EGUIA, ALIA GABRIELLE M.

ACC251 BAECODEX MIDTERMS

Chapter 1: Introduction To Economic 3.​ CAPITAL (Factor Income = Principle +

Development Interest)
-​ Buildings, equipment, and human
ECONOMICS skills used to produce goods and
●​ “Oikos” = House ; “Nomos” = Management services.
●​ The study of how we choose to use our -​ Could be physical or human.
limited resources to obtain the maximum
satisfaction of unlimited human wants. 4.​ ENTREPRENEURIAL ABILITY (Factor
●​ Efficient allocation of scarce resources. Income = Profit)
●​ Needs + Wants / Limited Resources x 8 -​ The enterprise
Billion People = Problem of Economics
ECONOMIC BADS
EFFICIENT ●​ Waste, pollution, false advertisements,
●​ Achieving your goal with the least amount noise, misinformation, spam texts
of resources.
RATIONAL SELF-INTEREST
EFFECTIVE ●​ Rational = Logical, sensible, reasonable
●​ Achieving your goal. ●​ Each individual tries to maximize the
expected benefit achieved with a given
SCARCITY cost or to minimize the expected cost of
●​ The idea that there are not enough achieving a given benefit.
resources to meet everyone’s needs and
wants. MARGINAL
●​ Additional or incremental
NEEDS ●​ ”One more”
●​ Basic human requirements without which ●​ Used to describe a change in an economic
you can’t live. variable.

WANTS OPPORTUNITY COST

●​ Things that people will consume/use if ●​ “Implicit cost”
their income were unlimited. ●​ Benefit or value you give up because you
choose to take one action in favor of
RESOURCES another.
●​ Factors of production used to produce
economic goods that people consume. EXAMPLE COMPUTATION FOR
OPPORTUNITY COST:
ECONOMIC GOODS
●​ Products and services ●​ CALCULATE: How much is the
opportunity cost from Point E to Point B?
FACTORS OF PRODUCTION:
1.​ LAND (Factor Income = Rent) ●​ GIVEN:
-​ Could be renewable or COMPUTERS TEXTBOOKS
exhaustable.
A 100 0
-​ Represents land and similar
resources. B 90 10

C 70 20
2.​ LABOR (Factor Income = Wage)
-​ Human capital such as workers D 40 30

and employees. E 0 40
-​ Could be mental or physical
EGUIA, ALIA GABRIELLE M. ACC251 BAECODEX MIDTERMS

●​ PRODUCTION POSSIBILITY FRONTIER

●​ Point E = 0 Computers, 40 Textbooks (PPF) / PRODUCTION POSSIBILITY
●​ Point B = 90 Computers, 10 Textbooks CURVE (PPC)
-​ A simplified economic model which
●​ Computers = 0 -> 90 = gain of 90 portrays scarcity, choice, and
●​ Textbooks = 40 -> 10 = loss of 30 opportunity cost.
-​ Shows different combinations of
●​ ANSWER: The opportunity cost of moving the goods that can be reduced
from Point E to Point B is 30 textbooks. using the most efficient use of
resources.
MICROECONOMICS
●​ Analyzes the market behavior of individual
consumers and firms.

MACROECONOMICS
●​ Deals with the performance, structure,
behavior, and decision-making of an
economy as a whole.

ECONOMIC MODELS:
●​ CIRCULAR FLOW MODEL / DIAGRAM
-​ Simplest depiction of how an
economy functions.
-​ Describes movement of resources,
goods, and services in the
economy.

SHRINK GROW

Shift to the Left Shift to the Right

May Be Caused by: May Be Caused By:

●​ Less ●​ More
Manpower Manpower
●​ Lack of ●​ Better
Education Education
●​ Improper ●​ Additional
Handling of Resources
Resources

LAW OF INCREASING OPPORTUNITY COST

●​ States that as you increase the production
of one good, the opportunity cost to
produce an additional good will increase.

FLOW OF RESOURCES Chapter 1.2: The Law of Demand and Supply

FLOW OF MONEY
DEMAND
●​ Quantity of a commodity that consumers
are able (have the purchasing power) and
willing to buy at each possible price.
EGUIA, ALIA GABRIELLE M. ACC251 BAECODEX MIDTERMS

LAW OF DEMAND
●​ Negative relationship SLOPE OF THE DEMAND CURVE
●​ When the price increases (decreases), the
quantity demanded decreases (increases),
ceteris paribus.
●​ CETERIS PARIBUS
-​ other things held constant

UTILITY
●​ Measure of the relative satisfaction from,
or the desirability of consumption of
economic goods.

