced within a fixed
availability of a certain resource.

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• It represents the point at which a country’s economy is most efficiently
producing its goods and services and, therefore, allocating its resources
in the best way possible.
• The assumption under Production–possibility frontier (PPF) that the
production of one product may only increase if the production of the
other product decreases due to limited available resources.
• If an economy is operating at any point along the production possibility
frontier, it means that all its available resources are utilized and they are
used as efficiently as possible.
• When the PPF shifts outwards, it means that there has been growth in
an economy. However, when the PPF shifts inwards it indicates that the
economy is shrinking due to a failure in its allocation of resources and
optimal production capability.
• A shrinking economy could be a result of a decrease in supplies or a
deficiency in technology.
Reasons and Stimulators of Economic Growth
• Economic growth occurs when the economy realizes greater production
capabilities to produce capital and consumer goods. For this to happen
resources must increase and/or technology must be improved.
• Economic growth is measured by the increase in a country’s total
output or real Gross Domestic Product (GDP) or Gross National
Product (GNP). The Gross Domestic Product (GDP) of a country is the
total value of all final goods and services produced within a country
over a period of time. Therefore, an increase in GDP is the increase in
a country’s production.

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• One of the biggest impacts of long-term growth of a country is that it
has a positive impact on national income and the level of employment,
which increases the standard of living.
• As the country’s GDP is increasing, it is more productive which leads to
more people being employed. This increases the wealth of the country
and its population.
• Higher economic growth also leads to extra tax income for government
spending, which the government can use to develop the economy. This
expansion can also be used to reduce the budget deficit.
Circular Flow Model
• Circular flow model demonstrates how money moves through society.
Money flows from producers to workers as wages and flows back to
producers as payment for products.
• The circular flow model starts with the household sector that engages in
consumption spending (C) and the business sector that produces the
goods.
• The government injects money into the circle through government
spending (G) on programs such as Social Security and National Parks
administration.
• The circular flow of income for a nation is said to be balanced when
withdrawal equals injections. The level of injections is the sum of
government spending (G), exports (X) and investments (I). The level of
leakage or withdrawals is the sum of taxation (T), imports (M) and
savings (S).
• When G + X + I is greater than T + M + S, the level of national income
(GDP) will increase. When the total leakage is greater than the total
injected into the circular flow, national income will decrease.

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• If businesses decided to produce less, it would lead to a reduction in
household spending and cause a decrease in GDP. Or, if households
decided to spend less, it would lead to a reduction in business
production, also causing a decrease in GDP.
Nominal and Real Values
• Nominal value of any economic statistic means the statistic is
measured in terms of actual prices that exist at the time.
• Real value refers to the same statistic after it has been adjusted for
inflation. Generally, it is the real value that is more important.
Positive and Normative Economics
• Positive economics is a stream of economics that focuses on the
description, quantification, and explanation of economic developments,

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expectations, and associated phenomena. It relies on objective data
analysis, relevant facts, and associated figures (Fontinelle, 2019).
• Normative economics focuses on the ideological, opinion-oriented,
prescriptive, value judgments, and "what should be" statements aimed
toward economic development, investment projects, and scenarios
(Fontinelle, 2019).
• Positive economics is based on facts and cannot be approved or
disapproved while Normative economics is based on “what should be”
or value judgments.
V. Conclusion
The goal of the government is to promote human welfare and
should work as an agent of economic development. The government also
provides policies that help support the functioning of markets and policies to
correct situations when the market fails. Government is also guiding the
overall pace of economic activity, attempting to maintain steady growth, high
levels of employment, and price stability.
Production possibility frontier (PPF) is a curve that represents
outcome or production combination that can be produced with a given
amount of resources. Points within the curve means that all the available
resources were utilized and used efficiently. When the PPF shifts outwards,
there has been an economic growth. If PPF shifts inwards, it means that the
economy is shrinking due to a failure in its allocation of resources and
optimal production capability.
Economic growth occurs when the economy realizes greater
production capabilities to produce capital and consumer goods. For this to
happen resources must increase and/or technology must be improved. It is
measured by the increase in Gross Domestic Product (GDP) or Gross
National Product (GNP).

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Circular flow model simply discusses the movement of an
economy, especially the movement of goods and services between the
two main players of the economy.
Normal Values are the absolute values or the peso value of
prices, earnings, wages and interests while Real Values are always
values in comparison, or relative to other related economic variables.
There are two types of economic analysis namely: Positive and
Normative economics. Positive economics consider conditions based
on facts or “as they are”. Normative economics consider conditions
based on judgments or “as it should be”.
VI. Post-Test
• Is Production Possibility Frontier the optimum production of the
company?
• Differentiate positive and normative economics.
• Explain the economic growth and the contributions of the government
and its relationship to the circular flow model.
VII. References
Doot, R. (2016). The Role of Government in Economic Development.
https://www.slideshare.net/RimaDoot170/the-role-of-government-in-
economic-development
Bloomenthal, A. (2019). Production Possibility Frontier. Retrieved October 20,
2019 from
https://www.investopedia.com/terms/p/productionpossibilityfrontier.asp
Viray et. al. (2018). Principles of Economics Simplified (With Taxation and
Agrarian Reform). Mandaluyong City: Anvil Publishing Inc.
Agarwal, P. (2019). Development Economics: What is Economic Growth?
https://www.intelligenteconomist.com/economic-growth/

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Chappelow, J. (2019). Circular Flow Model. Retrieved October 20, 2019 from
https://www.investopedia.com/terms/circular-flow-of-income.asp
Reading: Nominal and Real Values (n. d.) Retrieved October 20, 2019 from
https://courses.lumenlearning.com/suny-
macroeconomics/chapter/nominal-and-real-values/
Fontinelle, A. (2019). Positive vs. Normative Economics: What's the
Difference? Retrieved October 20, 2019 from
https://www.investopedia.com/ask/answers/12/difference-between-
positive-normative-economics.asp

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Business Cycle and Unemployment
I. Rationale
Business cycles are the rise and fall in production output of goods
and services in an economy. The different stages in the business cycle
includes expansion, peak, recession or contraction, depression, trough,
and recovery. Business cycle is also known as the trade cycle, as it is the
upward and downward movement of the gross domestic product or GDP.
These movements usually involve the shifts over period of time such as the
rapid growth (expansion) and period of decline (recessions) These cycles
are usually measured by considering the rise and fall of the real gross
domestic product. Despite of the term cycle being used; these movements
are not uniform and cannot be predicted.
Unemployment is a term alluding to people who are employable and
looking for a vocation however can't get a new line of work. Moreover, it is
those individuals in the workforce or pool of individuals who are accessible
for work that doesn't have an occupation. Generally estimated by the
unemployment rate, which is partitioning the quantity of jobless individuals
by the absolute number of individuals in the workforce, joblessness fills in
as one of the pointers of an economy's status.
II. Objectives
• To acquire knowledge on the basic business cycle definition
• To know how business cycle affects our economy and its role.
• Understand the different stages of business cycle.
• To define unemployment
• To understand the different types of unemployment

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III. Pre-Test
• Why is it important for us to know the rise and fall of our economy?
• How is fluctuation and unemployment affecting the normal household?
• How is unemployment related to our economy?
IV. Learning Cell
Business Cycle
o The business cycle describes the rise and fall in production output of
goods and services in an economy. Business cycles are generally measured
using the rise and fall in the real gross domestic product (GDP) or the GDP
adjusted for inflation. The business cycle is also known as the economic cycle
or trade cycle.
o The business cycle is made up for four phases: booms, downturns,
recessions and recoveries. During booms, the economic output increases
quickly, and businesses tend to prosper. Eventually, a booming economy
reaches a peak point where economic growth rates start to fall, leading to an
economic downturn. Downturns lead to periods of economic stagnation or
decline called recessions. The point at which economic growth rates begin to
increase again is called the trough of the business cycle; a period of economic
recovery follows the trough and leads back into an economic boom.
o Stages of the Business Cycle
1. Expansion
This is the first stage. When the expansion occurs, there is an increase in
employment, incomes, production, and sales. People generally pay their debts

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on time. The economy has a steady flow in the money supply and investment
is booming.
2. Peak
The second stage is a peak when the economy hits a snag, having
reached the maximum level of growth. Prices hit their highest level, and
economic indicators stop growing. Many people start to restructure as the
economy's growth starts to reverse.
3. Recession
These are periods of contraction. During a recession, unemployment rises,
production slows down, sales start to drop because of a decline in demand,
and incomes become stagnant or decline.
4. Depression
Economic growth continues to drop while unemployment rises and
production plummets. Consumers and businesses find it hard to secure credit,
trade is reduced, and bankruptcies start to increase. Consumer confidence
and investment levels also drop.
5. Trough
This period marks the end of the depression, leading an economy into the
next step: recovery.
6. Recovery
In this stage, the economy starts to turn around. Low prices spur an
increase in demand, employment and production start to rise, and lenders
start to open their credit coffers. This stage marks the end of one business
cycle.
• Just as there is no regularity in the timing of business cycles, there is no
reason why cycles must occur at all. The prevailing view among economists is
that there is a level of economic activity, often referred to as full employment,

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at which the economy could stay forever. Full employment refers to a level of
production in which all the inputs to the production process are being used, but
not so intensively that they wear out, break down, or insist on higher wages
and more vacations. When the economy is at full employment, inflation tends
to remain constant; only if output moves above or below normal does the rate
of inflation systematically tend to rise or fall. If nothing disturbs the economy,
the full-employment level of output, which naturally tends to grow as the
population increases and new technologies are discovered, can be maintained
forever. Business cycles do occur, however, because disturbances to the
economy of one sort or another push the economy above or below full
employment. Inflationary booms can be generated by surges in private or
public spending. For example, if the government spends a lot to fight a war but
does not raise taxes, the increased demand will cause not only an increase in
the output of war matériel, but also an increase in the take-home pay
of defense workers. The output of all the goods and services that these
workers want to buy with their wages will also increase, and total production
may surge above its normal, comfortable level. Similarly, a wave of optimism
that causes consumers to spend more than usual and firms to build new
factories may cause the economy to expand more rapidly than normal.
Recessions or depressions can be caused by these same forces working in
reverse. A substantial cut in government spending or a wave of pessimism
among consumers and firms may cause the output of all types of goods to fall.
A boom and bust cycle are process of economic expansion and
contraction which repeatedly occurs. Wherein during boom the economy is
growing fast, lots of jobs available, market has high returns. Contraction on the
other hand though is when the economy goes down and shrinks, people loses
their jobs and investors are losing their money. Boom-bust cycles may last
depending on its severity.

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• The boom and bust cycle is the alternating phases of economic
growth and decline. It's another way to describe the business cycle or
economic cycle. In the boom phase, growth is positive. If gross domestic
product growth remains in the healthy 2% to 3% range, it can stay in this
phase for years. It accompanies a bull market, rising housing prices, wage
growth, and low unemployment.
The boom phase doesn't end unless the economy is allowed to overheat.
That's when there's too much liquidity in the money supply, leading
to inflation. As prices rise, irrational exuberance takes hold of investors. The
GDP growth rate grows above 4% for two or more quarters in a row.
The bust phase is the contraction phase of the business cycle. It is brutish,
nasty, and mercifully short. It rarely lasts more than 18 months. GDP turns
negative, the unemployment rate is 7% or higher, and the value of investments
falls. If it lasts more than three months, it's a recession. It can be triggered by
a stock market crash, followed by a bear market.
Three forces combine to cause the boom and bust cycle. They are the law
of supply and demand, the availability of financial capital, and future
expectations. These three forces work together to cause each phase of the
cycle.
In the boom phase, strong consumer demand is the leading force. Families
are confident about the future, so they buy more now. They know they'll get
better jobs, and their home values and investments will increase in value.
This demand means companies have to boost supply, which they do by hiring
new workers. Capital is easily available, so consumers and businesses alike
can borrow at low rates. That stimulates more demand, creating a virtuous
circle of prosperity.
If demand outstrips supply, the economy can overheat. Also, if there's too
much capital chasing too few goods, it causes inflation. When this happens,

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investors and businesses try to outperform the market. They ignore the risk of
bad investments to achieve gain.
In the bust phase, the main force is plummeting expectations about the future.
Investors and consumers get nervous when the stock market corrects or
crashes. Investors sell stocks. They buy safe-haven investments that
traditionally don't lose value, such as bonds, gold, and the U.S. dollar. As
companies lay off workers, consumers lose their jobs and stop buying
anything but necessities. That causes a downward spiral. If it continues, it can
lead to an economic depression.
The bust phase stops when supply lowers prices enough to stimulate demand.
That happens when prices are so low that those investors that still have cash
start buying again. Confidence can be restored more quickly with central
bank monetary policy and government fiscal policy.
During a boom, a central bank makes it easier to obtain credit by lending
money at low interest rates. Individuals and businesses can then borrow
money easily and cheaply and invest it in, say, technology stocks or houses.
Many people earn high returns on their investments, and the economy grows.
The problem is that when credit is too easy to obtain and interest rates are too
low, people will overinvest. This excess investment is called
“malinvestment.” There won’t be enough demand for, say, all the homes that
have been built, and the bust cycle will set in. Things that have been
overinvested in will decline in value. Investors lose money, consumers cut
spending and companies cut jobs. Credit becomes more difficult to obtain as
boom-time borrowers become unable to make their loan payments. The bust
periods are referred to as recessions; if the recession is particularly severe, it
is called a depression.
• Employment

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The business cycle has major implications on the total level of
employment in the economy. During periods of economic growth and
prosperity, employment tends to be high because businesses need
more workers to meet demand and expand their companies. On the
other hand, economic downturns and recessions tend to be
characterized by rising unemployment, cuts in worker hours and cuts
in worker pay.
• Consumer Demand
One of the primary reasons the business cycle is important to
businesses is that it can have a significant influence on consumer
demand. High levels of unemployment and underemployment mean
consumers have less money to spend on products and services,
which tends to reduce consumer demand. Low consumer demand
leads to lower sales for businesses, which shrinks profits and
increases the chances of suffering losses. Companies that suffer
sustained losses may be forced out of the market.
Unemployment
Unemployment occurs when a person who is actively searching for
employment is unable to find work. Unemployment is often used as a measure
of the health of the economy. The most frequent measure of unemployment is
the unemployment rate, which is the number of unemployed people divided by
the number of people in the labor force.
Understanding Unemployment
Unemployment is a key economic indicator because it signals the (in)ability of
workers to readily obtain gainful work to contribute to the productive output of
the economy. More unemployed workers mean less total economic production

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will take place than might have otherwise. And unlike idle capital, unemployed
workers will still need to maintain at least subsistence consumption during
their period of unemployment. This means the economy with high
unemployment has lower output without a proportional decline in the need for
basic consumption. High, persistent unemployment can signal serious distress
in an economy and even lead to social and political upheaval.
The term “unemployment” can be tricky and often confusing, but it certainly
includes people who are waiting to return to a job after being discharged from
it. However, it does not anymore encompass individuals who have stopped
looking for a job in the past four weeks due to various reasons such as leaving
work to pursue higher education, retirement, disability, and personal issues.
Even people who are not actively seeking a job anywhere but actually want to
find one are not considered unemployed. Interestingly, people who have not
looked for a job in the past four weeks but have been actively seeking one in
the last 12 months are put into a category called the “marginally attached to
the labor force.”
Within this category is another category called “discouraged workers,” which
refers to people who have lost all their hope of finding a job.
Types of unemployment
There are basically four types of unemployment: (1) demand deficient, (2)
frictional, (3) structural, and (4) voluntary unemployment.
Demand deficient unemployment
This is the biggest cause of unemployment that happens especially during a
recession. When there is a reduction in the demand for the company’s
products or services, they will most likely cut back too on their production,

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making it unnecessary to retain a wide workforce within the organization. In
effect, workers are laid off.
Frictional unemployment
Frictional unemployment refers to workers who are in between jobs. An
example is a worker who recently quit or was fired and is looking for a job in
an economy that is not experiencing a recession. It is not an unhealthy thing
because it is usually caused by workers looking for a job that is most suitable
to their skills.
Structural unemployment
Structural unemployment happens when the skills set of a worker does not
match the skills demands of the job available or if the worker cannot reach the
geographical location of the job. An example is a teaching job that requires
relocation to China, but the worker cannot secure a work visa due to certain
visa restrictions. It can also happen when there is a technological change in
the organization, such as workflow automation.
Voluntary unemployment
Voluntary unemployment happens when a worker decides to leave a job
because it is no longer financially fulfilling. An example is a worker whose
take-home pay is less than his cost of living.
Causes of unemployment
Unemployment is caused by various reasons that come from both the demand
side, or employer, and the supply side, or the worker.

