ECONOMICS

TAXATION AND AGRARIAN REFORM

•
ECONOMICS
Proper allocation of resources
• Science that deals with the management of scarce resources
• Scientific study on how individuals and society generally make choices
• Simply scarcity and choice
• Came from the Greek words OIKUS, meaning household, and NOMUS,
meaning system or management, therefore means the management of
household
• Derived as the queen of all sciences
• Known in the modern world as state management
 SCARCITY
• Is the basic and central economic problem confronting every society
• The reason behind the establishment of economics; if there is no
scarcity, there is no economics
• A commodity or service being short in supply, relative to its demand
• Pertains to the limited availability of economic resources to society’s
unlimited demand for goods and services
 Limited Resources +
Unlimited Wants = Scarcity
 CETERIS PARIBUS
• Means all other things held constant or all else equal
• Is used as a device to analyse the relationship between two variables
while the other factors are held unchanged
A BRIEF HISTORY
 Classical Economics
• Focuses on the relationship between consumers and producers through
demand and supply, which ultimately explained how the market works
• Adam Smith – being regarded as the father of economics
• Karl Marx - known for his idealism about borgoueise and ploretariat
 Neoclassical
• Main concerns on market system efficiencies
• Leon Walras – developed the analysis of equilibrium of a particular
market and the concept of marginalism
 Non-Walrasian
• Marginalism is not the key to determine general equilibrium position
for the economy as a whole
• Some goods cannot be priced according to the general equilibrium
position
 New Classical
• Highlighted the importance of adherence to national expectations
hypothesis and analysis, which included various economic phenomena
in formulating different kinds of studies and new theories in
economics
ECONOMICAL
PERSPECTIVE
Positive and Normative Economics
 POSITIVE ECONOMICS
• Is an economic analysis that considers economic conditions as they
are, or considers economics as it is. It uses objective or scientific
explanation in analysing the different transactions in the economy. It
simply answers the question what is.

• E.g. The economy is now experiencing a slowdown because of too

much politicking and corruption in the government.
• The economy is now on a slowdown because the world is
experiencing a financial and economic crisis.
NORMATIVE ECONOMICS
• Is economic analysis which judges economic conditions as it should
be. It is that aspect of economics that is concerned with human
welfare. It deals with the ethics, personal value judgements and
obligations analysing economic phenomena. It answers the question
what should be.

• E.g. The Philippine government should initiate political reforms in

order to regain investor confidence, and consequently uplift the
economy.
• In order to minimize the lash of global recession, the Philippine
government should release a stimulus package geared towards
encouraging economic productivity.
 4 BASIC
ECONOMIC
QUESTIONS
• What to produce?
• How to produce?
• How much to produce?
• For whom to produce?
 3 E’s in Economics
• Efficiency – refers to the productivity and proper allocation of economic
resources. It also refers to the relationship between the scarce factor inputs
and outputs of goods and services
• Equity – means justice and fairness. Thus, while technological advancement
may increase production, it can result in the retrenchment or displacement of
workers
• Effectiveness – means attainment of goals and objectives.
 SOME IMPORTANT ECONOMIC TERMS
• Wealth – refers to anything that has a functional value, which can be traded
for goods and services
• Consumption – refers to direct utilization or usage of available goods and
services by the buyer or the consumer sector
• Production – is defined as the formation by firms of an output (products or
services). It is the combination of land, labor, and capital in order to produce
outputs of goods or services
• Exchange – is the process of trading goods or services for money or its
equivalent
• Distribution – the process of allocating or appointing scarce resources to be
utilized by the household, the business sector, and the rest of the world.
ECONOMIC
BRANCHES
The Micro and Macroeconomics
MICROECONOMICS
• 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
• The market is the central concept of microeconomics. It focuses on
two main players, the buyer and the seller, and their interaction with
one another
MACROECONOMICS
• Branch of economics that studies the relationship among broad
economic aggregates like national income, national output, money
supply, etc. the term macro, in contrast to micro, implies that is seeks
to understand the behavior of the economy as a whole
• It focuses on the four specific sectors of the economy; the behavior of
the aggregate household (consumption); the decision making of the
aggregate businness (investment); the policies and projects of the
government (government spending); and the behavior of foreign
economic agents (export and import)
 OPPORTUNITY COST
• Refers to the foregone value of the next best alternative. It is the value
of what is given up when one makes a choice.
• Opportunity cost is expressed in relative price. This means that the
price of one item should be relative to the price of another
FACTORS OF
PRODUCTION
Land, Labor, Capital, Entrepreneurship
 LAND
• Broadly refers to all natural resources, which are given by, and found
in nature, and are, therefore, not manmade. It does not solely mean the
soil or the ground surface, but refers to all things and powers that are
given free to mankind by nature.
 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 includes factory workers who are engaged in manual
work. It can also refer to an accountant, economist, nurse, etc.
 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.
• Money is not actually considered as capital in economics as it does
not produce a good or service but rather a form of asset that is used as
a medium of exchange.
 ENTREPRENEURSHIP
• Broadly refers to all natural resources, which are given by, and found
in nature, and are, therefore, not manmade. It does not solely mean the
soil or the ground surface, but refers to all things and powers that are
given free to mankind by nature.
 THE CIRCULAR FLOW MODEL
• Households primarily provide basic economic resources. These
economic resources are combined so that firms can create goods and
services which, are eventually offered back and consumed by
households.
BASIC DECISION
PROBLEMS
 CONSUMPTION
• Is the basic decision problem that the consumers must always deal
with in their day to day activities
• Refers to the determination of what types of goods or services they
want to utilize or consume, and the corresponding amounts thereof
that they should purchase or utilize.
 PRODUCTION
• The problem of production is generally a concern of producers. They
determine the needs, wants, and demands of consumers, and decide
how to allocate their resources to meet these demands
 DISTRIBUTION
• This problem is primarily addressed to the government. There must be
proper allocation of all the resources for the benefit of the whole
society. In a market economy, though, absolute equality of every
member, as to the distribution of resources, can never be achieved
 GROWTH OVER TIME
• This is the last basic decision problem that a society or nation must
deal with. Societies continue to live on. They also grow in numbers,
on the one hand, people have definite lives, but societies have longer,
if not infinite lives. All the problems of choice, consumption,
production and distribution have to be seen in the context of how they
will affect future events.
 TYPES OF
ECONOMIC
SYSTEMS
 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 the
traditional means of production
 COMMAND ECONOMY
• 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. It is an economic system characterized by
collective ownership of most resources, and the existence of a central
planning agency of the state
 MARKET ECONOMY
• Also called capitalism. Its basic characteristic is that the resources are
privately owned, and that the people themselves make the decisions. It
is an economic system wherein most economic decisions and means
of production are made by the private owners
 SOCIALISM
• Is an economic system wherein key enterprises are owned by the state.
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.
 MIXED ECONOMY
Is a mixture of market system and the command system