MARGINAL UTILITY
●​ Additional satisfaction

LAW OF DIMINISHING MARGINAL UTILITY

●​ The more you consume a good/service,
the less satisfied you will be with each
additional consumption.

DEMAND SCHEDULE
Price Quantity Demanded

100 1

50 5 ●​ EXAMPLE: What is the slope of the

demand curve from Point A to Point B?
10 10

DEMAND CURVE ●​ ANSWER: The slope of the demand curve

from Point A to Point B is -12.5.

*Change in Price = Movement Along the Lines

DETERMINANTS OF DEMAND (Demand

Shifters):
1.​ INCOME
●​ INCOME EFFECT
-​ A change in the demand of a good
or service, induced by a change in
the consumers’ discretionary
income.
●​ TYPES OF INCOME
a.​ DISPOSABLE INCOME
-​ Net amount after taxes and
other mandatory
contributions have been
deducted.
EGUIA, ALIA GABRIELLE M. ACC251 BAECODEX MIDTERMS

b.​ DISCRETIONARY INCOME -​ Increase in Price = Decrease in

-​ The amount of income a Demand (Shift to the Left)
household or individual has
to invest, save, or spend
COMPLIMENTARY Praise (Puri)
after taxes and necessities
are paid. COMPLEMENTARY Go Together (Pares)
●​ TYPES OF GOODS
a.​ NORMAL GOODS 4.​ CONSUMER EXPECTATIONS
-​ An increase (decrease) in -​ When consumers anticipate the
income causes consumers price of a particular product to rise,
to demand more (less) of they will tend to buy more of that
the goods. product now before the perceived
-​ Examples: travel, scheduled price increase.
appliances, electronics 5.​ TASTE AND PREFERENCES
-​ Increase in Income = -​ Other considerations such as
Increase in Demand (Shift increased popularity, taste, and
to the Right) personal preference influence the
-​ Decrease in Income = demand for a specific good.
Decrease in Demand (Shift
to the Left) 6.​ NUMBER OF BUYERS
b.​ INFERIOR GOODS -​ With the increase (decrease) of
-​ An increase (decrease) in buyers, there is an increase
income causes consumers (decrease) of demand.
to demand less (more) of
the good. SUPPLY
-​ Examples: canned goods, ●​ Number of products that a producer or
instant food, public seller is willing and capable to provide to
transportation consumers.
-​ Increase in Income =
Decrease in Demand (Shift LAW OF SUPPLY
to the Left) ●​ Positive relationship
-​ Decrease in Income = ●​ When the price increases (decreases), the
Increase in Demand (Shift quantity supplied also increases
to the Right) (decreases), ceteris paribus.
●​ P.O.V. of the sellers
2.​ SUBSTITUTES ●​ CETERIS PARIBUS
-​ Goods that meet the same -​ other things held constant
requirements as the same good.
●​ SUBSTITUTION EFFECT SUPPLY SCHEDULE
-​ When a good becomes more
expensive, its alternatives become Price Quantity Supplied
relatively cheaper and generally
100 10
more appealing.
50 5
3.​ COMPLEMENTARY GOODS
-​ Goods that are generally 10 1
consumed together.
-​ Decrease in Price = Increase in
Demand (Shift to the Right)
EGUIA, ALIA GABRIELLE M. ACC251 BAECODEX MIDTERMS

SUPPLY CURVE ●​ ANSWER: The slope of the supply curve

from Point B to Point C is 10.

DETERMINANTS OF SUPPLY (SUPPLY

SHIFTERS):
1.​ TECHNOLOGY
-​ Makes production more efficient
and increases quantity supplied.
-​ Shift to the right (increase)

2.​ INPUT PRICES

-​ An increase (decrease) in input
prices increases (decrease) costs.
Higher (lower) costs can lead to
decrease (increase) in quantity
supplied.

3.​ PRICES OF THE OTHER GOODS

-​ Manufacturers often produce
several products in the
SLOPE OF THE SUPPLY CURVE
same/related line.
-​ When the price of good A
increases, the quantity supplied for
good A increases. This causes the
price of good B to decrease,
causing the quantity supplied for
good B to decrease.

4.​ PRODUCER EXPECTATIONS

-​ Producers who anticipate a surge
in factor prices tend to increase
production before the higher input
prices become in effect. This leads
to an increase in quantity supplied.

