Reports in Microeconomics

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REPORT #1 MICHELLE UPOD

Means of production and Factor market


Means of production
The means of production of a society refers to all of the physical and abstract elements,
aside from people, that go into producing goods and services. These include natural
resources, machines, tools, and distribution systems, such as shops and the internet.
Factor markets
Factor markets are the markets in which the factors of production are traded
Factors of production
 Land
This refers to resources that are found in nature. In other words, these are
resources that are not manmade.

 Labor
This simply refers to the work human beings do.

 Capital
Capital is categorized into two main parts:
Physical Capital - This is often simply referred to as “capital”, and mainly
includes man-made or manufactured resources used in production.
Human Capital - This is a more modern concept and entails enhancements in
labor as a result of knowledge and education.

 Entrepreneurship
Entrepreneurs use land, labor, and capital to produce a good or service for
consumers. Entrepreneurship is involved with establishing innovative ideas and
putting that into action by planning and organizing production

Determinants of Demand
Demands- Demand simply means a consumer’s desire to buy goods and services
without any hesitation and pay the price for it.
 Product cost
Demand of the product changes as per the change in the price of the commodity.
People deciding to buy a product remain constant only if all the factors related to it
remain unchanged.
 The income of the consumers
When the income increases, the number of goods demanded also increases.
Likewise, if the income decreases, the demand also decreases.
 Costs of related goods and services
For a complimentary product, an increase in the cost of one commodity will
decrease the demand for a complimentary product.
 Consumer expectation
High expectation of income or expectation in the increase in price of a good also
leads to an increase in demand. Similarly, low expectation of income or low pricing of
goods will decrease the demand.

 Buyers in the market


If the number of buyers for a commodity are more or less, then there will be a
shift in demand.

Determinants of supply
Supply - Supply is a fundamental economic concept that describes the total amount of a
specific good or service that is available to consumers.
 Price of the Commodity
It is the main and the most important determinant of demand. When the price of
the commodity is high, the producers or suppliers are willing to sell more
commodities.

 Firm Goals
The supply of goods also depends on the goals of an organization. An organization
may have various goals such as profit maximization, sales maximization,
employment maximization, etc.

 Price of Inputs or Factors


The price of inputs or the factors of production such as land, labor, capital, and
entrepreneurship also determine the supply of the goods. When the price of
inputs is low the cost of production is also low.

 Technology
When a firm uses new technology it saves the inputs and also reduces the cost of
production. Thus, firms produce more and supply more goods

 Government Policy
When the taxes are high the producers are unwilling to produce more goods and
thus, the supply will decrease.

 Expectation
When the producers or suppliers expect that the price shall increase in the future
they hoard the goods so that they can sell them at higher prices later. This will
result in a decrease I the supply of goods.

 Prices of other Commodities


When the prices complementary goods increases their supply also increases.
Thus, this results in the increase in the supply of commodity also and vice –
versa.

 Numbers of Firms
When the numbers of firms in the market increase the supply of goods also
increases and vice – versa.
 Natural Factors
The factors like weather conditions, floods, drought, pests, etc. Also, affect the
supply of goods. When this factors are favourable the supply will increase.

Wage determination - Wage determination refers to the process of establishing


the wage or salary for a particular job or position within an organization or
industry. It involves various factors and considerations that influence how much
an employer pays its employees for their work.
Rent - Rent generally refers to the payment made by a tenant or user for the
temporary use or occupancy of property, assets, or services owned by another
party.

Interest - Interest typically refers to the cost of borrowing or the return earned
on saving or investing money at the individual or firm level.

Profit - Profit is the money a business makes after paying all its expenses. It's
what's left over from sales revenue after subtracting the costs of producing goods
or services and other expenses like rent, wages, and utilities

REPORT #2 JOEYLEN ARABIA


CONSUMER BEHAVIOR & UTILITY THEORY;
THE THEORY OF CONSUMER CHOICE
INDIFFERENCE CURVES & BUDGET CONSTRAINT
CONSUMER EQUILIBRIUM & DEMAND THEORY

Consumer Behavior & Utility Theory is a branch of economics that studies how
consumers make decisions regarding the allocation of their resources (such as money) to
satisfy their needs and wants. Utility theory focuses on how consumers maximize their
utility, or satisfaction, given their budget constraints and preferences.

Theory of Consumer Choice a fundamental concept in economics that seeks to


understand how individuals make decisions about what goods or services to consume. It
is based on the assumption that consumers have limited resources (such as income) and
face a variety of choices. Individuals have the freedom to choose between different
bundles of goods and services. Consumer theory seeks to predict their purchasing
patterns by making the following three basic assumptions about human behavior;

Utility maximization Individuals are said to make calculated decisions when shopping,
purchasing products that bring them the greatest benefit, otherwise known in economic
terms as a maximum utility.
Non-satiation People are seldom satisfied with one trip to the shops and always want to
consume more.
Decreasing marginal utility Consumers lose satisfaction with a product the more they
consume it.

