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Health economics is a relatively new field that applies economic principles to health and uses economic methods to improve health efficiently. It contributes to health planning by determining the proper allocation and efficient use of scarce health resources. Health is influenced by many determinants, including underlying socioeconomic factors, individual factors, household factors, community factors, proximate factors like health care utilization and environment, and outcomes like mortality and morbidity.
Health economics is a relatively new field that applies economic principles to health and uses economic methods to improve health efficiently. It contributes to health planning by determining the proper allocation and efficient use of scarce health resources. Health is influenced by many determinants, including underlying socioeconomic factors, individual factors, household factors, community factors, proximate factors like health care utilization and environment, and outcomes like mortality and morbidity.
Health economics is a relatively new field that applies economic principles to health and uses economic methods to improve health efficiently. It contributes to health planning by determining the proper allocation and efficient use of scarce health resources. Health is influenced by many determinants, including underlying socioeconomic factors, individual factors, household factors, community factors, proximate factors like health care utilization and environment, and outcomes like mortality and morbidity.
distinct discipline of Economics in the 1980s, is a relatively new field. As the term, it is the application of economic principles to health. More specifically, it implies the use of economic methods to improve health using the most efficient interventions. Health economics contributes immensely to health planning. For deeper understanding of the concepts of health economics it is best to understand health and economics separately. Economics Economics has been defined in different ways, Samuelson, an authority in economics, and the author of one of the most widely read and referred to textbooks in economics, has a drawn up a list of definitions: 1. Economics is the study of those activities that involve the production and exchange of goods Economics is the science of choice. It studies how people choose to use scarce or limited productive resources ( land, labor, equipment, and technical knowledge ), to produce various commodities, and to distribute these goods to various members of the society for their consumption. Economics is the study of money, banking, capital, and wealth. Economics is the study of commerce among nations. It helps explain why nations export some goods and import others, and analyzes the effects of putting economic barriers at national frontiers. Discussion We are facing economic problems such as increase prices of basic commodities, transportation fares, and other services particularly education and health care We are dealing with these present problems through the proper use of and allocation of available resources without realizing that this process of prudent use of resources is actually the key concept of economics. Therefore , we can define economics as the study of proper allocation and efficient use of scarce resources to produce commodities for the satisfaction of unlimited needs and wants of man. Determine the proper allocation and efficient use of health resources. All medical and n0n- medical goods and services will not exist without the use of resources. Resources are scarce and the human needs and wants are unlimited. It is essential for the society to make a decisive choice based on its preferences. These choices are embedded in the basic economic problems. Characteristics of Economics Economic resources will always be scarce and people will always struggle to work against scarcity. Even when resources are abundant, they will eventually become scarce because of the fact that more people use the same resources as time passes. There is scarcity of resources when people want more of a certain good than what is available. 2. There is a universal objective of attaining the maximum output out of a given input. Because of scarce resources that have alternative uses, man has the ever present problem of making choices to produce specific commodities for distribution and consumption. His objective is to choose the process or produce the commodity which will give the maximum benefit from a given input. Economic Resources Man has economic resources which he can use to produce commodities; 1.Land Man s most important resource aside from himself is land. All that stems, grows, develops from land Hunting and fruit and vegetable gathering during the stone age gave way to farming and domesticating animals Even the smallest piece of the land are use to produce the most no of crops and livestock through the most modern agricultural and farming methods. 2. Labor Human activity produced a multitude of outputs. Manual labor that has produced crops and livestock to a more advance rational thought which produced teachers, professionals, capitalist, and entrepreneurs. Human capital Specialization for proficient manpower in producing certain good or service and has contributed to a better production and distribution process. 3. Technology Output of human activity from the stone age to rational thought. Immensely affected the lives and future of peoples, improved the quality of life. Metal age to modern technology genetic engineering and biotechnology. Health and medicine has definitely improved the quality of life and life expectancy of man. Curing all diseases and controlling aging may become possible Technology has had negative effects too eq. Weapons of mass destruction, demise of millions and million of lives Worlds population may end with one stroke. 4. Capital Money, convenient medium of production and trade. Trading between individuals and nation ( international trade ) Has evolved from barter trade , to the use of shells, gold, silver, and other precious materials to do commerce among nations. Different countries adopt different currencies with different values and purchasing power relative to other currencies
Entrepreneur This refers to the people that are combining the other three ( 3 ) factors of production to create some products or services to sell. The economist regard entrepreneurs as specialist form of labor input. The payment for entrepreneur is profit. Capital interest Labor wage Land - rent