5.​ NUMBER OF SELLERS

-​ More Sellers = More Quantity
Supplied

6.​ GOVERNMENT POLICIES

-​ Taxes, subsidies, and import
quotas imposed by the government
impact the quantity supplied of a
good—but in different ways.
●​ EXAMPLE: What is the slope of the supply
-​ Higher (Lower) Tax = Lower
curve from Point B to Point C?
(Higher) Quantity Supplied
●​ TAX - mandatory
payment/charge collected
by the government.
EGUIA, ALIA GABRIELLE M. ACC251 BAECODEX MIDTERMS

-​ Higher (Lower) Subsidies = Higher ●​ ADAM SMITH

(Lower) Quantity Supplied -​ Says that there is an invisible hand
●​ SUBSIDY - benefit given by that guides the sellers and the
the government. buyers to meet in the middle
-​ Higher (Lower) Import Quota = (market equilibrium).
Lower (Higher) Quantity Supplied ●​ MARKET EQUILIBRIUM
●​ IMPORT QUOTA -
government-imposed limit
on import quantity that aims
to support local products.

Chapter 1.3: Economic System

BASIC ECONOMIC PROBLEMS

1.​ WHAT to produce?
2.​ HOW to produce?
3.​ FOR WHOM to produce?

ECONOMIC SYSTEM
●​ Means of answering the basic economic
problems.
●​ Different ways of managing a nation’s 2.​ CENTRALIZED (COMMAND ECONOMY /
available resources to answer the three PURE COMMAND ECONOMY)
economic problems. -​ Characterized by the heavy
involvement of the government in
TYPES OF ECONOMIC SYSTEMS managing the economy.
1.​ FREE MARKET (CAPITALIST -​ One body of agency (usually the
ECONOMY) government) owns the resources.
-​ A system characterized by -​ Satisfies needs and wants of
competition and a high level of consumers without innovation.
private ownership. -​ No luxury to differentiate products.
-​ Most democratic form of economic -​ North Korea, Cuba, China, DSSR
system. (earlier decades)
-​ Set by interaction of buyers and -​ Karl Marx
sellers.
-​ Consumers determine what to 3.​ MIXED
produce based on their -​ Combines the features of free
preferences. market and centralized.
-​ Laissez-Faire System (“leave -​ The ultimate decision comes from
alone”) consumers with the intervention of
-​ Capitalists have the power to make the government.
decisions on how resources are -​ The government (central
used. government) can implement
-​ Singapore, Australia, Hongkong, policies to promote businesses and
Taiwan, Switzerland, New Zealand, at the same time can impose
USA sanctions to generalize to penalize
industries.
-​ Germany, Sweden, Philippines
-​ John Maynard Keynes
EGUIA, ALIA GABRIELLE M. ACC251 BAECODEX MIDTERMS

4.​ TRADITIONAL ●​ NON-MARKET & ILLEGAL

-​ Based on traditions and practices ACTIVITIES
held over the years. ●​ RESELLING
-​ No legal tender. ●​ PRODUCED BUT NOT
-​ Barter system as a form of SOLD
exchange.
-​ Little to no innovation. ●​ CALCULATING GDP
-​ Passed down through generations. -​ OUTPUT APPROACH
-​ Bhutan, Mongolia, Ati (part of Rural -​ INPUT APPROACH
Areas) -​ EXPENDITURE APPROACH
●​ Add up all the expenses of
*NO PERFECT SYSTEM to address the three final goods and services.
economic questions
Y = C + I + G + (X - M)

ECONOMIC SYSTEMS MATRIX Y Gross Domestic Product G Government

(GDP) Expenditures
WHAT? WHO? FOR WHOM? (Infrastructures, Salaries
of Government
FREE CUSTOMER PRODUCERS CONSUMER Employees)
MARKET PURCHASING
POWER C Consumption X Exports
Expenditures
CENTRALIZED GOVERNMENT (Consumers)

MIXED ALL SECTORS OF THE ECONOMY I Investment M Imports

Expenditures
TRADITIONAL TRADITION & HISTORY SOCIAL (Long-Term Investments
STRUCTURE and Assets / Capital
Goods)

