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LESSON 1

ORIGIN AND ESSENCE OF ECONOMICS


Meaning of Economics
Economics has originated in the 9th century BC from Ancient Greek word oikonomia means
household (oikos) and management (nomia or nomos). Economics denotes household
management.
Contextually Household owns the factors of production such as land, labor, capital and
entrepreneurs. Household is the group of people who live together in a single home. This is best
referred in concept to the presence of family being the smallest unit of the society where each
member of the family inherently responsible to protect the common welfare
Philosophically, word Management, when divided into four component words, would form man,
age, and men, and letter t (or time). The component concept in the word management simply
implies that as time passes by, man grows in age and multiplies in number. So as population
grows, goods and services must also be adequately provided.
Economics today is generally known as the study and the livelihood of certain society. It guides
people on how (a) to make a living, (b) to use the resources wisely, (c) to run a business, (d) to
distribute properly available scarce resources, (e) to maximize profits and consumer satisfaction, (f)
to understand problem facing the citizen and the family and, (g) on how the government promotes
growth and provides the quality of life while avoiding depression and inflation.
Economics as a Study of Choice
Economics is the study of choice under conditions of scarcity,
Scarcity is the condition by which the available resources are not enough to satisfy human need
and wants. Specifically, it exist (1) when there are only few resources available in the country, (2)
when most of the wealth of the country is in the hands of few elite members of the society, (3) when
there is mismanagement in the resources of the country, and (4) when the presence of foreign multicorporation is imperialistically taking advantage in stripping the resources of the country like in the
case of Brazil of South America continent.
Economics as a study of economic activities is concerned with the aspects of the production,
allocation, distribution and consumption of goods and services. Production covers the
gathering, creation, or invention of resources. Allocation is the activity of apportioning available
commodities or productive human services to consumers across geography and economics entities.
The distribution as economic activity is usually done in commerce which refers to the delivery of
goods/services from producers to market outlets or direct end users. The consumption on the
hands, refers simply to the utilization of resources such as human, physical, and natural resources
with the ultimate end of satisfying human needs and wants.
Economics as a Social Science uses procedural methods or employs systematic understanding of
social behaviors with respect to economics activities and utilization of physical, natural and human
resources. The techniques of fact-finding, interpretation and analysis facts, phenomena, as well as
economic and non-economic related behavior patterns of the society are employed with scientific
reasoning and critical thinking. Many economists agree that Economics expands its bounds in
studying the choices that individuals, business entities and government make as they intend to cope
with wise use of resources for better standard of living.

LESSON 2

ECONOMIC THEORIES ON WISE UTILIZATION OF RESOURCES


Economic theory is a broad concept for the explanation and understanding of the movement of
goods in a market. Theoretical economic concepts typically have scientific backing or studies to
prove or disprove a stated hypothesis. National governments also have an interest in theories of
economics. Politicians rely on studies of government spending, tax collections, money supply, and
consumer data to make laws or set policy. Different economic theories exist that focus on different
aspects of government policy regarding economics.
Classical economic theory tends to favor a free market system. Under this theory, little government
intervention is necessary to help support a society. Classical economists believe that individuals
allowed to act in their own self-interests will present a strong group of consumers. Terms
like capitalism and supply side economics also describe this theory. The protection of personal
property through courts of law is often a major component of free market economics.
Another classic economic theory is command economies driven by national governments. Terms
associated with these economies include socialism and communism. The main ideas behind these
theories are that governments control the majority of economic resources. Governments allocate
resources, give jobs to certain classes or people, and regulate the economy through heavy taxation.
The redistribution of wealth attempts to ensure an equal status for all individuals living under the
governments umbrella.
A more modern economic concept is Keynesian economics. This theory is a slight combination
between the two previous theories. Keynesian theory dictates that targeted government spending
and intervention into a national economy helps keep goods moving when free markets become
inefficient. Government spending controls do not often exist under Keynesian economics as
governments may not have spending limits. Another inherent issue is the inability to control
employment, as government spending does not always result in job creation.
While other economic theories exist, these are often the main ones a government uses to guide its
fiscal and monetary policy. Economists often spend copious time collecting data and reviewing
financial information to help provide information for making decisions. These studies and
information-gathering sessions represent the science that backs up economic theory. Economic
methodology is also important; methodology dictates the best way to collect data and make it useful
for economic decision making.
Typically, economic theory uses a model individual to describe actions taken by people in economic
environments. The theory known as homo economicus describes humans as rational and selfinterested people who make judgments about their lives. Through this theory, economists attempt to
determine how individuals will react to certain economic situations. Free market economies most
often ascribe to this theory.
Thomas Robert Malthus
Thomas Robert Malthus, (born Feb. 13/14, 1766, Rookery, near Dorking, Surrey, Eng.died Dec.
29, 1834, St. Catherine, near Bath, Somerset), English economist and demographer who is best
known for his theory that population growth will always tend to outrun the food supply and that
betterment of humankind is impossible without stern limits on reproduction. This thinking is
commonly referred to as Malthusianism.
It is possible you will be asked about the consequences of Population growth. Firstly, it is
important that you appreciate two contrasting viewpoints.

