Basic micro economics

1. FUNDAMENTALS OF
ECONOMICS Lesson 1

2. What Is Scarcity?
• The basic and Central Economic
Problem Confronting every society
• Is said to exist When at ZERO
price there is a unit of demand
which exceeds the available
supply.
• In short, the demand for a good or
service is Greater than the
availability of the Goods and
services.

3. What is Economics?
• A science that deals with the Management of Scarce
Resources. It is also described as a scientific study on how
individuals and Society generally make choices.
• RELATIONSHIP BETWEEN ECONOMICS AND SCARCITY
The problem of Scarcity gave birth to the study of
Economics. Their Relationship is such that if there is no
scarcity, there is no need for economics.

4. Ceteris Paribus Assumption
• The Assumption of Ceteris Paribus is important in studying
ECONOMICS
• It means “all other things held constant or all else equal.
• It is used as a device to analyze the relationship between 2
variables while the other factors are held unchanged

5. Positive & Normative Economics
• An economic analysis that consider
economic condition “as they are” or
“as it is”. Uses as
objective/scientific explanations in
analyzing the different transactions
in the economy. It simply answer
question “what is”.
• Ex. The economy is now
experiencing a slowdown because
of too much politicking and
corruption of the government
• Economic analysis that judges
economic conditions “as it should
be”? It is that aspect of
economics that is concerned with
human welfare.
• Ex. The Philippines government
should initiate political reforms
in order to regain investor’s
confidence, and consequently
uplift the economy.
Positive Economic Normative Economic

6. FOUR BASIC ECONOMIC QUESTIONS
 WHAT TO PRODUCE?
An economy must identify what are the commodities needed to be produced for
the utilization of society in everyday life. Society must also take into account the
resources possessed before deciding what goods or services to produce.
HOW TO PRODUCE?
There is a need to identify the different methods and techniques in order to
produce commodities. The society must determine whether to employ labor intensive
production (require a large labor to produce) or capital intensive production (high
investment in capital equipment & technology).
 HOW MUCH TO PRODUCE?
It identifies the number of commodities needed to be produced in order to
answer the demand of society.
 FOR WHOM TO PRODUCE?
This question identifies the people or sectors that demand the commodities
produced in a society. Economist must determine the “target market” of the goods and

7. The Concept of Opportunity Cost
Because people cannot have
everything they want, they are
forced to make choices between
several options.
Opportunity cost refers to the
Foregone Value of the next best
alternative. Opportunity cost is
expressed in relatives’price. This
means that the price of one item
should be relative to the price of
another.

8. FUNDAMENTALS OF ECONOMICS:
ECONOMICS TERMS AND THE
THEORY OF
OPPORTUNITY COST
Lesson 2

9. The idea of opportunity cost arises from the concept of
scarcity.When you choose an action, the Opportunity cost
is what you must give up. It is the value of the next best
chance, to put it another way.
Scarcity has a direct impact on opportunity cost.When
determining how to spend their money and time, people
must decide between many options.

10. OPPORTUNITY COST AND THE INDIVIDUAL
If this student had just PHP15,500.00 to spend, he
would purchase the most important thing on the
scale of choice, a laptop.The laptop's opportunity
cost would be the textbooks and lecture notes that
he might have purchased with his nominal salary
(PHP15,500.00), but not the rest of the things. He
would have bought lecture notes instead of new
shoes and food if he had PHP15,500.00 in his
pocket. As a result, we understand how the idea of
opportunity cost may assist a student in making
the optimal decision and maximizing happiness
given his limited financial resources.

11. OPPORTUNITY COST AND THE GOVERNMENT
When the government spends
Php 15 billion on interest on
the national debt, the
opportunity cost is the money
that could have been spent on
other projects, such as
education or healthcare.

12. OPPORTUNITY COST AND THE FIRM
A factory receives two orders, but can
only fill one of them. The first order
makes a PHP 250 profit, whereas the
second makes a PHP 275 profit.To
maximize profit, the producer chooses
to fulfill the second order and refuses
the first. In this case, the decision has a
PHP 250 opportunity cost since the
maker foregoes a PHP 250 profit (in
favor of a Php 275. profit).