Advantages of Consumer Theory - Building a better understanding of individuals’


tastes and incomes is important because it has a big bearing on the demand curve,
which is the relationship between the price of a good or service and the quantity
demanded for a given period of time, and on the shape of the overall economy

Indifference Curves & budget Constraints - An indifference curve is a chart showing


various combinations of two goods or commodities that consumers can choose. At any
point on the curve, the combination of the two will leave the consumer equally well off or
equally satisfied—hence indifferent. While a budget constraint is an economic term
referring to the combined amount of items you can afford within the amount of income
available to you.
Consumers seek to maximize satisfaction within their budget by selecting a point where
an indifference curve intersects the budget constraint, indicating the optimal allocation
of resources.
Many core principles of microeconomics appear in indifference curve analysis, including:
Individual choice - refers to the decision by an individual of what to do, which
necessarily involves a decision of what not to do.
Marginal Utility - refers to added satisfaction a consumer gets from having one more
unit of a good or service
Income- refers to a unit of value that is used to measure the production of goods and
services in an economy.
Substitution effect- refers to the decrease in sales for a product that can be attributed
to consumers switching to cheaper alternatives when its price rises

By examining the intersection of these curves and constraints, consumers can pinpoint
the most optimal allocation of resources, balancing their desires with their financial
limitations. This understanding empowers consumers to navigate complex decision-
making processes, ensuring their choices align with their preferences and financial
constraints

Consumer Equilibrium & Demand Theory - Consumer equilibrium and demand theory
explore the fundamental principles that govern consumer behavior and market
dynamics. At its foundation, consumer equilibrium comprises the pursuit of maximum
utility, in which consumers attempt to gain the most satisfaction out of their purchasing
choices while staying within their budget.
This involves a delicate balance between preferences and affordability, as consumers aim
to allocate their limited resources efficiently to attain optimal satisfaction.
Central to this theory is the concept of diminishing marginal utility, which posits that as
individuals consume more of a particular good, the additional satisfaction gained from
each additional unit diminishes.
This principle underscores the notion that consumers tend to allocate their resources in
a way that maximizes overall satisfaction, adjusting their consumption patterns based
on the diminishing returns of each additional unit of a good.
The demand curve, derived from this theory, illustrates the inverse relationship between
price and quantity demanded: as prices rise, consumers typically demand less of a good,
while lower prices tend to increase demand.
Overall, consumer equilibrium and demand theory provide a profound framework for
understanding consumer behavior, market dynamics, and the intricate interplay
between individual preferences, budget constraints, and market forces. By elucidating
these principles, economists and policymakers can better analyze and predict consumer
choices and market outcomes, ultimately facilitating more efficient resource allocation
and economic decision-making.
Consumer behavior and utility theory, along with the theory of consumer choice,
indifference curves, budget constraints, consumer equilibrium, and demand theory,
collectively underscore the rational decision-making process of consumers in maximizing
their utility within budgetary constraints.
These frameworks offer deep insights into how individuals allocate their resources to
attain the highest level of satisfaction, guiding businesses in crafting effective marketing
strategies and product offerings tailored to meet consumer preferences. Understanding
these theories is pivotal for businesses to thrive in dynamic markets by aligning their
offerings with the ever-evolving demands and behaviors of consumers.

REPORT #3 JOVENILLE BEBANO


Production and Costs

Production Functions
▪ A production function shows how much output, like goods or services, a business can
produce with certain inputs, like workers, machines, and raw materials. It helps us
understand how these inputs affect the amount a business can produce.
▪ Production function is a mathematical relationship between inputs and outputs in the
production process.
Mathematical Representation
Q = f(input #1,input #2....)

SHORT-RUN PRODUCTION AND LONG-RUN PRODUCTION


Long-Run Production
In the long run, firms can adjust all inputs (capital, labor, etc.) to optimize production,
allowing them to build new facilities, purchase machinery, or enter/exit industries to
achieve desired output levels efficiently.
Short-Run Production
The short run is a period during which at least one input in the production process is
fixed and cannot be changed. Typically, this fixed input is capital, such as machinery,
buildings, or equipment. In the short run, firms can only adjust their output by varying
the amount of variable inputs, such as labor or raw materials.

COST CONCEPT
FIXED COST
Fixed costs are expenses that stay the same no matter how much you produce. They are
like the bills you have to pay even if you don't make any products, such as rent for your
shop or office, insurance, or salaries for employees who work there all the time. These
costs don't change when you make more or fewer products.
VARIABLE COST
Variable costs change based on how much you produce. They include things like the
materials you need to make your products and the wages you pay to workers who make
them. When you make more products, these costs go up, and when you make fewer
products, they go down.
TOTAL COST
Total costs are the sum of fixed costs and variable costs. It's like adding up all the
money you spend, both the fixed costs that stay the same and the variable costs that
change based on how much you produce.
MARGINAL COST
Marginal cost is the extra cost of making one more product. It's like asking, "How much
more will it cost me to make just one more item?" This cost can change as you produce
more because sometimes it's cheaper to make more products (economies of scale), but
other times it gets more expensive (diseconomies of scale).

REPORT #4 ASHLEY DURANA


FIRM BEHAVIOR AND MARKET STRUCTURES

Firm Behavior- It is how companies act and make decisions, like how much to produce
or what prices to set.
Market Structures- Are the different types of environments where companies operate. It
is the understanding how companies behave depending on the type the type of market
they’re in
Profit Maximization- Companies trying to make as much as possible, by selling
products much as they can.

Types of Market Structures


Perfect Competition
 numerous firms produce identical goods with no market power
 Profit maximization occurs where marginal cost (MC) equals marginal revenue
(MR)
 Anyone can enter or leave easily
 Example: farmer's market where many farmers sell identical fruits and vegetables.
Monopoly
 significant market power as the sole producer of a good or service.
 marginal revenue equals marginal cost (MR = MC)
 In markets there is no competition , one company can make a lot of money over a
long time
Monopolistic Competition
 Profit maximization occurs where marginal revenue equals marginal cost (MR =
MC).
 Firms may have some pricing power, setting prices above marginal cost to
maximize profits.
 Companies can keep making money if the customers still see their product as
different from others.
 Coffee shops in a city. Each shop offers similar products (coffee and pastries)
Oligopoly
 consist of a small number of large firms dominating the market.
 Profit maximization in oligopoly involves strategic decision-making, often
influenced by rival actions
 The smartphone industry, is dominated by a few major players like Apple and
Samsung.