Components of Economics 1. Economics is about making choices. Choices can be on; What commodities to produce, For whom the commodities should be produced, How to best and most efficiently produce these goods, What is the best way to distribute the commodities, and How much of the commodities will be produced. 2. Economics is analyzing the different choices and their cost Remember that these choices will have cost. Different alternative choices will have different corresponding cost. 3. The choices and their costs will have an effect on the future of those who make these decisions, or to the recipients of the commodities. Macroeconomics and Microeconomics Macroeconomics is the study of the functioning as a whole. Macro means big or grand. Macroeconomics studies, among other things: Interest rates and currency exchange rates; Trends in prices, output, wages, inflation, unemployment; and Government economic policies and taxation. Microeconomics is the study of smaller and individual entities. It studies the behavior of industries, companies, and households. Micro means small or miniscule. Microeconomics studies among other things; How industries price the goods they produce and distribute; How taxes affect peoples work effort, consumption, saving, and allocation; and How households allocate and use their financial and other resources. Terms associated with Macroeconomics Gross National Product ( GNP ) Gross Domestic Product ( GDP ) Aggregate supply and aggregate demand Employment/ unemployment, wages Fiscal policy Government and taxation Foreign trade / balance of trade Inflation and deflation Interest rates Foreign exchange TERMS ASSOCIATED WITH MICROECONOMICS PRICING HOUSEHOLD ALLOCATION OF RESOURCES HOUSEHOLD SPENDING AND SAVING PRICE AND INCOME ELASTICITIES Determinants of Health Health has been defined by the World Health Organization ( WHO ), as; The state of mental, physical, and social well being and does not merely connote the absence of illness. Health is a multi factorial phenomenon. An individual who does not experience any symptoms of disease may not necessarily be healthy. For example, a person who has an elevated blood cholesterol or glucose level, may not feel anything at all even when a disease process is already ongoing. Thus the absence of symptoms does not necessarily connote healthfulness. An individual may not necessarily feel anything even when a disease process has already started. On the other hand, a woman who experiences nausea and vomiting during the early stages of pregnancy may still be considered as healthy, as such can be considered normal during early pregnancy. Conclusion; the presence of symptoms does not necessarily connote illness. The reason for such symptoms has to be investigated. A 35- year old individual who is able to run ten kilometers may be considered healthier than another individual who is only able to climb a few flights of stairs, all other things being equal. Conclusion: There are varying degrees or states of health. A person who seeks medical care more often than another may not necessarily be healthier than the other who does not visit a health facility as frequently. Truly the state of being healthy or unhealthy can be expressed in many ways. Health economics deals with the manipulation of factors that should be able to give people better health. This poses a problem for health planners since health is difficult to both quality and quantity. How do we manipulate health? To answer this we have to study and ask: What determine health? Or simply, what factors influence health? Determinants of Health: Major Effects and Intervention Points Underlying Socioeconomic, demographic and cultural factors Individual ( age, sex, education, occupation, health benefits, attitudes ) Household ( income / wealth , age, sex , composition, social network ) Community ( ecological climate, markets and prices, transportation size, structure and distribution, social structure and organization.
Proximate Factors Health Care Service Utilization Environmental Contamination Nutrient Dietary Intake Fertility Injury Health Outcomes Mortality Morbidity Nutritional Status Explicitly shows that health is a multi factorial phenomenon. It is directly and indirectly affected by a lot of factors. The diagram shows that health intervention does not only focus on the individual, but also on the household and the community Health outcomes are objective measures of health. They are the parameters used to measure the health condition of individuals, communities or countries. They are standardized measures which are understood and applied internationally. Proximate determinants are factors that have a direct influence on health outcomes. Proximate means attached, near or direct. Underlying determinants influence health outcomes indirectly by their effect on proximate outcomes. Underlying determinants influence health outcomes. Underlying means what lies beneath , or the root cause. Health outcomes. It is important to remember that economics seeks to maximize the output of any given input. It means that the more goods should be produced and distributed for a minimum amount of resources used. Given this objective, it becomes imperative that health planners are able to measure improvements in health. A way to be able to measure health must be put in place.
For planning purposes, the state of health of individuals, a community or country is showcased by health outcomes/ parameters/ indicators. Health outcomes are objective measurement of health and disease. They can be A. Distinct figures eq. Life expectancy ( length in years ), nutritional status ( weight for age or height ); or Ratios eq. Mortality rates, morbidity rates,incidence and prevalence.
Planners an objective measurement of health status. While it is very difficult to measure health.These parameters give health planners a common language in studying and measuring the health status of communities and countries. Being internationally accepted, they should be understood by all health planners. Examples of Health Outcomes Fertility Rate measures the reproductive capacity of groups. Crude Birth Rate ( CBR )= Total no. Of live birth x 1000 midyear population Mortality Rate measures risk of dying within a specific group or dying from a cause Crude Death Rate ( CDR ) = No. Of Deaths, all causes Midyear population x 1000 Cause Specific Death Rate ( CSDR ) = number of deaths from specific cause x F Midyear population Infant Mortality Rate ( IMR ) = Infant Mortality Rate ] 1 year age x 1000 Total no. Of Livebirths Morbidity Rate measures the frequency of illnesses within specific population Prevalence Rate ( PR ) = No. Of New and Old cases within a period x 100 Midyear Population Incidence Rate ( IR )= Number of New Cases x F Population at Risk Health outcomes can also be used for monitoring and measuring the effectiveness of health activities and programs that seek to improve health. This can be done by comparing these health indicators before and after a program has been implemented.