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From the demand side, unemployment may be caused by high interest rates,
global recession, and financial crisis. From the supply side, frictional
unemployment and structural employment play a great role.
Effects of unemployment
The impact of unemployment can be felt by both the workers and the national
economy and can create a ripple effect.
Unemployment causes workers to suffer financial difficulties that may lead to
emotional destruction. When it happens, consumer spending, which is one of
an economy’s key drivers of growth, goes down, leading to a recession or
even a depression when left unaddressed.
Unemployment results in lowered purchasing power, which, in turn, causes
lowered profits for businesses and leads to budget cuts and workforce
reduction. It creates a cycle that goes on and on and on. Everyone loses in the
end.
V. Conclusion
Business cycles are dated according to when the direction of
economic activity changes. The peak of the cycle refers to the last month
before several key economic indicators—such as employment, output, and
retail sales— begin to fall. The trough of the cycle refers to the last month
before the same economic indicators begin to rise. Because key economic
indicators often change direction at slightly different times, the dating of peaks
and troughs is necessarily somewhat subjective. Most industries are booming,
and unemployment is low; in other years, most industries are operating well
below capacity and unemployment is high. Periods of economic prosperity are
typically called expansions or booms; periods of economic decline are called

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recessions or depressions. The combination of expansions and recessions,
the ebb and flow of economic activity, is called the business cycle.
Unemployment is a serious social and economic issue that results in
a tremendous impact on everything but is often overlooked. A stronger system
of assessing unemployment should be put in place in order to determine its
causes and how to address it better. Many variations of the unemployment
rate exist with different definitions concerning who is an "unemployed person"
and who is in the "labor force."
The state of being without any work yet looking for work is called
unemployment. Economists distinguish between various overlapping types of
and theories of unemployment, including cyclical or Keynesian unemployment,
frictional unemployment, structural unemployment and classical
unemployment. Some additional types of unemployment that are occasionally
mentioned are seasonal unemployment, hardcore unemployment, and hidden
unemployment.
Though there have been several definitions of "voluntary" and
"involuntary unemployment" in the economics literature, a simple distinction is
often applied. Voluntary unemployment is attributed to the individual's
decisions, whereas involuntary unemployment exists because of the socio-
economic environment (including the market structure, government
intervention, and the level of aggregate demand) in which individuals operate.
In these terms, much or most of frictional unemployment is voluntary, since it
reflects individual search behavior. Voluntary unemployment includes workers
who reject low wage jobs whereas involuntary unemployment includes
workers fired due to an economic crisis, industrial decline, company
bankruptcy, or organizational restructuring.

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VI. Post-Test
• How does the boom and bust cycle affect the people?
• What is the impact of the business cycle in employment?
• Why is it important for the government to keep track of unemployment
rate?
VII. References
Amadeo, K. (2019). How to protect yourself from the next boom and bust
cycle. Retrieved October 5, 2019, from https://www.thebalance.com/boom-
and-bust-cycle-causes-and-history-3305803.
Ashley, R. (2007). Fact sheet on the impact of unemployment. Retrieved on
October 11, 2019, from
https://web.archive.org/web/20071025150953/http://ashleymac.econ.vt.edu/as
hley/3204/brenner.pdf
Chappelow, J. (2019). Unemployment Definition. Retrieved October 10, 2019,
from https://www.investopedia.com/terms/u/unemployment.asp.
Kenton, W. (2019). What You Need to Know About Business Cycle. Retrieved
October 5, 2019, from
https://www.investopedia.com/terms/b/businesscycle.asp.
Kenton, W. (2019). Boom And Bust Cycle. Retrieved October 5, 2019, from
https://www.investopedia.com/terms/b/boom-and-bust-cycle.asp.
Romer, C. D., Horwitz, S., Summers, L. H., Small, K. A., Jones, J. M., &
MaCurdy, T. (2019). Business Cycles. Retrieved October 1, 2019, from
https://www.econlib.org/library/Enc/BusinessCycles.html

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FISCAL and MONETARY POLICY
Janine D. Zapanta
MBA1
I. Rationale
Monetary policy is the policy adopted by the monetary authority of a
country that controls either the interest rate payable on very short-term
borrowing or the money supply, often targeting inflation or the interest rate
to ensure price stability and general trust in the currency.
Further goals of a monetary policy are usually to contribute to the stability
of gross domestic product, to achieve and maintain low unemployment,
and to maintain predictable exchange rates with other currencies.
Monetary economics provides insight into how to craft an optimal
monetary policy. In developed countries, monetary policy has been
generally formed separately from fiscal policy, which refers to taxation,
government spending, and associated borrowing.
Monetary policy is referred to as being either expansionary or
contractionary. Expansionary policy occurs when a monetary authority
uses its tools to stimulate the economy. An expansionary policy maintains
short-term interest rates at a lower than usual rate or increases the total
supply of money in the economy more rapidly than usual. It is traditionally
used to try to combat unemployment in a recession by lowering interest
rates in the hope that less expensive credit will entice businesses into
expanding. This increases aggregate demand (the overall demand for all
goods and services in an economy), which boosts short-term growth as
measured by gross domestic product (GDP) growth. Expansionary
monetary policy usually diminishes the value of the currency relative to
other currencies (the exchange rate).

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In economics and political science, fiscal policy is the use of government
revenue collection (taxes or tax cuts) and expenditure (spending) to
influence a country's economy. The use of government revenues and
expenditures to influence macroeconomic variables developed as a result
of the Great Depression, when the previous laissez-faire approach to
economic management became discredited. Fiscal policy is based on the
theories of the British economist John Maynard Keynes, whose Keynesian
economics indicated that government changes in the levels of taxation and
government spending influences aggregate demand and the level of
economic activity.
Fiscal and monetary policy are the key strategies used by a country's
government and central bank to advance its economic objectives. The
combination of these policies enables these authorities to target the
inflation (which is considered "healthy" at the level in the range 2%–3%)
and to increase employment. Additionally, it is designed to try to keep
GDP growth at 2%–3% and the unemployment rate near the natural
unemployment rate of 4%–5%.[1]
This implies that fiscal policy is used to
stabilize the economy over the course of the business cycle.
II. Objectives
1. To define Monetary Policy
2. To define Fiscal Policy
III. Pre-Test
1. What is Monetary Policy?
2. Difference between Monetary and Fiscal Policy?
III. Learning Cell
Fiscal Policy

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Fiscal Policy is based on the theories of the British economist John
Maynard Keynes, whose Keynesian economics indicated that government
changes in the levels of taxation and government spending influences
aggregate demand and the level of economic activity
• In economics and political science, fiscal policy is the use of
government revenue collection (mainly taxes) and expenditure
(spending) to influence a country's economy. The use of government
revenues and expenditures to influence macroeconomic variables
developed as a result of the Great Depression, when the previous
laissez-faire approach to economic management became discredited
Depending on the state of the economy, fiscal policy may reach for
different objectives: its focus can be to restrict economic growth by
mediating inflation or, in turn, increase economic growth by
decreasing taxes, encouraging spending on different projects that
act as stimuli to economic growth and enabling borrowing and
spending. The three stances of fiscal policy are the following:
• Neutral fiscal policy
• Expansionary fiscal policy
• Contractionary fiscal policy

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• Neutral fiscal policy is usually undertaken when an economy is in
neither a recession nor a expansion. The amount of government deficit
spending (the excess not financed by tax revenue) is roughly the same
as it has been on average over time, so no changes to it are occurring
that would have an effect on the level of economic activity.
• Expansionary fiscal policy is used by the government when trying to
balance the contraction phase in the business cycle. It involves
government spending exceeding tax revenue by more than it has
tended to, and is usually undertaken during recessions. Examples of
expansionary fiscal policy measures include increased government
spending on public works (e.g., building schools) and providing the
residents of the economy with tax cuts to increase their purchasing
power (in order to fix a decrease in the demand).
• Contractionary fiscal policy, on the other hand, is a measure to increase
tax rates and decrease government spending. It occurs when
government deficit spending is lower than usual. This has the potential
to slow economic growth if inflation, which was caused by a significant
increase in aggregate demand and the supply of money, is excessive.
By reducing the economy's amount of aggregate income, the available
amount for consumers to spend is also reduced. So, contractionary
fiscal policy measures are employed when unsustainable growth takes

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place, leading to inflation, high prices of investment, recession and
unemployment above the "healthy" level of 3%–4%.
Economic effect
Governments use fiscal policy to influence the level of aggregate
demand in the economy, so that certain economic goals can be
achieved:
• Price stability;
• Full employment;
• Economic growth.
The Keynesian view of economics suggests that increasing
government spending and decreasing the rate of taxes are the best
ways to have an influence an aggregate demand, stimulate it, while
decreasing spending and increasing taxes after the economic
expansion has already taken place. Additionally, Keynesians argue
that expansionary fiscal policy should be used in times of recession
or low economic activity as an essential tool for building the
framework for strong economic growth and working towards full
employment. In theory, the resulting deficits would be paid for by an
expanded economy during the expansion that would follow; this was
the reasoning behind the New Deal.

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Governments can use a budget surplus to do two things:
• to slow the pace of strong economic growth;
• to stabilize prices when inflation is too high.
Keynesian theory posits that removing spending from the economy
will reduce levels of aggregate demand and contract the economy,
thus stabilizing prices.
Monetary Policy
• The policy adopted by the monetary authority of a country that controls
either the interest rate payable on very short-term borrowing or the
money supply, often targeting inflation or the interest rate to ensure
price stability and general trust in the currency.
• Further goals of a monetary policy are usually to contribute to the
stability of gross domestic product, to achieve and maintain low
unemployment, and to maintain predictable exchange rates with other
currencies.
• Monetary economics provides insight into how to craft an optimal
monetary policy. In developed countries, monetary policy has been
generally formed separately from fiscal policy, which refers to taxation,
government spending, and associated borrowing.
Three Objectives of Monetary Policy

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Central banks have three monetary policy objectives.
• The most import is to manage inflation.
• The secondary objective is to reduce unemployment, but only after
controlling inflation.
• The third objective is to promote moderate long-term interest rates.
The U.S. Federal Reserve, like many other central banks, has specific targets
for these objectives. It wants the core inflation rate to be between 2% and
2.5%. It seeks an unemployment rate below 6.5%. Beyond that, it prefers
a natural rate of unemployment of between 4.7% and 5.8%. The Fed's overall
goal is healthy economic growth. That's a 2% to 3% annual increase in the
nation's gross domestic product.
Types of Monetary Policy
Central banks use contractionary monetary policy to reduce inflation. They
reduce the money supply by restricting the amount of money banks can lend.
The banks charge a higher interest rate, making loans more expensive. Fewer
businesses and individuals borrow, slowing growth.
Central banks use expansionary monetary policy to lower unemployment and
avoid recession. They increase liquidity by giving banks more money to lend.
Banks lower interest rates, making loans cheaper. Businesses borrow more to
buy equipment, hire employees, and expand their operations. Individuals

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borrow more to buy more homes, cars, and appliances. That increases
demand and spurs economic growth
Monetary Policy Versus Fiscal Policy
• Ideally, monetary policy should work hand-in-glove with the national
government's fiscal policy. It rarely works this way. Government leaders
get re-elected for reducing taxes or increasing spending. As a result,
they adopt expansionary fiscal policy. To avoid inflation in this situation,
the Fed is forced to use restrictive monetary policy.
• For example, during the Great Recession, Republicans in Congress
became concerned about the U.S. debt. It exceeded the
benchmark debt-to-GDP ratio of 100%. As a result, fiscal policy became
contractionary just when it needed to be expansionary. To compensate,
the Fed injected massive amounts of money into the economy
with quantitative easing.
VII. Post Test
1. What is Fiscal Policy?
2. Which policy is applicable in our country?
VIII. References
Monetary Policy
https://en.wikipedia.org/wiki/Monetary_policy
Fiscal policy - Wikipedia
https://en.wikipedia.org/wiki/Fiscal_polic

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Principles of Taxation
Mark Dwayne Malonzo and Suzette Cura
I. Rationale
Taxation is the imposition of compulsory levies on individuals or
entities by governments. Taxes are levied in almost every country of the world,
primarily to raise revenue for government expenditures, although they serve
other purposes as well.
This section is concerned with taxation in general, its principles, its
objectives, and its effects; specifically, the section discusses the nature and
purposes of taxation, principles of taxation, canons and criteria of taxation, and
economic effects of taxation. This section also introduces the overview of the
Philippine Tax system and its new amendments to its tax policy. (Cox 2018)
II. Objectives
• Determine the effect of taxes in the economy
• Determine the basic principles of taxation
• Identify approaches to taxation
• Give details on the Philippine Tax System
III. Pre-Test
• How important is taxation?
• Do we have a fair tax system?
• Why do we need to pay taxes?
IV. Learning Cell
What is Taxation?

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It is the inherent power by which the sovereign state imposes financial
burden upon persons and properties as a means of raising revenues in
order to defray the necessary.
“An inherent power of the state to demand enforced contributions from
the people for public purposes.”
Taxation is therefore a mode by which the government makes
exactions for revenue in order to support their existence and carry out their
legitimate objectives.
What is Tax?
A sum of money demanded by a government for its support or for
specific facilities or services, levied upon incomes, property, sales, etc. a
burdensome charge, obligation, duty, or demand.
Purpose of Tax
1. To raise revenue for the government to cover its own expenditures on
the provision of social services such as education, health, public
infrastructures, etc., as well as the salaries and benefits of public servants.
• Revenue -the taxes raise money to spend on armies, roads, schools and
hospitals, and on more indirect government functions like market regulation
or legal systems.
2. As instrument of fiscal policy in regulating the level of total spending in
the economy to stabilize the economy.
3. To alter the distribution of income and wealth.
4. To control the volume of imports (and sometimes exports of certain
goods) into the country.

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Basic Principles of Taxation
1. Adequacy – taxes should be just enough to regenerate revenue required
for provision of essential public services like health, education and national
defense and police protection.
2. Broad basing – taxes should be spread over as wide as possible to all
sectors of the population or economy so as to minimize the individual tax
burden.
3. Compatibility – taxes should be coordinated to ensure tax neutrality and
overall objectives.
4. Convenience – taxes should be enforced in a manner that facilitates
voluntary compliance to the maximum extent possible.
5. Earmarking – tax revenue from a specific source should be dedicated to
a specific purpose only when there is a direct cost and-benefit link between
the tax source and the expenditure, such as use of motor user’s tax for
road maintenance.
6. Efficiency – tax collection efforts of government should not cost an
inordinately high percentage of tax.
7. Equity – taxes should equally burden all individuals and entities in
similar economic circumstances.
8. Neutrality – taxes should not favor any one group or sector over another
and should not be designed to interfere with or influence individual decision
making.
9. Predictability – collection of taxes should reinforce their inevitability and
regularity.
11. Restricted exemptions – tax exemptions must only be for specific
purposes (such as to encourage investment) and for a limited period.
12. Simplicity – tax assessment and determination should be easy to
understand by an average

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Approaches to Taxation
1. Ability to pay – states that taxation should be levied according to an
individual’s ability to pay.
Originated in the 16th century but was scientifically extended by the Swiss
philosopher Jean Jacques Rouseau, French political economist Jean
Baptiste Say and English economist John Stuart Mill.
2. Benefit Approach – proposes that taxation should be levied broadly in
relation to the benefits that people receive in public services.
– developed in the 17th century by the English philosopher Thomas
Hobbes and John Locke.
3. Tax Incident Approach – proposes that the major duty of a tax system is
to analyze the effect of a particular tax on the distribution of tax welfare.
• Tax Welfare – refers to the ultimate payers of a tax.
• This approach was proposed mainly by the Physiocrats.
• Physiocrats- believed that the inherent natural order governing society
was based on land and its natural products as the only true form of wealth.
(De Leon & De Leon Jr 2016)
Taxes and Economy
Economic Effects of Taxation:
Effect # 1. A Redistribution of Income:
This effect is felt most in developing countries. A proportional tax will
not affect the distribution of income, but both progressive and regressive
taxes will cause a change in income distribution. With progressive taxes,
the post-tax distribution of income is more equal than the pre-tax
distribution, whereas with regressive taxes the post- tax distribution is more
unequal than the pre-tax distribution.

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Effect # 2. A Raising of Prices:
The imposition of or increasing the rates of indirect taxes will cause the
prices of the taxed goods to rise. Increases in indirect taxes, therefore,
have implications for a government’s policy in relation to inflation. Such
increases can have adverse effects on the rate of inflation not only directly,
via increased prices, but also indirectly, via increased wage demands
made by workers due to rise in their cost of living.
Effect # 3. A Reduction of Incentive:
It may be argued that increased taxation can have a disincentive effect
on workers. They may feel that it is not worth taking on extra responsibility
or putting in more hours because so much of their extra income would be
taken in taxation.
However, it may be argued that workers may want to maintain their
present standard of living or may have heavy financial commitments so
that if income tax was increased, they would work for longer hours to make
up for the income lost in tax.
There are, therefore, conflicting views on the effect of incentives. It
would seem logical that there must be a discentive effect at some point, but
it is not clear at what level of taxation that point is reached.
Effect # 4. A Reduction of Enterprise:
Entrepreneurs undertake investment in anticipation of increasing profit.
Investment projects may be risky, so the expectation of large profits is an
important incentive. If, however, profits are heavily taxed, the
entrepreneurs may feel that it is not worth taking such risks and so they will
be far more cautious in their attitudes. Such caution may lead to reduced
progress and efficiency with a consequent deterioration in the ability of
domestic producers to complete with foreign rivals. Incidence of Taxation.
(Nipun n.d)

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Philippine Tax System
The policy of taxation in the Philippines is governed chiefly by
the Constitution of the Philippines and three Republic Acts:
• Constitution: Article VI, Section 28 of the Constitution states that “the
rule of taxation shall be uniform and equitable” and that “Congress shall
evolve a progressive system of taxation.”
• National Internal Revenue Code—enacted as Republic Act No. 8424 or
the “Tax Reform Act of 1997’’ and subsequent laws amending it; the
law was most recently amended by Republic Act No. 10963 or the “Tax
Reform for Acceleration and Inclusion Act”.
• Local Laws: major sources of revenue for the local government
units (LGUs) are the taxes collected by virtue of Republic Act No. 7160
or the “Local Government Code of 1991’’, and those sourced from the
proceeds collected by virtue of a local ordinance.
• Taxes imposed at the national level are collected by the Bureau of
Internal Revenue (BIR), while those imposed at the local level
(i.e., provincial, city, municipal, barangay) are collected by a local
treasurer’s office.
What is TRAIN Law?

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Tax Reform for Attracting Better and High-Quality Opportunities or
Trabaho Bill
Things you need to know about Trabaho bill:
1. Reduction of corporate tax rate
Currently, the corporate income tax rate is 30%. Under the Trabaho bill, the
rate will gradually be reduced by 2% every two years starting 2021 until
2029, when the rate will only be 20%.
2. Broadening of tax base
To compensate the projected revenue loss resulting from lowering of
corporate income tax rate, the Trabaho bill seeks to broaden the tax base
by amending several provisions of the Tax Code.
15% gross income tax option
At present, the Tax Code gives a corporation the option to be taxed at 15%
based on gross income. Under the Trabaho bill, this will no longer be
available starting 2019.

