Basic Microeconomics REASONS FOR STUDYING ECONOMICS

Midterms Reviewer 1. Economics helps us understand the

marketplace and economic system.
Chapter 1 INTRODUCTION 2. Whether we are workers, employers, or the
LESSON 1 BASIC ECONOMIC CONCEPTS owners of a firm, economics is relevant to us.
3. As ordinary citizens, we can influence the
BASIC TERMS public sector to make intelligent decisions
about how much money should be spent on
✓ NEEDS - basic requirements for survival like
basic services like education or health services.
food, water, and shelter.
✓ WANTS – the various desires of man that must FUNDAMENTAL ECONOMIC ACTIVITIES
be satisfied with goods and services.
✓ GOODS – things (tangible or intangible) that 1. PRODUCTION – the process of transforming
are produced, sold, bought, and utilized raw materials to a finished product.
✓ SERVICES – the efforts rendered by someone 2. DISTRIBUTION – the physical apportionment
for a price of goods and services from the producers to
✓ CONSUMER GOODS – goods that are the consumers
intended for final use by the consumer 3. EXCHANGE – the transfer of ownership over
✓ CAPITAL GOODS – goods that are used in the goods and services from one person to another
creation or production of other goods and this is usually accomplished using money
✓ ESSENTIAL OR NECESSITY GOODS – goods or credit.
that are used to satisfy the basic needs of man 4. CONSUMPTION – the process of using goods
✓ LUXURY GOODS – goods that man may do and services in the direct satisfaction of human
without but are used to contribute to his needs and wants;
comfort and well-being,
FACTORS OF PRODUCTION
✓ DURABLE GOODS – goods that last more
than 3 years when used on a regular basis. 1. LAND – includes all the natural resources and
✓ NON-DURABLE GOODS – goods that last less all other forms of these raw materials used in
than 3 years when used on a regular basis. the production of goods and services.
2. LABOR – any form of human effort like
SCARCITY AND TRADE-OFF physical or mental, which is exerted in the
✓ SCARCE – means very small in amount. production of goods and services.
✓ SCARCITY - assumption of unlimited needs 3. CAPITAL – refers to the machinery, tools,
and wants and the fact that resources to equipment, and structures used in the
obtain goods and services are limited. production of goods and services.
✓ Scarcity is the reason why people must 4. ENTREPRENEURSHIP – the ability of an
“economize”. individual to provide the right kind of good or
✓ There is always a trade-off to be able to satisfy service at the right place and time, to the right
unlimited wants with limited resources. people at the right price.
• Entrepreneur - the person who puts
ECONOMICS together or organizes the other factors
of production (land, labor, capital) to
✓ Economics is a study of how we manage our
create goods and services which can
scarce resources.
satisfy the needs and wants of man.
✓ Economics is the proper allocation and
He is innovative and a risk taker.
efficient use of available resources for the
maximum satisfaction of human needs wants. DIVISIONS OF ECONOMICS
✓ Economics is concerned with production,
distribution, and use of material goods and ✓ MICROECONOMICS
services, and the study of human efforts to ✓ It studies the economy in parts.
satisfy unlimited needs and wants with limited ✓ It deals with the economic behavior of
resources. individual units
✓ Economics helps us understand and predict ✓ It studies the decisions of individuals and
price changes, and how the economy as a businesses and the interaction of those
whole works. decisions.
✓ MACROECONOMICS
✓ It deals with the economic behavior of the
whole economy
 ✓ It treats the economic system as a whole 2. COMMAND ECONOMY - an economic
rather than individual economic units of system where the means of production are
which it is composed. owned and controlled by the government
✓ It is concerned with the discussion of topics 3. MARKET ECONOMY - an economic
like gross national product, level of system wherein the means of production
employment, national income, general are privately-owned and answers the
level of prices, total expenditures, and fundamental economic problems by
total consumption. considering consumer’s choice.
4. MIXED ECONOMY - a blend of the
different types of economic system.
LESSON 2 FUNDAMENTAL ECONOMIC ✓ PHILIPPINE ECONOMY is
PROBLEMS AND ECONOMIC SYSTEMS market economy in nature but
the best way to describe its
WHY DO ECONOMIC PROBLEMS EXIST? economic system is mixed
1. Economic problems exist because of two economy.
fundamental facts:
1. resources are limited; and
LESSON 3 THE CIRCULAR FLOW MODEL
2. human wants are unlimited.
2. Human wants cannot all be possibly satisfied DEFINITION
because resources are scarce.
✓ is a model that is used to show the
FUNDAMENTAL ECONOMIC PROBLEMS flow of resources and income
through an economy.
1. What goods or services are to be produced?
✓ It is a simple economic model
✓ This refers to the choice of goods or services
showing the relationship between
that the economy should produce.
money income and spending for
2. How many goods or services are to be
the economy.
produced?
✓ This refers to the quantity of each good or THE INTERRELATIONSHIP BETWEEN THE
service that the economy will have to HOUSEHOLD SECTOR AND BUSINESS SECTOR
produce to make up the total output.
3. How are the goods or services produced? Economic activities take place through the
✓ This refers to the choice of technique of interrelationship that exists between two economic
production and the manner of combining units:
resources to come up with the desired
1. the household, which is the basic consuming unit
output.
4. For whom are the goods or services produced? 2. the business firm, which is the basic producing unit.
✓ This refers to the choice of who will benefit
from the production of goods and services. THE CIRCULAR FLOW MODEL