Health Outcomes before = compare = Health outcomes after the health program
Proximate Factors Proximate determinants are factors that directly affect the health status or outcomes of individual or groups. These factors may be innate to a person, eq, nutrient intake and fertility. These are physiological factors which directly affect the health status of an individual. Or, these maybe external factors, e,q., environmental contamination, injuries, and health care service utilization which also directly affect the health status of people or communities. Physicians, nurses, and other health practitioners in clinical practice are mostly more concerned with the health of individuals. Most healthcare facilities commonly focus on problems of individual. These are nutrition, survival or deaths ( mortality ) from illnesses, recovery and prevention of disabilities from serious illnesses like strokes or accidents. Good public health programs focus on the prevention of such illnesses stated before. It is important to remember that the treatment of illnesses should not only be focused on the sick individual, but also on factors which directly cause them. Examples are high intake of dietary fats which results in high blood cholesterol levels, and environmental exposure or constant exposure to air pollution which results in chronic lung disease. Proximate factors and health programs developed. Proximate factors Human care service OPLAN bakuna with jollibee, utilization OPLAN alis disease Environmental Contamination Anti pollution campaign, worker health and safety programs
Nutrient Dietary Intake Barangay Day Care Centers, vit A campaign Fertility Responsible Parenthood Information Drive Injury Dont Drink and Drive Underlying Socio Economic, Demographic, and Cultural Factors Finally, there are factors which do not directly affect health outcomes, but have an influence on the proximate factors which ultimately affect the health status. These are social , economic, cultural and demographic factors which seemingly do not affect health. However, these factors will ultimately influence the activities, exposures, and attitudes of individuals, households and communities towards health. Again, ultimately they will affect health outcomes in cascading manner. Underlying factors are those that lie beneath or root causes. Underlying factors affect proximate factors which then affect health outcomes. A. Individual Level Occupation as a coal miner Exposure to mining contaminants Increased incidence of workers lung disease
B. Household level Low household income Poor nutritional intake poor nutritional status ( Low weight for height C. Community level Poor transportation / Transportation network - poor health care service utilization more deaths in the area each of the proximate determinants and the underlying causes affect health outcomes in some way or another. It is important to remember that these may all be intervention points which can help improve health status or outcomes. However, it is also important to note that not all factors are within the control of health practitioners and public health officials. Thus the theoretical wholistic approach to the treatment of illnesses will require the cooperation of a lot of sectors which may be easier said than done. Relationship of Health and Economics There is a theoretical relationship between health and economics which operates like a cycle. It goes as follows; Better economy allows countries to allocate more financial, technological allocated and used for health, and manpower resources for health producing activities and programs. More resources allocated and used for health lead to improvements in health status. This assumes that the money and resources being allocated are used wisely and effectively. The improvements in health status then lead to better productivity, more specifically among workers. This then contributes to a better economy. Allocation Of Health Care Resources The economic system has a significant role in allocating health care resources. An economic system refers to a set of economic institution that dominates a given economy with the main objective of solving the basic economic problems and proper allocation of health care resources. The economic institution include: traditional economy, command system, free market system, and mixed system. The traditional economy is one whose economic decision are made with great influence from the past. It finds answers to the basic economic problems by duplicating the decisions made by previous generations. Hence, the traditional economic system ia a system whose past experiences which are handed down from generation to generation are used as bases for economic decisions.
Under the command system, the Factor of production, distribution and allocation of health resources are owned and managed by the state. Decision in answering the basic economic problem and allocation of health care services are planned, done, and dictated by the government. There is a presence of central planning to allocate health care according to some predetermined criterion such as need. Thus health care needs by the people are distributed based on priorities set by the committee. Citizen under this system have little or no political and economic freedom. Another system that society uses in allocating the scarce health resources is the free market. The free market system would allocate health resources according to consumers purchasing behavior. Hence, the price of medical goods and services dictates what health products will be produced, how and for whom it will be produced. When the one that needs and offer medical and non medical goods and services come together to agree on a purchase or sale, the transaction takes place in what economist call a market.