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10% tax on proprietary educational institutions and hospitals
Proprietary educational institutions and hospitals which are nonprofit enjoy
a preferential income tax rate of 10%. Under the Trabaho bill, the availment
of this preferential rate will be subject to compliance with established
performance criteria to be determined by the Commission on Higher
Education (CHED), the Department of Education (DepEd), and the
Department of Health (DOH). Otherwise, they may be subjected to higher
income tax rate at 15% or 20%.
10% tax on regional operating headquarters of multinational
companies
Two years after the effectivity of the proposed Trabaho law, the 10%
preferential tax on regional operating headquarters (ROHQ) will no longer
be available.
Accelerated depreciation for private educational institutions
Normally, capital expenses are not deductible outright in one taxable year.
Instead, they are deductible gradually by way of yearly allowance for
depreciation. However, when a private educational institution incurs a
capital expense for expansion of school facilities, it has the option to
deduct the capital expense outright.
Under the Trabaho bill, educational institutions can avail of the outright
expense option only if they have met the criteria set by CHED, DepEd, and
DOH.
Optional standard deduction
In income taxation, it is a basic rule that a deduction or expense must be
supported with adequate records. However, when a taxpayer chooses
optional standard deduction (OSD) over itemized deduction, the
requirement of substantiation becomes irrelevant.
At present, the OSD rate for individual and corporate taxpayers is the same
at 40%, but the bases are different. For individuals, the OSD is applied on

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the gross sales or receipts (before deduction of cost of sales/services). On
the other hand, for corporations, OSD is applied on gross income (after
deduction of cost of sales/services).
Under the Trabaho bill, the 40% OSD rate and base will be uniform for
individual and corporate taxpayers at 40% of gross income. However, for
corporations, availment of OSD will be limited to those classified as micro,
small, and medium-sized enterprises as determined by the Department of
Trade and Industry.
3. Rationalization of tax incentives
Another major purpose of Trabaho bill is to rationalize tax incentives.
Under the bill, only those projects listed in the Strategic Investments
Priority Plan (SIPP) may be registered and given incentives.
Strategic Investments Priority Plan
Every 3 years, the BOI will formulate a SIPP for approval of the President.
In crafting the SIPP, the BOI shall consider, among others, the following:
1. substantial amount of investments:
2. considerable generation of employment:
3. adoption of inclusive business activities and value-added production by
MSMEs;
4. use of modern or new technology;
5. adoption of adequate environmental protection systems;
6. addressing missing gaps in the supply/value chain or moving up the
value chain or product ladder;
7. promotion of market competitiveness
Single incentive menu
At present, the incentives given to investors depend on the law creating the
Investment Promotion Agency (like PEZA, BOI, etc) granting the
incentives. In the Trabaho bill, there will be one single incentive menu for
income, customs duty and VAT incentives.

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Income tax incentives
1. Income Tax Holiday (ITH) – The ITH shall be granted for a period not
exceeding 3 years: provided, that after the expiration of the ITH, the other
income tax incentives may be applied for a period not exceeding 5 years,
which includes the period of ITH availment.
2. Other income tax incentives include:
a. reduced corporate income tax of 18%;
b. depreciation allowance for qualified capital expenditure;
c. up to 50% additional deduction on the increment of direct labor expense;
d. up to 100% additional deduction on research and development
expenses;
e. up to 100% additional deduction on training expenses;
f. up to 100% deduction on infrastructure development;
g. deduction for reinvestment allowance to manufacturing industry;
h. enhanced net operating loss carry over (NOLCO) wherein the NOLCO
during the first 3 years may be carried over within the next 5 years
following the year of such loss
Customs duty incentives
Exemption from customs duty on importation of capital equipment and raw
materials directly and exclusively used in the registered activity for a period
not exceeding 5 years.
VAT incentives
Registered export enterprise whose export sales meet the 90% threshold
and are located within an ecozone, freeport, or those utilizing customs
bonded manufacturing warehouse may be given VAT zero-rating on export
sales, or on importation or domestic purchases of capital equipment and
raw materials used in the manufacture and processing of products.
(Gialogo 2018)

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V. Conclusion
Taxation systems are usually modeled in such a way that they take
into consideration the social welfare of the citizens. The government and other
policy makers have the responsibility of ensuring that the system takes into
account the needs of the citizens. The bottom line is that taxation should foster
equal distribution of resources. The rate of taxation is usually arrived at after
several considerations have been made. The rates are not fixed as they
depend on the various economic changes. The issue of how taxation should
be distributed among the different economic classes is yet to be addressed.
VI. Post-Test
• What is the role of taxation in development of a country?
• What is the possible effect of TRAIN LAW 2 in the economy?
• What measures would you suggest so that the Philippines would have
an efficient tax collecting system?
VII. References
De Leon H.S. & De Leon Jr H.S. (2016). Fundamentals of Taxation. Quezon
City, Philippines: Rex Bookstore
Essay Taxation (n.d) Retrieved October 21, 2019 from,
https://www.bartleby.com/essay/Taxation-P3JBTT5ZTJ
Cox M.S., McLure C.E., & NeuMark F. (2018). Taxation. Retrieved October
21, 2019, from,
https://www.britannica.com/topic/taxation
Nipun S. (n.d). Economic Effects of Taxation 4 Effects. Retrieved October 21,
2019, from,

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http://www.economicsdiscussion.net/difference-between/economic-
effects-of-taxation-4-effects-
economics/26199?fbclid=IwAR3uMAgFTJH7WBfyMSNln_pCw_A71OX
PUciv90Ye7JZFkHhZXGO7tRhrwpM
Gialogo E.G. (2018). Thing you need to know about Trabaho Bill. Retrieved
October 21, 2019, from,
https://www.rappler.com/newsbreak/iq/210783-things-to-know-trabaho-
bill-tax-reform
Reyes, Tacandong & Co. (2018). Comparison of RA No. 10963 and RA No
8424, as amended. Retrieved October 21, 2019, from,
https://www.academia.edu/38159348/RCM_TRAIN_vs_NIRC

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Australia’s Economy
Mark Dwayne Malonzo
I. Rationale
Australia is one of the wealthiest Asia–Pacific nations and has enjoyed
more than two decades of economic expansion. In a reflection of the turmoil
within the governing party, Scott Morrison replaced Malcolm Turnbull as head
of the ruling Liberal–National coalition and prime minister in 2018. Turnbull
had replaced former Prime Minister Tony Abbott in 2015. Australia is
internationally competitive in financial and insurance services, technologies,
and high-value-added manufactured goods. Mining and agriculture are
important export sectors. Australia’s 10 free-trade agreements include
agreements with the U.S., China, Japan, South Korea, and ASEAN.
Negotiations on similar agreements are ongoing with the European Union and
are expected to begin with the United Kingdom following Britain’s exit from the
EU.
II. Objectives
• Learn about Australia
• Explain the real economic performance of Australia.
• Give the latest trends and data on how the Australia’s Economy is
going.
III. Pre-Test
• If given the chance to migrate or live in Australia, will you accept the
opportunity?
• How does the Australian economy affect the Philippines?

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IV. Learning Cell
Australia Economic Outlook
Growth appears to have remained lackluster in the third quarter, after
weak consumer demand weighed on the economy in Q2. Household spending
was likely depressed in the quarter, given that retail sales softened, on
average, in July–August; the unemployment rate ticked up in the same period;
and consumer confidence faltered throughout Q3. Furthermore, business
conditions and business sentiment deteriorated in Q3, signaling that monetary
policy easing and tax cuts did not have a significant stimulus effect on private
sector activity. In other news, for the fiscal year ending 30 June, Australia
achieved a balanced budget for the first time in nearly a decade, chiefly thanks
to higher iron ore prices and the over AUD 6.0 billion underspent in the
national disability insurance scheme. The surprise AUD 8.7 billion operating
surplus increases the likelihood of fiscal stimulus to boost jobs and overall
growth in 2020.
Australia Economic Growth
Growth is expected to shift into a higher gear next year, largely thanks to rising
mining and housing investment, and a more accommodative monetary policy
environment which should buttress domestic demand. On the external front, a
sharper-than-expected slowdown in China, possible escalation of trade wars
and volatility of commodity prices remain key risks to the outlook. Focus
Economics panelists expect GDP to expand 2.4% in 2020, which is down 0.1
percentage points from last month’s forecast. In 2021, growth is seen
strengthening to 2.6%.
Rule of law

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Property rights are robustly protected, and the strong rule of law mitigates
corruption. Expropriation is highly unusual, and enforcement of contracts is
reliable. Australia has transparent and well-established political processes, a
strong legal system, competent governance, and an independent bureaucracy.
The judicial system operates independently and impartially. Anticorruption
measures are generally effective, and corruption cases are rare.
Government Size
The top income tax rate is 45 percent, and the flat corporate tax rate is 30
percent. Other taxes include value-added and capital gains taxes. The overall
tax burden equals 28.2 percent of total domestic income. Over the past three
years, government spending has amounted to 36.5 percent of the country’s
output (GDP), and budget deficits have averaged 2.5 percent of GDP. Public
debt is equivalent to 41.6 percent of GDP.
Regulatory Efficiency
Australia’s regulatory environment is one of the world’s most transparent and
efficient and is highly conducive to entrepreneurship. It takes only three
procedures to launch a business. The labor market is well supported by the
modern and flexible employment code. The government plans to eliminate
subsidies for wind and solar energy generators by 2020.
Open Markets
The combined value of exports and imports is equal to 41.9 percent of GDP.
The average applied tariff rate is 1.2 percent. As of June 30, 2018, according
to the WTO, Australia had 322 nontariff measures in force. Government
policies do not significantly interfere with foreign investment. Foreign firms
compete on equal terms with domestic banks and other financial institutions in
Australia’s highly developed and competitive financial system.

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V. Conclusion
Australia’s economic freedom score is 80.9, making its economy the
5th freest in the 2019 Index. Its overall score is unchanged from 2018, with
higher scores for labor freedom, government integrity, fiscal health, and
trade freedom offsetting a steep drop in judicial effectiveness. Australia is
ranked 4th among 43 countries in the Asia–Pacific region, and its overall
score is well above the regional and world averages.
The Australian economy is undergoing structural change as the mining
investment boom unwinds, having peaked in 2012. The government is
supporting this transition through corporate tax cuts, negotiation of
additional free-trade agreements, and further reforms in the labor market.
Overall, Australia’s robust free-market democracy has benefited from an
effective system of government that facilitates vibrant entrepreneurial
development. With almost all industries open to foreign competition and a
skilled workforce readily available, Australia remains an attractive and
dynamic destination for investment.
VI. References
Australia Economic Outlook (2019) Retrieved October 21, 2019 from,
https://www.focuseconomics.com/countries/australia?fbclid=IwAR1hk_Z
zXLZjrH0HCw_XAbgsVIpyFEsi41IPlzv4wXuG_Q4SX_bAZauLvDw
2019 Index of Economic Freedom (2019) Retrieved October 21, 2019 from,
https://www.heritage.org/index/country/australia?fbclid=iwar2o1e06ow
hbmhbnmq1oagow2grv3rfnmxu6-
_icii7qtvkkriqidsjefzg?fbclid=iwar2o1e06owhbmhbnmq1oagow2grv3rfn
mxu6-_icii7qtvkkriqidsjefzg

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Economic System of Africa
Mary Ann Q. Bondoc
I. Rationale
A definitive and remarkable case of man’s exploitations is the apartheid
(racial segregation) of Africa. This is the land of the Africans, and yet the
rulers and the exploiters are the minority Whites. They own the farms,
factories and mines while the Blacks own 90 percent of labour as they are
the virtual slaves. They constitute the great majority but they cannot vote.
Their wages are very low and yet they do all the dirty and risky jobs which
the Whites do not like to take. Punishments are often harsh on slight
violations by the Blacks. They cannot live in the cities where the Whites
reside. There are separate schools, churches, movies, restaurants and
other facilities for the Blacks. The Whites are not allowed to marry the
Blacks and other colored races in Africa. There are only 4 million Whites
but the lives and fortunes of 32 million Blacks lay on the hands of the
inhuman Whites. Hundreds of Blacks, including children have been killed
by White policemen during demonstration and rallies. Obviously, the
Blacks are unfortunate and helpless because the Whites made them so. It
is very evident that the pains and indignities of poverty have increased
because man has not stopped exploiting his fellowmen. The capitalists
cheat their workers. The landlords exploit their tenants. The rich countries
deceive the poor countries. The years of oppression and abuse is long
gone and it is only high time for Africa to maneuver its economy toward
progress and development.
II. Objectives
• Learn about Africa, The People, The Geography and
Languages.
• Understand the Economy of Africa
• To know why poverty is evident in this
continent/country
• To know what does it take for Africa to steer towards
global development
III. Pre-Test

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4. What is the future of economic growth in Africa?
5. Why should Africans care about the global economy?
6. What are the causes of economic underdevelopment of Africa
over the years?
IV. Learning Cell
Country Profile: Africa
Africa is said to be known initially as “Alkebulan”. The word is said to
mean “mother of mankind” or “garden of Eden”. Some believe that
the word “Africa” came from the Romans, who named the land they
discovered on the opposite side of the Mediterranean after a Berber
tribe living in the Carthage area (now modern day Tunisia). Different
sources give different versions of the tribe’s name, but the most
popular is Afri. Africa is the world’s second largest and second most
populous continent. At about 30.3 million km including adjacent
islands, it covers 6% of Earth’s total surface area and 20% of its
land area. With 1.2 billion people as of 2016, it accounts for about
16% of the world’s human population. Africa is the world’s hottest
continent with deserts and drylands covering 60% of land surface
area. (Kalahari, Sahara and Namib). Sudan is Africa’s largest
country.
History of Africa
Africa’s economy was diverse, driven by extensive trade routes that
developed between cities and kingdoms. Some trade routes were
overland, some involve navigating rivers, and still others developed
around port cities. Large African empires became wealthy due to their
trade networks, for example Ancient Egypt, Nubia, Mali, Ashanti and
the Oyo Empire. Following the independence of African countries
during the 20th
century, economic, political and social upheaval
consumed much of the continent. An economic rebound among some
countries has been evident in recent years.
Interesting Facts About Africa
Ø There are 54 countries in Africa

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Ø The longest river in the world, the Nile is located in Africa
Ø Africa has the world’s largest desert, the Sahara
Ø Africa is home to over 1 billion people who speak over 1,500
different languages
Ø Africa’s total size is roughly 11.7 square miles, representing
about a fifth of the Earth’s total land mass
Ø Africa is the home of the Human Species
Ø Africa makes up 15% of the World’s population and origin to a
quarter of languages
Ø One of the oldest universities in the World is in Timbuktu, Mali
Africa
Economy of Africa
The economy of Africa consists of the trade, industry, agriculture and
human resources of the continent. As of 2019, approximately 1.3 billion
people were living in 54 different countries in Africa. Africa is a resource
rich continent. Recent growth has been due to growth in sales in
commodities, services and manufacturing. West Africa, East Africa,
Central Africa and Southern Africa in particular are expected to reach a
combined GDP of $29 trillion by 2050.
Economy of Africa
Statistics
Population 1.307 billion (16%; 2019)
GDP $2.19 trillion (Nominal;2017)
$6.36 trillion (PPP; 2017)
GDP growth 3.7%
GDP per capita $1,720 (2017;6th
)
Millionaires (US$) 140,000 (0.011%)
Unemployment 15%

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Growth has been present throughout the continent, with over one
third of African countries posting 6% or higher growth rates and
another 40% growing between 4% to 6% per year. Several
international business observers have also named Africa as the
future economic growth engine of the world.
Causes of Africa’s Economic Underdevelopment over the years
The seemingly intractable nature of Africa’s poverty has led to
debate concerning its root causes. Endemic warfare and unrest,
widespread corruption, and despotic regimes are both causes and
effects of the continued economic problems. The decolonization of
Africa was fraught with instability aggravated by cold war conflict.
Since the mid-20th
century, the Cold War and increased corruption
and despotism have also contributed to Africa’s poor economy.
Poverty in Africa
Poverty in Africa is the lack of provision to satisfy the basic human
needs of certain people in Africa. African nations typically fall toward the
bottom of any list measuring small size economic activity, such as
income per capita or GDP per capita, despite a wealth of natural
resources. In 2009, 22 of 24 nations identified as having “Low Human
Development” on the United Nations UN Human Development Index
were in Sub-Saharan Africa. In 2006, 34 of the 50 nations on the UN list
of least developed countries are in Africa. In many nations, GDP per
capita is less than US$5200 per year with the vast majority of the
population living on much less, the island nation of Seychelles was the
only African country with a GDP per capita above US$10,000 per year.
In addition, Africa’s share of income has been consistently dropping
over the past century by any measure. In 1820, the average European
worker earned about three times what the average African did. Now,
the average European earns twenty times what the average African
does. Although GDP per capita incomes in Africa have also been
steadily growing, measures are still far better in other parts of the world.
Mismanagement of Land