NX (X - M) Net Exports
TOP SOCIOECONOMIC PROBLEMS
1.​ Unemployment
2.​ Social Inequality ●​ BUSINESS CYCLE
3.​ Poverty -​ Characterized by the upward and
downward trend of GDP observed
MACROECONOMIC GOALS OF A COUNTRY over a period of time.
1.​ ECONOMIC GROWTH -​ Can help in predicting/identifying
-​ Typically measured through GDP trends.
-​ Sustained growth in GDP =
Economic Growth
●​ GROSS DOMESTIC PRODUCT (GDP)
-​ Market value of all final goods and
services produced within a country
in a period of time.
-​ NOT INCLUDED IN GDP
●​ INTERMEDIATE GOODS -
Work in progress; Goods in
final goods don’t count.
●​ NON-PRODUCTION
TRANSACTION -
Goods/services that were
not produced/provided in
the current year (such as
stocks/bonds).
EGUIA, ALIA GABRIELLE M. ACC251 BAECODEX MIDTERMS

-​ EXPANSION (GROWTH) PERIOD ●​ UNDEREMPLOYED

●​ Increase in GDP. -​ Persons who desire to have
-​ PEAK additional hours of work in their
●​ Highest point following expansion. present job, or to have an
-​ BOOM additional job, or to have a new job
●​ Continuous GDP upward trend. with longer working hours.
●​ Prolonged period of expansion. -​ TYPES:
-​ CONTRACTION (RECESSION) PERIOD ●​ INVISIBLE - Already
●​ Decrease in GDP. working 40 hours and
-​ TROUGH looking for additional work.
●​ Lowest point following recession. ●​ VISIBLE - Working less
-​ DEPRESSION than 40 hours and looking
●​ Prolonged period of recession. for additional work.
●​ 2-3+ years
●​ “The Great Depression” (1930s) ●​ TYPES OF UNEMPLOYMENT
-​ FRICTIONAL (SEARCH)
2.​ FULL EMPLOYMENT ●​ Result of being in between
-​ All available resources are being jobs or being in transition.
used in the most efficient way ●​ Short-term unemployment
possible in an economy. ●​ Fresh-grads, Stopping work
-​ Fully utilizing labor. due to emergencies (e.g.
-​ Impossible to achieve zero death of loved one,
unemployment rate. maternity leave, etc.)
-​ STRUCTURAL
●​ LABOR FORCE ●​ Results from technological
-​ Population aged 15 years old and and locational changes.
above who are either employed or ●​ Replacing manpower with
unemployed. machines/automations,
-​ Actively participating in economic Change in location of the
activities. business, Mismatch of skills
-​ There is no GDP if there is no labor -​ SEASONAL
force. ●​ Happens in industries (e.g.
-​ EXCLUDED: Students, Retirees, agriculture, construction,
Full-time Parents tourism, etc.) with peak and
lean seasons.
●​ EMPLOYED ●​ Gaining additional
-​ Person in the labor force who manpower during peak
reported either as at work or with a seasons, then laying-off the
job or business although not at employees during the lean
work. season.
-​ CYCLICAL
●​ UNEMPLOYED ●​ Caused by economic
-​ Persons in the labor force who are downturns or recessions.
without work, currently available ●​ Bankruptcy due to reduced
for, and actively seeking work. purchasing power / GDP.
EGUIA, ALIA GABRIELLE M. ACC251 BAECODEX MIDTERMS

3.​ PRICE STABILITY ●​ MONEY SUPPLY

●​ INFLATION -​ Total amount of currency and other
-​ Rising general level of prices that liquid financial products in an
reduces that purchasing power of economy at a particular time.
money.
●​ TYPES OF MONEY IN MONEY SUPPLY
●​ DEFLATION 1.​ MO / BM (BASE MONEY)
-​ Falling of prices which increases -​ Most liquid
the purchasing power of money. -​ Cash, coins, bills, reserves
-​ May cause unemployment due to (bank and government)
decreased revenue gained by the -​ Physical currencies in
businesses. circulation
-​ Negative effects to businesses and 2.​ M1 (NARROW MONEY)
lenders. -​ MO + Demand Deposits
(checking accounts, debit
●​ BANK SPREAD cards)
-​ Difference of interest of savings -​ Money that can be spent
and interest of borrowers. immediately.
3.​ M2 (BROAD MONEY)
●​ TOOLS USED TO INFLUENCE A -​ M1 + Savings and Time
NATION’S ECONOMIC ACTIVITY Deposit (higher interest,
-​ FISCAL POLICY 3-5+ years)
●​ Government actions to 4.​ M3 (BROAD MONEY LIABILITIES)
influence the economy -​ M2 + Market Securities
through taxing and (promissory notes,
spending policies. commercial papers)
●​ TAXING - Increase 5.​ M4
(decrease) taxes to -​ M3 + Foreign Currency &
regulate inflation (deflation). Transferrable Assets
●​ SPENDING POLICIES -
Creating job opportunities Chapter 2: Comparative Economic System
-​ MONETARY POLICY
●​ Actions a central bank GROSS NATIONAL PRODUCT (GNP) / GROSS
takes to influence a NATIONAL INCOME (GNI)
country’s money supply and ●​ Total domestic and foreign output claimed
the overall economy by residents of a country.
through interest rates. ●​ Consists of GDP + Factor Income earned
●​ INTEREST RATES - by Foreign Residents - Income Earned in
Expansion = Higher; the Domestic Economy by Nonresidents.
Recession = Lessen
NET FACTOR INCOME FROM ABROAD
●​ FINANCIAL ASSETS ●​ Income Earned from Abroad by Resident -
-​ Convertible to cash Income of Non-Residents in Domestic
-​ Cash on hand, cash in bank, Territory
stocks/bond

