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Economics is the proper allocation
and efficient use of available
resources for the maximumsatisfaction of human wants.
Problem lies not on limited resourcesbut on the unjust distribution of
resources.
GENERAL ECONOMICS WITH TAXATION
AND ENTREPRENEURSHIP
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Nature of economics--- as a social
science. It uses scientific methods ingathering data, analyzing the data,
and making conclusions. Data areobtained through observations and
interviews. This is the empirical
method which relies on practical
experience.
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Division of Economics.
1. Microeconomics- deals with theeconomic behavior of individual units
such as the consumers, firms and the
owners of the factors of production
2. Macroeconomics- deals with the
economic behavior of the wholeeconomy or its aggregates such as
government.
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Positive economics- an approach to economicsthat seeks to understand behaviour and the
operation of systems without making
judgements. It describes what exists and how itworks.
Normative economics- an approach to
economics that analyzes outcomes of economicbehaviour, evaluates them as good or bad, and
many prescribed courses of action. Also called
policy economics.
Methods of Economics:
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Descriptive economics- the
compilation of data that describephenomena and facts.
Economic Theory- a statement or
set of related statements about
cause and effect, action and
reaction.
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The three basic economic
problems are:
1. What goods and services to produceand how much.
2. How to produce the goods andservices.(technology),(intermediate
technology)
3. For whom are the goods and
services.
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SCARCITY, CHOICE AND OPPORTUNITYCOST
Opportunity cost- the bestalternative that we give up, or forgo,
when we make a choice or decision.
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SPECIALIZATION, EXCHANGE AND
COMPARATIVE ADVANTAGE
Ricardos theory that specialization andfree trade will benefit all trading parties,
even those that may be absolutely more
efficient producers.Absolute advantage- a producer has an
absolute advantage over another in theproduction of a good or service if it can
produce that product using fewer
resources.
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Comparative advantage- a producer has a
comparative advantage over another in the
production of a good or service if it canproduce that product at a lower
opportunity cost.
Economic system is a set of economic
institutions that dominates a given
economy.Economic System Models
1. Capitalism2. Socialism3. Communism
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Judging an economic system.
Abundance, growth, stability, security,
efficiency, justice and equity, economicfreedom.
THE PRICES OF GOODS AND SERVICES
In a market or capitalists economy, prices
of goods and services are determined by the
interaction between supply and demand of
goods and services.
Price is the value of a product or service
which is expressed in terms of a monetary unit.
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The price system determines the allocation
of goods and services among the membersof society.
DEMAND- the schedule of various
quantities which buyers are willing andable to purchase at a given price, time andplace. Determined by some factors like
income, population, taste and preferences,price expectation, prices of related goods.
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Price Quantity demanded
1
23
4
5
5
43
2
1
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LAW OF DEMAND- consumers are most likely to
buy more goods and services as price decreases
and buy less goods and services as price rises.Law of Demand states: as price increases,
quantity demand decreases and as price
decreases, quantity demand
increases(applicable if the principle of ceteris
paribus is being followed).
Changes in Demand refer to changes in the
determinants of demands like income,
population, price expectation and so forth.
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Changes in quantity demand indicate themovement form one point to another point
brought by changes in price.
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Supplyis the Schedule of various quantities
of commodities which producers arewilling and able to produce and offer at a
given price, place and time.
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Determinants are technology, cost of
production, number of sellers, prices of other
goods, price expectations, taxes and subsidies.
Law of supply states that as price increases,
quantity supply also increases and as price
decreases, quantity supply also decreases.
Price Quantity supplied
1
2
3
4
5
1
2
3
4
5
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Changes in supply pertain to change in the
determinants of supply.
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Changes in quantity supplied show the
movements form one point to another
point on a constant supply curve. Changein quantity supplied is brought about by a
change in price.
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THE LAW OF SUPPLY AND DEMAND
Quantity supplied price Quantity
demanded1
2
3
4
5
1
2
3
4
5
5 shortage
4 equilibrium price
3
2 Surplus
1
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LAW OF SUPPLY AND DEMAND states that
when supply is greater than demand, price
decreases; when demand is greater thansupply price increases; when supply is
equal to demand, price remains constant.