Another system, mixed system which combine parts of the command system with the elements of free market. The problems of allocation and distribution of health resources are determined through a combination of the market system and government laws and policies. Methodologies of Economics Positive Economics is an analysis and describes of economic behavior that uses economic theory and empirical analysis to explain what is or what happened. It seeks to predict and explain economic phenomena and describes facts and data in the economy. Positive economics does not value economic judgement. Normative economics incorporates ethics and value judgements about what the economy should be like or what particular policy actions should be recommended to achieve a goal. It is concerned with what one believes ought to be. Hence, it deals with the appropriateness of an economic outcome or policy. It seeks to answer the question, what ought to be? The following statements broaden your understanding between the two dichotomies of economics to wit: Positive : In 2004, the countrys total health expenditure reached 165.2 billion, indicating an 11.2 percent increase from a 14 year high of 25.3 percent growth registered in 2003 at a current price. Normative : to regulate health care expenditure of the country, the Philippine government should implement the national health program similar to that of developed countries like the United States, The United Kingdom, and Canada. Positive :Environment Protection Agency study shows that exposure to secondhand smoke causes 3,000 lung cancer deaths per year in nonsmokers.
Normative : To prevent people from having lung cancer and stop them from smoking the government should take rigid action by increasing tax on cigarettes. The Basic Economic Problems Because of scarcity society needs to carefully craft an important decision regarding proper distribution and allocation of resources as a way of providing answers to the three basic economic problems, to wit: 1. What medical and non medical goods and services should be produceed and in what quantities? 2. How should these medical and non medical goods and services be produced? 3. For whom should these medical and non medical goods and services be produced? The first problem deals with allocative efficiency. Allocative efficiency refers to a condition in which the optimal amount of output is is produced given the underlying structure of social benefits and costs. The second economic problem deals with production efficiency. Production efficiency refers to a condition in which one activity either production or consumption cannot be increased without reduction on another activity because the maximum amount of output is produced from a finite amount of inputs. That is maximum output with a minimum input without sacrificing the quality. The third economic problem deals with the problem of distribution. In this economic question, we tend to answer the question, who should consume the produced goods and services?, SHOULD BE FAIRLY DISTRIBUTED TO EVERYONE IN THE SOCIETY. Best way to allocate Health Resources Efficiency making the optimal or best use of resources . It was named after Vilfredo Pareto, an Italian economist who used who used the concept in his studies of economic efficiency and income distribution. Hence the economic efficiency of resources occurs when society is using its scarce resources to produce the highest possible quantity of goods and services that consumers wanted to buy. Two parts of economic efficiency Productive allocative Productive Efficiency When using the least amount of health resources to produce certain health care at a lowest possible cost. It implies that the health care sectors are using the least costly land, labor, capital and entrepreneur, the best available technology and the best production processes Allocative efficiency is a condition in which the optimal amount of output is produced given the underlying structure of social benefits and cost. Allocative efficiency is manifested in health if there are no health resources being wasted. The health resources are being allocated to the production of right goods and health services needed and valued most by the society. Health Comes from the English word heal which connotes the totality or the wholeness of a person, the physical, mental, social, emotional, spiritual and sexual aspect. Health should be explained in Holistic approach. Holistic approach means dealing with the significant contributions and influences of the six aspects of health to the wholeness of an individual person. Aspects of health Physical Health. This refers to the physical body of man. It means from head to foot. A regular exercise as one way of maintaining ones health is a good example. Mental Health. It refers to the mental capacity of the man in having positive outlook in ones health like having perception of being healthy and having positive outlook in life.
Emotional Health. The capability of an individual to express his own feelings and develop his personal relationship with other people. How to get along with others is the best example. Social Health. This connotes the ability to show concern and support to other people at all times. Constant communication with friends, family members, and other people in the community is an example Spiritual Health. This refers to an individuals capacity to express his spiritual maturity and moral integrity. We should respect the belief of others with regards to their respective religious practices. Sexual Health. This refers to the capacity of an individual to accept his or her sexuality including his or her sexual preference like being a female or male, gay or lesbian.s Sector is a component of integrated system such as an economy or society in implementing health benefits and services to its people. Health sector are the ones that regulate and help the economy with regard to health services. It5 also includes the health of the economy as a whole. It has plans and procedures for the proper regulation and implementation of health services in all places. Objective of Health The main objective of health is to promote the health welfare as well as the health services of everybody. Every person is always vigilant on how to protect his body from any disease or illness that he may acquire from his environment. Detrimental factors of health that affect ones health The society has a significant role in promoting the health welfare and services to the people. Dimensions of health Biological Factors Environment God given gift to his creatures Society Environment and Health Environment refers to the aggregate of all external and internal conditions affecting the existence , welfare of organisms. surroundings Sum total of all biotic ( living ), abiotic ( nonliving ) factors that surround and potentially influence an organism. Three Fundamental Components Of Environment Physical Component this refers to the energy of one form or another Chemical Component. It refers to anything that occupied space. In short it means matter. Example is a substance whether natural or man made Bilogical component. This refers to the living things including man