The first is from Malthus, who was writing at the end of the 18th century. He believed that only bad
could come from population growth. Population he said grows faster than food supply. This he said
was because food supply can only grow arithmetically, for example, 1 then 2 then 3-4-5-6-7-8 but,
population grows geometrically 2-4-8-16-32-64.
Consequently, there is no way food supply can keep up with population growth.
Population grows exponentially, for example, 1-2-48-16-32-64.
Food supply grows arithmetically, for example, 1-2-34-5-6.
Therefore, population will inevitably exceed food
supply.

ABRAHAM MASLOW
(American Psychologist)
1908-1970
Abraham Harold Maslow was born April 1, 1908 in Brooklyn, New York.
Theory
One of the many interesting things Maslow noticed while he worked with monkeys early in his
career, was that some needs take precedence over others. For example, if you are hungry and
thirsty, you will tend to try to take care of the thirst first. After all, you can do without food for weeks,
but you can only do without water for a couple of days! Thirst is a stronger need than hunger.
Likewise, if you are very thirsty, but someone has put a choke hold on you and you cant breathe,
which is more important? The need to breathe, of course. On the other hand, sex is less powerful

than any of these

Maslow took this idea and created his now famous hierarchy of needs. Beyond the details of air,
water, food, and sex, he laid out five broader layers: the physiological needs, the needs for safety
and security, the needs for love and belonging, the needs for esteem, and the need to actualize the
self, in that order.
1. The physiological needs. These include the needs we have for oxygen, water, protein, salt,
sugar, calcium, and other minerals and vitamins. They also include the need to maintain a pH
balance (getting too acidic or base will kill you) and temperature (98.6 or near to it). Also, theres
the needs to be active, to rest, to sleep, to get rid of wastes (CO2, sweat, urine, and feces), to avoid
pain, and to have sex. Quite a collection!
Maslow believed, and research supports him, that these are in fact individual needs, and that a lack
of, say, vitamin C, will lead to a very specific hunger for things which have in the past provided that
vitamin C -- e.g. orange juice. I guess the cravings that some pregnant women have, and the way
in which babies eat the most foul tasting baby food, support the idea anecdotally.
2. The safety and security needs. When the physiological needs are largely taken care of, this
second layer of needs comes into play. You will become increasingly interested in finding safe
circumstances, stability, and protection. You might develop a need for structure, for order, some
limits.
Looking at it negatively, you become concerned, not with needs like hunger and thirst, but with your
fears and anxieties. In the ordinary American adult, this set of needs manifest themselves in the
form of our urges to have a home in a safe neighborhood, a little job security and a nest egg, a good
retirement plan and a bit of insurance, and so on.
3. The love and belonging needs. When physiological needs and safety needs are, by and large,
taken care of, a third layer starts to show up. You begin to feel the need for friends, a sweetheart,
children, affectionate relationships in general, even a sense of community. Looked at negatively,
you become increasing susceptible to loneliness and social anxieties.
In our day-to-day life, we exhibit these needs in our desires to marry, have a family, be a part of a
community, a member of a church, a brother in the fraternity, a part of a gang or a bowling club. It is
also a part of what we look for in a career.
4. The esteem needs. Next, we begin to look for a little self-esteem. Maslow noted two versions
of esteem needs, a lower one and a higher one. The lower one is the need for the respect of
others, the need for status, fame, glory, recognition, attention, reputation, appreciation, dignity, even
dominance. The higher form involves the need for self-respect, including such feelings as
confidence, competence, achievement, mastery, independence, and freedom. Note that this is the
higher form because, unlike the respect of others, once you have self-respect, its a lot harder to
lose!
5. Self-actualization
The last level is a bit different. Maslow has used a variety of terms to refer to this level: He has
called it growth motivation (in contrast to deficit motivation), being needs (or B-needs, in contrast
to D-needs), and self-actualization.
These are needs that do not involve balance or homeostasis. Once engaged, they continue to be
felt. In fact, they are likely to become stronger as we feed them! They involve the continuous
desire to fulfill potentials, to be all that you can be. They are a matter of becoming the most
complete, the fullest, you -- hence the term, self-actualization.