13. IMPORTANT ECONOMIC TERMS
1.WEALTH - Refers to anything that has a functional value (usually in money) which can be
traded for goods and services.
2. CONSUMPTION - This refers to the direct utilization or usage of the available goods and
services by the buyer or the consumer sector.
3. PRODUCTION - It is defined as the formation by firms of an output (product and services). It
is the combination of land, labor, and capital in order to produce outputs of goods and services.
4. DISTRIBUTION - This is the process of allocating or apportioning scarce resources to be
utilized by the household, the business sector, and the rest of the world.
5. EXCHANGE- This is the process of exchanging products and services for money or anything
equivalent to it. It also involves purchasing products and services through barter or the market.

14. 3 E’S IN ECONOMICS
equity

15. EFFICIENCY
Refers to productivity and proper allocation of economic resources.
Economic efficiency is when all goods and factors of production in an
economy are distributed or allocated to their most valuable uses and
waste is eliminated or minimized.
Economic efficiency refers to a condition of affairs in which all
resources are distributed efficiently to best benefit each individual or
business while reducing waste and inefficiency.

16. EQUITY
Equity refers to fairness or justice, and achieving it is considered as an economic
goal. Despite widespread acceptance of the value of fairness, it is frequently
seen as a too normative idea since it is difficult to define and assess. Equity refers
to how money and opportunity are allocated equitably among different
groups in society.
While technological innovation may improve productivity,it may also have a
negative impact on worker employment.Manual labor may be unnecessary due to
the existence of modern technology and machines,resulting in worker
retrenchment or displacement.(Viray,

17. EFFECTIVENESS
The term "effectiveness" refers to achieving goals and objectives.
Economics is a useful instrument that may be used to other fields. For
example,
regardless of the output, manufacturing using both manual and
technology developments will be beneficial to society and the rest
of the world. Furthermore, produced goods or services will be
deemed effective if they meet both parties' objectives, namely,
customer satisfaction and business profit.

18. MAJOR BRANCHES OF ECONOMICS:
MICROECONOMICS AND
MACROECONOMICS
Lesson 3

19. MICROECONOMICS
This is the branch of economics that deals with the individual
decisions of units of economy firms and households and how their
choices determine relative prices of goods and factors of production
MACROECONOMICS
It is the branch of economics that studies the relationship among
the broad economic aggregates like national income, national output,
money supply, bank deposits, total volumes of savings, investment,
consumption, expenditure, the general price level of commodities,
government spending, inflation, recession, employment, and money
supply

20. FACTORS OF PRODUCTIONS
LAND
LABOR
CAPITAL
ENTREPRENEURSHIP

21. LAND
This broadly refers to all-
natural resources, which
are given by, and found in
nature, and are, therefore,
not man-made. It does not
solely pertain to the soil or
the ground surface, but refers
to all things and powers that
are given free to mankind by
nature.

22. LABOR
Labor is any form of human
effort exerted in the
production of goods and
services. Labor covers a
wide range of skills,
abilities, and
characteristics. It also
includes factory workers who
are engaged in manual
work.

23. CAPITAL
Capital is man-made goods
used in the production of
other goods and services. It
includes buildings,
machinery, and other
physical facilities used in
the production process.

24. ENTREPRENEURSHIP
An entrepreneur is a person
who organizes, manages,
and assumes the risks of
firms, taking a new idea or
a new product and turning
into a successful business.

25. TYPES OF ECONOMIC SYSTEMS
To address economic problems, several economic systems have
been created and applied throughout history.
Traditional Economy
Command Economy
Market Economy
Socialism
Mixed Economy

26. TRADITIONAL ECONOMY
The traditional economy is
basically a subsistence
economy. A family produces
goods only for its own
consumption.The decisions
on what, how, how much, and
for whom to produce are
made by the family head, in
accordance with traditional
means of productions.