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Despite large amounts of arable land south of the Sahara Desert, small,
individual land holdings are rare. Many nations lack a system of
freehold landowning. In other words, the laws prevent people from
disadvantaged groups from owning land at all. Although often these
laws are ignored, and land sales to disadvantaged groups occur, legal
title to the land is not assured. As such, rural African rarely has clear
title to their own land and has to survive as farm labourers. Unused land
is plentiful but is often private property. Most African nations have very
poor land registration systems making squatting and land-theft common
occurrences. This makes it difficult to get a mortgage or similar loan, as
ownership of the property often cannot be established to the
satisfaction of financiers.
This system often gives an advantage to one native African
group over another and is not just Europeans over Africans. For
example, it was hoped that land reform in Zimbabwe would transfer
land from European landowners to family farmers. Instead, it simply
substituted native Africans with ties to the government for Europeans,
leaving much of the population disadvantaged. Because of this abuse,
foreign aid that was destined for land purchases was withdrawn.
Historically, such programs have been few and far between, with much
foreign aid being concentrated on the raising of cash crops and large
plantations rather than family farms.
Misused Money
Over $500 billion U.S has been sent to African nations in the
form of direct aid. The consensus is that the money has had little long
term effect. In addition, most African nations have owed substantial
sums of money. However, a large percentage of the money was either
invested in weapons (money that was spent back in developed nations,
and provided little or no benefit to the native population or was directly
misappropriated by corrupt governments. As such, many newly
democratic nations in Africa are saddled with debt run up by totalitarian
regimes. Large debts usually result in little being spent on social
services such as education, pensions or medical care. Most African
nations are pushing for debt relief, as they are effectively unable to

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maintain payments on debt without extending the debt payments
indefinitely. However, most plans to forgive debt affect only the smallest
nations, and large debtor nations, like Nigeria, are often excluded from
such plans. What large sums of money that are in Africa are often used
to develop mega-projects when the need is for smaller scale projects.
For example, Ghana was the richest country in Africa when it obtained
independence. However, a few years later, it had no foreign reserves of
any consequence. The money was spent on large projects that turned
out to be a waste of resources. The Akosombo Dam was built to supply
electricity for the extraction of aluminium from bauxite. Unfortunately,
Ghanaian ores turned out to be too low grade and the electricity is now
used to process ores from other nations. Storage silos for the storage of
cocoa were built to allow Ghana to take advantage of fluctuations in the
commodity prices. Unfortunately, unprocessed cocoa does not react
well to even short-term storage and the silos now sit empty. Another
example of misspent money is the Aswan High Dam. The dam was
supposed to have modernized Egypt and Sudan immediately. Instead,
the block of natural flow of the Nile River meant that the Nile’s natural
supply of nitrate fertilizer and organic material was blocked. Now, about
one third of the dam’s electric output goes directly into fertilizer
production for what was previously the most fertile area on the planet.
Moreover, the dam is silting up and may cease to serve any useful
purpose within the next few centuries. In addition, the Mediterranean
Sea is slowly becoming more saline as the Nile River previously
provided it with most of its new fresh water influx.
Corruption
Corruption is also a major problem in the region, although it is certainly
not universal or limited to Africa. Many native groups in African believe
family relationships are more important than national identity, and
people in authority often use nepotism and bribery for the benefit of
their extended family group at the expense of their nations. To be fair,
many corrupt governments often do better than authoritarian ones that
replace them.
Human Resources

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The widespread availability of cheap labour has often
perpetuated policies that encourage inefficient agricultural and industrial
practices, leaving Africa further impoverished.
Education is also a major problem, even in the wealthier nations.
Illiteracy rates are high although a good proportion of Africans speak at
least two languages and a number speak three (generally their native
language, a neighbouring or trade language, and a European
language). Higher education is almost unheard of, although certain
universities in Egypt and South Africa have excellent reputations.
However, some African nations have a paucity of persons with
university degrees and advanced degrees are rare in most areas. As
such, the continent, for the most part, lacks scientists, engineers, and
even teachers. The seeming parody of aid workers attempting to teach
trilingual people English is not entirely untrue.
Disease
The greatest mortality in Africa arises from preventable water-
borne- diseases, which affect infants and young children greater than
any other group. The principal cause of these diseases is the regional
water crisis, or lack of safe drinking water primarily stemming from
mixing sewage and drinking water supplies. Much attention has been
given to the prevalence of AIDS in Africa. 3,000 Africans die each day
of AIDS and an additional 11,000 are infected. Less than one percent
are actually treated.
Poor Infrastructure
Clean potable water is rare in most Africa (even those parts outside the
sub-Saharan region) despite the fact that the continent is crossed by
several major rivers and contains some of the largest freshwater lakes
in the world. However, many of the major population centres are
coastal, and a few major cities have adequate sewage treatment
systems. Although boiling water is a possibility, fuel for boiling is scarce

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as well. The problem is worst in Africa’s rapidly growing cities, such as
Cairo, Lagos and Kinshasa.
Colonialism concentrated on connecting the coast with internal
territories. As such, nearly none of Africa’s roads and railways connects
with each other in any meaningful way. Connecting Africa’s extensive
railway network has recently become a priority for African nations
outside of southwest Africa, which has an integrated network.
Transportation between neighbouring coastal settlements is nearly
always by sea, no matter the topography of the land in between them.
Even basic services like telecommunications are often treated the same
way.
Conflict
Despite other hot spots for war, Africa consistently remains among the
top places for ongoing conflicts, consisting of both long-standing civil
wars, ethnic conflicts that have resulted in genocides and conflicts
between countries. In recent years, religious conflicts have also
increased, with terrorist groups having committed many brutal, deadly
terrorist acts that further decrease safety and prospects of development
in the concerned regions. Despite a lack of basic social services or
even the basic necessities of life, military forces are often well-financed
and well-equipped.
Acts of war and terrorism further harm the chances of development in
the regions concerned as they do not only cause economic downturns
but also cause severe damage to the often already underdeveloped
infrastructure as well as government shutdowns, further worsen the
often already tense safety and cause large number of refugees.
Africa: Third World to First World
One of the most hotly debated topics in development economics
is: what does it take to steer a poor country from Third World to First
World status? It is a debate of particular relevance in Africa, which is
home to a large number of countries in the Third World category. Third
World countries are characterised by a big agrarian sector and a huge

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proportion of the population living in rural areas. They are also marked
by low productivity, disease, high infant, mortality, lack of potable water
and poor infrastructure. First World countries are highly urbanised, and
citizens enjoy universal access to health, education and housing. They
also exhibit high productivity, strong service sectors and freedom of
movement because of infrastructure. Within decades, many Asian
countries made the transition from Third World status to First World
status. Some countries in Africa are well placed to make this transition.
These include Ethiopia, Rwanda, Uganda and Kenya, Ghana, Cote
d’Ivoire Gabon, Mozambique, Angola and South Africa.
The countries can emulate the Asian miracle but only if
government takes decisive steps to achieve certain outcomes. First,
gross domestic product (GDP) per capita or the average household
income must be improved. It is impossible to sustain important aspects
of human development without this. Second, state intervention and
radical leadership should be implemented. The economic strategies of
successful countries were influenced by leaders who were committed to
rapid development. They had a focus on growing human capital. This in
turn led to increased productivity, increased household incomes and an
improvement in the general standard of living.
V. Conclusion
The whole world constitutes many different countries. Each country
has its own indigenous culture, tradition and institutions. Moreover,
any man whether he is a native of Africa, Asia or America has a
natural aspiration for freedom, dignity and prosperity. The less
developed countries have very little or no chance at all to win their
fight against absolute poverty, disease and squalor. Their economic
future does not only depend on themselves but also on the
economic policies of the rich countries towards the poor countries.
Their many years of exploitations by the rich countries in the form of
economic imperialism, loans, wrong technologies and miseducation
have made them even poorer. The gap between the rich and the
poor countries has been growing wider and wider. The rich countries
are becoming richer while the poor countries are becoming poorer.
The rich countries have social responsibility to the poor countries.

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They should assist the poor countries and not to take advantage of
their weaknesses. The economies of all nations are closely
interlinked with one another. Some countries need raw materials
and oil from other countries. Other countries need technology and
machinery from some countries. Such international economic
interdependence leads to a common destiny. Such destiny benefits
every nation based on social justice, cooperation and respect. In the
years to come, it would be more difficult for the rich countries to
exploit the poor countries. There has been an increasing awareness
of economic nationalism among the poor countries, and their lost
dignity and respect will be upheld.
VI. Post Test
4. Illustrate and explain the vicious circle of poverty in Africa
5. What is needed to take Africa from Third to First World in the
years to come?
6. What plans of development the government of Africa should
undertake in order to uplift its economic condition and raise the
quality of life of its people and its environment?
VII. References
Encyclopedia of Africa South of the Sahara by John Middleton; 1997
https://guides .libraries.psu.edu/African-studies
Basu, Kaushik (1997), Analytical Development Economics: The
Less Developed Economy Revisited, the MIT Press
Fage, J.D A History of Africa (Routledge, 4th
edition, 2001 ISBN 0-
415-25247-4) Hutchinson, 1978, ISBN 0-09-132851-9) (Knopf 1st
American edition, 1978, ISBN 0-394-32277-0)
Kayizzi-Mugerwa, Steve The African Economy: Policy, Institutions
and the Future (Routledge 1999, ISBN 0-415-18323-5)

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Kleinvieh macht auch Mist (Small amounts add up to something bigger)
– Germany’s Economy
Lumanlan, Darvin M.
I. Rationale
The economy of Germany is a highly developed social market
economy. It has the largest national economy in Europe, the fourth-largest
by nominal GDP in the world, and fifth by GDP (PPP). In 2017, the country
accounted for 28% of the euro area economy according to the
IMF. Germany is a founding member of the European Union and
the Eurozone.
In 2016, Germany recorded the highest trade surplus in the
world worth $310 billion, making it the biggest capital exporter
globally. Germany is one of the largest exporters globally with $1448.17
billion worth of goods and services exported in 2017. The service
sector contributes around 70% of the total GDP, industry 29.1%, and
agriculture 0.9%. Exports account for 41% of national output. The top 10
exports of Germany are vehicles, machinery, chemical goods, electronic
products, electrical equipment, pharmaceuticals, transport equipment,
basic metals, food products, and rubber and plastics. The economy of
Germany is the largest manufacturing economy in Europe and it is less
likely to be affected by the financial downturn and conduct applied research
with practical industrial value and sees itself as a bridge between the latest
university insights and industry-specific product and process
improvements, and by generating a great deal of knowledge in its own
laboratories as well.] In July 2017, the International Monetary Fund gave
the country's economy "yet another bill of good health" and some advice
on steps it might take to maintain this level in the long run.

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II. Objectives
• To acquire knowledge on Germany.
• Understand how Germany risen up from being a divided nation.
• Know the Germany’s strengths in economy.
III. Pre-Test
• What is Germany?
• Why do we study the Germany’s Economy?
• How do Germany’s economy differ from other countries?
IV. Learning Cell
Germany
• a country in Central and Western Europe, lying between the Baltic and
North Seas to the north and the Alps, Lake Constance and the High
Rhine to the south. It borders Denmark to the north, Poland and the
Czech Republic to the east, Austria and Switzerland to the south,
France to the southwest, and Luxembourg, Belgium and the
Netherlands to the west.
Germany’s History
• Age of Industrial Revolution
Germany got underway approximately a century later than in England,
France, and Belgium, partly because Germany only became a unified
country in 1871. Train factory of August Borsig in 1847. The invention of
the automobile. Karl Benz with his wife, Bertha Benz, in a Benz Viktoria,
model 1894. The establishment of the Deutscher Zollverein (German

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Customs Union) in 1834 and the expansion of railway systems were the
main drivers of Germany's industrial development and political union.
From 1834, tariff barriers between increasing numbers of the
Kleindeutschland German states were eliminated.[citation needed] In
1835 the first German railway linked the Franconian cities of
Nuremberg and Fürth – it proved so successful that the decade of the
1840s saw "railway mania" in all the German states. Between 1845 and
1870, 8,000 kilometres (5,000 mi) of rail had been built and in 1850
Germany was building its own locomotives. Over time, other German
states joined the customs union and started linking their railroads,
which began to connect the corners of Germany together. The growth
of free trade and of a rail system across Germany intensified economic
development which opened up new markets for local products, created
a pool of middle managers,[clarification needed] increased the demand
for engineers, architects and skilled machinists, and stimulated
investments in coal and iron.
Another factor which propelled German industry forward was the
unification of the monetary system, made possible in part by political
unification. The Deutsche Mark, a new monetary coinage system
backed by gold in 1871. However, this system did not fully come into
use as silver coins retained their value until 1907.
The victory of Prussia and her allies over Napoleon III of France in the
Franco-Prussian War of 1870-1871 marked the end of French
hegemony in Europe and resulted in the proclamation of the German
Empire in 1871. The establishment of the empire inherently presented
Europe with the reality of a new populous and industrializing polity
possessing a considerable, and undeniably increasing, economic and

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diplomatic presence. The influence of French economic principles
produced important institutional reforms in Germany, including the
abolition of feudal restrictions on the sale of large landed estates, the
reduction of the power of the guilds in the cities, and the introduction of
a new, more efficient commercial law. Nonetheless, political decisions
about the economy of the empire were still largely controlled by a
coalition of "rye and iron", that is the Prussian Junker landowners of the
east and the Ruhr heavy industry of the west.
Regarding politics and society, between 1881 and 1889 Chancellor Otto
von Bismarck promoted laws that provided social insurance and
improved working conditions. He instituted the world's first welfare
state. Germany was the first to introduce social insurance programs
including universal healthcare, compulsory education, sickness
insurance, accident insurance, disability insurance, and a retirement
pension. Moreover, the government's universal education policy bore
fruit with Germany achieving[when?] the highest literacy rate in the
world – 99% – education levels that provided the nation with more
people good at handling numbers, more engineers, chemists, opticians,
skilled workers for its factories, skilled managers, knowledgeable
farmers and skilled military personnel.
By 1900 Germany surpassed Britain and the United States in steel
production. The German economic miracle was also intensified by an
unprecedented population growth from 35 million in 1850 to 67 million
in 1913. From 1895 to 1907, the number of workers engaged in
machine building doubled from half a million to well over a million. Only
40 percent of Germans lived in rural areas by 1910, a drop from 67% at
the birth of the Empire. Industry accounted for 60 percent of the gross

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national product in 1913. The German chemical industry became the
most advanced in the world, and by 1914 the country was producing
half the world's electrical equipment.
• Weimar Republic and Third Reich
Gross national product and GNP deflator, year on year change in %,
1926 to 1939, in Germany. Via google to Pdf-file of German publication.
The Nazis rose to power while unemployment was very high,[45] but
achieved full employment later thanks to massive public works
programs such as the Reichsbahn, Reichspost and the Reichsautobahn
projects. In 1935 rearmament in contravention of the Treaty of
Versailles added to the economy.
The post 1931 financial crisis economic policies of expansionary fiscal
policies (as Germany was off the gold standard) was advised by their
non-Nazi Minister of Economics, Hjalmar Schacht, who in 1933 became
the president of the central bank. Hjalmar Schacht later abdicated from
the post in 1938 and was replaced by Hermann Göring.
The trading policies of the Third Reich aimed at self sufficiency but with
a lack of raw materials Germany would have to maintain trade links but
on bilateral preferences, foreign exchange controls, import quotas and
export subsidies under what was called the "New Plan"(Neuer Plan) of
19 September 1934. The "New Plan" was based on trade with less
developed countries who would trade raw materials for German
industrial goods saving currency. Southern Europe was preferable to
Western Europe and North America as there could be no trade

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blockades. This policy became known as the Grosswirtschaftsraum
("greater economic area") policy.
Eventually, the Nazi party developed strong relationships with big
business and abolished trade unions in 1933 in order to form the
National Labour Service (RAD), German Labour Front (DAF) to set
working hours, Beauty of Labour (SDA) which set working conditions
and Strength through Joy (KDF) to ensure sports clubs for workers.
• West Germany
The Volkswagen Beetle was an icon of West German reconstruction.
Beginning with the replacement of the Reichsmark with the Deutsche
Mark as legal tender, a lasting period of low inflation and rapid industrial
growth was overseen by the government led by German Chancellor
Konrad Adenauer and his minister of economics, Ludwig Erhard, raising
West Germany from total wartime devastation to one of the most
developed nations in modern Europe.
In 1953 it was decided that Germany was to repay $1.1 billion of the aid
it had received. The last repayment was made in June 1971.
Apart from these factors, hard work and long hours at full capacity
among the population in the 1950s, 1960s and early 1970s and extra
labor supplied by thousands of Gastarbeiter ("guest workers") provided
a vital base for the economic upturn.
• East Germany

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By the early 1950s the Soviet Union had seized reparations in the form
of agricultural and industrial products and demanded further heavy
reparation payments.Silesia with the Upper Silesian Coal Basin, and
Stettin, a prominent natural port, were lost to Poland.
Exports from West Germany exceeded $323 billion in 1988. In the
same year, East Germany exported $30.7 billion worth of goods; 65%
to other communist states. East Germany had zero unemployment.
In 1976 the average annual GDP growth was roughly 5.9%.
• Federal Republic
As of 2013, Germany is the third largest exporter and third largest
importer in the world, producing the largest trade surplus as a national
economy.
The German economy practically stagnated in the beginning of the
2000s. The worst growth figures were achieved in 2002 (+1.4%), in
2003 (+1.0%) and in 2005 (+1.4%). Unemployment was also chronically
high. Due to these problems, together with Germany's aging population,
the welfare system came under considerable strain. This led the
government to push through a wide-ranging program of belt-tightening
reforms, Agenda 2010, including the labour market reforms known as
Hartz I - IV.
In the later part of the first decade of 2000 the world economy
experienced high growth, from which Germany as a leading exporter
also profited. Some credit the Hartz reforms with achieving high growth
and declining unemployment but others contend that they resulted in a

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massive decrease in standards of living, and that its effects are limited
and temporary.
The nominal GDP of Germany contracted in the second and third
quarters of 2008, putting the country in a technical recession following a
global and European recession cycle.[58] German industrial output
dropped to 3.6% in September vis-à-vis August. In January 2009 the
German government under Angela Merkel approved a €50 billion ($70
billion) economic stimulus plan to protect several sectors from a
downturn and a subsequent rise in unemployment rates. Germany
exited the recession in the second and third quarters of 2009, mostly
due to rebounding manufacturing orders and exports - primarily from
outside the Euro Zone - and relatively steady consumer demand.
Germany is a founding member of the EU, the G8 and the G20, and
was the world's largest exporter from 2003 to 2008. In 2011 it remained
the third largest exporter and third largest importer. Most of the
country's exports are in engineering, especially machinery,
automobiles, chemical goods and metals. Germany is a leading
producer of wind turbines and solar-power technology. Annual trade
fairs and congresses are held in cities throughout Germany. 2011 was
a record-breaking year for the German economy. German companies
exported goods worth over €1 trillion ($1.3 trillion), the highest figure in
history. The number of people in work has risen to 41.6 million, the
highest recorded figure.
Through 2012, Germany's economy continued to be stronger relative to
local neighboring nations.