Pricing Strategies: Price Discrimination and Price Leadership


Types of price discrimination

First-degree price discrimination


Charging each customer the maximum price they are willing to pay for a product or
service.
Example: personalized pricing industries like cars or real estates.

Second-degree price discrimination


Different prices are offered based on the quantity.
Customers are influenced to buy more to benefit from lower unit prices.

Third-degree price discrimination


Segregating customers into different market segments and charging different prices
based on their segment's price elasticity of demand.
Commonly seen in student discounts, senior citizen rates, or geographical pricing
variations
Price leadership occurs when one dominant firm in an industry sets the price, and
other firms follow suit.
Types of price leadership

Dominant firm price leadership


A market leader, typically the largest or most influential firm, sets the price, which
smaller firms then match to maintain market stability.
Barometric price leadership
Temporary price leadership where firms observe the pricing behavior of a leading
competitor and adjust their prices accordingly.

Entry and Exit Decisions in the Long Run


Entry- new firms coming into a market to compete.
Long run- A period of time where businesses evaluate their decisions over a significant
timeframe.

Strategic Planning - A process by companies analyze their current position, set goals
and to achieve goals effectively
Market Analysis - Understands the long-term potential of a market, it examines factors
such as market size, growth prospects, consumer regulatory environment to determine if
entry into the market aligns with their long-term strategic objectives.
Assessment of Risk - Companies analyze factors such as market votality, competitive
intensity, regulatory compliance, operational risk and financial implications to mitigate
potential threats and uncertainties
Resource Allocation - To support their entry in to the new market, include determining
capital investments, human resources, technology infrastructure and operational
support required to execute plan effectively
Sustainability Considerations - To support their entry in to the new market, include
determining capital investments, human resources, technology infrastructure and
operational support required to execute plan effectively
Exit occurs when firms leave a market due to factors like low profits or unfavorable
conditions
Long-Run Considerations: In the long run, firms evaluate whether it's beneficial to stay
in a market or exit based on profitability, competition, and future prospects.
Profitability: If a firm consistently operates at a loss or earns below-average profits, it
may consider exiting the market to cut losses
Market Conditions: Changes in market conditions, such as increased competition or
shifts in consumer preferences, can prompt firms to exit if they can't adapt effectively.
Finding Better Opportunities: Shutting down your business in one place to focus on
something else that's more promising
Resource Allocation: Exiting a market allows firms to reallocate resources to more
profitable ventures or areas with better growth prospects.

REPORT #5 JANE UNGGAYO


Supply, Demand and Market Equilibrium
Supply - Is the quantity of a Good or Service that a Producer is willing and able to
Supply onto the Market at a given price in a given time period
Demand - simply means a consumer's desire to buy goods and services without any
hesitation and pay the price for it.
The law of demand - states that a higher price leads to a lower quantity demanded and
that a lower price leads to a higher quantity demanded. Demand curves and demand
schedules are tools used to summarize the relationship between quantity demanded and
price
Law of Supply - is a basic economic concept. It states that an increase in the price of
goods or services results in an increase in their supply. Supply is defined as the quantity
of goods or services that suppliers are willing and able to provide to customers.
Determinants of demand - are factors that either positively or negatively affect demand
in the market. The five determinants of demand are consumer taste, consumer income,
the price of related goods, and consumer expectations.

Determinants of demand
Price - one of the most obvious determinants of demand is price. All else being equal, as
the price of a good or service increases, consumers typically demand less of it.
Income -when income rises, so will the quantity demanded. When income falls, so will
demand but if your income doubles, you won’t always buy twice as much of a particular
good or service.
Price expectation -when there is an expectation of a price change, this means that
people expect the price of a goods to increase shortly. These people are then more likely
to purchase sooner, which would increase demand for the product.
Taste - when the public desire emotion, or preference change in favor of a product, so
does the quantity demanded. And when their tastes changes unfavorable the demand
become lower and the quantity of the product.

Determinants of supply
Refers to fators that can change or effect how readil a manufacturer is able to deliver a
certain goods or service

Price of product or service - the price of the product or service is the most evident
factor in determining supply. if all other variable remain constant, the supply of a
product will increase if its relative price rises. To put it another way, a company provides
goods or services in order to generate a profit, and when prices increase, so does supply
to increase profits.

Price of Production’s Elements or Factors Of Production


Many expenses are associated with the production of an item. If the price of a particular
element of production rises, the cost of producing items that rely heavily on that factor
will climb dramatically. This might be the determinants of supply of labor or any other
factors of production.

Technology Intervention
Innovations and inventions in technology typically allow for the production of higher
quality and/or greater quantities of things with the same amount of resources.
Consequently, the degree of technology can either enhance or decrease the supply of
specific items

Expectations/Speculations Of Price
It can also affect the current supply, because it suppliers anticipate a price reduction in
the near future, they may attempt to liquidate all of their current stock. Similarly, if
suppliers anticipate that prices will rise in the future,they may hang on to their
inventory until prices rise.
Market equilibrium -is the state in which market supply and demand balance each
other, and as a result prices become stable. Generally, an oversupply of goods or
services causes prices to go down, which results in higher demand—while an
undersupply or shortage causes prices to go up resulting in less demand.
Market adjustment - is a form of additional remuneration that is based on current
market conditions. Market adjustments consider the comparative value of positions that
are the same or similar between employers.

