CHAPTER 1

RESOURCE UTILIZATION AND

ECONOMICS
 ECONOMICS DEFINED

- Is a Social Science
- Facilitates proper decision makings
- Focuses on SCARCITY

Recall:
Greek Word: “oikos” – Household
“nomus” – Management
“Oikonomus” – Household Management

“Is the efficient allocation of scarce means of

production toward the satisfaction of human
needs and wants.”
 WHAT IS ECONOMICS?

Economics basically comes from the Greek

word “Oikonomicus” , incorporated by the
Greek philosopher Xenophon which means
“State Management”

Later on, Classical Economists contends that the process

of allocating and utilizing the resources are made and
conducted by the households and not by the government.
Thus , the meaning of the word Oikonomicus (sometimes
used in to “Oikonomus” or “Oikonomia”) is change in to
“Household Management”.
 It broadly refers to
NATURAL RESOURCES,
which are given &
found in nature & not
man-made.

FACTORS OF Any form of human

PRODUCTION or effort exerted in the
production of goods
ECONOMIC and services. Termed
RESOURCES as HUMAN RESOURCE.

Is man-made goods
LAND used in the production
LABOR of other goods and
services. Termed as
CAPITAL MAN-MADE RESOURCE.
ENTREPRENUERSHIP
Refers to the ability in
combining other
factors of production.
BASIC ECONOMIC ACTIVITIES
Defines as the formation or creation by firms of an
output. It is basically the process by which land, labor
and capital are combined in order to produce goods and
services.

The process of allocating or apportioning scarce

resources to be utilized by the household, the business
sector, and the rest of the world. It also refers to the
process of storing and moving products to customers
often through intermediaries such as wholesaler or
retailer.

Is the process of trading or buying and selling of goods

and/or services for money and/or its equivalent.

Is the direct utilization or usage of the available goods

and services by the buyer or the consumer sector. It is
also the satisfaction obtained by consumers for the use
of goods and services.
 BASIC ECONOMIC QUESTIONS

Tells us that an economy must

identify the goods and services
WHAT TO PRODUCE that are needed to be produced
for the society’s utilization.

Tells us that there is a need to

identify the different methods HOW TO PRODUCE
and techniques in order to
produce goods and services.
Identifies the quantity of goods
and services needed to be
HOW MUCH TO PRODUCE
produced in order to address the
demand of man and society as a
Identifies the people or sectors whole.
who demand for the
commodities being produced by FOR WHOM TO PRODUCE
society.
 CIRCULAR FLOW MODEL
Assumption # 2 Assumption # 3
Resources are used All income are spent
efficiently. wholly (like, no
Factors of Payments savings)
RESOURCE MARKET
Factors of Production

Assumption # 1
BUSINESSES HOUSEHOLDS
There are only two
• Buy Resources • Sell Resources
sectors available in the
• Sell Products • Buy Products
economy.

Goods and Services

PRODUCT MARKET
Consumption Expenditure
 The 3 Es of ECONOMICS

Being efficient in the production and

EFFICIENCY
allocation of goods and services saves
Refers to productivity and proper
time, money, and increases the firm’s or
allocation of economic resources.
economy’s level of output.

Being effective will enable firms to

EFFECTIVENESS
address the consumption needs of society
Means attainment of goals and objectives.
and the rest of the world.

Being in a state of equity avoids the

EQUITY
disadvantage in the employment of the
Means justice and fairness.
factors of production.
 What do we mean by
this system? What is its
role? Should every
nation adopt a kind of
this system? If so what
would be its basis?
ECONOMIC SYSTEM
Refers to a set of economic
institutions that dominate a
given economy with the main
objective of solving the basic
economic question.
TRADITIONAL
Basically a subsistence economy. The decision on
what, how, how much, and for whom to produce are
made by him or the family head, in accordance with
traditional means of production.
COMMAND
The manner of production is dictated by the
government. The government decides on what, how,
how much, and for whom to produce. characterized
by collective ownership of all resources.
MARKET
Resources are privately owned, and that the people
themselves make the decisions. Factors of production
are owned and controlled by individuals, and people
are free to produce goods and services to meet the
demand of consumers.
MIXED
Is a mixture of the three aforementioned economic
systems. However it is more market-oriented rather
than command or traditional.
 BASIC ECONOMIC TERMS
• Wealth-anything that has functional value (usually in
money) which can be traded for goods and services
• Consumption-direct utilization or usage of the available
goods and services by the buyer (individual) or
consumer (household)
• Production- as the formation or creation by firms of an
output (products/services)
• Exchange-process of trading or buying and selling of
goods and services for money and or equivalent
• Distribution—allocating or apportioning scarce
resources to be utilized by the household
END OF DISCUSSION!
QUESTIONS?
 CHAPTER 2
BASIC ANALYSIS OF DEMAND AND
SUPPLY
 DEMAND CONCEPT