Physical Health Hazards and their adverse Health Effects Effect of global warming Long famine and war Increasing extremes of temperature as a result of climatic change could also result in increased mortality. Radiations Chemical Hazards Smoking General airborne pollution Combustion of coal and other solid fuels can produce smoke commonly known as polycyclic aromatic hydrocarbons ( PAH ) and sulfur dioxide Combustion of liquid petroleum products can generate carbon monoxide , oxides of nitrogen Industry Incinerations Biological Hazards It can be divided into two broad categories such as; 1. Biological components which produces health effects through infection and 2. Non infective ( allergic ) ways. Income and Health A person who has a lower income cannot afford all health services in maintaining health, may somehow rely on the public health services rendered by the government and non government organizations like the barangay centers. Occupation and health Occupation employment Provides income but also a sense of direction, a sense of purpose, a daily schedule, physical activity, social contact, and an identity within the society. Negative and Positive Private sectors participation to public health Big contribution to the government Construct partnership Collaborate Government Expenditure Poverty and Health are intertwined. Poor countries tend to have worse health outcomes A problem on health is often associated with substantial health care cost and benefits Philippine Government Expenditure on Health In 1999, only 3.4 percent of the countrys GNP Below 5% minimum standard set by the WHO for developing countries 108. 3 billion total annual health expenditure in 1999 with per capita health expenditure of estimated at 1,449 Php per person. 13.5 percent of Filipinos had insurance coverage, according to the Insurance Commission. Presence of a few modern medical establishments in Metro Manila, health conditions in the Philippines remain among the poorest in Asia. 85 million Filipino, about 40 60 % are struggling against poverty. Asian Development Bank estimated that there is only one doctor for every 9,689 Filipinos and one hospital bed for 909 Filipinos Other Asian countries that are widely believed to be less developed than the Philippines like Indonesia, Vietnam, Myanmar are way ahead of the Philippines in terms of health indicators. The health conditions in the Philippines would have been better if our medical practitioner like doctors, nurses, and other medical staff will opt to stay in this country US, EUROPE, MIDDLE EAST, where salaries are ten times higher
Low budget of allocation for health and social services Confront perennial problems such as outbreak of Dengue Fever, Cholera, Water borne diseases Limited access to potable water and sanitation among the poor aggravated the problem Unplanned urbanization and industrialization are also contributory There is no city, modern sewerage system. Health Economics Mills and Gilson of the London School of Hygiene Health economics can be defined broadly as the application of the theories, concepts and techniques of economics in the health care sector. Kenneth Arrow, a Nobel Laureate for Economics once stipulated that a separate discipline of economics should be devoted to the health sector. He believed that the health sector behaves peculiarly different from other economic sectors and that a careful application of economic concepts and methodology should be accorded to it. The allocation of resources between various health promoting activities; Quantity of resources used in health care delivery to improve health; Organization and funding of health organization; Efficiency of the allocation and use of resources for health; and Assessment of the effects of preventive, curative and rehabilitative health services on individuals and society. Discipline of Health Economics Maximize output out of the given inputs Resources on the production of better health Health should be measured and valued Improving quality of life, extending life span. Proper allocation and efficient utilization of health resources for the improvement of health where resources are unlimited and wants are potentially infinite. Ex. Medicinal supplies like syringes, gauze; medical personnel doctors, radiologist, others, ; capital inputs like blood banks, out patient clinics and the like ) within the context of scarce resources. Importance of Health Economics Scarcity health resources a choice must be made on which particular resources to use for which particular activity. Most beneficial activities are selected among the available health resources. Where there are scarcity and choices, there are costs. The cost of any choice is the options that a person or society gives up. Health Economics provides set of analytical technique that assist decision-making, promote efficiency and equity. Concepts of Health Economics Economic Logic is based on the notion of Scarcity and choice Cost efficient, and Trade off Health Economics is a logic framework which allows us to reach conclusions about the best way resources can be allocated.
Scarcity and Choice Undeniably truth that resources are scarce relative to human wants, limited supply Resources limited, human wants have no boundaries Make wise decisions consistent with their limited resources All societies face the problem of deciding what to produce and how to divide the products among their members Life is full of choices Opportunity Cost and Trade Off The concept of opportunity cost is fundamental to health economics Scarcity implies the need for choice, so choice implies the need for cost. A decision to have more of one good thing requires a decision to have less of something else. Opportunity cost arises because choosing one health care activity means giving up something else in return .Opportunity cost is defined as the benefit that must be foregone by not allocating the resources to the next best activity. Trade off is a situation in which more of one good thing can be obtained only by giving of another thing. The Production Possibility Frontier The Production Possibility Frontier ( PPF ) represents the point at which an economy is most efficiently producing its good and services and properly allocate its resources in the best way possible. The ( PPF ) illustrates the concept of scarcity; choice; and opportunity cost. It is also the framework of answering the three basic problems of economics. 1. What medical and non- medical goods and services should be produced and in what quantities? 2. How should these medical and non-medical goods and services be produced? 3. For whom should these medical and non-medical goods and services be produced? 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 10 20 30 40 50 60 70 80 90 100 Supply and Demand and Health You can even make a parrot into a learned economist all it must learn are the two words supply and demand - Anonymous The importance of the central role of the concepts of supply and demand in understanding basic economy principles. Concepts of supply and demand are not simple that even a parrot can understand it. It implies that they are crucial to the understanding of economics. Mastery of these concepts is required for us to appreciate economics. Ask yourself these simple questions? Why do raincoats become relatively more expensive during July, August, and September? Why do Halo-halo stores sprout during summer? Why did oil prices increase during the Persian Gulf War in 1991? Why is there a pressure to increase the salaries of nurses in the Philippines when a lot of Filipino nurses are being recruited abroad? Why are firecrackers very expensive days before NEW YEARS EVE and are almost given away a few hours before midnight of December 31?