27. COMMAND ECONOMY
Command economy is a type
of economy wherein the
manner of production is
dictated by the government.
The government decides on
what, how, how much, and for
whom to produce.

28. MARKET ECONOMY
Market economy or
capitalism’s basic
characteristic is that the
resources are privately
owned. And that the people
themselves make the
decisions.

29. SOCIALISM
Socialism is an economic
system wherein key enterprises
are owned by the estate. In this
system, private ownership is
recognized. However, the state
has control over a large portion
of capital assets and is
generally responsible for the
production and distribution of
important goods.

30. MIXED ECONOMY
This economy is a mixture of
the market system and the
command system.The
Philippine economy is
described as a mixed
economy since it applies a
mixture of three forms of
decision making

31. ECONOMIC SYSTEM PART 1-
TRADITIONAL AND
CAPITALIST ECONOMY
LESSON 4

32. TYPES OF ECONOMIC SYSTEM
An Economic System is a way for communities or
governments to organize and distribute resources, services,
and products throughout a geographical region or country.
The components of production, such as land, capital, labor,
and physical resources, are regulated by economic systems.

33. TRADITIONAL ECONOMY
The Traditional economy is
basically a subsistence economy. A
family produces goods only for its
own consumption. The decisions on
what, how, how much, and for
whom to produce are made by the
family head, in accordance with
traditional means of productions.

34. ADVANTAGES OF TRADITIONAL ECONOMY
Goods production for people's survival
Understanding people's roles
Less harmful to environment
People's Harmony

35. 1. Goods production for people's survival
The traditional economy focuses
on creating everyday products and
services for the ordinary person.
This economic framework ensures
that the people have enough food.
It drastically minimizes the amount
of surplus or waste that would
otherwise occur.

36. 2. Understanding people’s roles
People in this economy are
already aware of their place in
society or community. They
do not need to put out effort in
a job that is not a good fit for
their talents and abilities, thus
there is no duplication of work
or role.

37. 3. Less harmful to environment
Because traditional economy is based on
people's culture and belief systems, it will
always maintain an environmentally friendly
atmosphere that tries to meet people's
needs effectively and appropriately without
harming the environment. Because of
cultural belief systems that restrict local
people from using natural resources for
commercial gain, essential virgin forests,
rivers, and eco-systems have been
preserved in some locations.

38. 4. People's Harmony
Cooperation and healthy
relationships are encouraged
in a traditional economy. It
gives everyone an equal
opportunity to practice working
with others in a pleasant and
cooperative manner.

39. DIS-ADVANTAGES OF TRADITIONAL
ECONOMY
Vulnerable type of Economy
Adaptability to change
People’s living standard are lower

40. VULNERABLE TYPE OF ECONOMY
Because of the constant variations in weather conditions, a traditional
economy is more vulnerable. The economy is just not prepared to
withstand foreign economic shocks while still taking advantage of
global technological breakthroughs. This has a significant impact on
people's access to food and services. As the economy continues to
deteriorate (worsen), there is a larger risk of food and service
shortages.

41. ADAPTABILITY TO CHANGE
Because traditional economies are heavily influenced by
conventions and other societal ideas, there is a larger
probability that they will change when these factors alter.
People would only use the characteristics that were only
imparted by some of their ancestors. They will no longer adopt
new features of society in order to enhance themselves.

42. PEOPLE'S LIVING STANDARDS ARE LOWER
People in the Conventional economy aren't particularly skilled at
accumulating money. People become addicted to basic occupations
and activities, even when there are better prospects for them to take
on highly competent and satisfying careers, demonstrating the low
standards they practice. People believe that such tasks are beyond
their ability, cultural background, and skill set. Only their ancestors'
habits and traditions would qualify.

43. CAPTALIST OR MARKET ECONOMY
A market economy is an economic
system in which the interactions of a
country's individual citizens and
businesses dictate economic choices
and pricing of products and services.
Market economy or capitalism’s basic
characteristic is that the resources are
privately owned. And that the people
themselves make the decisions.