“It pertains to the quantity of a good or service

that people are ready to buy at given prices with a
given time period.”

Main Points to Consider:

- Desire to possess a thing
- The ability to pay or means of purchasing it.
- Willingness in utilizing it.
- Price and time are present.
 DEMAND ANALYSIS

DEMAND SCHEDULE
- Is a table which shows the relationship of prices and
the specific quantities demanded at each of these prices.

DEMAND CURVE
- Is a graphical presentation showing the relationship
between price and quantity demanded per time period.

DEMAND FUNCTION
- Shows the relationship between demand for a
commodity and the factors that determine or influence the
demand.
 DEMAND SCHEDULE

TABLE 2.1
Hypothetical Demand Schedule for Rice per Month

PRICE (P)/Kg. QUANTITY (Kg.)

P35.00 8 Kgs.
24.00 13
13.00 20
12.00 30
11.00 45
 DEMAND CURVE

FIGURE 2.1
Hypothetical Demand Curve for Rice per Month
Price
40

30

20

10

0 Kg./Month
0 20 40 60
 DEMAND FUNCTION

Demand Function is basically express in a functional

form. Base on the demand schedule and demand curve, since
Price only affects Quantity Demanded then the Demand
Function:
QD = f(P)
Where: QD is Quantity Demanded
P is Price
In Mathematical Form (Using Slope-Intercept Form or
Regression Method):
QD = a – bP
Where: a is the intercept of the demand curve
b is the slope of the demand curve
 FACTORS AFFECTING DEMAND

Apart from Price, Quantity Demanded is also affected by the

following factors:
- Income
- Occasional/Seasonal Product
- Population
- Price of its Substitute or Complementary Good
- Expectations of Future Price

CHANGE IN QUANTITY DEMANDED & CHANGE IN DEMAND

“Change in Quantity Demanded is being referred if Price ONLY affects
Quantity Demand.”
“Change in Demand is being referred if OTHER FACTORS affects
Quantity Demand.”
 SUPPLY CONCEPT

“Is the quantity of goods and services that

firms are willing to sell at a given price within a
period of time, other factors being held constant.”

Main Points to Consider:

- Product is present.
- Willingness to sell.
- Price and time are present.
 SUPPLY ANALYSIS

SUPPLY SCHEDULE
- Is a table listing the various prices of a product and the
specific quantities supplied at each of these prices at a given point
in time.

SUPPLY CURVE
- Is a graphical representation showing the relationship
between the price of the product sold and the quantity supplied per
time period.

SUPPLY FUNCTION
- Shows the relationship between supply for a commodity
and the factors that determine or influence the supply.
 SUPPLY SCHEDULE

TABLE 2.2
Hypothetical Supply Schedule for Rice per Month

PRICE (P)/Kg. QUANTITY (Kg.)

P35.00 48 Kgs.
24.00 41
13.00 30
12.00 17
11.00 5
 SUPPLY CURVE

FIGURE 2.2
Hypothetical Supply Curve for Rice per Month
Price
40

30

20

10

0 Kg./Month
0 20 40 60
 FACTORS AFFECTING SUPPLY

Apart from Price, Quantity Supplied is also affected by the

following factors:
- Optimization in the use of Factors of Production
- Technology
- Future Expectation of Price
- Number of Sellers
- Weather Condition
- Government Policy

CHANGE IN QUANTITY SUPPLIED & CHANGE IN SUPPLY

“Change in Quantity Supplied is being referred if Price ONLY affects
Quantity Supply.”
“Change in Supply is being referred if OTHER FACTORS affects Quantity
Supply.”
MARKET EQUILIBRIUM CONCEPT