Practical Application of the law
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S C CO S O
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ELASTICITY AND CONSUMER BEHAVIOR
Demand Elasticity refers to the reaction or
response to the buyers to changes in priceof goods and services.
Five types of demand elasticity1. elastic demand
2. inelastic demand
3. unitary demand
4. perfectly elastic demand
5. perfectly inelastic demand
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D t i t f D d El ti it
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Determinants of Demand Elasticity
1. Number of goods substitutes
2. Price increase in proportion to income3. Importance of the product to the consumers
Elasticity of supply refers to the reaction or response
of the seller/producer to price change of goods.1. Elastic supply
2. Inelastic supply
3. Unitary supply
4. Perfectly elastic supply
5. Perfectly inelastic supply
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Th i i l d t i t f l f l ti it
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The principal determinant of supply of elasticity
is the TIMEinvolved in the ability of producers
to respond to price changes.
Theory of Consumer Behavior
1.Law of diminishing marginal utility. Utility
means satisfaction. Marginal utility refers tothe additional satisfaction of a consumer
whenever he consumes one more unit of the
same good. Consumption of more successiveunits of the same good increases total utility,
but at a decreasing rate because marginal
utilit diminishes.
PRODUCTION
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PRODUCTION
Free goods- goods that are produced without
cost; these are produced by nature.Economic goods- produce by man and there
is cost in each production.
Factors of production
1.land Input=output
2.labor Fixed factors
3.capital Variable Factors
4.entrepreneur
P d ti f ti t h i l l ti hi
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Production function- technical relationship
between the application of inputs and the
resulting maximum obtainable output.LAW OF DIMINISHING RETURNS OR LAW
OF DIMINISHING MARGINAL
PRODUCTIVITY- When successive units of
variable input work with a fixed input
beyond a certain point the additionalproduct produced by each additional unit
of a variable, input decreases.
M f th l th i
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Message of the law- there is a proper
combination of a variable input and fixed input
to attain maximum output
4.Average cost- also called unit cost
5.Marginal cost
6.Explicit cost
7.Implicit cost
8.Opportunity costMarginal cost and average cost relationship-
when MC is falling it pulls down AC, When MC is
rising it pulls up AC.
Short Run And Long Run
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Short Run And Long Run
Economic of scale
External economies of scale are factors w/care outside the firm but contribute to the
efficiency of the latter.
Internal economies of scale are those factors
inside the firm w/c contribute to the
efficiency of the latter.
Appropriate Techniques of production
Labor-intensive technology
Capital-intensive
R i id f th fi
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Revenue-income side of the firm
Total Revenue=price times unit sold
Total Revenue-total cost=profit
Under a short run period the rule is if TR>VC, operate; If TR
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The rules are:
TR>TC: produce more
TR
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MARKET STRUCTURE AND PRICE-OUTPUT
DETERMINATION
Basic Market Models1.Perfect/pure type
a. perfect or pure competitionb. pure monopoly
2. Imperfect/ non-pure type
a.monopolistic competition
b. oligopoly
FACTOR MARKET AND INCOME DISTRIBUTION
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FACTOR MARKET AND INCOME DISTRIBUTION
Determinants of Factor Demand
Direct demand
Derived demand - productive factors
because of their productivityDemand for labor-wage as determinant
Supply in the Factor Market
Supply of labor- more are willing to work
when wage rates are higher when there
are abundant job opportunities.
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Labor Market
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Individual supply of Labor
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Income Distribution- the allocation of
income among the owners of the factors of
production
Types of Income distribution
Personal distribution- allocation of
income among persons or households
Functional distribution-allocation ofincome among the factors of production.
Cause of Income inequality
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Cause of Income inequality
1. Intelligence and talents
2. Education and training3. Unpleasant and risky jobs
4. Ownership of productive factors
5. Luck and connections
Theories of income Distribution
Marginal Productivity
Needs
Social Usefulness
E ualit
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Pricing of Resources determined by law of
supply and demand wages the price of
labor.