44. ADVANTAGES OF CAPITALIST OR MARKET ECONOMY

Efficient Utilization Of resources

The allocation of resources is done without cost to society.

Maximum Income Satisfaction

Capitalist economy produces a wide range of goods.

Consumer Sovereignty

Enhanced Entrepreneurial Initiatives

Production of High-Quality Products

45. 1. Efficient Utilization Of resources
Economic resources are reallocated in
a capitalist system to the regions
where they are most required by
society. This is because manufacturers
provide what buyers desire. Resources
are not designed to be passive. They
are transferred from low-demand
areas/sectors to high-demand
areas/sectors. There is effective
resource management.

46. 2. The allocation of resources is done without cost to society.
The invisible forces of demand
and supply interact to determine
what to create, how to produce,
when to produce, and for whom
to produce in a free market
economy. All of this is done at
no expense to the government
or society.

47. 3. Maximum Income Satisfaction
Consumers in a capitalist system can
efficiently divide their income to
maximize their consumption. That is,
given the market price of the
commodities, customers may choose
how much of each item to purchase
based on their income level. They do
this by developing a budget that satisfies
the desired degree of satisfaction from a
combination of products or services.

48. 4. Capitalist economy produces a wide range of goods.
Producers are allowed to
manufacture any product they feel
consumers will buy. With a
broader variety of commodities,
customers have more options for
improving their welfare. Given
their restricted income, customers
benefit from the freedom to
choose.

49. 5. Consumer Sovereignty
The customer is "the king" or
superior in a capitalist system
because he determines what is
produced through his demand
pattern. Resources are employed
to generate solely what the
consumer desires or expects,
rather than what society as a
whole need.

50. 6. Enhanced Entrepreneurial Initiatives
Private initiative and innovation are
encouraged, resulting in inventions
and technological advancements. It
boosts self-esteem and allows
entrepreneurs to focus their efforts on
building their own company rather
than waiting to be hired by the
government or others. As a result of
the capitalist economy, more self-
employed positions are created,
cutting unemployment significantly.

51. 7. Production of High-Quality Products
Because of unrestricted rivalry
among producers, a free market
economy results in the
development of high-quality
commodities. Competition drives
the development of state the art
technology, resulting in the
production of high- quality goods
and services for the advantage of
the customer.

52. DIS-ADVANTAGES OF CAPITALIST
ECONOMY
It increase income Inequality
Price Instability is Possible
It may lead to wastage of Resources

53. IT INCREASES INCOME INEQUALITY.
When consumer demand for goods increases, the wealthy
who have access to resources create and profit. The poor
lack access to productive resources. As a result, they are
pushed out of industry and manufacturing. The wealthy will
continue to create things in demand after they have made a
profit. As a result, the rich gain richer and the poor get poorer.

54. PRICE INSTABILITY IS POSSIBLE
Prices in a capitalist system are governed by supply and
demand. Demand fluctuates owing to changes in taste and
fashion, growing populations, and so forth. As a result, prices
may fluctuate from time to time, resulting in inflationary
pressures and unpredictability.

55. IT MAY LEAD TO WASTAGE OF RESOURCES
Because producers are profit-driven, certain fundamental goods and
services may not be produced. For example, in Ghana, large areas of
cropland are being transformed to bio-diesel/energy crops like
sugarcane and jetropha, which are in high demand. In the following
years, the production of important food crops such as yam, maize, and
others may drop. As a result, resource allocation may not be efficient.
Profit motives have the potential to do significant harm to society.

56. ECONOMIC SYSTEM AND THEIR
FUNCTIONS
PART 2 SOCIALIST AND MIXED
ECONOMY
Lesson 6

57. SOCIALIST ECONOMY
The socialist economy is a system in
which the state owns most of the
resources and it is up to the state or the
central authority to decide what,how,
when,where, and how much to produce.
China,North Korea,and Cuba are the
most prominent socialist economies.