PRICE
40
35
30
25
20 Qs
15 Qd
10
5
0 Kg./Month
0 10 20 30 40 50 60
 Mathematical Approach
Market Equilibrium Identity: Qd = Q s
Example:
Consider the following as the demand and
supply function of candy per day.
Qd = 1200 – 200P
Qs = 200P
Sol’n. Qd = Q s
1200 – 200P = 200P
-200P - 200P = -1200
-400P = -1200
-400 = -400
P=3 EQUILIBRIUM PRICE
 EQUILIBRIUM QUANTITY DETERMINATION
Hint: Use either the Qd or Qs function and then
substitute the value of P or equilibrium price
in any of the function. Like;
For demand: For supply:
Qd = 1200 – 200P
= 1200 – 200(3) Qs = 200P
= 1200 – 600 = 200(3)
Qd = 600 Qs = 600

Therefore, the Equilibrium Quantity is 600 units

END OF DISCUSSION!
QUESTIONS?
 CHAPTER 3
CONCEPT OF ELASTICITY
 ELASTICITY DEFINED

“Means responsiveness or sensitivity to changes in certain factors.”

“It is defined as the ratio of the percent change in one variable to the
percent change in another variable.”

Expressed in a formula: ε = %ΔX / %ΔY

TYPES OF ELASTICITY

- ELASTIC ε>1
- INELASTIC ε<1
- UNIT ELASTIC ε=1
- PERFECTLY ELASTIC ε=∞
- PERFECTLY INELASTIC ε=0
 ELASTICITY CONCEPT

CLASSIFICATION OF ELASTICITY

- ELASTICITY OF DEMAND – is a measure of the degree of

responsiveness of quantity demanded of a product to a given
change in one of the independent variables which affects demand
for that product. It is classified in to three, namely:
- Price Elasticity of Demand
- Income Elasticity of Demand
- Cross Price Elasticity of Demand

- ELASTICITY OF SUPPLY – refers to the reaction or response of the

sellers or producers to price changes of goods sold. It is a measure
of the degree of responsiveness of supply to a given change in
price.
 ELASTICITY FORMULAE

FOR PRICE ELASTICITY OF

DEMAND AND SUPPLY

INCOME ELASTICITY OF
DEMAND

CROSS PRICE ELASTICITY

OF DEMAND
 A NOTE TO ELASTICITY!!!

Under Income and Cross Price Elasticity concepts, certain

points need to be considered particularly on the types of good their
elasticity coefficient corresponds. That is:
Under Income Elasticity
if : ε is POSITIVE, the type of good is NORMAL
ε > 1 LUXURY
ε < 1 NECESSITY
if : ε is NEGATIVE, the type of good is INFERIOR

Under Cross Price Elasticity

if : ε is POSITIVE, the type of good is SUBSTITUTE
if : ε is NEGATIVE, the type of good is COMPLEMENT

NOTE: The determination of its type of good SHOULD be done

before taking the absolute value of the elasticity coefficient.
 APPLICATION w/ INTERPRETATION

EXAMPLE
1. Suppose the price of Good C increases from P24.00 to P30.00
which corresponds to an increase in quantity supply from 120
units to 160 units. Compute for the supply elasticity and
determine its type.
SOLUTION:

= = = x = = 1.29

INTERPRETATION:
“For every 1% increase in price, quantity supplied will increase
by 1.29%."
 APPLICATION w/ INTERPRETATION

TRY THIS ONE!!!

1. Suppose the price of Good A changes to P20.00 from P18.00.
Due to price change, the quantity demand of its related good
which is Good B also declines from 50 units to 40 units.
Compute for the cross-price elasticity of demand and determine
if what type of good and elasticity.

ANSWER: ε = 2.11
TYPE OF GOOD: COMPLEMENT (Because its NEGATIVE)
TYPE OF ELASTICITY: ELASTIC (Because its Greater than One)

INTERPRETATION:
“For every 1% increase in price of Good A, quantity demanded
for Good B will decrease by 2.11%."
END OF DISCUSSION!
QUESTIONS?