●​ LIQUIDITY
-​ Measure of how easily it can be
converted to cash.
EGUIA, ALIA GABRIELLE M. ACC251 BAECODEX MIDTERMS

CLASSIFICATIONS BY INCOME LEVEL

LOW LOWER-MIDDLE UPPER-MIDDLE HIGH 3 DIMENSIONS OF HDI
INCOME INCOME (LMC) INCOME (UMC) INCOME
(LIC) (HIC) ●​ Long and Healthy Life
< = $1,145 $1,146 - $4,515 $4,516 - $14,005 > $14,005
-​ Life expectancy at birth
●​ Knowledge
GNI PER CAPITA
-​ Expected Years of Schooling
-​ Mean Years of Schooling
THE WORLD BANK
●​ A Decent Standard of Living
●​ Organization that provides development
funds to developing countries in the form -​ GNI Per Capita (PPP $)
of interest-bearing loans, grants, and
technical assistance. HDI COMPUTATION
●​ Life Expectancy Index (LEI)
PURCHASING POWER PARITY
●​ Calculation of GDP using a common set of
international prices for all goods and
services, to provide more accurate
comparisons of living standards. (Minimum = 20; Maximum = 85)

BIG MAC INDEX ●​ GNI Index / Income Index (II)

●​ An informal way to measure whether
currencies are undervalued or overvalued
against the US Dollar.

Cost of Implied PPP of Exchange

(Minimum = 100; Maximum = 75,000)
Big Mac the $ Rate

USA $5.50 $1 $1 ●​ Education Index (EI)

Philippines ₱180.00 ₱32.73 ₱56.00

Undervalued by ₱23.27 (₱23.27 / ₱56 x 100 = -42%)

BALASSA-SAMUELSON EFFECT
●​ Bela Balassa & Paul Samuelson
●​ Explains differences in prices and
incomes across countries as a result of
differences in productivity.

HUMAN DEVELOPMENT INDEX (HDI)

●​ Measures national socioeconomic ●​ Human Development Index (HDI)
development, based on combining
measures of education, health, and
adjusted real income per capita.
●​ Limitations:
-​ Doesn’t encompass all aspects as
LOW MEDIUM HIGH VERY HIGH
human development is a much
broader concept. Lower or Greater than Greater than Greater than
Equal to 0.5 0.5 but Less 0.7 but Less 0.8
-​ Lack of Inclusivity than 0.7 than 0,8

-​ Potential for Misinterpretation

EGUIA, ALIA GABRIELLE M. ACC251 BAECODEX MIDTERMS

GENDER DEVELOPMENT INDEX

●​ Addresses gender-gaps in life
expectancy, education, and incomes
●​ Introduced in 1995 by United Nations
Development Program (UNDP)
GROUP 1 GROUP 2 GROUP 3 GROUP 4 GROUP 5

GDI COMPUTATION 2.5% or More than More than More than More than
●​ Life Expectancy Index (LEI) Less 2.5% - 5% 5% - 7.5% 7.5% - 10%
10%

●​ Absolute Deviation from Gender Parity

(F: Minimum = 22.5; Maximum = 87.5)

(M: Minimum = 17.5; Maximum = 82.5)

●​ GNI Index / Income Index (II)

(Minimum = 100; Maximum = 75,000)

●​ Education Index (EI)

●​ Human Development Index (HDI)

●​ Gender Development Index