Lesson 3
PRODUCTION PROBLEMS
The Four Production Problems
Production is the main problem of countries across the world. With this economic activity it
requires human resource development since utilization of natural resources is the only way to
productively possible with educated and skilled or trained people.
Here are the four basic production problems:
The first problem is what goods and services to produce? (e.g. consumption, investment, export
and import and government goods and services) it will depend from the availability of the factors of
production such as land, labor, capital, and entrepreneur .The decisions and choices is based on
responsiveness of whatever resources available in the country to satisfy the need and wants of the
households, firm, and government.
Factors of Production
Land the natural resources or the gift of nature that a country uses to produce goods and
services.
Labor- the work time and work effort that people devote to produce goods and services.
Capital- the raw materials, physical facilities and equipment such as tools, machines, machineries,
buildings and other man made physical resources produced in the past that production sector now
uses to produce goods and services.
Entrepreneurship- the human activity that organizes or mixes the labors, land, and capital.
Entrepreneurs are the one who make ideas on how and what to produce, what business decisions
to make, and what alternative interventions to provide every time possible drawbacks arise from the
decisions made.
The second problem is how to produce the goods and services? It can be answered with the
growth of population. The production of goods may through labor-intensive which are heavenly
dependent on manual labor. And on the other hand is machine-intensive which are uses automated
machines or robotized technology. The producer usually uses automated machines because of its
fast production and to save raw materials, time, labor, and money.
The third problem is how much goods and services to produce? It is also answered based on
the availability of factors of production.
And the last problem is for whom the goods and services are produced? It is due to
consumers choice and the condition of the consumers location.
The decisions and choices, distribution and allocation of goods in the community and
economic entities are best sensibly made.

Lesson 4

BRANCHES OF SOCIAL SCIENCE RELATED TO THE STUDY OF ECONOMICS


Social science is a major category of academic disciplines, concerned with society and the
relationships among individuals within a society. It in turn has many branches, each of which is
considered a "social science". The main social sciences include economics, political
science, humangeography, demography, sociology, anthropology, archaeology, history, law and ling
uistics. The term is also sometimes used to refer specifically to the field of sociology, the original
'science of society', established in the 19th century.
Sociology
- focusing on how our humanity is shaped and constrained by social context within which we
live our lives. They have very close relationship Economics deals with the economics
activities of man which is also called science of bread and butter Economics is the study of
production, distribution and consumption of goods and services .Economics is concerned
with material welfare of the human beings .Economics welfare is only a part of human
welfare and it can be only sought only with the proper knowledge of social laws .It cannot go
far ahead without the help of sociology and other sciences.
-

Sociology and economics are helpful to each other .Economics relationship are closely
related with social activities as same as social relationship are also effected by economic
activity.

Political Science
- Political science and economics are social sciences. Political science is the study of politics
in theory and practice, while economics is the study of how resources are produced,
allocated, and distributed. As well as dealing with subjects that often relate to one another in
everyday life, the two are commonly seen as sister subjects in academic terms.
-

A variety of topics related to politics are addressed by political science. This includes
differing political philosophies about how society should operate. It also includes the way
political systems work to produce laws and government.