REPORT #6 TEOSY BELLE PAGAYON


Theory of Production and Input Markets
Theory of Production Input Markets
The theory of production and input markets is a fundamental aspect of
microeconomics, focusing on how firms produce goods and services using various
inputs such as labor, capital, land, and raw materials. This theory delves into
understanding the relationships between inputs, production processes, and output
levels.

Here are some key points related to this theory:


1. Isoquants and Isocost
2. Marginal rate of Technical Substitution
3. Factors substitution and Input Demand

Isoquants
In the theory of production and input markets, isoquants play a crucial role in analyzing
how firms make production decisions and allocate resources efficiently.
In economics, is a curve representing all possible combinations of inputs (typically labor
and capital) that result in producing a certain level of output. The term "isoquant" is
derived from the Greek words "iso," meaning equal, and "quant," meaning quantity.
Therefore, an isoquant represents combinations of inputs that yield the same quantity of
output.
Isocost
In the theory of production and input markets, an isocost curve represents all the
combinations of inputs that a firm can purchase for a given total cost. Help firms
determine the optimal mix of inputs by showing all the input combinations available at a
given cost level. They are essential tools for firms in making decisions about how to
allocate their resources efficiently in the production process.

Purpose:
 Isoquants - Isoquants represent different combinations of inputs that can
produce the same level of output. They illustrate the technological possibilities
available to the firm.
 Isocosts - Isocosts represent different combinations of inputs that can be
purchased at the same total cost. They depict the firm's budget constraint in
acquiring inputs.
What they represent:
 Isoquants - Isoquants represent the production possibilities and technological
capabilities of the firm. They show how inputs can be combined to produce
various levels of output.
 Isocosts - Isocosts represent the cost constraints faced by the firm in acquiring
inputs. They show the combinations of inputs that the firm can afford given its
budget.
Graphical Representation:
 Isoquants - soquants are typically represented as downward-sloping curves on a
graph, illustrating the combinations of inputs that result in the same level of
output.
 Isocosts - The objective with isocosts is to minimize costs or allocate resources
efficiently by choosing the combination of inputs that lies on the highest attainable
isoquant within the budget constraint represented by the isocost line.

Marginal rate of Technical Substitution


The Marginal Rate of Technical Substitution (MRTS) is a concept in the theory of
production and input markets that measures the rate at which one input can be
substituted for another input in the production process while keeping the level of output
constant. It reflects the technological trade-off between inputs and is essential for
understanding how firms make production decisions.

Concept
 When a firm substitutes one input for another, it adjust the combination of inputs
used in production.
 The MRT’s indicates how much of one input can be reduced when one additional
unit of another input is added, such that the output remains constants.
 It reflects the technological trade-off between inputs: the firm’s ability to replace
one input with another without affecting output.
Mathematical Representation
Where:
 MP is the Margin Product of each output
 Δ K/Δ L is the Capital that can be reduced
 K is the Capital
 L is the Labor

Principles of Marginal Rate of Technical Substitution


The marginal rate of technical substitution focuses on the rate at which the producer
combines two inputs of production and substitutes one factor by decreasing it further
upon every consecutive substitution. Generally, the marginal rate of technical
substitution specifies the rate at which factors of production can be substituted without
any change in the unit of output.
For example, the MRTS of labor for the unit of capital is the inputs of capital that can be
switched with one input of labor with the output level being constant.
The principle states that one input of production decreases with every subsequent
replacement by another factor of production. This decline, combined with a constant
level of output, is known as the principle of diminishing marginal of technical
substitution.

Factors Substitution and Input Demand


Are key concepts that explain how firm make decision about input usage and how these
decisions are influenced by input prices productivity.
FACTORS SUBSTITUTION: Refers to the ability of the firm to replace one input with
another in the production process while keeping output constant. This concept is closely
related to the Marginal Rate of Technical Substitutions (MRTS), which one output can be
substituted for another whole maintaining the same level of output.
FACTORS SUBSTITUTION (key points)
 Marginal Rate of Technical Substitution (MRTS): It represents the rate at which
one input can be substituted for another while keeping output constant. Firms will
substitute factors of production until the MRTS equals the ratio of input prices.
 Isoquants: Isoquants represent combinations of inputs that yield the same level
of output. The slope of an isoquant at any point indicates the MRTS.
 Diminishing Marginal Rate of Technical Substitution: Typically, as more of
one input is substituted for another, the MRTS diminishes. This reflects the idea
that inputs are not perfect substitutes and that there are diminishing returns to
factor substitution.

INPUT DEMAND refers to the quantity of inputs that a firm is willing and able to
purchase at different prices. It depends on the productivity of the input, the price of the
input, and the price of the output produced.
(Key points)
 Derived Demand: The demand for inputs is derived from the demand for the
output that those inputs produce. If the demand for the output increases, the
demand for inputs used in its production will also increase.
 Substitution Effect: A decrease in the price of one input relative to others will
lead firms to substitute towards that input, increasing its demand.
 Income Effect: Changes in the price of the output can also affect input demand.
If the price of the output increases, firms may demand more inputs to produce
more output.
 Elasticity of Input Demand: The responsiveness of input demand to changes in
input prices varies depending on factors such as the substitutability of inputs and
the elasticity of demand for the firm's output.

RELATIONSHIP
Factor substitution and input demand are closely related in the theory of production and
input markets. The MRTS guides firms' decisions about input substitution, while input
demand reflects firms' responses to changes in input prices and output demand.
Understanding factor substitution and input demand helps firms optimize their
production processes and make informed decisions about input usage in response to
changes in input prices and output demand.