Lechon Manok: a Filipino Example of Supply and Demand Forces at Work During the late eighties, a food product become very popular lechon manok. It was a new way of preparing chicken. Lechon manok was tender, juicy, tasty, and sold at very reasonable price. It was in many ways like the popular but relatively expensive Filipino food, litson, - only cheaper. A lot of people started to buy it. Soon after it was introduced it become a craze. It became a popular dish in parties, pulutan in drinking fellowship, and a staple food on the middle class dinner table. Putting up a lechon manok business was not difficult. It required relatively low investments and a simple cooking formula for the chicken. Soon a lot of lechon manok stores sprouted. They were found near offices. Along busy roads, near stores and supermarkets, near public parks, and even in front of houses. In a way it become a household business. Other businesses also developed ; lechon manok oven makers, chicken suppliers, and charcoal suppliers benefitted from lechon manok industry. S00n, it became impossible to travel for five to ten minutes without seeing a lechon manok store. Almost everybody was buying this lechon manok Years passed and the lechon manok began to lose its popularity. Now it is just an ordinary food. Lechon manok stores are either bringing down prices or giving special bargains like buy 1 take 1 offer . It is now relatively difficult to invest in and run a lechon manok business. Over the years , the number of lechon manok stores has dwindled. Less and less people are buying the delicacy and one by one, the stores closed. Today only a few stores remain. Most are found only in busy areas. Only very few lechon manok stores have recognizable names; Andoks lechon manok; Baliwag lechon manok,Jonels buy 1 take 1, and a few others. And today , the lechon manok store in every street corner is just a memory. What happened ? Could this case be the same as what happened to Shawarma sandwiches? How can you explain this cycle through supply and demand concepts? Most, if not all of the cycles of businesses, wages and earnings, prices of goods can be explained this way!
The Theory of Supply and Demand Have you ever wondered how businesses price their products? What do you think will happen if Shell decides to sell their unleaded gasoline at 50% lower per litre or at 25% higher per liter? Are businesses really the ones who control the price of their products? Or do they price their buyers will buy them? Every purchase made on a certain commodity may be looked upon as a peso vote . Meaning a choice ( vote ) has been made on the specific product and money ( peso ) was exchanged for the specific goo or service. Then create a market mechanism wherein buyers of commodities, and the suppliers ( or producers ) of such dynamically, and constantly interact. The relationship between buyers who demand, and producers who create a supply of goods, is called law of supply and demand dynamics. The La of Supply and Demand shows how peso votes decide the prices and quantities of goods. Markets: Interaction Between Supply and Demand Demand emanates from consumers. Consumers demand to be able to satisfy their needs and, more importantly, wants. At this point, it becomes important to define the differences between needs, wants and demand. NEEDS Needs are things that individuals must have to be able to survive ( basic/ physiologic needs ) or to be in a state of physical, social, and mental equilibrium. WANTS From an economic perspective or business perspective , are specific manifestation of needs. It can in fact be derived from a need. Therefore they are specific preference or a choice to be able to satisfy a need. DEMAND Is the decision to satisfy a want or need plus the capability of accessing and paying for such. To demand, a person must be willing to buy and be capable of paying for it.
SUPPLY Emanates from producers and sellers. They form the other side of the demand- supply interaction. Always remember that producers and sellers ( businesses ) produce and sell to make profits. They prefer a scenario where they can sell their products at higher prices simply because it will give them higher profits. Figure 4. Maslows Hierarchy of Needs Self Actualization Esteem Needs Belonging Needs Safety Needs Psychological Needs Satisfy: Needs Wants Profits Markets Preference: Low Prices Preference: High Prices Remember that consumers prefer lower prices, while producers and sellers prefer higher prices, do you feel the tug of war between them? Markets are produced when demand forces from consumers and producers and sellers interact with one another. It is a dynamic and constantly changing phenomenon. Markets are formed from the interaction between demand coming from consumers to be able to satisfy their needs and wants, and supply from producers and sellers to make profits. The demand schedule represents the relationship between the price of a certain product and the quantity that consumers want to buy of such product. It is graphically represented by the demand curve. The supply schedule, on the other hand, shows the relationship between the price of a certain good and the quantity that producers will be willing to produce and sell. It is also graphically represented by the supply curve. Ceteris paribus is a term that means all other things are being held equal. In showing the relationship of the price and quantity of goods demanded (demand schedule), all the other factors that may affect the relationship do not change, or are held constant. Thus it isolates the relationship of price and quantity demanded. The same is true for the supply schedule. THE DEMAND SCHEDULE The demand for a certain product emanates from; * the willingness to buy a certain product, and * the capacity or ability to buy such product The demand schedule shows the relationship between the price of a good and the quantity of the goods that consumers are willing to buy. It is a common observation that the quantity of a good that people are willing to buy at any one time depends on its price.