THE ECONOMIC SYSTEM ✓ Factor Market or Resource Market - firms

obtain the labor, services, capital, and natural
✓ Comprised of the various processes of resources that they need from the household.
organizing and motivating labor, It is the place where resources or the services or
producing, distributing, and circulating of resource suppliers are bought and sold.
the fruits of human labor ✓ Goods and Services Market - households buy
✓ SIMPLY, this is the framework in which goods and services that firms produce. The
society decides on its economic problems. place where goods and services produced by
✓ Principal objective of an economic system businesses are bought by and sold to
is to solve the fundamental economic households.
problems. *Firms - produce goods and services using
inputs such as land, labor, capital and
THE TYPES OF ECONOMIC SYSTEM entrepreneurship.
1. TRADITIONAL ECONOMY - an economic *Household - owns the factors of production
system that answers the four fundamental and consumes all the goods and services
economic problems based on social produced by the firm.
customs and on how the society has dealt
with these questions in the past.
Factor Market (Resource Market) household are sellers
and firms are buyers.
Goods and Services Market (Product market)
household are buyers and firms are sellers.
*The circular flow there is a clockwise real flow of
economic resources and finished goods and services
(represented by the outer arrows in circular) and a
counterclockwise money flow of income (wages,
salaries etc.) and consumption expenditures or
payment for goods and services (represented by the
inner arrows in circular).

CHAPTER 2 MICROECONOMICS

LESSON 1 THE CONCEPT OF DEMAND

THE MARKET
✓ market is defined as an institution or
mechanism that brings together buyers
(demanders) and sellers (suppliers) of goods
and services. A place where buyers and sellers
can meet to facilitate the exchange or
transaction of goods and services.
✓ Wet market is where people usually buy
vegetables, meat, fish, etc. On the other hand,
Dry market is where people buy clothes, shoes,
or other dry goods.
✓ Markets are important because they act as the
mechanism by which resources are allocated.

THEORY OF DEMAND AND SUPPLY

✓ It shows how consumer preferences determine
consumer demand for goods and services and
how business costs determine supply of the
product in the market.

DEMAND
✓ Demand for a product or simply, demand is
the amount of the good or services that buyers
in a specific market are willing and able to buy
per unit of time, ceteris paribus or “other things
held constant”.
✓ the desire of households for goods and services
in the particular product market
A. Demand Schedule - shows, in tabular
form, the various quantities of the product
that will be bought at various prices at a
specific time and place.
B. Demand Curve - it is a graphical
representation of the demand schedule.
LAW OF DEMAND
✓ When the price of a product is increased, and
the “other things” are kept constant, buyers
tend to buy less of the product. On the other
hand, when the price decreases, buyers tend to
buy more of the product.