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Germany Economic Indicatiors
Economic Sectors
• In 2010 agriculture, forestry, and mining accounted for only 0.9% of
Germany's gross domestic product (GDP) and employed only 2.4% of
the population,[64] down from 4% in 1991. Agriculture is extremely
productive, and Germany is able to cover 90% of its nutritional needs
with domestic production. Germany is the third largest agricultural
producer in the European Union after France and Italy. Germany's
principal agricultural products are potatoes, wheat, barley, sugar beets,
fruit, and cabbages
• Industry and construction accounted for 30.7% of gross domestic
product in 2017, and employed 24.2% of the workforce.[5] Germany
excels in the production of automobiles, machinery, electrical
equipment and chemicals. With the manufacture of 5.2 million vehicles
in 2009, Germany was the world's fourth largest producer and largest
exporter of automobiles. German automotive companies enjoy an

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extremely strong position in the so-called premium segment, with a
combined world market share of about 90%.
• In 2017 services constituted 68.6% of gross domestic product (GDP),
and the sector employed 74.3% of the workforce. The subcomponents
of services are financial, renting, and business activities (30.5%); trade,
hotels and restaurants, and transport (18%); and other service activities
(21.7%).Germany is the seventh most visited country in the world, with
a total of 407 million overnights during 2012.
VI. Conclusion
Today, the sovereign state of Germany is a federal parliamentary
republic led by a chancellor. It is a great power with a strong economy;
it has the world's fourth-largest economy by nominal GDP, and the fifth-
largest by PPP. Germany is a global leader in science and technology
as its achievements in the fields of science and technology have been
significant. Research and development efforts form an integral part of
the economy. As a global leader in several industrial and technological
sectors, it is both the world's third-largest exporter and importer of
goods. As a highly developed country with a very high standard of
living, it upholds a social security and universal health care system,
environmental protection, and a tuition-free university education.
VI. Post-Test
• Explain the significance Germany’s unification.
• How Germany does lead it economy?
• Can your country be effective as Germany?
VII. References

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World Economic Outlook Database, April 2019". IMF.org. International
Monetary Fund. Retrieved 29 September 2019.
Germany - WTO Statistics Database". World Trade Organization. Retrieved
October 10, 2019.
Library of Congress – Federal Research Division. (2015). "Country Profile:
Germany" (PDF). p. 10. Retrieved October 10, 2019.
What Germany offers the world. The Economist(2017). Retrieved October 10,
2019
Gavin, M. (2010). "Germany Has 1,000 Market-Leading Companies,
Manager-Magazin Says". Businessweek. New York.
Retrieved October 10, 2019
Germany may become 22nd EU state with federal minimum wage. (2019).
Germany News.Net. Retrieved October 10, 2019
"These Are Germany's Power Cities". Retrieved October 10, 20191
March 2014.

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Malaysia Economy
Suzette L. Cura
I. Rationale
Since gaining independence in 1957, Malaysia has successfully diversified its
economy from one that was initially agriculture and commodity-based, to one
that now plays host to robust manufacturing and services sectors, that have
propelled it to become a leading exporter of electrical appliances, electronic
parts and components. Malaysia is one of the most open economies in the
world, with a trade to GDP ratio averaging over 130 percent since 2010.
Openness to trade and investment have been instrumental in employment
creation and income growth, with about 40 percent of jobs in Malaysia linked
to export activities. After the Asian financial crisis of 1997-1998, Malaysia’s
economy has been on an upward trajectory, averaging growth of 5.4 percent
since 2010, and is expected to achieve its transition from an upper middle-
income economy to a high-income economy by 2024.
With less than 1 percent of Malaysian households living in extreme poverty,
and the government’s focus has shifted toward addressing the well-being of
the poorest 40 percent of the population (“the bottom 40”). This low-income
group remains particularly vulnerable to economic shocks as well as increases
in the cost of living and mounting financial obligations. Income inequality in
Malaysia remains high relative to other East Asian countries but is gradually
declining. For example, from 2009 to 2014 the real average household
incomes of the bottom 40 grew at 11.9 percent per year, compared to 7.9
percent for the total population of Malaysia, thus narrowing income disparities.
Following the removal of broad-based subsidies, the government has
gradually moved toward more targeted measures to support the poor and
vulnerable, mainly in the form of cash transfers to low-income households.

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II. Objectives
• To acquire knowledge on the Malaysia’s economy, trade, finance,
imports, etc.
• Understand Malaysia’s primary source of income and its major
production.
• To know Malaysia’s major trade and imports across its neighboring
countries.
III. Pre-Test
• How Malaysia contribute to its neighboring countries?
• What is the primary source of income of Malaysian People?
IV. Learning Cell
Economy
Malaysia’s economy has been transformed since 1970 from one based
primarily on the export of raw materials (rubber and tin) to one that is among
the strongest, most diversified, and fastest-growing in Southeast Asia. Primary
production remains important: the country is a major producer of rubber and
palm oil, exports considerable quantities of petroleum and natural gas, and is
one of the world’s largest sources of commercial hardwoods. Increasingly,
however, Malaysia has emphasized export-oriented manufacturing to fuel
its economic growth. Using the comparative advantages of a relatively
inexpensive but educated labour force, well-developed infrastructure, political
stability, and an undervalued currency, Malaysia has attracted considerable
foreign investment, especially from Japan and Taiwan.

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Since the early 1970s the government has championed a social and economic
restructuring strategy, first known as the New Economic Policy (NEP) and later
as the New Development Policy (NDP), that has sought to strike a balance
between the goals of economic growth and the redistribution of wealth. The
Malaysian economy has long been dominated by the country’s Chinese and
South Asian minorities. The goal of the NEP and the NDP has been to endow
the Malays and other indigenous groups with greater economic opportunities
and to develop their management and entrepreneurial skills. Official economic
policy also has encouraged the private sector to assume a greater role in the
restructuring process. A major component of this policy has been the
privatization of many public-sector activities, including the national railway,
airline, automobile manufacturer, telecommunications, and electricity
companies.
Agriculture, forestry, and fishing
Agriculture, forestry, and fishing once formed the basis of the Malaysian
economy, but between 1970 and the early 21st century their contribution to the
country’s gross domestic product (GDP) declined from roughly one-third to
less than one-tenth. Similarly, the proportion of the labour force engaged in
agriculture decreased from about one-half to less than one-eighth over the
same time span, and the trend has continued.
The main food crop, rice, is grown on small farms. Despite the widespread
advances brought about by the introduction of improved plant varieties and
chemical fertilizers and pesticides (the so-called Green Revolution of the
1960s and ’70s), rice production declined steadily during the second half of
the 20th century. The main causes of this decline were unfavourable weather
conditions and the loss of farm labour to urban manufacturing jobs.
Increasingly deficient in rice production, the country has been forced to make

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up the shortfall with imports, chiefly from Thailand. Consequently, the
government has taken measures to raise its self-sufficiency in rice, largely
by implementing programs to consolidate smallholdings and to increase labour
productivity through group farming schemes; by 2000 production had begun to
rise, despite the continued labour shortage.
Rubber and palm oil are the dominant cash crops. Although the contribution of
rubber to GDP has declined significantly since the mid-20th century, rubber
production remains important and closely tied to domestic manufacturing.
Palm oil plantations have proliferated since the 1970s, to some degree at the
expense of rubber plantations. By the early 21st century, Malaysia had
become one of the world’s top producers of palm oil. Other common cash
crops include cocoa, pepper, coffee, tea, various fruits, and coconuts.
The extensive forests of both Peninsular Malaysia and East Malaysia are
heavily exploited for their timber. The lowland evergreen tropical rain forest,
rich in species of the economically valuable Dipterocarpaceae family, is the
principal forest formation of commercial
importance. Sarawak and Sabah account for the greater part of all timber
production. Concern has been raised, however, about the pace
of deforestation caused by the combination of shifting agriculture and
intensive logging operations in East Malaysia. Attempts have been made to
curtail log exports from the region and to substitute wood-based industries,
such as the manufacture of plywood and furniture. Logging remains important
in Peninsular Malaysia, although much of the easily accessible timber has
been cut. The region also has a long history of careful forest management and
conservation. The government in 2005 launched a forest plantation scheme—
part of a sustainability initiative pitched to the private sector—to plant lands
primarily with rubberwood but also with acacia, teak, and an easily workable
hardwood called sentang.

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Historically, most of Malaysia’s fish catch has been from the shallow seas off
its coasts, where the water’s nutrient levels—and hence its productivity—
generally have been low. In the 1970s the country’s fishing industry was
improved and expanded, notably by the addition of trawlers and mechanized
fishing boats. This allowed the more abundant offshore fish resources to be
tapped, leading to a dramatic increase in catches. Malaysia has become a
major fishing country, even though production peaked in about 1980 and
much of the fishing industry has remained confined to the overexploited
shallow onshore waters. As a result, the government has actively promoted
deep-sea fishing and aquaculture production. Although the latter industry has
been rather slow to develop, by the early 21st century more than one-tenth of
Malaysia’s fish yield came from aquaculture.

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Men unloading jellyfish from a small boat near Bako, western Sarawak,
Malay.© Gini Gorlinski
Resources and power
Malaysia is rich in mineral resources, and mining (including petroleum
extraction) accounts for a significant portion of GDP, although it employs only
a tiny fraction of the workforce. The major metallic ores are tin, bauxite
(aluminum), copper, and iron. A host of minor ores found within the country
include manganese, antimony, mercury, and gold. Tin is found largely in
alluvial deposits along the western slopes of the Main Range in Peninsular
Malaysia, with smaller deposits on the east coast of the peninsula; its
production formed one of the pillars of the country’s economic development in
the mid-20th century. Malaysia’s bauxite production is centred near Johor at
the south end of the peninsula, while the country’s copper comes from
western Sabah.
Since the 1970s, tin output has declined dramatically because of the depletion
of readily accessible alluvial deposits, rising mining costs, and fluctuating
demand in the world tin market. Nevertheless, the country has remained
among the world’s top suppliers of tin. Production of other minerals
(except petroleum) similarly decreased during the last decades of the 20th
century, although the mining of iron ore began to rebound in the mid-1990s.
Malaysia’s most valuable mineral resources are its reserves of petroleum
and natural gas. Crude oil, refined petroleum, and, more recently, liquefied
natural gas together account for a major portion of the country’s commodity
export earnings. Almost all the major oil and gas fields are offshore—off the
east coast of the peninsula, the northeast coast of Sarawak, and the west
coast of Sabah.

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Malaysia is self-sufficient in energy production, and petroleum
resources constitute the major energy source for power generation. The
country’s proven reserves of coal and peat are not economical to mine and
have remained largely unexploited. Wood and charcoal were once common
domestic fuels, but in the urban areas they have been replaced by bottled gas.
A small portion of Malaysia’s power is generated by hydroelectric plants,
mostly on the peninsula. The abundant rainfall and steep gradients of the
rivers in the interior highlands of both Peninsular and East Malaysia hold great
potential for further hydroelectric development; in Sarawak, construction of a
large hydroelectric dam on the Balui River began in the 1990s and continued
into the 21st century. Malaysia also has begun to produce biofuel from palm
oil.
Manufacturing
Manufacturing has undergone rapid expansion since the 1970s, with the aim
of producing goods for export, while shifting away from import substitution (a
policy of replacing imported products with those made domestically). By the
early 21st century the sector had become the backbone of
Malaysia’s economic growth, constituting the largest share (nearly one-third)
of the country’s GDP and employing more of the workforce than all the primary
activities (e.g., agriculture and mining) combined.
Growth has been especially notable in the assembly of electronic equipment,
electrical machinery, and appliances, as well as in the production of chemicals
and textiles. There also has been substantial development of a variety of
heavy industries, including steelmaking and automobile production—the
latter implemented through a Malaysian-Japanese joint venture. Peninsular
Malaysia, especially the urban area of Kuala Lumpur and the rest of the

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developed zone along the western side of the peninsula, is responsible for the
bulk of the country’s manufacturing output.
One strategy designed to promote manufactured exports has been the
establishment of a number of free-trade zones, which have provided duty-free
access to imported raw materials and semifinished parts in addition to
numerous investment and export incentives. Industrial estates also have been
established in less-developed parts of the country to stimulate manufacturing
and to balance industrial growth, but manufacturing capacity has remained
highly concentrated. The country’s heavy industries—more important politically
than economically—generally have been saddled with excess capacity and
high production costs. Increasingly, development strategy has shifted to the
promotion of small and medium industries that manufacture their own parts
and acquire technology from more economically developed countries, the aim
being to move beyond the stage of assembly-only manufacturing.
Such initiatives have enabled Malaysian industries such as automobile
manufacturing to move from assembly-only production in the mid-1980s to full-
fledged production—with minimal reliance on imported components—in the
21st century.
Finance
Malaysia has an active and growing financial sector, which has been
encouraged by government policies that promote foreign investment, market
competition, and the privatization of publicly held enterprises. Banking and
insurance are regulated by the state-run Bank Negara Malaysia, which issues
the national currency, the ringgit. The state permits a variety of banking
activities, including semipublic banks that operate on Islamic financial
principles. Since 1990 the island of Labuan, off the southwest coast of Sabah,
has served as an international financial centre; a regulatory authority there

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issues offshore banking licenses. Kuala Lumpur has a commodity
exchange and a stock exchange.
Five-ringgit banknote from Malaysia (front side).Image source: Audrius
Tomonis - www.banknotes.com
Trade
Malaysia’s export structure shifted dramatically during the last decades of the
20th century, from one dominated by rubber and tin to one in which
manufactured goods accounted for well over half of all export earnings by the
early 21st century. Electrical and electronic products constitute the largest
proportion of exported manufactures. Commodities exports, however,
especially palm oil and rubber, remain important. Imports are dominated by
electronics parts, machinery, and other manufactured goods. Malaysia’s chief
trading partners are Japan, Singapore (because of its status as an entrepôt
port in the region), the United States, and China. Other prominent partners
include Thailand, Taiwan, and South Korea. Malaysia belongs to the
Association of Southeast Asian Nations (ASEAN) and the World Trade
Organization (WTO).

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Labour and taxation
Malaysia’s rapid economic expansion has created a great demand for
additional labour for the manufacturing, construction, and service sectors.
Although the labour shortage has tended to increase wages—attracting many
workers from rural regions—companies nevertheless have found it necessary
to recruit foreign labour, primarily from Indonesia, the Philippines, Bangladesh,
and Thailand. The presence of foreign workers in large numbers has become
a source of social and political tension within Malaysia. Moreover, the rural-to-
urban migration prompted by industrialization has led to severe labour
shortages in the rural economy.
The primary role of the country’s fiscal system is to raise revenue for
governmental expenditure, and the greater part of its revenue is raised
through taxation. Direct (income) taxes on companies (including petroleum
companies) and individuals constitute the primary source of tax revenue.

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Indirect taxes (e.g., customs and excise duties), however, also contribute
significantly to the national budget.
Transportation
Although Malaysia’s transportation systems improved considerably in the
second half of the 20th century, demand generally has continued to outstrip
capacity. In addition, much more attention has been given to developing
the infrastructure of Peninsular Malaysia than that of East Malaysia. The
peninsula’s road network includes high-speed express highways and
numerous hard-surfaced secondary roads; it is especially well developed in
the major industrial states of the western region. The road network
in Sarawak and Sabah is less extensive, with fewer paved roads. Malaysia’s
small railway system is of much less significance than its roads and is
confined primarily to the peninsula, where it runs from the southern tip (where
it is connected to Singapore) northward to the border with Thailand. The
country’s first light-rail transport was inaugurated in Kuala Lumpur in 1996.
Since then, several monorail and express lines have opened in the Kuala
Lumpur metropolitan area, and a private company has established regular and
rapid commuter service on double-tracked, electrified lines between Kuala
Lumpur, Port Kelang on the western coast, and several other cities nearby.

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Small boats moored at Port Kelang on the western coast of Peninsular
Malaysia.Bernard Pierre Wolff/Photo Researchers
River transport is of great importance in East Malaysia, especially in Sarawak.
In addition, Malaysia’s long and accessible coastlines have fostered maritime
trade for more than a millennium. Several ports, notably Port Kelang (the
principal port) and Penang on the Strait of Malacca, have become major
container-handling facilities. Numerous other ports have been developed,
including Tanjung Pelepas and Pasir Gudang in the southern state
of Johor, Kuantan on the eastern coast of the peninsula, Kuching in Sarawak,
and Kota Kinabalu in Sabah.

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Air transport has grown rapidly, with passenger traffic increasing especially on
the peninsula. An internal air network connects almost all Malaysian states.
Airports in Penang, Kota Kinabalu, and Kuching have limited international
service. In 1998 a new international airport opened in Sepang, about 30 miles
(50 km) south of Kuala Lumpur, replacing the old international airport in
Subang, about 15 miles (25 km) west of the capital city. The airport in Subang
has continued to offer some domestic and specialized service.
V. Post-Test
• Compare the economies of the Malaysia and Philippines.
• Given a chance, would you want to stay in Malaysia for good? If yes, in
which part of the country?
• Do you think Malaysia Economy is better than the Philippine Economy?
VII. References
https://www.britannica.com/place/Malaysia/Economy
Article Title:Malaysia
Website Name:Encyclopædia Britannica
Publisher:Encyclopædia Britannica, inc.
Date Published:October 03, 2019
URL:https://www.britannica.com/place/Malaysia
Access Date:October 09, 2019
PRIMARY CONTRIBUTORS
• Craig A. Lockard
Professor of History, Social Change and Development, University of
Wisconsin, Green Bay. Author of From Kampung to City: A Social
History of Kuching, Malaysia, 1820–1970 and others.

