MODULE 1 consumer or producer gets within
an
MICROECONOMICS economic activity.
is the study of decisions made by OPPORTUNITY COST
people and businesses regarding
the allocation of resources, and the value of what must be forgone
prices at which they trade goods to undertake
and services. an activity.
It considers taxes, regulations, and
government legislation. TWO TYPES OF OPPORTUNITY COSTS
It focuses on supply and demand 1. Implicit Costs - are intangibles
and other forces that determine like time and mental energy that
price levels in the economy. can only be allocated toone thing
MACROECONOMICS at a time.
2. Explicit Costs - are tangible —
Studies the behavior of a country paying for labor, supplies and
and how its policies impact the materials, and factory or office
economy as a whole. space.
It analyzes entire industries and
economies, rather than individuals
or specific companies, which is why
it’s a top-down approach.
It tries to answer questions such as TWO TYPES OF BEHAVIOR
“What should the rate of inflation ECONOMISTS
be?” or “What stimulates economic Positive Economic Principle -
growth?” one that predicts how people will
THREEE CORE PRINCIPLES behave.
Normative Economic Principle -
1. The Scarcity Principle - Although one that says how people should
we have boundless needs and behave.
wants, the resources available to
us are limited. So, having more of MODULE 2
one good thing usually means
ABSOLUTE ADVANTAGE
having less of another.
A person or nation can produce
2. The Cost-Benefit Principle - An more of something than other
individual (or a firm or a society) person or nation using the same
should take an action if, and only if, amount of resources.
the extra benefits from taking the
action are at least as great as the COMPARATIVE ADVANTAGE
extra costs.
A person or nation can produce
something more efficiently given all
3. The Incentive Principle - A
the products it could potentially
person (or a firm or a society) is
produce with lower opportunity
more likely to take an action if its
cost.
benefit rises, and less likely to take
it if its cost rises. In short, INTERDEPENDENCE
incentives matter.
The shared need of countries for
ECONOMIC SURPLUS resources, good, services, labor
and knowledge supplied by other
the benefit or gains of taking an
countries.
action minus its cost that a
LAW OF INCREASING OPPORTUNITY future
COST - Goals of the firm
Increase production of one good, - Number of firms
the opportunity
CHANGES IN DEMAND AND SUPPLY
cost to produce the additional good
increase. Both Demand and Supply
PRODUCT POSSIBILITY FRONTIER Decreases
(PPF) EFFECT: If both demand and
supply decrease, consumers wish
Graph that shows all combinations
to buy less and company wish to
of two goods can be produce given
the available resources. supply less, so output will fall.
Both Demand and Supply
FACTORS THAT CAN CAUSE THE Increases
PRODUCTION POSSIBILITIES CURVE EFFECT: If both demand and
TO SHIFT supply increase, consumers wish to
buy more and firms wish to supply
Change in the quantity or quality of
resources more so output will increase.
Change in technology Demand Decreases but Supply
Time Increases
EFFECT: For any quantity,
MODULE 3
consumers now place a lower value
SURPLUSES on the good, and producers are
- an excess of production or supply over willing to accept a lower price;
demand. therefore, price will fall.
- occurs only if the current price exceeds Demand Increases but Supply
the equilibrium price. Decreases
EFFECT: For any quantity,
SHORTAGES consumers now place a higher
- a condition where the quantity value on the good, and producers
demanded is greater than the quantity must have a higher price in order
supplied at the market price. to supply the good; therefore, price
will increase.
MODULE 4
SHIFT IN DEMAND
- Price of complementary goods PRICE ELASTICITY OF DEMAND
- Price of substitute goods - the ratio of the percentage change in
- Income quantity demanded of a product to the
- Tastes and Preferences percentage change in price.
- An expectation of change in the price in - Economists employ it to understand how
future supply and demand change when a
- Population product's price changes.
SHIFT IN SUPPLY PRODUCT ELASTIC
- Prices of factors of production - If a price change for a product causes a
- Prices of other goods} substantial change in either its supply or
- State of technology its demand, it is considered elastic.
- Taxation Policy - Generally, it means that there are
- An expectation of change in price in acceptable substitutes for the product.
PRODUCT INELASTIC KEYNESIAN ECONOMICS
- If a price change for a product doesn’t - argues that demand drives supply and
lead to much, if any, change in its supply that healthy economies spend or invest
or demand, it is considered inelastic. more than they save.
- Generally, it means that the product is - held that governments should increase
considered to be a necessity or a luxury spending, even if it means going into debt.
item for addictive constituents.
Demand is termed:
PRICE ELASTIC – if the absolute value of
the price elasticity of demand is greater
than 1.
UNIT PRICE ELASTIC - if the absolute
value of the price elasticity of demand is
equal to 1.
PRICE INELASTIC - if the absolute value
of the price elasticity of demand is less
than to 1.
MODULE 5
DEMAND
- refer to the amount of some good or
service consumers are willing and able to
purchase at each price.
- is based on needs and wants—a
consumer may be able to differentiate
between a need and a want, but from an
economist’s perspective they are the
same thing.
WHAT AFFECTS CONSUMPTION?
1. Income Effect - the change in
consumption based on changes in income;
may purchase more expensive goods in
lesser quantities or cheaper goods in
higher quantities based on circumstances
and preferences.
2. Substitution Effect - occurs when a
consumer replaces one product with
another due to a change in relative prices
and personal finances; includes replacing
cheaper items with those more expensive,
or vice versa.
Inferior goods are purchased less
as consumers with higher
purchasing power spend more on
normal goods.