58. FEATURES OF SOCIALIST
ECONOMY
The allocation of resources in the production of products and
services is determined by the state.
The goal of governance is to ensure the social welfare of all citizens.
There can be Lack of Competition since the government takes
control of the system

59. ADVANTAGES OF A SOCIALIST
ECONOMY
 Price and income stability
 Inequality in income distribution
 Waste of resources is reduced
 High economic growth rate
 Consumers are less exploited.

60. ADVANTAGE
Prices are mostly stable,hence the
value of workers' earnings is
stabilized over time.This condition
protects the economy from further
economic instability.Economic
stability will entice further foreign
investment.
PRICE AND INCOME STABILITY

61. ADVANTAGE
In contrast to the capitalist economic
system, which has an unequal
distribution of income, the socialist
economy has an equitable distribution
of income.This is because the national
planning committee is in charge of
resource allocation, which is frequently
done in such a way that revenue is
redistributed in favor of the poor.As a
result, the income gap is eliminated.
INEQUALITY IN INCOME DISTRIBUTION

62. ADVANTAGE
Another benefit of the socialist economy
is that it reduces resource waste by
controlling duplication of effort. It
ensures that resources are utilized to
suit the demands of all members of
society throughout production.Repeat
manufacture of highly sought items does
not use resources.They are also utilized
for other products and services that the
less fortunate in society require.
WASTE OF RESOURCES ARE REDUCED

63. ADVANTAGE
Economic growth is linked to a
centrally planned economy.A
greater rate of growth typically
requires political leadership and
significant investment in certain
sectors of the economy,both of
which are attainable under central
planning.China's economy has been
steadily growing as a result of this.
HIGH ECONOMIC GROWTH RATE

64. ADVANTAGE
The customer is not abused since
goods are available at reasonable
prices.Because there are no profit
motives, this is achievable.Not only a
few wealthy customers with higher
demand levels,but the demands of
the vast majority of consumers,
particularly lower and medium
income workers,are satisfied.
CONSUMER ARE LESS EXPLOITED

65. DIS-ADVANTAGE OF SOCIALIST
ECONOMY
1.Substandard products may be produced due to a lack of competition
in this economy.
2.The consumer’s supremacy is limited because what to produce is
decided by central planning authority.
3.In a socialist economy,consumers are not exposed to a wide range
of goods,limiting their power of choice.
4.Bribery,corruption,and inefficiency are all possible scenarios.This
is because those in charge of the state and public institutions are
unaccountable to anybody and a mass wealth intended for the people.

66. MIXED ECONOMY
A mixed economy is one in which
certain resources are owned by
individuals who make decisions based
on pricing and cost circumstances,
while the government engages in the
production and distribution of some
products and services.

67. FEATURES OF MIXED ECONOMY
The government and private individuals run in tandem transport services,
broadcasting services, hospitals, schools, etc.
Ownership of resources is shared by the state and the private individuals
Resources in the form of land, labor, capital and entrepreneurship are in the
hands of both the government and private individuals.
Prices of goods and services are determined by government and market forces
Producers select strategies that reduce costs while increasing output.The
government usually invests in both labor- intensive businesses and well-
capitalized businesses that provide essential services to the public.

68. ADVANTAGE OF MIXED ECONOMY
1. It encourages the private sector and gives it the capacity to grow. It promotes
capital formation within the country.
2. In a capitalist economy, there is both economic and occupational freedom. Every
individual has the freedom to pursue any vocation he desires. Similarly, every
producer has the ability to make production and consumption decisions.
3. Both the private and public sectors seek for resource utilization.The public sector
works for the common good, whereas the private sector makes the best use of these
resources in order to maximize profit.
4. Both the government and the private sector work together to construct
socioeconomic structures. Furthermore, the government enacts several legislative
measures to protect the interests of the poor and disadvantaged members of society.