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• Zakaria Bin Ahmad
Executive Director, HELP International Corporation, Kuala Lumpur,
Malaysia. Former Professor of Political Science, Malaysian National
University. Author of Government and Politics of Malaysia and other
works.
• Ooi Jin Bee
Professor of Geography; Professorial Fellow, National University of
Singapore. Author of Peninsular Malaysia and others.
• Thomas R. Leinbach
Professor of Geography, University of Kentucky, Lexington. Coauthor
of Development and Environment in Malaysia; Southeast Asian
Transport: Issues in Development.
• The Editors of Encyclopaedia Britannica
https://www.worldbank.org/en/country/malaysia/overview
Last updated: March 2019
Access Date: October 09, 2019

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Economic System of Singapore
Janine D. Zapanta
I. Rationale
A brief history of Singapore According to legend, Singapore was part of the
Srivijayan Empire in the 13th century.
Began in 1819, Singapore was founded by Sir Thomas Stamford Raffles and
he declare Singapore a free port, with no duties charged on trade. This policy
had drawn traders from far and wide and turns her into one of the Asia’s
busiest port.
When World War II broke out, Singapore was seen as a formidable British
base; with several naval defenses guarding against assault by sea. However,
to their surprise, the Japanese chose to cross Malaya by bicycle instead.
Despite with all the effort to hold the Japanese, Singapore had surrendered on
1942 with less than a week of fighting. The Japan occupation lasted for three
years and eight months with the return of the British in 1945. After the war,
Singapore became a British Colony.
Singapore had joined Malaysia for a short time in 1963 when the British left,
but Singapore left Malaysia and became independent on 9 August 1965.
Since then, Singapore's economy boom for the subsequent forty years and
become one of the four East Asian Tigers.
II. Objectives
• Learn about Singapore, The People, The Geography and Languages.
• Understand the Economy of Singapore
III. Pre-Test
• What comes in your mind when you hear “Singapore”?
• Give some famous attractions in Singapore
• What are the top import and exports of Singapore?

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IV. Learning Cell
Strategic Island called Singapore was first inhabited by regional
fishermen and pirates, and later became part of the Sumatran Empire of
Srivijaya.
During the 14th century, Singapore became involved in a struggle
between Siam (present-day Thailand) and the Majapahit Empire as they
fought for control of the Malay Peninsula.
Defeated by the Majapahits, Singapore fell under their rule for
several years, before being seized by Portugal in the early 1500s.
In the aftermath of the Portuguese invasion, Singapore was driven
into obscurity for nearly two centuries. In 1819 it was transformed into a
British trading colony as well as the site of one of Britain's most important
naval bases.
In 1826, Singapore was grouped with Penang and Malacca to form
the Straits Settlements, a crown colony governed by the British East India
Company.
In spite of its importance within the region, the administration of the
island was greatly understaffed, and there was little concern with the
welfare of Singapore's citizens.
Within a few decades of the mid-1800s the population quadrupled,
and with limited access to public services (including health care and
education) the nature of society grew chaotic.

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The Straits Settlements were split into separate Crown Colonies by
the British government in April 1867, and the new colonial government
moved to address Singapore's social problems.
In the early 1900s, Singapore and much of Southeast Asia were
spared the effects of World War I. However, the British government set its
sights on building a naval base in Singapore to deter the ever-expanding
Japanese Empire.
Upon its completion in 1939, the naval base became the largest dry
dock and the third-largest floating dock in the world.
As World War II raged on through the early 1940s, Singapore
suffered daily air raids, and, despite their best efforts, the British troops
eventually surrendered the island to Japan, making it the largest surrender
in British-led forces history.
Harsh measures were imposed during Japan's occupation, and after
the war's end, Singapore fell into a brief period of unrest.
The British returned to Singapore in 1945, however, due to their
failure to defend the country, their reputation as acceptable leaders in the
eyes of the people was greatly destroyed.
The Straits Settlements dissolved in 1946, and Singapore moved
forward in establishing a new government.
For a brief time in 1963, Singapore and the states of Sabah and
Sarawak joined the Peninsular Malaysia Federation; however, Singapore
left in 1965 to become a separate nation.

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Following its independence, Singapore set out to establish itself as a
more modern region, and within a couple of decades grew into one of the
world's most prosperous nations.
This modern economic powerhouse's seaport is one of the busiest in
the world; in addition, Singapore has become a major worldwide banking,
shipbuilding and petroleum center.
Within the last few decades, this melting pot of cultures has moved
on to the "A List" for international travelers, and is today one of the most
sophisticated tourist
A bridge and causeway connect Singapore to the Malaysia mainland.
Due to the aggressive current patterns of the Strait of Singapore, there are
much needed and on-going land reclamation project
Although its history stretches back millennia, modern Singapore was
founded in 1819 by Sir Stamford Raffles as a trading post of the British
East India Company. After the Company's collapse in 1858, the islands
came under direct British control as a crown colony known as the Straits
Settlements. During the Second World War, Singapore was occupied by
Japan, following which Britain occupied it again. Singapore gained
independence from the British Empire in 1963 by joining Malaysia along
with Sabah and Sarawak, but separated two years later over ideological
differences, becoming a fully sovereign state in 1965. After early years of
turbulence and despite lacking natural resources and a hinterland, the
nation developed rapidly as an Asian Tiger economy, based on external
trade and its workforce.

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The city-state is classified as an Alpha+ global city, indicating its
influence on the global economy. Singapore is the only country in Asia
with an AAA sovereign rating from all major rating agencies, and one of 11
worldwide. Singapore is a highly developed country and is ranked 9th on
the UN Human Development Index, the highest in Asia for a sovereign
state, with the 3rd highest GDP per capita in the world It was ranked the
most expensive city to live in from 2013 to 2019 by the Economist. It is
identified as a tax haven.Singapore is placed highly in key social
indicators: education, healthcare, quality of life, personal safety and
housing, with a home-ownership rate of 90%. Singaporeans enjoy one of
the world's longest life expectancy and one of the lowest infant mortality
rates in the world. As of 2019, Singaporean citizens had visa-free or visa-
on-arrival access to 189 countries and territories, ranking the Singaporean
passport 1st in the world, tied with Japan.
The city-state is home to 5.6 million residents, 39% of whom are
foreign nationals, including permanent residents. There are four official
languages of Singapore: English, Malay, Mandarin Chinese, and Tamil;
most Singaporeans are bilingual, with English serving as the nation's
lingua franca, while Malay is the national language. Nonetheless, only
about 10% of the population speaks Malay, with the most commonly
spoken language at home being English. Its cultural diversity is reflected in
its extensive ethnic cuisine and major festivals. A 2014 study by Pew
Research Center found that Singapore has the highest religious diversity
of any country.[16]
Multiracialism has been enshrined in its constitution
since independence, and continues to shape national policies in
education, housing and politics. The city-state's historical district features
dozens of landmarks such as The Esplanade, Fort Canning Hill, the

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National Gallery Singapore, Raffles Hotel and the Buddha Tooth Relic
Temple.
Numerous famous attractions within the city-state:
Gardens by the Bay
Marina Bay Sands
Sentosa Island
Orchard Road
Jewel Changi Airport
and the Singapore Zoo which was ranked the best zoo in Asia.[17]
The
Singapore Botanic Gardens is the only tropical garden in the world to be
honoured as a UNESCO World Heritage Site.[18]
Top trading partners of Singapore

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Government and
politics
Singapore is a
parliamentary republic
with a Westminster
system of unicameral
parliamentary
government
representing
constituencies. The country's constitution establishes a representative
democracy as the political system. Executive power rests with the Cabinet of
Singapore, led by the Prime Minister and, to a much lesser extent, the
President. The President is elected through a popular vote, and has veto
powers over a specific set of executive decisions, such as the use of the
national reserves and the appointment of judges, but otherwise occupies a
largely ceremonial post. In 2016, constitutional amendments provide for
'reserved presidential elections' for an ethnic community in Singapore if no one
from that community has been President for any of the five most recent terms
of office of the President. In 2017, HalimahYacob was unanimously named the
first female president of Singapore in the first reserved election for the Malay
community, since all other candidates were declared ineligible for the election

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Human rights
In 2018, Singapore was ranked 151st out of 180 nations by Reporters without
Borders in the Worldwide Press Freedom Index. Historically, the government
has restricted freedom of speech and freedom of the press and has limited
some civil and political rights. The right to freedom of speech and association
guaranteed by Article 14(1) of the Constitution of Singapore is restricted by the
subsequent subsection (2) of the same Article.
A law dating back from 1938 (Penal Code, s. 377A) bans sexual relations
between men. However, the law is rarely enforced and sexual relations
between women are legal.
Geography
An outline of Singapore and the
surrounding islands and
waterways
Singapore consists of 63
islands, including the main island, PulauUjong There are two-man-made
connections to Johor, Malaysia: the Woodlands 1st Link in the north and the
Tuas 2nd Link in the west. Jurong Island, PulauTekong, PulauUbin and
Sentosa are the largest of Singapore's smaller islands. The highest natural
point is Bukit Timah Hill at 163.63 m (537 ft).Under British rule, Christmas
Island and the Cocos Islands were part of Singapore, but were later

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transferred over to Australia in 1957.PedraBranca, an outlying island which
now belongs to Singapore after the dispute, is the nation's easternmost point.
Ongoing land reclamation projects have increased Singapore's land area from
581.5 km2
(224.5 sq mi) in the 1960s to 721.5 km2
(278.6 sq mi) in 2018, an
increase of some 23% (130 km2
). The country is projected to grow to 766 km2
(300 sq mi) by 2030.Some projects involve merging smaller islands through
land reclamation to form larger, more functional islands, as has been done
with Jurong Island.The type of sand used in reclamation is found in rivers and
beaches, rather than deserts, and is in great demand worldwide. In 2010
Singapore imported almost 15 million tons of sand for its projects, the demand
being such that Indonesia, Malaysia, and Vietnam have all restricted or barred
the export of sand to Singapore in recent years. As a result, in 2016 Singapore
switched to using polders – a Netherlands solution – to reclamation, in which
an area is enclosed and then pumped dry.
Nature of Singapore
Singapore Botanic Gardens is a UNESCO World Heritage Site – one of three
gardens in the world, and the only tropical garden to be recognised.
Singapore's urbanisation means that it has lost 95% of its historical forests,
and now over half of the naturally occurring fauna and flora in Singapore is
present in nature reserves, such as the Bukit Timah Nature Reserve and the
Sungei Buloh Wetland Reserve, which comprise only 0.25% of Singapore's
land area. To combat this decline, in 1967 the government introduced the
vision of making Singapore a garden city aiming to soften the harshness of
urbanisation and improve the quality of life. Since then, nearly 10% of
Singapore's land has been set aside for parks and nature reserves. The
government also has plans to preserve the remaining wildlife.

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Economy
Singapore has a highly developed market economy, based historically on
extended entrepôt trade. Along with Hong Kong, South Korea, and Taiwan,
Singapore is one of the original Four Asian Tigers, but has surpassed its peers
in terms of GDP per capita. Between 1965 and 1995, growth rates averaged
around 6 per cent per annum, transforming the living standards of the
population.
The Singaporean economy is known as one of the freest, most
innovative, most competitive, most dynamic and most business-friendly. The
2015 Index of Economic Freedom ranks Singapore as the second freest
economy in the world and the Ease of doing business index has also ranked
Singapore as the easiest place to do business for the past decade. According
to the Corruption Perceptions Index, Singapore is consistently perceived as
one of the least corrupt countries in the world, along with New Zealand and the
Scandinavian countries. In 2016, Singapore is rated the world's most
expensive city for the third consecutive year by the Economist Intelligence
Unit.
For quite a few years, Singapore has been one of the few countries with
an AAA credit rating from the "big three", and the only Asian country to
achieve this rating. Singapore attracts a large amount of foreign investment as
a result of its location, skilled workforce, low tax rates, advanced infrastructure
and zero-tolerance against corruption. Singapore has the world's eleventh
largest foreign reserves, and is one of the highest net international investment
positions per capita.
Roughly 44 percent of the Singaporean workforce is made up of non-
Singaporeans. Over ten free-trade agreements have been signed with other
countries and regions. Despite market freedom, Singapore's government
operations have a significant stake in the economy, contributing 22% of the
GDP.
Singapore is the second-largest foreign investor in India. It is the 14th largest
exporter and the 15th largest importer in the world.
Economy Statistics (Recent Years) : Year 2014 To Year 2018
Yea
r
GDP
Nominal
(Billion)
GDP
Nomina
l
Per
GDP
Real
(Billion)
GNI
Nominal
(Billion)
GNI
Nomina
l
Per
Foreign
Reserve
s
(Billion)
Avg.
Exchan
ge Rate
(1US$ to

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Capita Capita S$)
201
4
S$398.9
87
S$72,9
37
S$411.5
40
S$385,0
70
S$70,4
00
S$340.4
38
S$1.267
1
201
5
S$423.4
44
S$76,5
02
S$423.4
44
S$394.5
51
S$71,2
83
S$350.9
91
S$1.374
8
201
6
S$439.4
12
S$78,3
64
S$435.9
88
S$408.8
20
S$72,9
09
S$356.2
54
S$1.381
5
201
7
S$467.3
06
S$83,2
65
S$452.1
19
S$434.8
06
S$77,4
74
S$373.9
94
S$1.380
7
201
8
S$491.1
74
S$87,1
08
S$466.3
13
S$457.9
83
S$81,2
22
S$392.0
96
S$1.349
1
The currency of Singapore is the Singapore dollar (SGD or S$), issued by the
Monetary Authority of Singapore (MAS). It is interchangeable with the Brunei
dollar at par value since 1967, owing to their historically close relations. MAS
manage its monetary policy by allowing the Singapore dollar exchange rate to
rise or fall within an undisclosed trading band. This is different from most
central banks, which use interest rates to manage policy
Employment
Singapore traditionally has one of the lowest unemployment rates among
developed countries. The unemployment rate did not exceed 4% from 2005 to
2014, hitting highs of 3.1% in 2005 and 3% during the 2009 global financial
crisis; it fell to 1.8% in the first quarter of 2015.

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Employment Data
Employment level in Singapore has been constantly increasing each year in
the past decade, as reported in 2015. Latest employment level as of 3rd
quarter of 2015 was reported at 3.640 million, with gains led by the Services
sector. In the first three quarters of 2015, total employment level grew by
16,200.
Unemployment Data
The long-term unemployment rate for Singapore residents was 0.8 per cent as
of March in 2017, up from 0.7 per cent a year earlier.
Underemployment
In a 2018 survey conducted jointly by the Lee Kuan Yew School of Public
Policy and Ong Teng Cheong Labour Leadership Institute, about 4.31% of the
degree holders are drawing less than S$2,000 a month on a full-time job.
The economy is diversified, with its top contributors—financial services,
manufacturing, and oil-refining. Its main exports are refined petroleum,
integrated circuits and computers which constituted 27% of the country's GDP
in 2010, and include significant electronics, petroleum refining, chemicals,
mechanical engineering and biomedical sciences sectors. In 2019, there are
more than 60 semiconductor companies in Singapore, which together
comprise 11 per cent of global market share. The semiconductor industry
contributes around 7 per cent of Singapore's economy.
The nation's best known global brands include Singapore Airlines,
Changi Airport and Port of Singapore, all three are amongst the most-awarded
in their respective industry sectors. Singapore Airlines is ranked as Asia's
most-admired company, and world's 19th most-admired in 2015, by Fortune's
annual "50 most admired companies in the world" industry surveys. It is also
the world's most awarded airline, including "Best international airline", by US-
based Travel + Leisure reader surveys, for 20 consecutive years. Changi
Airport connects over 100 airlines to more than 300 cities. The strategic
international air hub has more than 480 "World's Best Airport" awards as of
2015, and is known as the most-awarded airport in the world.
Infrastructure
Information and communications

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The Ministry of Communications and Information oversees the development of
Infocomm, Media and the arts.
Information and communications technologies (ICT) are one of the pillars of
Singapore's economic success. On the other hand, Singapore's mass
communications networks, including television and phone networks, have long
been operated by the government. When Singapore first came online,
Singaporeans could use Teleview to communicate with one another, but not
with those outside of their sovereign city-state. Publications such as The Wall
Street Journal were censored. The phrase Intelligent Island arose in the 1990s
in reference to the island nation's early adaptive relationship with the internet.
The World Economic Forum's 2015 Global Technology Report placed
Singapore as the most "Tech-Ready Nation". It is the most comprehensive
survey of the pervasiveness and network-readiness of a country, in terms of
market, political and regulatory infrastructure for connectivity. Singapore has
also topped Waseda University's International e-Government rankings from
2009 to 2013, and 2015. Singapore has the world's highest smartphone
penetration rates, in surveys by Deloitte and Google Consumer Barometer – at
89% and 85% of the population respectively in 2014. Overall mobile phone
penetration rate is at 148 mobile phone subscribers per 100 people.
Internet in Singapore is provided by state owned Singtel, partially state owned
Starhub and M1 Limited as well as some other business internet service
providers (ISPs) that offer residential service plans of speeds up to 2 Gbit/s as
of spring 2015. Equinix (332 participants) and also its smaller brother
Singapore Internet Exchange (70 participants) are Internet exchange points
where Internet service providers and Content delivery networks exchange
Internet traffic between their networks (autonomous systems) in various
locations in Singapore
Transport
Changi Airport continues to expand with a 5th Terminal by 2030.
As Singapore is a small island with a high population density, the number of
private cars on the road is restricted to curb pollution and congestion. Car
buyers must pay for duties one-and-a-half times the vehicle's market value,
and bid for a Singaporean Certificate of Entitlement (COE), which allows the
car to run on the road for a decade. Car prices are generally significantly
higher in Singapore than in other English-speaking countries.As with most

