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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.