Report G 4

GROUP 4
Hannah Jean Dagasdas

Myron Francis Dano Mordeno
Janice Burbano
Harry Carl Trangia
Jamella Grace C. Cocjin
Demand system approach to economics
The demand system approach in economics focuses on modeling and analyzing consumer demand for various
goods and services. It involves estimating a set of demand equations that describe how consumers allocate their
income across different products based on their preferences, prices, and income levels.
Key elements of the demand system approach include:
Utility Maximization
-Assumes consumers aim to maximize their utility (satisfaction) given their budget constraints.
Demand Functions
-Models like the Almost Ideal Demand System (AIDS), Linear Expenditure System (LES), or the Translog
demand system provide a framework for estimating how changes in prices and income affect the quantity
demanded of different goods.
Elasticities
-A demand system allows economists to calculate price and income elasticities, which measure how responsive
demand is to changes in prices supply of money/from money income
SUPPLY OF MONEY
The supply of money refers to the total amount of monetary assets available in an economy at a specific time. It
is a critical factor in determining the overall level of economic activity, influencing interest rates, inflation, and
investment decisions. In managerial economics, understanding the money supply helps businesses forecast
economic conditions, such as inflationary trends or changes in consumer purchasing power, which can affect
demand for their products and services. Money Income:
Money income refers to the flow of earnings received by individuals or firms over a certain period. This
includes wages, salaries, rents, dividends, profits, and any other form of income. In managerial economics,
analyzing money income is essential for understanding consumer behavior, as it directly impacts demand for
goods and services. Higher money income generally leads to increased consumption, while lower money
income may reduce demand. FORMULA
Significance of the Formula MV = PO and the Critical Role of M
The central bank increases the money supply from 1 Million to 1.5 Million,
assuming that the velocity of money and the output of goods and services remain unchanged.
1.5 Million)×(2)=P×(2 Million)
3 Million=P× 2Million
Solving for P:
P=3 Million/2 Million = 1.5 Million

The Producing Sector
The term “producing sectors” refers to the industries or sectors of the economy that are directly involved in the
creation of goods and services. These sectors are essential for understanding how economies function and for
making informed decisions about resource allocation, production, and consumption.
Primary sector
this sector involves the extraction and production of raw materials from the natural environment examples
include:
Agriculture: farming, fishing, forestry, and livestock production.
Mining: extraction of minerals, ores, and fossil fuels.
Quarrying: extraction of stone, sand, and gravel.
Oil and Gas extraction: exploration and production of oil and natural gas.
Secondary sector
this sector transforms raw materials into finished goods. Examples include:
Manufacturing: production of consumer goods, industrial equipment, and other manufactured products.
Construction: building and infrastructure development.
Utilities: generation and distribution of electricity, gas, and water.
Tertiary sector
this sector provides services to businesses and individuals. Examples include:
Retail: sale of goods to consumers.
Finance: banking, insurance, and investment services.
Transportation: movement of goods and people.
Tourism: travel and hospitality services.
Healthcare: medical and health services.
Education: teaching and research.
Quaternary sector
is a relatively new addition to the traditional economic sectors, representing knowledge-based industries and
services.it focuses on the creation, processing, and dissemination of information and ideas.
Research and development(R&D): involves scientific research, technological development, and innovation in
various fields like medicine, engineering, and computer science.
Information technology (IT):

this sector encompasses software development, data analysis, cybersecurity, and network management.
Education:
while traditionally considered part of the tertiary sector, education is increasingly recognized as a key driver of
innovation and knowledge creation.
Media and communication: this sector includes news organizations, publishing houses, broadcasting
companies, and online platforms that disseminate information and entertainment content.
Consulting:
consulting firms provide expert advice and solutions to businesses in various fields, often relying on advanced
knowledge and analysis.
Macro and Microeconomics

In economics, demand and supply curves represent the relationship between the quantity demanded or supplied
and the price of a good or service. When applied to investment, these curves illustrate how investment changes
in response to various factors in both microeconomics and macroeconomics.
Microeconomics Perspective:
Demand Curve for Investment:

Factors: The demand curve for investment reflects the relationship between the interest rate and the level of
investment by firms.
Shape: The demand curve typically slopes downward because, as interest rates decrease, the cost of borrowing
capital decreases, leading firms to undertake more investment projects.
Shifts:
•Technological advancements may shift the demand curve to the right, indicating higher investment at any
given interest rate.
•Changes in business confidence or future profit expectations can also shift the curve.
Supply Curve for Investment:

Factors: The supply curve for investment reflects the relationship between the interest rate and the amount of
savings available for investment.
Shape: The supply curve typically slopes upward. As interest rates increase, the return on savings increases,
encouraging more individuals to save, thus providing more funds for investment.
Shifts:
•Changes in savings behavior, such as an increase in overall income or a change in consumer preferences
towards saving, can shift the supply curve.
•Government policies like tax incentives for saving can also shift the supply curve.
Macroeconomics Perspective:

Factors: In a macroeconomic context, the investment demand curve reflects the aggregate investment demand
in an economy, usually influenced by interest rates and expected returns on investment.
Shape: Similar to the microeconomic perspective, the demand curve slopes downward, reflecting the inverse
relationship between interest rates and the level of aggregate investment.
Shifts:
•Economic growth expectations, technological innovations, and government policies like investment tax credits
can shift the curve to the right.
•Economic downturns or political instability can shift the demand curve to the left.
Factors: In macroeconomics, the supply curve represents the total funds available for investment, influenced by
factors like national savings, government policies, and foreign capital inflows.
Shape: The curve usually slopes upward as higher interest rates increase the incentive to save, increasing the
supply of available funds.
Shifts:
•National income growth leading to higher savings can shift the supply curve to the right.
•Government deficits reducing available funds for investment might shift the supply curve to the left.
Price Elasticity of Demand (PED):

Price Elasticity of Demand measures how much the quantity demanded of a product changes in
response to a change in its price. It is calculated using the formula:
Formula: PED=% Change in Quantity Demande divided by % Change in Price
 If PED > 1, demand is elastic (consumers are sensitive to price changes).

 If PED < 1, demand is inelastic (consumers are not sensitive to price changes).
 If PED = 1, demand is unitary elastic.
Marginal Revenue (MR):

Marginal Revenue is the additional revenue that a firm earns by selling one more unit of a product. It is
calculated as:
Formula: MR= Change in Total Revnue divided by Quantity
The relationship between Price Elasticity of Demand and Marginal Revenue is crucial in understanding
how changes in price affect total revenue:
. When demand is elastic (PED > 1), a decrease in price leads to an increase in total revenue, meaning
MR is positive.
• When demand is inelastic (PED <1), a decrease in price leads to a decrease in total revenue, meaning
MR is negative.
Sales Forecast Model for a Product
Income Elasticity of Demand
Income Elasticity of Demand (YED):

Income Elasticity of Demand measures how the quantity demanded of a product changes in response to
a change in consumer income.
The formula is:
YED= %Change in Quantity Demanded divided by % Change in Income
•YED > 1:The good is a **luxury good** (demand increases more than
proportionally as income rises).
•0 < YED < 1:The good is a **normal good** (demand increases proportionally
but less than income).
•YED < 0:The good is an **inferior good** (demand decreases as income rises).
How It Works:
Income elasticity helps businesses and economists understand how demand for
products will change with economic conditions. For instance, in an economic
boom, demand for luxury goods (YED > 1) may rise significantly, while demand
for inferior goods (YED < 0) may decrease.
Demand and Supply Curves for Investment:

Represents the relationship between the interest rate and the quantity of
investment demanded. As incomes increase, firms expect higher consumer
spending, leading to increased investment demand.

Reflects the availability of funds for investment. Higher incomes often lead to
increased savings, shifting the supply curve for investment to the right.

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GROUP 4

Hannah Jean Dagasdas

Demand system approach to economics

P=3 Million/2 Million = 1.5 Million

Information technology (IT):

Macro and Microeconomics

Demand Curve for Investment:

Supply Curve for Investment:

Demand Curve for Investment:

Supply Curve for Investment:

Price Elasticity of Demand (PED):

Formula: PED=% Change in Quantity Demande divided by % Change in Price

 If PED > 1, demand is elastic (consumers are sensitive to price changes).

Marginal Revenue (MR):

Sales Forecast Model for a Product

Income Elasticity of Demand

Income Elasticity of Demand (YED):

Demand and Supply Curves for Investment:

Demand Curve for Investment:

Supply Curve for Investment:

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