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Commonwealth countries, vehicles on the road and people walking on the
streets keep to the left.
Singapore has a road system covering 3,356 kilometres (2,085 mi), which
includes 161 kilometres (100 mi) of expressways. The Singapore Area
Licensing Scheme, implemented in 1975, became the world's first congestion
pricing scheme, and included other complementary measures such as
stringent car ownership quotas and improvements in mass transit. Upgraded
in 1998 and renamed Electronic Road Pricing, the system introduced
electronic toll collection, electronic detection, and video surveillance
technology. A Global Navigation Satellite System will replace the physical
gantries by 2020.
Religion
Religion in Singapore, 2015[2]
Religion Percent
Buddhism 33.2%
Christianity 18.8%
No religion 18.5%
Islam 14.0%
Taoism and folk
religion
10.0%
Hinduism 5.0%
Other religions 0.6%
Buddhism is the most widely practised religion in Singapore, with 33% of the
resident population declaring them adherents at the most recent census. The
next-most practised religion is Christianity, followed by Islam, Taoism, and
Hinduism. 17% of the population did not have a religious affiliation. The
proportion of Christians, Taoists, and non-religious people increased between
2000 and 2010 by about 3 percentage points each, although the proportion of
Buddhists decreased. Other faiths remained largely stable in their share of the
population.
There are monasteries and Dharma centres from all three major traditions of
Buddhism in Singapore: Theravada, Mahayana, and Vajrayana. Most
Buddhists in Singapore are Chinese and are of the Mahayana tradition, with
missionaries having come into the country from China for several decades.
However, Thailand's Theravada Buddhism has seen growing popularity
among the populace (not only the Chinese) during the past decade. The
religion of SokaGakkai International, a Japanese Buddhist organisation, is
practised by many people in Singapore, but mostly by those of Chinese

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descent. Tibetan Buddhism has also made slow inroads into the country in
recent years
Languages
Singapore has four official languages: English, Malay, Mandarin Chinese, and
Tamil. English is the common language, and is the language of business and
government, and the medium of instruction in schools. Public bodies in
Singapore, such as the Singapore Public Service, (which includes the
Singapore Civil Service and other agencies), conduct their business in
English, and official documents written in a non-English official language such
as Malay, Chinese or Tamil typically have to be translated into English to be
accepted for submission.
Although de jure Malay is the national language, English is regarded de facto
as the main language in Singapore, and is officially the main language of
instruction in all school subjects in the Singaporean education system. It is
also the common language of the administration, and is promoted as an
important language for international business. Spelling in Singapore largely
follows British conventions, owing to the country's status as a former crown
colony.]
English is the country's default lingua franca despite the fact that four
languages have official status

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Education
Education for primary, secondary, and tertiary levels is mostly supported by
the state. All institutions, private and public, must be registered with the
Ministry of Education. English is the language of instruction in all public
schools, and all subjects are taught and examined in English except for the
"mother tongue" language paper. While the term "mother tongue" in general
refers to the first language internationally, in Singapore's education system, it
is used to refer to the second language, as English is the first language.
Students who have been abroad for a while, or who struggle with their "Mother
Tongue" language, are allowed to take a simpler syllabus or drop the subject.
Education takes place in three stages: primary, secondary, and pre-university
education. Only the primary level is compulsory. Students begin with six years
of primary school, which is made up of a four-year foundation course and a
two-year orientation stage. The curriculum is focused on the development of
English, the mother tongue, mathematics, and science. Secondary school
lasts from four to five years, and is divided between Special, Express, Normal
(Academic), and Normal (Technical) streams in each school, depending on a
student's ability level.The basic coursework breakdown is the same as in the
primary level, although classes are much more specialised. Pre-university
education takes place over two to three years at senior schools, mostly called
Junior Colleges. As alternatives to Pre-U education, however, courses are
offered in other post-secondary education institutions, including 5 polytechnics
and the Institutes of Technical Education (ITEs). Singapore has six public
universities of which the National University of Singapore and Nanyang
Technological University are among the top 20 universities in the world
Healthcare in Singapore

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National University Hospital is the second largest hospital in the city, serving
one million patients yearly.
Singapore has a generally efficient healthcare system, even though health
expenditures are relatively low for developed countries. The World Health
Organisation ranks Singapore's healthcare system as 6th overall in the world
in its World Health ReportIn general, Singapore has had the lowest infant
mortality rates in the world for the past two decades. Life expectancy in
Singapore is 80 for males and 85 for females, placing the country 4th in the
world for life expectancy, as almost the whole population has access to
improved water and sanitation facilities
The government's healthcare system is based upon the "3M" framework. This
has three components: Medifund, which provides a safety net for those not
able to otherwise afford healthcare, Medisave, a compulsory national medical
savings account system covering about 85% of the population, and
Medishield, a government-funded health insurance program. Public hospitals
in Singapore have a considerable autonomy in their management decisions,
and notionally compete for patients, however they remain in government
ownership and government appoints their boards and Chief Executive Officers
and management reports and is responsible to these boards. A subsidy
scheme exists for those on low income. In 2008, 32% of healthcare was
funded by the government. It accounts for approximately 3.5% of Singapore's
GDP.
In 2019, Singaporeans have the longest life expectancy of any country at 84.8
years. Females can expect to live an average of 87.6 years with 75.8 years in
good health. The averages are lower for men.[13]
Singapore is ranked 1st on
the Global Food Security Index

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Culture
Despite its small size, Singapore has a diversity of languages, religions, and
cultures. Previous Prime Ministers of Singapore, Lee Kuan Yew and GohChok
Tong, have stated that Singapore does not fit the traditional description of a
nation, calling it a society-in-transition, pointing out the fact that Singaporeans
do not all speak the same language, share the same religion, or have the
same customs.
Beginning 1819, it served as a trading port for British ships on their way to
India. Being a major trading hub and its close proximity to its neighbour
Malaysia, Singapore was prone to many foreign influences, both from Britain
and from other Asian countries. Chinese and Indian workers moved to
Singapore to work at the harbour. The country remained a British colony until
1942.
Ornate details on top of Sri Mariamman Temple in Chinatown district,
Singapore's oldest Hindu temple since 1827
When Singapore became independent from the United Kingdom in 1963, most
Singaporean citizens were transient labourers, seeking to make some money
in Singapore, with no intention of staying permanently. There was also a
sizeable minority of middle-class, locally born people—known as Peranakans
or Baba-Nyonya—descendants of 15th- and 16th-century Chinese immigrants.
With the exception of the Peranakans who pledged their loyalties to
Singapore, most of the labourers' loyalties lay with their respective homelands
of Malaysia, China and India. After independence, the government began a
deliberate process of crafting a Singaporean identity and culture
Climate:
Singapore is in the equatorial monsoon region of Southeast Asia, and its
climate is characterized by uniformly high temperatures and nearly constant
precipitation throughout the year. The average monthly temperature varies
from about 81° F (27° C) in June to 77° F (25° C) in January. The daily range

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is somewhat greater, averaging about 13° F (7° C). Singapore’s maritime
location and constant humidity, however, keep maximum temperatures
relatively moderate: the highest temperature ever recorded was only 97° F
(36° C).
IX. Po
st Test
1. En
umerate the top trading partners of Singapore?
2. W
hat are the strengths of Singapore in terms of economic
system?
X. Re
ferences
Encyclopedia Britannica
https://www.britannica.com/place/Singapore
World ATLAS
https://www.worldatlas.com/webimage/countrys/asia/sg.htm
Department of Statistics Singapore
https://www.singstat.gov.sg/modules/infographics/economy
Employment in Singapore
https://en.wikipedia.org/wiki/Employment_in_Singapore

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THE ECONOMY OF SOUTH KOREA
Jamie A. Sigua
I. Rationale
South Korea is a highly developed country and the world's 11th largest
economy by nominal GDP. South Korea is one of the most highly regarded
countries in the world when it comes to sustained growth and development.
The world's 5th largest exporter and 8th largest importer, South Korea is a
global leader in many technology and innovation driven fields. Since 2014,
South Korea has been named the world's most innovative country by the
Bloomberg Innovation Index for 6 consecutive years. Since the 21st century,
South Korea has been renowned for its globally influential pop culture such as
K-pop and TV dramas, a phenomenon referred to as the Korean Wave. This
research aims to cover the aspects of growth and development in South
Korea.
II. Objectives
• To be able to discuss the economy of South Korea and its economic
growth and development.
III. Pre-Test
• What is the economic system of South Korea?
• What are the competitive advantage of South Korea?
• What is its progress in terms of Human Development and employment?
• What are its top exports and imports?
• What is the country’s government spending and regulatory efficiency?
• What is the contribution of South Korea in the economic growth and
development of Philippines?

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IV. Learning Cell
South Korea’s Economy & Structure
• South Korea has a mixed economic system which includes private
freedom, centralized economic planning and government regulation.
• Price competitiveness is a serious driver in this export driven, raw-
material dependent economy which is focused on high-tech industries
i.e. electronics, shipbuilding and automobiles.
• South Korea has an enviable record of macroeconomic stability – the
economy was hit hard by the Asian Financial Markets Crisis of the late
1990s but this led to wide-ranging economic reforms and the aim of
making the country more resilient to regional and global economic
shocks.
• The economy avoided recession in 2009. Recovery was strong in 2010
although it has slowed down since – averaging just over 3%. Keep in
mind that the natural rate of growth for high-income countries tends to
slow down – it becomes harder to sustain rapid percentage growth
rates.
• The economy continues to be driven forward to strong export
performance and the share of national output taken up by
manufacturing industry has risen – thus far South Korea has avoided
the process of de-industrialization, indeed her service sector is
relatively weak by global standards.
• Exports have held up well partly because the South Korea currency (the
Won) has depreciated.
• Both consumer price inflation and unemployment remain low.
• The economy runs a current account surplus and the budget (fiscal)
balance is strong – South Korean national debt is very low (less than
40% of GDP) – this provides a buffer if and when South Korea has to

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fund the costs of integrating a failing North Korean economy after re-
unification.
• One area of weakness is consumer debt - Korea's household debt to
GDP ratio stands at about 80%, the highest in Asia and more than most
OECD countries.
Competitive Advantage
• One of the strengths of South Korea is their scores on a range of
competitiveness indicators. The percentage of national income given
over to research and development (R&D) has grown and a rising
percentage of exports come from hi-technology products.
• South Korean firms have a solid record for investing in productive
capacity. Indeed, South Korea’s capital investments in research and

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development are among the highest in the world relative to national
income.
• South Korea’s comparative advantage lies in technology and design,
not in resource-intensive heavy-manufacturing industries.
• Its economy is more reliant on manufacturing than any other country in
the Organization for Economic Co-operation and Development (OECD),
partially because the government’s sustained focus on manufacturing
siphoned capital, talent, and other resources away from the domestic-
service industries. As a result, the service sector today has ample room
to grow. South Korea’s highly educated, hard-working, service-oriented
and tech-savvy workforce gives the nation a big advantage in launching
a services revolution.
• Exports account for over 50% of GDP and two thirds of South Korean
exports go to developing nations.
• Global competitiveness ranking for 2012: 24/142
• Infrastructure: 9/142
• Macroeconomic environment: 6/142
• Health and primary education: 15/142
• Higher education and training: 17/142
• Technological readiness: 18/142
• Market size: 11/142
Human Development and Employment Progress
• South Korea is ranked 15th in the latest Human Development Index.
Life expectancy is high (80.6) and public expenditure on education and
training high (>4% of GDP). The country is highly urbanized (83% of the
population). Income and wealth inequality is low but it has been
increasing in recent years.

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• By some measures, South Korea—the Republic of Korea—is the most
educated country in the world. According to the Organization for
Economic Cooperation and Development (OECD), 70 percent of 24- to
35-year-olds in the nation of 51.5 million people have completed some
form of tertiary education—the highest percentage worldwide and more
than 20 percentage points above comparable attainment rates in the
United States.
• At the tertiary level, Korea’s universities have less of a resounding
global reputation; nevertheless, the country was ranked 22nd among 50
countries in the 2018 Ranking of National Higher Education Systems by
the Universities 21 network of research universities. The Economist
Intelligence Unit, meanwhile, recently ranked Korea 12th out of 35
countries in its “Worldwide Educating for the Future Index,” tied with the
United States.
• Technological and demographic changes are having a profound
impact on the Korea’s labour market. Around 43% of workers face a
significant to high risk of their jobs being completely automated or
substantially changed due to new technologies. Moreover, these job
changes are proceeding with rapid population ageing.
• Korea’s labour market remains deeply segmented with a high
prevalence of non-standard forms of work. Around 21%of all employees
are temporary workers, and self-employment accounts for more than
20% of the total workforce. These figures are well above the OECD
average.
Top Exports and Imports
• South Korea is the 5th largest export economy in the world and the 6th
most complex economy according to the Economic Complexity Index

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(ECI). In 2017, South Korea exported $596B and imported $471B,
resulting in a positive trade balance of $124B. In 2017 the GDP of
South Korea was $1.53T and its GDP per capita was $38.3k.
• In 2017 South Korea exported $596B, making it the 5th largest exporter
in the world. During the last five years the exports of South Korea have
increased at an annualized rate of 1.2%, from $561B in 2012 to $596B
in 2017. The top exports of South Korea are Integrated Circuits
($104B), Cars ($40.1B), Refined Petroleum ($32.6B), Passenger and
Cargo Ships ($24.4B) and Vehicle Parts ($19.1B).
• The top export destinations of South Korea are China ($149B), the
United States ($69.4B), Vietnam ($47.7B), Hong Kong ($34.8B) and
Japan ($26.9B).
• In 2017 South Korea imported $471B, making it the 9th largest importer
in the world. During the last five years the imports of South Korea have
decreased at an annualized rate of -1%, from $493B in 2012 to $471B
in 2017. Its top imports are Crude Petroleum ($56B), Integrated Circuits
($38.6B), Petroleum Gas ($17.3B), Photo Lab Equipment ($13.7B) and
Coal Briquettes ($13.3B).
• The top import origins of South Korea are China ($98.1B), Japan
($54.2B), the United States ($48.7B), Germany ($19.7B) and Other
Asia ($18B)
• As of 2017 South Korea had a positive trade balance of $124B in net
exports. As compared to their trade balance in 1995 when they had a
negative trade balance of $1.75B in net imports.
• The combined value of exports and imports is equal to 80.8 percent of
GDP. The average applied tariff rate is 4.8 percent. As of June 30,
2018, according to the WTO, South Korea had 394 nontariff measures
in force. Foreign investment in some sectors remains restricted, and

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decisive policy reforms to facilitate greater investment flows have been
absent. The financial sector is competitive, but business start-ups still
struggle to obtain financing.
Government Spending and Regulatory Efficiency
• The top personal income tax rate has been raised to 42 percent, and
the top corporate tax rate has been raised to 25 percent. Both rates are
subject to a 10 percent surtax. The overall tax burden equals 26.3
percent of total domestic income.
• Over the past three years, government spending has amounted to 32.4
percent of the country’s output (GDP), and budget surpluses have
averaged 1.4 percent of GDP. Public debt is equivalent to 39.8 percent
of GDP.
• The competitive regulatory framework generally facilitates
entrepreneurial activity. Business formation and operating rules are
relatively efficient. There are lingering regulatory rigidities, and powerful
trade unions add to the cost of doing business. The minimum wage has
been significantly increased. Monetary stability has been well
maintained, and the government reduced electric vehicles subsidies in
2018, although it also introduced shipbuilding subsidies.
South Korea’s contribution to the Philippine economy
• The Philippines was the first country in the Asean region to establish
official ties with South Korea. Today the economic aspects of this
relationship have intensified at various levels. South Korea is now the
fourth-largest trading partner of the Philippines after Japan, the US and
China.

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• Its exports to the Philippines have almost doubled, from $4.57 billion in
2009 to $8.78 billion in 2013. The Philippines’s exports to South Korea
increased by 40 percent from, $2.65 billion in 2009 to $ 3.71 billion in
2013.
• The Philippines is the 13th top importer of products from the Republic of
Korea in 2014, with products valued at $10 billion, contributing 1.80
percent of Korea’s total imports.
• The Philippines’s major exports to the Republic of Korea in 2013 were
electronic products, valued at $454.20 million (23.0 percent of the total),
and fresh bananas, at $50.88 million (2.6 percent).
• The Philippines’s major imports from Korea include mineral fuels,
lubricants and related materials, valued at $894.51 million (36.5-percent
share), and electronic products, worth $459.55 million (18.8-percent
share).
• Tourism is another area where people exchange has increased
tremendously. Koreans comprise the most number of tourists in the
country, with almost 1.20 million arriving yearly. In the latest report
released by the Department of Tourism, there were already 423,366
arrivals from Korea just in the first four months of the 2015. Around 4
million Filipinos traveled to South Korea in 2013, a 20-percent increase
from 2012, according to the embassy in Manila.
• It is also important to highlight that, under the Employment Permit
System of the Korean Ministry of Employment and Labor, around
24,000 Filipinos are currently working in the manufacturing sector.
However, according to Philippine Overseas Employment Administration
records, as of March 2014, there were already around 36,000 Filipino
workers deployed in the Republic of Korea.