REPORT #7 MARIEL FADIRUGAO


GAME THEORY AND STRATEGIC DECISION MAKING

Game theory studies interactive decision-making, where the outcome for each
participant or "player" depends on the actions of all. If you are a player in such a game,
when choosing your course of action or "strategy" you must take into account the
choices of others.
Game Theory: Basic Concepts and Terminology
A GAME Consist of:
 Players Strategies
 Payoffs
 Normal form
 Nash Equilibrium
 Cooperative vs. Non-Cooperative Games
 Zero-Sum vs. Non-Zero-Sum Games

Players - In game theory, individuals or entities making decisions are referred to as


"players."
Strategies - Each player in a game has a set of possible actions or choices, known as
strategies. Players choose their strategies with the aim of maximizing their own payoff or
utility.
Payoffs - Payoffs represent the outcomes or rewards associated with different
combinations of strategies chosen by the players. Payoffs can be in various forms, such
as monetary rewards, utility, or any other measure of benefit.
Normal form - Games can be represented in normal form, where all players
simultaneously choose their strategies and receive payoffs based on the combination of
strategies chosen by all players.

Investment Decisions - sequential decision-making process involving stages of


investment and responses to market conditions.
Nash Equilibrium - A fundamental concept in game theory, a Nash equilibrium is a set
of strategies, one for each player, such that no player has an incentive to unilaterally
deviate from their chosen strategy, given the strategies chosen by the other players.
Cooperative vs. Non-Cooperative Games - In cooperative games, players can form
coalitions and make binding agreements, whereas in non-cooperative games, players act
independently without the possibility of formal agreements.
Cooperative Games Characteristics:
-Mutual Benefit
-Formal Agreements
-Trust and Communication
Examples:
-Cartels
-Trade Agreements
Non-Cooperative Game Characteristics:
-Strategic Interactions
-Competitive Dynamics
Examples:
-Oligopolistic Competition
-Game Theory Applications

Zero-Sum vs. Non-Zero-Sum Games - In zero-sum games, the total payoff to all players
sums to zero, meaning gains by one player result in losses for another. In non-zero-sum
games, the total payoff can be positive or negative, and cooperation among players can
lead to mutually beneficial outcomes.

Oligopoly and Strategic Interactions - Oligopoly refers to a market structure


characterized by a small number of large firms dominating the market. In oligopolistic
markets, firms have a significant degree of market power, meaning their actions can
influence market prices and outcomes. Strategic interactions are fundamental in
oligopoly, as firms must consider not only their own actions but also the likely reactions
of their competitors.
Here's how strategic interactions manifest in oligopoly:
1. Interdependence: Firms in an oligopoly are interdependent, meaning the actions
of one firm directly affect the profits and strategies of other firms in the market.
Any decision made by one firm, such as a change in price, product quality, or
marketing strategy, can lead to strategic reactions from competitors.
2. Game Theory: Game theory provides a framework for analyzing strategic
interactions in oligopoly. Oligopolistic competition can often be modeled as a game,
where firms are the players, and their strategies and payoffs are determined by
their actions and the actions of their competitors. Game theory helps firms
anticipate how competitors will react to different strategies and identify optimal
strategies accordingly.
3. Strategic Behavior: Firms in oligopoly engage in strategic behavior to maximize
their own profits. This may involve actions such as pricing decisions, product
differentiation, advertising campaigns, and investment in research and
development. Firms strategically choose their actions based on their expectations
of how competitors will respond.
4. Collusion and Cartels: In some cases, firms in oligopoly may collude to coordinate
their actions and maximize joint profits. Collusion can take the form of price-fixing
agreements, production quotas, or market-sharing arrangements. However,
collusion is often illegal and subject to antitrust laws. Cartels, which are formal
agreements among firms to control production and prices, are a common form of
collusion.
5. Non-Price Competition: In oligopoly, firms often engage in non-price competition
to differentiate their products and gain a competitive advantage. This can include
advertising, branding, product innovation, and customer service initiatives. Non-
price competition allows firms to compete on factors other than price while still
influencing consumer behavior and market outcomes.

Nash Equilibrium and its application


Nash equilibrium is a central concept in game theory, named after the mathematician
and economist John Nash. It represents a set of strategies, one for each player in a
game, where no player has an incentive to unilaterally change their strategy, given the
strategies chosen by the other players. In other words, at Nash equilibrium, each
player's strategy is optimal given the strategies chosen by all other players.
Applications: Nash equilibrium has applications in various fields, including economics,
political science, biology, and computer science. It is used to analyze strategic
interactions in situations ranging from business competition to international relations to
evolutionary biology.
Iterated Elimination of Dominated Strategies: One method for finding Nash
equilibrium involves iteratively eliminating dominated strategies, where a strategy is
dominated if there is another strategy that always leads to a higher payoff, regardless of
the choices of other players.
Understanding Nash equilibrium helps analysts predict and analyze the outcomes of
strategic interactions in various scenarios, providing insights into decision-making and
behavior in competitive environments.