69. DIS-ADVANTAGE OF MIXED ECONOMY
1. Because of government constraints and regulations, the private sector
does not have the full flexibility it demands, making it ineffective.
2. Certain decisions, particularly in the public sector, are usually delayed.
These delays obstruct the economy’s ability to run smoothly.
3.Wastage of resources is another issue with the mixed economic system.
Intermediaries receive a portion of the funding provided to various
public-sector operations. As a result, resources may be misappropriated
or abused.

70. Basic Analysis of
Demand
Lesson 6

71. Demand is generally affected by the
behavior of the consumer while supply
is usually affected by the conduct or
producers. These two interplay in the
foundation of economic activity
Demand pertains to the quantity of
a good and service that people are
ready to buy at given prices within a
given time period when other
factors besides price are held
constant

72. Market

73. A Market is where there are buyers and sellers. It is the place where
they both trade or exchange goods and services, in other words, it is
where the transaction takes place. There are different kinds of markets
such as wet and dry. THE WET MARKET is where people usually buy
vegetables, meat, etc. on the other hand, THE DRY MARKET is where people buy
shoes, clothes, or other dry goods

74. Law of Demand

75. Law of Demand
The law of demand states that if price goes UP; the
quantity demanded will go DOWN. Conversely, if the
prices go DOWN, the quantity demanded will go UP
ceteris paribus. The reason for this is because consumers
always tend to MAXIMIZE SATISFACTION.

76. DEMAND SCHEDULE
A demand schedule is a table that shows the relationship of prices and the
specific quantities demanded at each of these prices.
Hypothetical Demand Schedule for Rice per month
Situation Price (P)
Quantity (kg)
A 5
10
B 4
20
C 3
30
D 2

77. DEMAND CURVE
A demand curve has a negative slope thus it slopes
downward from left to right. The downward slope indicates the
inverse relationship between price and quantity demanded.

78. DEMAND FUNCTION
A demand function shows The relationship between
demand for a commodity and the factors that determine or
influence this demand.
A DEMAND FUNCTION is a mathematical expression that shows
the relationship between the quantity of a good demanded and its
price, along with other influencing factors like income, tastes, and prices
of related goods.

79. Forces That Causes the Demand Curve to Change
There are several reasons why demand changes and thus cause the demand curve to
change the following are the more general reasons for the change in demand.
 Taste of preferences
Tastes or preferences pertain to the likes or dislikes of a consumer for certain goods
and services
 Changing incomes
Increasing incomes of households raise the demand or certain goods services or vice
versa.
 Occasional or seasonal products
The various events or seasons in a given year also result in a movement of the demand
curve with reference to the particular goods.

80. Forces That Causes the Demand Curve to Change
 Population Change
An increasing population leads to an increase in the demand for some types of goods
and services and vice versa. More people simply mean that more goods or services are
to be demanded.
 Substitute Goods
Substitute goods are goods that are interchanged with other goods. In a situation where
the price of particular good increases, a consumer will tend to look for closely related
commodities.
 Expectations of the future Prices
If the buyers expect the price of a good or services to rise (or fall) in the future, it may
cause the current demand to increase (or decrease). Also, expectations about the future
alters demand for a specific commodity.

81. Basic Analysis of
Supply
Lesson 7

82. Supply
Supply is the quantity of goods or
services that the firms are ready
and willing to sell at a given price
within a period of time, with other
factors being held constant.
Furthermore, it is the quantity of
goods or services which a firm is
willing to sell at a given price, at
given point of time

83. Law of Supply
The law of supply states that if the
price of a good or service goes up,
the quantity supplied for such good
or service will also go up; if the
price goes down the quantity
supplied also goes down, ceteris
paribus.