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• South Korea is also one of the country’s largest sources of foreign
direct investments after Japan and the US. Korea’s total investment in
the Philippines was estimated at $3.80 billion in 2013. Among the
investment areas that Korean firms continue to be interested are
infrastructure, manufacturing, real estate and the tourism industry.
V. Conclusion
South Korea’s economic freedom score is 72.3, making its
economy the 29th freest in the 2019 Index. Its overall score has
decreased by 1.5 points because of sharply lower scores for judicial
effectiveness and the tax burden and declines in monetary freedom and
labor freedom. South Korea is ranked 7th among 43 countries in the
Asia–Pacific region, and its overall score is above the regional and
world averages.
Touting “income-led growth” to create a “people-centered
economy,” the government has increased its intervention in the
economy with measures to alleviate household debt pressures,
increase corporate taxes and marginal income tax rates, and raise the
minimum wage. No new high-profile corruption scandals have emerged
since the former president’s impeachment, but public trust and
confidence in the government have not been strengthened. The rule of
law is fairly well institutionalized, supporting such other pillars of
economic freedom as regulatory efficiency and market openness.
Korea's experience in sustainable development, providing
infrastructure and better services to improve the lives of the people, and
its transition to a dynamic knowledge economy, provides lessons that
can benefit many other developing countries.

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VI. Post-Test
• Identify and explain the reasons for South Korea’s economic growth
and development.
VII. References
South Korea, A Market Overview (n.d.). Retrieved October 21, 2019 from
https://web.archive.org/web/20161025032539/http://www.tiq.qld.gov.au/w
p-content/uploads/2014/08/TIQ-524-14-Market-Summary-SOUTH-
KOREA.pdf
South Korea - Economic Growth and Development (n.d.) Retrieved October
21, 2019 from https://www.tutor2u.net/economics/reference/south-korea-
economic-growth-and-development
Dobbs, R. & Villinger R. (n.d.). Beyond Manufacturing. South Korea: Finding
its place on the world stage. Retrieved October 21, 2019 from
https://www.mckinsey.com/featured-insights/asia-pacific/south-korea-
finding-its-place-on-the-world-stage
Lam, S. & Roach, S. (n.d.). The resilient economy. South Korea: Finding its
place on the world stage. Retrieved October 21, 2019 from
https://www.mckinsey.com/featured-insights/asia-pacific/south-korea-
finding-its-place-on-the-world-stage
Mani, D. (2018), Education in South Korea. Retrieved October 21, 2019 from
https://wenr.wes.org/2018/10/education-in-south-korea
OECD Employment Outlook 2019: The Future of Work, How does Korea
Compare (n.d.). Retrieved October 21, 2019 from
https://www.oecd.org/korea/Employment-Outlook-Korea-EN.pdf
Aldaba, F. (2015). Enhancing the future of the Philippines-Republic of Korea
economic relations. Retrieved October 21, 2019 from
https://businessmirror.com.ph/2015/07/02/enhancing-the-future-of-the-
philippines-republic-of-korea-economic-relations/

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United States of America
I. Rationale
The USA is the world's foremost economic and military power, with global
interests and an unmatched global reach. America's gross domestic product
accounts for close to a quarter of the world total, and its military budget is
reckoned to be almost as much as the rest of the world's defense spending
put together. USA has a highly developed mixed economy. It has the most
technologically powerful economy in the world and its firms are at or near the
forefront in technological advances.
II. Objectives
• Learn about United States of America
• Understand the economy of USA
• Compare the living in the USA and the Philippines
III. Pre-test
• Why do you think President Trump’s slogan is, “make America
great again?”
• How did America affect our country and economy?
IV. Learning Cell
Country Profile
• America is named after Amerigo Vespucci, the Italian explorer who set
forth the then revolutionary concept that the lands that Christopher Columbus

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sailed to in 1492 were part of a separate continent. A map created in 1507 by
Martin Waldseemüller was the first to depict this new continent with the name
“America,” a Latinized version of “Amerigo.”
• Population 329,638,955 (October 17, 2019)
• Area 9.8 million sq km (3.8 million sq miles)
• Major language English
• Major religion Christianity
• Life expectancy 76 years (men), 81 years (women)
• Currency US dollar ( $1 = Php 51.32 /October 17, 2019)
The first ingredient of a nation's economic system is its natural resources. The
United States is rich in mineral resources and fertile farm soil, and it is blessed
with a moderate climate. The second ingredient is labor, which converts
natural resources into goods. The number of available workers and, more
importantly, their productivity help determine the health of an economy. Labor-
force quality continues to be an important issue. Today, Americans consider
"human capital" a key to success in numerous modern, high-technology
industries. As a result, government leaders and business officials increasingly
stress the importance of education and training to develop workers with the
kind of nimble minds and adaptable skills needed in new industries such as
computers and telecommunications.
The United States is said to have a mixed economy because privately owned
businesses and government both play important roles. The American free
enterprise system emphasizes private ownership. Private businesses produce
most goods and services, and almost two-thirds of the nation's total economic
output goes to individuals for personal use (the remaining one-third is bought
by government and business). The consumer role is so great, in fact, that the
nation is sometimes characterized as having a "consumer economy."
This emphasis on private ownership arises, in part, from American beliefs

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about personal freedom. From the time the nation was created, Americans
have feared excessive government power, and they have sought to limit
government's authority over individuals -- including its role in the economic
realm.
In addition, Americans generally believe that an economy characterized by
private ownership is likely to operate more efficiently than one with substantial
government ownership.
Economy
• The United States has an advanced industrialized economy with the
largest GNP in the world. Most business activity takes places within the
service industry including finance, advertising and tourism. Manufacturing
industries include petroleum, steel, motor vehicles, aerospace,
telecommunications, food processing, lumber and mining. The country is more
than self-sufficient in terms of its economic needs and is the world's leading
exporter of food.
The U.S. dollar is the cash most utilized in worldwide exchanges and is the
world's first hold money, sponsored by its economy, its military, obligation
repayment, and the petrodollar system. Several nations use it as their official
money, and in numerous others, it is the accepted currency. The biggest U.S.
exchanging accomplices are China, Canada, Mexico, Japan, Germany, South
Korea, United Kingdom, France, India, and Taiwan. The U.S. is the world's
biggest shipper and the second-biggest exporter. It has facilitated commerce
concurrences with a few countries, including NAFTA, Australia, South Korea,
Israel, and couple of others which are as a result or under arranging stage.
The country's economy is filled by copious regular assets, a well-created
foundation, and high productivity. It has the seventh-most elevated all out
evaluated estimation of common assets, esteemed at $45 trillion in 2016.

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Americans have the most noteworthy normal family and worker pay among
OECD part states, and in 2010, they had the fourth-most elevated middle
family unit salary, down from second-most elevated in 2007.
By 1890, the United States had by a wide margin the world's most
beneficial economy. It is the world's biggest maker of oil and characteristic
gas. In 2016, it was the world's biggest exchanging nation just as its second-
biggest producer, speaking to a fifth of the worldwide assembling output. The
U.S. not just has the biggest inward market for merchandise, yet additionally
commands the exchange administrations. U.S. absolute exchange added up
to $4.2 trillion in 2018. Of the world's 500 biggest organizations, 121 are
headquartered in the U.S. The U.S. has the world's most noteworthy number
of extremely rich people with absolute abundance of $3.013 trillion.
• The US has the most highly developed mass media in the world. Its
dramas, comedies, soaps, animations, music videos and films have a global
audience and are staple fare for broadcasters worldwide. US-based web
services such as Google, Facebook and Twitter are transforming news and
communication.
• Real gross domestic product (GDP) increased 2.0 percent in the
second quarter of 2019, according to the “second” estimate released by the
Bureau of Economic Analysis. The growth rate was 0.1 percentage point lower
than the “advance” estimate released in July. In the first quarter, real GDP
rose 3.1 percent.
2nd
Quarter of 2019: 2.0%
1st
Quarter of 2019: 3.1%

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• Consumer Spending
July 2019: 0.6%
June 2019: 0.3%
May 2019: 0.5%
Consumer spending, or personal consumption expenditures (PCE), is the
value of the goods and services purchased by, or on the behalf of, U.S.
residents.
• Personal Income
July 2019: 0.1%
June 2019: 0.5%
Personal income increased 0.1 percent in July after Increasing 0.5 percent
in June. Wages and salaries, the largest component of personal income,
increased 0.2 percent in July after increasing 0.5 percent in June.
• GDP Price Index
2nd
Quarter 2019: 2.4 %
1st
Quarter 2019: 1.1%

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The gross domestic product price index measures changes in the prices of
goods and services produced in the United States, including those exported to
other countries.
International Trade
The United States is the world's second-largest trading nation. There is a large
amount of U.S. dollars in circulation all around the planet; about 60% of funds
used in international trade are U.S. dollars. The dollar is also used as the
standard unit of currency in international markets for commodities such as
gold and petroleum. The U.S. trade deficit increased from $502 billion in 2016
to $552 billion in 2017, an increase of $50 billion or 10%. During 2017, total
imports were $2.90 trillion, while exports were $2.35 trillion. The net deficit in
goods was $807 billion, while the net surplus in services was $255 billion.
Americas ten largest trading partners are China, Canada, Mexico, Japan,
Germany, South Korea, United Kingdom, France, India and Taiwan. The
goods trade deficit with China rose from $347 billion in 2016 to $376 billion in
2017, an increase of $30 billion or 8%. In 2017, the U.S. had a goods trade
deficit of $71 billion with Mexico and $17 billion with Canada.
United States Vs. Philippines

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If you lived in the Philippines instead of United States, you would:
Health
Be 82.3% less likely to be obese
In US, 36.2% of adults are obese. In Philippines, that number is 6.4% of
people.
Live 10.6 years less
In US, the average life expectancy is 80 years (78 years for men, 82 years for
women). In Philippines, that number is 69 years (66 years for men, 73 years
for women).
Life
Have 89.6% more children
In US, there are approximately 12.5 babies per 1,000 people. In Philippines,
there are 23.7 babies per 1,000 people.

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Basic needs
Be 12.0% less likely to have access to electricity
In US, 100% of the population has electricity access. In Philippines, 88% of
the population do.
Be 27.2% less likely to have internet access
In US, approximately 76.2% of the population has internet access. In
Philippines, about 55.5% do.
Expenditures
Spend 46.0% less on education
US spends 5.0% of its total gdp on education. Philippines spends 2.7% of total
GDP on education.
Spend 72.5% less on healthcare
US spends 17.1% of its total gdp on healthcare. In Philippines, that number is
4.7% of GDP.
Economy
Spend 19.2% less on taxes
US has a top tax rate of 39.6%. In Philippines, the top tax rate is 32.0%.
Make 86.1% less money
US has aGDP per capita of $59,500, while in Philippines, the GDP per capita
is $8,300.
Be 29.5% more likely to be unemployed
In US, 4.4% of adults are unemployed. In Philippines, that number is 5.7%.
Be 43.0% more likely to be live below the poverty line

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In US, 15.1% live below the poverty line. In Philippines, however, that number
is 21.6%.
V. Conclusion
The United States entered the 21st century with an economy that was greater,
and by numerous estimates increasingly effective, than any time in recent
memory. The economy likewise confronted some proceeding with long haul
difficulties. Albeit numerous Americans had accomplished monetary security,
and some had collected extraordinary riches, critical numbers, particularly
unmarried moms and their kids, kept on living in neediness. Other than
accepting that free markets advance financial effectiveness, Americans
consider them to be a method for advancing their political qualities also;
particularly, their pledge to singular opportunity and political pluralism and their
restriction to undue groupings of intensity.
VI. Post-test
• Why is USA considered one of the most powerful countries?
• How does USA’s economy affect other countries economy?
Why?
VII. Reference
Dong, N. (2012). Outline of the US Economy. Retrieved October 17, 2019,
from
https://web.archive.org/web/20120114051146/http://infopedia.usembassy.or.kr
/ENG/_f_030401.html.
Lawrence, M. (2017). U.S. Economy. Retrieved October 17, 2019, from
https://usa.usembassy.de/economy-conditions.htm.

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The Economic System of Zimbabwe
Jester Aries A. Sagun
I. Rationale
The former British colony of Rhodesia became the fully independent
Zimbabwe in 1980. The economy depends heavily on mining and agriculture,
but political instability and protracted economic underperformance threaten
higher unemployment. The white population, which numbered almost 300,000
at the time of independence, has dwindled to fewer than 30,000. Zimbabwe’s
economic freedom score is 40.4, making its economy the 175th freest in the
2019 Index.
II. Objectives
• Learn about the country Zimbabwe
• Understand the economy of Zimbabwe
• Compare the living in the Zimbabwe and the Philippines
III. Pre-test
• What is going on in a country like Zimbabwe to be one of the
extreme poor country?
• How did Zimbabwe sustain itself?
IV. Learning Cell
Country Profile
Republic of Zimbabwe
Capital: Harare

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• Population 16.5 million
Area
• 390,759 sq km (150,873 sq miles)
Major languages
• English (official), Shona, Sindebele
Major religions
• Christianity, indigenous beliefs
Life expectancy
• 60 years (men), 64 years (women)
Currency Multi-currency system
• US dollar and South African rand predominate UN, World Bank
LEADER
• President: Emmerson Mnangagwa
ECONOMY

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Extreme poverty is estimated
to have risen from 29% in
2018 to 34% in 2019, an
increase from 4.7 to 5.7
million people. The increase
is driven by economic
contraction and the sharp
rise in prices of food and
basic commodities.
Contraction of agricultural
production following an El Nino induced drought worsened the situation in rural
areas. One tenth of the rural households currently indicate they are going
without food for a whole day, about double the proportion of urban
households. Additionally, Cyclone Idai has worsened the situation in three key
provinces that typically account for 30% of agricultural output. The drought
has also led to broader impact on the electricity and water sectors, causing
widespread rationing and tariff adjustments to manage costs.
Real gross domestic product (GDP) is expected to contract by 7.5% in 2019.
Shortages of foreign currency, fuel, electrici
ty, severe drought and Cyclone Idai dampened economic activity, especially in
mining and agriculture, which experienced double-digit declines. Production of
major minerals like gold, diamond and coal fell by more than 27% while
production of maize, the main staple food, was less than half of its level in
2018, resulting in wide-spread food insecurity. Domestic demand weakened
significantly as job losses and rapidly increasing inflation eroded disposable
incomes of households while fiscal austerity kept government spending low.

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Inflation has been increasing since October 2018, driven by monetization of
sizable fiscal deficits of the past, price distortions, and local currency
depreciation. Annual inflation reached 230% in July 2019 (compared to 5.4%
in September 2018), with food prices rising by 319% in July 2019 while non-
food inflation increased by 194%. Adjustment of external accounts was swift
with the current account reaching a surplus in the first quarter of 2019 for the
first time since 2009. The trade deficit also narrowed significantly in January-
July 2019 as imports contracted by 31% (year-on-year) on the back of forex
liquidity constraints and weak demand.
The government
mandated the use of the
Zimbabwe dollar as a
sole legal tender on June
24, ending the
multicurrency regime in
place for over a decade.
However, with critically
low levels of official
reserves, constrained
access to external financing and limited tools by Central Bank to sterilize the
economy, the local currency has continued to depreciate. Inflation is projected
to continue increasing and to average close to 180% in 2019 before slowing
down in 2020.
The fiscal deficit is projected at around 4.9% of GDP in 2019 and will gradually
decrease to 4.5% and 4.4% of GDP in 2020 and 2021 respectively. Fiscal
consolidation measures agreed under the International Monetary Fund (IMF)
Staff Monitored Program are expected to contain spending growth and halt
monetization of the fiscal deficit. However, the supplementary budget

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presented on August 1, 2019 envisages a significant increase in spending to
counter the negative impacts of the drought, upward adjustment of wages, and
increase in social spending. Potential spending overruns (especially driven by
agriculture subsidies and wages) could widen the fiscal deficit and exacerbate
macroeconomic instability, including the already high inflation.
Poverty is projected to remain stagnant in 2020 as positive impacts of a
rebound in agricultural production will be countered by the negative effects of
continued high inflation, further undermining the purchasing power of the poor.
Continued cash shortages as well as weak targeting of public spending on
social safety nets will continue to constrain social programs and the impact on
poverty.
Real GDP growth
is projected to
pick up to 2.7 %
in 2020, driven by
a rebound in
agriculture as
rains largely
return to normal.
However,
shortages of
foreign currency and electricity are projected to persist in 2020, negatively
affecting the recovery of industry and services. Weak domestic demand is
likely to translate into a small current account deficit in 2019 (around 1% of
GDP) which is likely to slightly increase in 2020 given continued foreign
currency shortages.

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In the absence of international support, Zimbabwe macroeconomic challenges
may persist. With dwindling reserves, there is a high-risk exchange rate
overshooting, contributing to inflationary pressures. Climate related risks may
constrain recovery of the agriculture sector in the medium-term exacerbating
food insecurity. Social and political pressures could lead to policy slippage,
delay macroeconomic stabilization and political reforms. This might jeopardize
the reform agenda under the IMF Staff Monitored Program and delay the
government’s re-engagement aspirations.
V. Conclusion
Zimbabwe’s economy faced a steep economic contraction this year, with
the country’s year-on-year inflation having soared up to 300%. Zimbabwe’s
inflation is the highest in the world after Venezuela and government from July
suspended presenting year on year inflation data in what seemed to be a
calculated attempt to conceal the revealing figures.
The soaring inflation has led to widespread suffering of the people, whose
wages have been eroded by the rate spiraling rate of prices of basic goods.
Zimbabwe is undergoing IMF’s SMP, which is an informal program that does
not provide funding but aims to implement a coherent set of policies that can
facilitate a return to macroeconomic stability.
Successful implementation will assist in building a track record and
facilitate Zimbabwe’s financial reengagement with the international community.
VI. Post-test
• Why is Zimbabwe’s inflation soar high to 300%?
• How does it affect the life of the people with its inflation?

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VII. Reference
The Heritage Foundation. (2019). Zimbabwe. heritage.org/Index
Samaita, K. (2019). Zimbabwe’s economy in steep contraction as inflation
hits 300%. Retrieves on October 19, 2019 at
https://www.businesslive.co.za/bd/world/africa/2019-09-26-zimbabwes-
economy-in-steep-contraction-as-inflation-hits-300/
The World Bank. (2019). The World Bank In Zimbabwe. The World Bank
Group

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