REPORT #8 CHAEL LASCUNA


Economic Efficiency and Market Failures
Economic efficiency refers to the state where resources are allocated to produce goods
and services in a way that maximizes overall societal welfare.
There are two main types of economic efficiency
Allocative Efficiency: This occurs when resources are allocated in a manner that
produces the mix of goods and services most desired by society. In other words, it’s
achieved when the marginal benefit equals the marginal cost of production.
Productive Efficiency: This is achieved when goods and services are produced at the
lowest possible cost, using the least amount of resources.
Market Failure
Despite the ideal of economic efficiency, markets can fail to allocate resources optimally
due to various factors
Externalities: These are costs or benefits that affect parties external to a transaction.
Negative externalities, like pollution, lead to overproduction, while positive externalities,
such as education, lead to underproduction.
Public Goods: Goods that are non-excludable and non-rivalrous, meaning individuals
cannot be excluded from their use, and one person’s consumption does not reduce
availability to others. Public goods tend to be underprovided by the market because
individuals can benefit without paying.
Imperfect Competition: Monopolies, oligopolies, and monopolistic competition can
lead to market inefficiencies due to restricted output, higher prices, and reduced
consumer surplus.
Information Asymmetry: When one party in a transaction has more information than
the other, it can lead to market failures, such as adverse selection and moral hazard.
Income and Wealth Inequality: Extreme inequality can result in under consumption by
the lower-income groups, leading to inefficiencies in resource allocation.
Externalities and Public Goods
Externalities are unintended side effects or consequences of an economic activity that
affect third parties who did not choose to be involved in that activity. They can be either
positive or negative.
Positive Externalities
Example of a positive externality is education. When an individual invests in education,
not only do they benefit by acquiring knowledge and skills, but society as a whole
benefits from having a more educated and skilled workforce, leading to increased
productivity and innovation.
Negative Externalities
Air pollution is a classic example of a negative externality. Industries emitting pollutants
may not consider the impact on the health of nearby residents, leading to health issues
and costs that are not borne by the polluting industry.
Public Goods
Public goods are goods or services that are non-excludable and non-rivalrous.
Non-excludable
Once provided, individuals cannot be excluded from enjoying the benefits of a public
good. National defense is an example; once a country invests in its defense, it benefits all
citizens.
Non-rivalrous
Consumption by one individual does not reduce the availability or benefit to others. A
classic example is street lighting – the fact that one person benefits from well-lit streets
doesn’t diminish the benefits to others.
Market Failure and Government Intervention
Market failure occurs when the allocation of goods and services by a free market is not
efficient, leading to a misallocation of resources and a failure to maximize societal
welfare. In such cases, government intervention becomes necessary to correct the
market’s shortcomings and ensure optimal outcomes for society.
Government intervention, through various mechanisms such as taxation, regulation,
and direct provision of goods and services, plays a crucial role in correcting market
failures and promoting societal welfare. By understanding the causes and consequences
of market failure, policymakers can design effective interventions to create more efficient
and equitable markets.
Welfare Economics and Pareto Efficiency
Welfare economics: is concerned with assessing and improving social welfare, which
encompasses the well-being of individuals within a society. It examines how resources
are allocated and distributed to achieve the greatest overall welfare or utility. Central to
welfare economics is the notion of efficiency, which involves maximizing the total benefit
derived from resource utilization.
Pareto efficiency: also known as Pareto optimality, occurs when it is impossible to
make one individual better off without making another individual worse off. In other
words, an allocation of resources is Pareto efficient if no further reallocation can increase
the welfare of any individual without decreasing the welfare of another. This concept
serves as a benchmark for evaluating the efficiency of resource allocation in an economy.

REPORT #9 PATRECIA P. AZARCON


History of Economic Thought

CLASSICAL ECONOMICS - Classical economics, which emerged in the late 18th and
early-to-mid-19th century, laid the foundation for modern economic analysis. It focused
on the role of markets in allocating resources efficiently and the importance of economic
growth.

Adam Smith and “The Wealth of Nations” (1776)


On March 9, 1776, "An Inquiry into the Nature and Causes of the Wealth of Nations"—
commonly referred to simply as "The Wealth of Nations"— was first published.
Adam Smith’s seminal work, “The Wealth of Nations,” argued for the efficiency of free
markets and introduced key concepts such as the division of labor and the invisible
hand. Adam Smith is also known as "father of economics" because of his theories on
capitalism, free markets, and supply and demand.
Division of Labor - According to Adam Smith, division of labor relates to the
specialization of the labor force so as to break down jobs in various specialized
components. Under this process, each worker becomes specialized in one particular area
of production, thereby increasing overall production efficiency.
Invisible Hand - The invisible hand is a metaphor that describes the unseen forces of
self- interest that impact the free market.
David Ricardo and Comparative Advantage
Comparative advantage is an economic theory created by British economist David
Ricardo in the 19th century. It argues that countries can benefit from trading with each
other by focusing on making the things they are best at making, while buying the things
they are not as good at making from other countries.
Labor theory of value - The labor theory of value states that the value of a good could
be measured by the labor that it took to produce it. The theory states that the cost
should not be based on the compensation paid for the labor, but on the total cost of
production.
Comparative Advantage - Comparative advantage is an economy's ability to produce a
particular good or service at a lower opportunity cost than its trading partners. The
theory of comparative advantage introduces opportunity cost as a factor for analysis in
choosing between different options for production.
Neoclassical Economics and the Marginalist Revolution