It is likewise observed that generally for most products, the higher the price or the more expensive a product is, the less quantity people are willing to buy of the product. Conversely, the lower the price of a product, the more the consumers demand of such product. Thus, there is a definite relationship between the market price of a good and the quantity that consumers are willing to buy. This relationship is known as the demand schedule which is represented by the demand curve, when plotted.
The Demand Curve * The demand curve is a graphical representation of the demand schedule. It is a download sloping curve. It shows the inverse relationship between the price and quantity of goods that consumers are willing to buy. Figure 6 D D Q1 Q2 P1 P2 Quantity Price Figure 6 The demanded curve, a downward sloping curve, shows the relationship between the price of a good and the quantity demanded. At a lower price (P1), quantity demanded is higher (Q1). At a higher price (P2), quantity demanded is lower (Q2). The Law of Downward and Sloping Demand When the price of a commodity is increased (all other things being equal),consumers tend to buy less of the said commodity. On the other hand, when the price is decreased (or lowered), all other things being equal, quantity demanded for that specific product increases. This is represented by a graph running downwards to the right showing the inverse relationship between the price of a good and the quantity demanded of such. An example for this is the personal computer. When it was introduced in the market during the late 70s to early 80s, it was expensive. Therefore, only the rich people were able to afford it. Most, people still used calculators and typewriters. With the advent of new microchip technology, computer companies are now able to produce faster and cheaper computers.Thus more people are also able to afford it. Therefore, more computers are now being bought. Today, the vision of a computer for every home and office seems possible. Factors that Affect the Demand Curve Own Price of the Product The price of a product is a certain monetary value at which the product is being sold. A higher own price of a product decreases the demand for such. A lower price increases the demand. Thus, there is an inverse relationship between the price of the product and the quantity being demanded. Average Income As the average income of people and households increases, the demand for specific goods also increases. This is because when people have higher incomes, they have more money to spend for buyings things. For example we can expect that more people will buy more cars once the Philippine economy improves and the income of people increases. Or, as the income of a certain person increases, he will tend to buy a more expensive car. Higher incomes make commodities relatively cheaper simply because people have more money to buy goods and services. Figure 7 Product
Price Income 1
Income 2
Differential 1 Differential 2 Figure 7. Relationship of Income and Price. With the price of a theoretical product constant, more of such product with Income 2 which has a bigger Differential 2, compared to that of Income 1, with a smaller Differential 1. Population Size and Demographics As the population increases, more people will use commodities. As more members of the population enter adulthood, the demand for specific age group also increases, e.g., cars, cigarettes, watches, among others. Shifts in population demographics also affect the demand for certain products. This may be a rationale for the launching of the Dockers Line of Levis who have already aged after 20-30 years, must find wearing jeans odd. Thus, the Dockers Line-the more conservative denim shirts and slacks, was introduced to cater to this specific market. Remember that an increase in population generally increase the demand for most products, and changes or shifts in population demographics will affect the demand for specific products. Prices of related goods Related goods can either be substitute products or complementary products. Substitute products: * are commodities that decrease the use of another product when more of these other products is used. An example of this is the Metro Rail Transport system. When it was introduced, the fare was about twice that of the fare in airconditioned buses. More people took the aircon buses, and the MRT system decided to bring down its fare, closely approximating the fare of aircon bus. Now , MRT stations are always full of passengers. Remember that substitute products change and move in the opposite direction. Figure 8 MRT
Aircon Bus
1. MRT fare decreases 2. Increase Demand for MRT 2. Demand for Aircon Buses decreases Figure 8 Relationship of Substitute Products Step 1 :Price of MRT fares decrease, Step 2: Decrease of MRT fare results in increased demand for MRT Step 3 : Increase in demand for MRT results in decrease in demand for aircon buses ( substitute product Complementary Products Behave in the same direction. These are commodities that decrease the use of another product when less of the other complement is used and vice verssa. Examples of complimentary products are gasoline and cars. Lower gasoline prices tend to increase the demand not only for gasoline but also for cars. Greater use of one leads to more use of the other and vice versa Remember that they change in the same direction. More use of cars will increase the use of gasoline. More expensive gasoline tends to lead to less use of both gasoline and cars.