Economics deals with two main areas. Microeconomics is the study of how individual
consumers and businesses make production, purchasing, investment, and saving
choices. Macroeconomics looks at how an entire economy works and the way policies can
affect the combined effects of microeconomic decisions. It can be argued that economics is
a social science rather than a pure science, because it is based around resolving an
irresolvable dilemma: how to meet peoples unlimited wants with limited resources.

Geography
- There are some very simple ways in which geography affects economics: for example, long
distances and difficult terrain affect the ability to distribute goods, while factors like climate
might affect the kind of goods and services that people want. The distribution of natural
resources also has a huge effect on the economy.

But there are also human elements to economic geography. For example, you might look at
how economic factors determine where and how people live, such as when people move to
places where they can get a job more easily.

Ethics
- A social science that deals with the production, distribution, and consumption of goods and
services and with the theory and management of economies or economic systems. A system
of moral principles; a system of rules for regulating the actions and manners of people in
society.
-

Ethical issues connect intimately with economic issues. Take the economic practice of doing
a cost-benefit analysis. You could spend one hundred dollars for a night on the town, or you
could donate that one hundred dollars to the reelection campaign of your favorite politician.
Which option is better? The night on the town increases pleasure. A politicians successful
campaign may lead to more liberty in the long term. We regularly make decisions like this,
weighing our options by measuring their likely costs and likely benefits against each other.
This connects economics directly to a major issue in ethics: By what standard do we
determine what counts as a benefit or a cost?

Psychology
- It is using psychological insights to study economics. Behavioral economics is concerned
with the ways in which the actual decision-making processes are influenced by our mind and
emotions.
-

psychology guides people when they make economic decisions

Philosophy
- The philosophy of economics concerns itself with conceptual, methodological, and ethical
issues that arise within the scientific discipline of economics. The primary focus is on issues
of methodology and epistemologythe methods, concepts, and theories through which
economists attempt to arrive at knowledge about economic processes. Philosophy of
economics is also concerned with the ways in which ethical values are involved in economic
reasoningthe values of human welfare, social justice, and the tradeoffs among priorities
that economic choices require. Economic reasoning has implications for justice and human
welfare; more importantly, economic reasoning often makes inexplicit but significant ethical
assumptions that philosophers of economics have found it worthwhile to scrutinize.
Mathematics
- Mathematics is a primary tool used to evaluate a nations economy. Economic analysis is
commonly defined as a systematic approach to determining the optimum use of scarce or
limited economic resources. The analysis often includes several assumptions or constraints
found in the economic marketplace.
-

Mathematics often uses quantitative methods when reviewing specific information in an


economy. Quantitative methods are mathematical or statistical calculations that provide
economists with indicators for comparing the current economic analysis to those of previous
periods. Economists often use various types of math to ensure their personal judgments,
inferences or theories are supported by meaningful calculations.

History
- Knowledge of economic and financial history is crucial in thinking about the economy in
several ways.
-

Most obviously, it forces students to recognize that major discontinuities in economic


performance and economic policy regimes have occurred many times in the past, and may
therefore occur again in the future. These discontinuities have often coincided with economic

and financial crises, which therefore cannot be assumed away as theoretically impossible. A
historical training would immune students from the complacency that characterized the
Great Moderation.
-

A second, related point is that economic history teaches students the importance of context.

Anthropology
- One important contribution of anthropology is that by providing people with a vast array of
information about diverse socio cultural systems, anthropology creates a kind of natural
laboratory for testing hypotheses. Because their subjects often object to being manipulated,
all social scientists frequently find it difficult to experiment. What is needed, then, is
information about diverse social systems in which the factors involved in hypotheses
naturally vary-and this information anthropology often provides.
Demography
- Is the statistical study of populations, including of human beings. As a very general science,
it can analyze any kind of dynamic living population one that changes over time or space.
-

Demography is the statistical study of the human population. In the context of a population of
7 billion people, the demography of countries around the world varies drastically. The
Economist takes an in-depth look into the relationship of demography and economics across
regions of the world.