NEOCLASSICAL ECONOMICS
Neoclassical economics is a broad theory that focuses on supply and demand as the
driving forces behind the production, pricing, and consumption of goods and services. It
emerged in around 1900 to compete with the earlier theories of classical economics.
Marginalist Revolution - Marginalist theory, known as the Marginalist Revolution, is
seen as the dividing line between classical and modern economics. Marginalist theory
helps to better explain human rationality, human action, subjective valuation, and
efficient market prices
Marginalism is the insight that people make economic decisions over specific units or
increments of units, rather than making categorical, all-or-nothing decisions.
Marginalism began with the Marginal Revolution in economics in the 1870s and quickly
came to form a foundational aspect of economic thinking.
Subjective Theory of Value - The subjective theory of value maintains that the value of
an object is not fixed by the amount of resources and the hours of labor that went into
creating it but is variable according to its context and the perspective of its users. In
fact, the theory argues, the value of any object is determined by the individual who buys
or sells it.This economic theory suggests that a product's value is decided by how scarce
or useful it is to the individual. The subjective theory of value was developed in the late
19th century by economists and thinkers of the time, including Carl Menger and Eugen
von Böhm-Bawerk.
Utility Maximization - Utility maximization is a strategic scheme whereby individuals
and companies seek to achieve the highest level of satisfaction from their economic
decisions.
Alfred Marshall & Equilibrium - Alfred Marshall (26 July 1842 – 13 July 1924) was an
English economist, and was one of the most influential economists of his time. His book
Principles of Economics (1890) was the dominant economic textbook in England for
many years. It brought the ideas of supply and demand, marginal utility, and costs of
production into a coherent whole.
Economic equilibrium is a state in a market-based economy in which economic forces –
such as supply and demand – are balanced. Economic variables that are in equilibrium
are in their natural state assuming no impact of external influences.

KEYNESIAN ECONOMICS
John Maynard Keynes & “The General Theory of Employment, Interest and
Money”
Keynesian economics gets its name, theories, and principles from British economist
John Maynard Keynes (1883–1946), who is regarded as the founder of modern
macroeconomics. His most famous work, The General Theory of Employment, Interest
and Money, was published in 1936.
In his General Theory of Employment, Interest and Money (1935–36) he endeavoured to
show that a capitalist economy with its decentralized market system does not
automatically generate full employment and stable prices and that governments should
pursue deliberate stabilization policies.

Critique of Classical Economics: Keynes critiqued classical economics for its inability
to explain involuntary unemployment and for assuming that markets always clear.
Aggregate Demand and Supply: Keynes introduced the concepts of aggregate demand
and supply to analyze the overall level of economic activity and its impact on output and
employment.
Keynesian Revolution and Macroeconomic Policy: The Keynesian revolution led to
the adoption of active fiscal and monetary policies to stabilize economic fluctuations and
promote full employment.
Integration of Environmental Concerns into Economic Theory
Modern economic thought has begun to integrate environmental concerns, recognizing
the impact of economic activity on ecological systems and the need for sustainable
development.

REPORT #10 THESE MILITAR


COMMUNISM
Communism - also known as a command system, is an economic system where the
government owns most of the factors of production and decides the allocation of
resources and what products and services will be provided.
Karl Marx and Frederick Engels – Communist Manifesto
Key Principles of Communism
1. Class Struggle: Communism is based on the idea that history is shaped by the
conflict between different social classes.
2. Collective Ownership: Communism advocates for the abolition of private property
and the establishment of production.
3. Central Planning: In communist societies, economic planning is typically
centralized and carried out by the state.
4. Social Equality: Communism aims to create a society where all individuals have
equal access to resources.
5. Internationalism: Communism is an internationalist ideology that seeks to unite
workers and oppressed people across boarders in common struggle against
capitalism and imperialism.
Communism overview through the lens of microeconomics
1. Property Rights and Ownership
2. Resource Allocation
3. Market Mechanism
4. Consumer Choice
5. Income Distribution
6. Efficiency and Productivity

REPORT #11 LYANNA E. MARCIAL


CAPITALISM

Capitalism is a economic system in which private individuals or business own and


control the means of production, distribution, and exchange of good and services.
Capitalism, encourages innovation and efficiency as businesses must constantly find
ways to improve their products and services to stay competitive.
CHARACTERISTICS OF CAPITALISM
 Private ownership - In capitalism, the means of production, such as factories,
land, and resources, are owned and controlled by private individuals or
corporations rather than the state.
 Market Economy - Capitalism relies on market mechanisms to determine the
allocation of resources, production, distribution, and prices. Supply and demand
dynamics play a crucial role in shaping economic activities.
 Profit Motive - The primary goal of capitalist enterprises is to generate profits for
their owners or shareholders. This profit motive serves as a driving force for
innovation, efficiency, and economic growth.
 Limited Government Intervention - Capitalist economies generally advocate for
limited government intervention in economic affairs, favoring free markets and
individual initiative. However, governments often play a role in regulating markets,
providing public goods, and addressing market failures.
 Competition - Capitalism fosters competition among businesses, which helps to
improve quality, lower prices, and spur innovation. Competitive markets are seen
as essential for ensuring efficiency and consumer choice.

TYPES OF CAPITALISM
Laissez Faire - A type of capitalism that is characterized by minimal government
intervention in the market. In this system, private individuals and businesses have
almost complete control over economic activity. In the governments’ role is limited to
enforcing property rights and contracts.
State Capitalism - Government plays a more prominent role in the economy. In this
system, the government may own and control specific industries or may heavily
regulate private businesses. This type of capitalism is often associated with countries
that have a strong authoritarian or communist history such as China or Russia.
Social Economy Market - A type of capitalism that seeks to balance free-market
principles with social welfare policies. In this system, the government plays an active
role in regulating the market and providing social services to its citizens. Social
market economies are often found in European countries, such as Germany and
Sweden.
Welfare Capitalism - Is a type of capitalism that emphasizes social welfare policies
and protections for workers. In this system, the government collect tax from
companies and may provide various social services, such as health care and
education and may regulate businesses to protect workers’ rights. It is often
associated with Nordic countries, such as Denmark and Finland.
Entrepreneurial Capitalism - A type of capitalism that emphasizes innovation and
entrepreneurship. In this system, individuals and businesses are encouraged to take
risks and develop new products and services and the government may provide
various incentives, such as tax breaks or subsidies to promote economic growth. This
type of capitalism is often associated with the United States.