Gas
Cars
2. Decrease Demand for gas 2. Decrease Demand for Cars 1. Prices Figure 9 Relationship of Complementary Products Step 1. price of gasoline increases Step 2. Gasoline price increase induces a corresponding decrease in demand for such Step 3. Decrease in demand for gasoline also affects a corresponding decrease in demand for cars ( complementary product ). Taste of Buyers Influences buying decisions but is more difficult to assess. Taste more likely than not, differs from person to person. Taste makes people go to either to McDonalds or Jollibee, or prefer a Mercedez Benz to a BMW, drink french wine than an Australian wine. Different people will have different tastes which influence buying behavior. An extreme example of taste is a multimillionaire who spent US $20 million for a ride in Russian spacecraft, travel into space, and stay in the Russian space station for a few days. He is historys first space tourist. Although difficult to measure, taste is a very important factor in buying decisions of consumers. It is what marketing companies try to determine before launching a certain product in the market by doing market research . Marketing companies spend a lot of money on this type of research. Why? Because failure in determining buyers tastes may lead to disastrous mistakes in the choice of products to offer to consumers. Likewise failure in selling or marketing such products may also lead to enormous amount of money being wasted. Other particular factors Climate and weather affect the demand for umbrellas and raincoats. Summer increases the demands for halo-halo and ice cream. Fiestas affect the demand for lechon, pancit, and beer. Figure 10.The Demand Shifts Quantity Price (-) (+) D Decrease in demand Movement along the curve Increase in demand Taxation and Tax Admnistration Governments have the prime responsibility of not only maintaining peace and order in their respective countries but also putting up infrastructure like roads and bridges that would ensure economic development. Governments also have the responsibility of providing basic services to their constituents like basic education and basic health services. These all entail money which need to be spent for all of these. This gives us an idea of how taxation becomes important. The taxes that people pay are a very basic source of revenue ( monetary earned for the government. Taxation Taxation is the act of imposing and collecting a tax. It is the process or means by which a sovereign entity like a government, through its law-making body, raises revenues to defray the necessary expenses of the government for the public. Characteristics of Taxes Taxes are an enforced contribution. Government should be able to lay down the foundation for their economies to develop and subsequently make the citizen earn. Therefore it is only fitting that earners give a share of their earnings to the government in the form of taxes. Ultimately and ideally these, these taxes go back to the public in terms of basic services , protection, peace and order from the police and military, and infrastructure such as public works. Taxes are generally payable in money. The more you earn, the more you pay, the more you pay, proportion to the level of earnings, the value of property, and the rate of consumption. Taxes are imposed on persons and property ( the value of the property. Taxes are levied by the national or local government unit. It takes a congressional act to put up taxes. Taxes are imposed solely for public purposes. Classification of taxes as to the subject matter Personal, poll, or capitation ( residence tax ),fixed amount ) Property ( real property tax on land, house and lot, personal property like jewelry and cars Excise. A cut imposed on consumption ( alcohol tax ). Engagement in the act or practice of a profession ( physicians PTR ) As to purpose General, fiscal, or revenue. Generate income or revenue for the government,ex. Income tax Special or regulatory like cigarettes, energy consumption to control consumption As to scope or authority imposing the tax National ( income taxes ) Municipal or local ( vary from locality to the other ) As to determination of account Specific ( per cartoon of cigarettes, Per liter of gasoline Ad Valorem ( added into the assessed value of a taxable entity being taxed , ex.3% real estate property ) AS To
As To Graduation or rate Proportional ( EVAT ) fairly fixed in proportion to what is being consumed Progressive or graduated ( earnings 100 k- 10% . 500k 30% ) Regressive ( less tax on motor vehicle as the no. Of years of use of such increases ) Definition of Different Kind Of Taxes Income tax ( National and progressive ) taxDonors tax Donors and donee ) Estate tax ( inheritance tax ), lawful heirs or beneficiary Value added tax ( sale or exchange of goods and services or lease of goods and real properties, a percentage tax Other percentage taxes ( based on selling price ,amusement tax, life insurance, sale of share of tax Excise tax ( imported goods ) Documentary Stamp Taxes ( all documents as evidence of transfer, acceptance of right,ownership ) Custom duties and tariffs ( imported and exported goods ) Travel tax Energy tax ( petroleum products, aircraft and water craft tax and electric power to prevent wasteful use of electricity and fuel
Private motor vehicle tax ( yearly upon renewal of registration Tax levying the act of putting taxes on person, activities and products and determining the amount Tax assessment the official action of an officer duly authorized by law,duly prescribed by law. Tax collection process of getting the taxes Tax assessment and tax collection is done by the bureau of Internal Revenue using the internal revenue code and by the Bureau of Customs through custom tariffs.