Supply and demand
Minimum wageLabor unions
Economic Rent- payment for the use ofland and other natural resources which are
fixed in total supply.
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Taxation- inherent power of the state acting
through the legislature to impose and collect
revenue for the purpose of supporting thegovernment and its recognized objects.
Two-folds nature of taxation1. inherent- it exists w/o the necessity of
any specific grant of the power of the
constitution.
2. legislative- exercised by the legislature
though the enactment of statutes.
Theory of taxation- that w/o money the
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Theory of taxation- that w/o money the
government would have no funds to meet the
various essential expenses it has to incur to
enable it to exist and function effectively.
Basis of Taxation- based on the reciprocal duties
of protection and support between the stateand its citizens as well as residents and on the
sovereign power as well as jurisdiction by the
state over its people and sovereignty.
Purpose of Taxationis to raise revenue or funds
to support the government and its services.
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4 in the assessment and collection of certain
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4. in the assessment and collection of certain
kind of taxes, certain guarantees against
injustice to individual especially by way of
notice and opportunity for hearing must be
provided.
5. properties exempt from taxation under theconstitution can not be taxed.
Situs of taxation:
1. Property Tax
a. Real property tax- place where it is
located regardless of domicile or citizenship of
the owner.
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b. personal property- taxable in the
domicile of the owner.2. income tax- residence/ citizenship of
the taxpayer or sources of income.
3. poll or residence tax- residence or
domicile of the person taxed.
4. transfer taxes- residence or
citizenship or location of the property.
5 business or occupation taxes- place
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5. business or occupation taxes- place
where the act or occupation is engaged in
regardless of the domicile of the owner orproprietor and regardless of the location of
the property used for business.
6. franchise tax- state which granted the
franchise.
Tax- an enforced proportionate contributionimposed upon persons, property or interest by
the legislature for a public purpose and
generally payable in money.
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Elements/ requisites of a tax.
1. enforced contribution
2. proportionate in character being
based on ability to pay.
3. levied by the legislature directly or
by delegation.
4. levied for a public purpose.5. generally payable in money
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TAX License Fee
1.Revenue measure 1.regulatory measure.2.Imposed on the exercise of 2.imposed on the exer-
The power of taxation cise of police power
3.Non-payment does not 3.non payment as a ruleNecessarily Render the renders the business
Business illegal illegal
4.Not limited to the cost 4.limited to shoulder
of regulation only cost of regulation
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Taxes Classified
a. As to subject matter
1. poll, personal or capitation tax, one imposed on
residents.
2. Property tax- imposed on property.
3. Excise tax- imposed on a privilege or right.
b. As to who bears the burden
1. direct tax- imposed to a person directly involved.
2. indirect tax- which forms a part of the purchase
price of the commodity and passed on to
consumers.
c. As to purpose
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c. As to purpose
1. general tax- imposed for general
purpose.2. special tax-imposed for particular reason
d. As to determination of amount tax to be paid
1. ad valorem tax- based on value of the
object taxed determined by the appraiser
2. specific tax- based on weight andmeasurement
e. As to scope
1. local/municipal 2. national
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Interest- payment for the use of money.
Profits
BUSINESS ORGANIZATION AND
MANAGEMENT
Major forms of Business Organization
Single or sole proprietorship
Partnership Corporation
Multinational Corporations Characteristics of an Entrepreneur
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Characteristics of an Entrepreneur
1. Reasonable risk-takers
2. Self-confident
3. Hardworking
4. Innovative5. Leadership-selfless dedication, purpose
and vision, courage, conviction,
enthusiasm, integrity, tact, hardwork
6. Positive thinker
7. Decision-maker
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Determinants of successful entrepreneur
Managerial skills
1. ability to conceptualize and plan.
2. ability to manage others.3. ability to manage time and to learn.
4. ability to adapt to change.