84. Supply Schedule

85. Supply Curve
Supply Function
A supply function is a form
of mathematical notation that
links the dependent variable,
quantity supplied with various
independent variables that
determine quantity supply.
Qs​
=−10+5P
Where:
•Qs= Quantity supplied
•P= Price of the good

86. Just like demands, there are also forces that cause the
supply curve to change.
 OPTIMIZATION OF THE USE OF FACTORS OF
PRODUCTION
An optimization in the utilization of resources will increase
supply, while a failure to achieve such will result in a decrease
in supply. Optimization refers to the process or methodology of
making something.
 TECHNOLOGICAL CHANGE
The introduction of cost-reducing innovation in production
technology increases supply on one hand.
FORCES THAT CAUSE THE SUPPLY CURVE TO EXCHANGE

87.  FUTURE EXPECTATION
This factor impacts sellers as much as buyers. If
sellers anticipate a rise in prices, they may choose to hold
back the current supply to take advantage of the future
increase in price, thus decreasing market supply.
 NUMBER OF SELLERS
The number of sellers has a direct impact on the
quantity supplied. Simply put, the more sellers there are in
the market, the greater supply of goods and services will
be available.
FORCES THAT CAUSE THE SUPPLY CURVE TO EXCHANGE

88.  WEATHER CONDITIONS
Bad weather such as typhoons, drought, or other natural
disasters, reduces the supply of agricultural commodities while
good weather has an opposite impact. For instance, if a typhoon
destroys the vegetable farms in Benguet Province, the supply of
vegetables particularly in the markets of metro manila will
decline.
FORCES THAT CAUSE THE SUPPLY CURVE TO EXCHANGE

89. MARKET
EQUILIBRIUM
Lesson 8

90. EQUILIBRIUM
Equilibrium generally pertains to a
balance that exists when quantity
demanded equals quantity supplied.
Equilibrium is the general agreement
of the buyer and the seller at a
particular price and at a particular
quantity. At the equilibrium point, there
are always two sides of the story, the
side of the buyer and that of the seller.

91. EQUILIBRIUM MARKET
PRICE
Equilibrium market price is the
price agreed by the seller to offer its
good or service for sale and for the
buyer to pay for it. Especially, it is the
price at which quantity demanded of
a good is exactly equal to the
quantity supplied.

92. WHAT HAPPENS WHEN
THERE IS MARKET
DISEQUILIBRIUM?

93. SURPLUS
A surplus is a condition in the market
where the quantity supplied is more than
the quantity demanded.When there is a
surplus, the tendency is for the sellers
to lower market prices in order for the
goods to be easily disposed from the
market.This means that there is a
DOWNWARD PRESSURE to the price
when there is a surplus in order to
restore equilibrium in the market.
SHORTAGE
The shortage is a condition in the market
in which quantity demanded is higher
than the supplied.When the market is
experiencing a shortage, there is a
possibility of consumers being abused,
while the producers enjoy imposing
higher prices for their own interest.The
shortage exists below the equilibrium
point.When there is a shortage, there is
an UPWARD PRESSURE on prices to
restore equilibrium in the market.

94. PRICE CONTROLS ARE CLASSIFIED INTO TWO
TYPES: FLOOR PRICE AND PRICE CEILING
FLOOR PRICE
It is the legal minimum price imposed by the
government.This is undertaken if a surplus in the
economy persists,in this case,the government may
impose a minimum price on producer’s
commodities. A floor price is a form assistance to
producers by the government for them to survive in
their business. Generally, floor prices are imposed
by the government on agricultural products
especially when there is a bumper harvest.

95. PRICE CONTROLS ARE CLASSIFIED INTO TWO
TYPES: FLOOR PRICE AND PRICE CEILING
Price Ceiling
The price ceiling is utilized by the
government if there is a persistent
shortage of goods in the economy. It is
imposed by the government to protect
the consumer from abusive producers
or sellers who take advantage of the
situation.

96. PARTIAL EQUILIBRIUM ANALYSIS
The Equation system:
Supply equation: Qs= c + dP
Demand equation: Qd= a – bP
Equilibrium Condition: Qd = Qs

97. PARTIAL EQUILIBRIUM ANALYSIS
For equilibrium solution:
Given: Q s= 33 + 10P
Qd= 68- 6P