ADVANTAGES OF CAPITALISM
Economic Efficiency - Capitalism is praised for its ability to allocate resources
efficiently through market mechanisms. The profit motive encourages businesses to
produce goods and services that meet consumer demand while minimizing waste.
Innovation and Growth - Capitalism has been associated with rapid technological
progress and innovation. The competitive market environment incentivizes
businesses to invest in research and development, leading to advancements in
various industries.
Personal Freedom - Capitalism is often linked with individual freedom and
entrepreneurship. It allows individuals to pursue their economic interests, start
businesses, and make choices based on their preferences.
Consumer Choice and Quality - In capitalist system, consumer have a wide range of
choices when it comes to product and services. Businesses compete to offer the best
quality goods and services at a lowest prices and consumers are free to choose the
products that best meet their needs and preferences.

CRITICISMS OF CAPITALISM
Income inequality - One of the most significant criticisms of capitalism is its
tendency to exacerbate income and wealth inequality. The pursuit of profit can lead
to unequal distribution of wealth, with a small proportion of the population
accumulating substantial riches while others struggle to make ends meet.
Exploitation - Critics argue that capitalism can enable exploitation of labor, natural
resources, and consumers. Workers may face low wages, poor working conditions,
and job insecurity, while corporations seek to maximize profits at the expense of
social and environmental considerations.
Boom and Bust Cycle - Capitalism is based on the idea of supply and demand which
means prices can fluctuate rapidly and sometimes unexpected hit. This can leas to
boom and bust cycles where business and investors experience periods of rapid
growth and success followed by periods of decline.
Environmental Degradation - The pursuit of economic growth and profit in
capitalism is often criticized for its negative impact on the environment. Industrial
activities, consumption patterns, and resource extraction can lead to pollution,
deforestation, and climate change.

IMPACT OF CAPITALISM
 Globalization - Capitalism has facilitated the globalization of trade, investment,
and production, leading to increased interconnectedness among countries. Global
supply chains and international markets have expanded opportunities for
economic growth but also raised concerns about labor standards and inequality.
 Social Mobility - Capitalism can provide opportunities for social mobility, allowing
individuals to improve their economic status through education,
entrepreneurship, and hard work. However, barriers to mobility, such as unequal
access to education and resources, can hinder upward mobility for disadvantaged
groups.
 Cultural Influence - Capitalism has influenced cultural values, consumer
behavior, and societal norms. Advertising, marketing, and consumerism are
pervasive in capitalist societies, shaping perceptions of success, happiness, and
identity.
 Political Dynamics - The relationship between capitalism and democracy is
complex, with capitalism often coexisting with democratic governance. However,
concerns about corporate influence on politics, regulatory capture, and lobbying
raise questions about the integrity of democratic institutions in capitalist societies.

REPORT #12 JONNEL VILLARUZ


SOCIALISM

Socialism is an economic system in which major industries are owned by the workers,
rather than by private businesses or the state. It is different from capitalism, where
private actors, like business owners and shareholders, can own the means of
production.
Socialist ideals include:
 Production for use, rather than for profit
 An equitable distribution of wealth and material resources among all people.
 No more competitive buying and selling in the market.
 Free access to goods and services.
SOCIALISM OVERVIEW
 People as a whole would operate the means of production
 Farms, factories, and railways
 End poverty and injustice
 Hated capitalistic thoughts
 Government intervention with economic affairs
 Social and Economic Justice and Equality
Attaining Socialism
 Return to "Non-Industrial Ways
 Return to "Non-Industrial Ways"
 Valued Organization, Control, Leadership
 Role of Government
 Just Welfare State
 Responsibility for Key Benefits
 Dictator Government
 Destroy Capitalistic Society
 Socialism and Moral Human Society
 Happiness, Community, Equality
Socialism Origins
Enlightenment - Progress for Human Nature Concern for Justice Rousseau
Industrial Revolution - Community Ownership = No More
•Wealth/Poverty - Protect Working Class
•Labor Unions
• Ownership in Socialism
• Ownership of most of the means of production is public rather than private. The
government not the individual in the center of the economy
Democratic Socialism -Under this system, people have basic human rights and have
some control over the government officials through free election. However, the
government does own the basic means of production and makes most economic
decisions.
SOCIALISM STRENGHTS
 Guarantee minimum standard of living "cradle to grave"
 Evens out differences - makes people more equal
 Workers enjoy full "fruit of labor"
 Full employment
 End of poverty
 Production is geared toward use not profit
 People have more control over their lives?
SOCIALISM WEAKNESSES
 Complicates government (bureaucracy)
 Robs human incentive
 Too much government control
 Individual freedom is secondary to state needs
 High taxation and redistribution of wealth

In industrialized nations...
Population is divided between the:
 Bourgeoisie - capitalist who own the means of production
 Proletariat - workers who produce the goods

Socialist change - Social change occurs when societal institutions, structures, and
cultures undergo a significant shift. Famous examples include the Reformation in 16th-
century Europe and the American civil rights movement. More often than not, social
change is slow. This is especially true of a global society.
Nationalization - the process of transforming privately- owned assets into public assets
by bringing them under the public ownership of a national government or state.
Welfare state - the term welfare refers to a range of government programs that provide
financial or other aid to individuals or groups who cannot support themselves. Welfare
programs are typically funded by tax payers and allow people to cope with financial
stress during rough periods of their lives.
High taxation - What is taxation? Taxation is the imposition of compulsory levies on
individual orentities by governments in almost every country of the world. Taxation is
used Primarily to raise revenue for government expenditures, though it can serve other
purposes as well.

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