Lesson 5
DIVISIONS OF ECONOMICS
MICROECONOMICS
Microeconomics studies the small picture -- the behavior of individuals and companies
and the market for each type of product. For example, microeconomists study the
influence of supply and demand on the price of shoes. Although "micro" is a prefix
meaning "small," the worldwide market for a particular product, such as wheat, is also
of interest to microeconomists. Microeconomics is based on the assumptions of Adam
Smith, an 18th-century philosopher who is widely considered to be the father of
economics, wherein market conditions -- supply, demand, production and selling -- are
in equilibrium, and, if perturbed, quickly return to equilibrium. Everyday concerns, such
as price supports, taxes and minimum wages, are part of microeconomics, according to
G. Chris Rodrigo of the International Monetary Fund.
MACROECONOMICS
Macroeconomics studies the function of the economy of a nation as a whole. Its domain
includes how government policies and the markets for various products affect inflation,
employment and economic growth. However, the macro side also extends beyond
national borders because international trade and investment impact the economies of
many nations. Important areas of study in macroeconomics include short- and longterm trends. Macroeconomics originated with John Maynard Keynes in his attempts to
explain the "market failure" that characterized the Great Depression, according to
Rodrigo.

Lesson 6
THE ECONOMIC SYSTEMS
An economic system is a system of production and exchange of goods and services as well
as allocation of resources in a society. It includes the combination of the various institutions,
agencies, entities (or even sectors as described by some authors) and consumers that comprise the
economic structure of a given community. A related concept is the mode of production.
Characteristics of Economic System
The Capitalist Economic System
- an economic system in which investment in and ownership of the means of production,
distribution, and exchange of wealth is made and maintained chiefly by private individuals or
corporations, especially as contrasted to cooperatively or state-owned means of wealth.

The Communist Economic 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.
COMMUNISM - also known as a command system by which all productive enterprises are owned
by the people so that each State is represented.
The Socialist Economic System
-A socialist economic system is based on some form of social ownership of the means of
production, which may mean autonomous cooperatives or direct public ownership; wherein
production is carried out directly for use.
SOCIALISM an economic system in which means of production are socially owned and used to
meet human needs, not to create profits.
The Mixed Economic System

- An economic system that features characteristics of both capitalism and socialism. A mixed
economic system allows a level of private economic freedom in the use of capital, but also allows
for governments to interfere in economic activities in order to achieve social aims. Business
ownership is in private hands and prices are set by supply and demand, and partly under
government ownership or control. This type of economic system is to operate partly under freemarket principles and socialism.

Lesson 7
BUSINESS ORGANIZATIONS
The private business organizations constitute the prime movers of the economy. They create
investments, employments, productions and revenue for household, industry and the government.
In the private enterprise economy, business organizations and the government are partners in
attaining economic growth and development. Any disruption in the operation of business
organizations would mean losing of not only the part of business communities but, but also lesser
chance on the part buyers to get the worth or value of their money.
The major forms of business organizations are operated by business individuals based on the
opportunity given as enumerated below.
Sole/Single Proprietorship
The most common and simplest form of business. It is a form of business organization which is
owned by one person.
Example: Retailers, market vendor, sari-sari store owners, tailors and other related types.
Partnership
It is a business institution organized by two or more persons who agree to their resources money,
materials and management and become co-owners of the business.
Types:
General partnership exists between partners who agree to contribute concerted efforts for the
managerial operation of their business.
Industrial and silent the industrial partner does not contribute financial capital. Management of the
business is assumed and guaranteed by his expertise and quality time while the silent partner
provides the capital investments and opts not to participate in the actual management of the
business affairs.
Corporation
The most common form of business organization, and one which is chartered by a state and given
many legal rights as an entity separate from it owners. It originated from the Latin word corpus
which means body of people.
Cooperative
It is a duty registered of persons with a common bond of interest who have voluntarily joined
together to achieve a lawful common social and economic end, making equitable to contribution to
the capital required and accepting a fair share of the risks and benefits of the undertaking in
accordance with universally accepted cooperative principle.
Types:

Credit Cooperative, Consume Cooperative, Producer Cooperative, