GENERAL ECONOMICS WITH TAXATION AND ENTREPRENEURSHIP

Economics is the proper allocation and efficient use of available resources for the maximum satisfaction of human wants.

Problem lies not on limited resources but on the unjust distribution of resources.

Nature of economics--- as a social science. It uses scientific methods in gathering data, analyzing the data, and making conclusions. Data are obtained through observations and interviews. This is the empirical method which relies on practical experience.

Division of Economics.1. Microeconomics- deals with the economic

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 whole economy or its aggregates such as government.

Positive economics- an approach to economics that seeks to understand behaviour and the operation of systems without making judgements. It describes what exists and how it works.

Normative economics- an approach to economics that analyzes outcomes of economic behaviour, evaluates them as good or bad, and many prescribed courses of action. Also called policy economics.

Methods of Economics:

Descriptive economics- the compilation of data that describe phenomena and facts.

Economic Theory- a statement or set of related statements about cause and effect, action and reaction.

The three basic economic problems are:

1. What goods and services to produce and how much.

2. How to produce the goods and services.(technology),(intermediate technology)

3. For whom are the goods and services.

SCARCITY, CHOICE AND OPPORTUNITY COST

Opportunity cost- the best alternative that we give up, or forgo, when we make a choice or decision.

SPECIALIZATION, EXCHANGE AND COMPARATIVE ADVANTAGERicardo’s theory that specialization

and free 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 the production of a good or service if it can produce that product using fewer resources.

Comparative advantage- a producer has a comparative advantage over another in the production of a good or service if it can produce that product at a lower opportunity cost.

Economic system is a set of economic institutions that dominates a given economy.

Economic System Models1. Capitalism2. Socialism3. Communism

Judging an economic system.Abundance, growth, stability, security,

efficiency, justice and equity, economic freedom.

THE PRICES OF GOODS AND SERVICESIn a market or capitalists economy, prices of

goods and services are determines 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.

The price system determines the allocation of goods and services among the members of society.

DEMAND- the schedule of various quantities which buyers are willing and able to purchase at a given price, time and place. Determined by some factors like income, population, taste and preferences, price expectation, prices of related goods.

Price Quantity demanded

1 2 3 4 5

5 4 3 2 1

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.

Changes in quantity demand indicate the movement form one point to another point brought by changes in price.

Supply is the Schedule of various quantities of commodities which producers are willing and able to produce and offer at a given price, place and time.

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

Changes in supply pertains to change in the determinants of supply.

Changes in quantity supplied show the movements form one point to another point on a constant supply curve. Change in quantity supplied is brought about by a change in price.

THE LAW OF SUPPLY AND DEMANDQuantity supplied price Quantity

demanded

1 2 3 4 5

1 2 3 4 5

5 shortage4 equilibrium price32Surplus1

LAW OF SUPPLY AND DEMAND states that when supply is greater than demand, price decreases; when demand is greater than supply price increases; when supply is equal to demand price remains constant.

Practical Application of the law

ELASTICITY AND CONSUMER BEHAVIORDemand Elasticity refers to the reaction or response to the buyers to changes in price of goods and services.

Five types of demand elasticity1. elastic demand2. inelastic demand3. unitary demand4. perfectly elastic demand5. perfectly inelastic demand

Determinants of Demand Elasticity1.Number of goods substitutes2.Price increase in proportion to income3.Importance of the product to the consumersElasticity of supply refers to the reaction or response of the seller/producer to price change of goods.1.Elastic supply2.Inelastic supply3.Unitary supply4.Perfectly elastic supply5.Perfectly inelastic supply

The principal determinant of supply of elasticity is the TIME involved in the ability of producers to respond to price changes.

Theory of Consumer Behavior1.Law of diminishing marginal utility. Utility means satisfaction. Marginal utility refers to the additional satisfaction of a consumer whenever he consumes one more unit of the same good. Consumption of more successive units of the same good increases total utility, but at a decreasing rate because marginal utility diminishes.

PRODUCTIONFree goods- goods that are produced without costs; theses are produced by nature.Economic goods- produce by man and there is costs in each production.

Factors of production1.land Input=output2.labor Fixed factors3.capital Variable Factors4.entrepreneur

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 additional product produced by each additional unit of a variable, input decreases.

Message of the law- there is a proper combination of a variable input and fixed input to attain maximum output

The cost of productionhigher cost of production, the higher the price of

the productDoes not only affect the producer but also the

buyersEconomic Costs:1.Total cost- sum total cost of production, also known as factor payments. Equivalent to fixed cost and variable cost2.Fixed costs it remains constant regardless of the volume of production.3.Variable costs- changes in proportion to volume of production

4.Average cost- also called unit cost5.Marginal cost6.Explicit cost7.Implicit cost8.Opportunity cost

Marginal 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

Economic of scaleExternal economies of scale are factors w/c are

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 technologyCapital-intensive

Revenue-income side of the firmTotal Revenue=price times unit soldTotal Revenue-total cost=profit

Under a short run period the rule is if TR> VC, operate; If TR<VC, shut down.Under a long run where all costs are variable this means TC is equivalent to variable cost. The rules are:TR>TC: produce moreTR<TC: stop productionTR=TC: maintain productionIn TR=TC the firm gets a normal profit.

Marginal Revenue-Marginal Cost ApproachIf marginal revenue is greater than marginal cost,

increase production: if Marginal revenue is less than marginal cost, does not increase production. Most profitable output for a firm is when MR=MC

MARKET STRUCTURE AND PRICE-OUTPUT DETERMINATION

Basic Market Models1.Perfect/pure type

a. perfect or pure competitionb. pure monopoly

2. Imperfect/ non-pure typea. monopolistic competitionb. oligopoly

FACTOR MARKET AND INCOME DISTRIBUTIONDeterminants of Factor Demand

Direct demandDerived demand-productive factors because

of their productivityDemand for labor-wage as determinant

Supply in the Factor MarketSupply of labor- more are willing to work

when wage rates are higher when there are abundant job opportunities.

Labor Market

Individual supply of Labor

Income Distribution- the allocation of income among the owners of the factors of production

Types of Income distributionPersonal distribution- allocation of

income among persons or householdsFunctional distribution-allocation of

income among the factors of production.

Cause of Income inequality1.Intelligence and talents2.Education and training3.Unpleasant and risky jobs4.Ownership of productive factors5.Luck and connections

Theories of income DistributionMarginal ProductivityNeedsSocial UsefulnessEquality

Pricing of Resources determined by law of supply and demand

Wages the price of labor.Supply and demandMinimum wageLabor unions

Economic Rent- payment for the use of land and other natural resources which are fixed in total supply.

Taxation- inherent power of the state acting through the legislature to impose and collect revenue for the purpose of supporting the government 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 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 state and 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 Taxation is to raise revenue or funds to support the government and its services.

Source of taxation- constitution, statutory enactments, administrative rules and regulations, judicial decisions, opinions of legal luminaries.

Limitations on the taxing power according to Malcolm:

1. tax must be for public purpose.2. person, property or interest taxed must be

within the jurisdiction of the taxing power.3. rule of taxation must be uniform and

equitable

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 the constitution 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.

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 where the act or occupation is engaged in regardless of the domicile of the owner or proprietor and regardless of the location of the property used for business.

6. franchise tax- state which granted the franchise.

Tax- an enforced proportionate contribution imposed upon persons, property or interest by the legislature for a public purpose and generally payable in money.

Elements/ requisites of a tax.1. enforced contribution2. 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

TAX License Fee1.Revenue measure 1.regulatory measure.2.Imposed on the exercise of 2.imposed on the exer-The power of taxation cise of police power3.Non-payment does not 3.non payment as a ruleNecessarily Render the renders the businessBusiness illegal illegal4.Not limited to the cost 4.limited to shoulder of regulation only cost of regulation

Taxes Classifieda.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 burden1.direct tax- imposed on a privilege or right.2.indirect tax- which forms a part of the

purchase price of the commodity and passed on to consumers.

c. As to purpose1. general tax- imposed for general

purpose.

Interest- payment for the use of money.

Profits

BUSINESS ORGANIZATION AND MANAGEMENTMajor forms of Business Organization• Single or sole proprietorship• Partnership• Corporation• Multinational Corporations

Characteristics of an Entrepreneur1.Reasonable risk-takers2.Self-confident3.Hardworking4.Innovative5.Leadership-selfless dedication, purpose and vision, courage, conviction, enthusiasm, integrity, tact, hardwork6.Positive thinker7.Decision-maker

Determinants of successful entrepreneurManagerial 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.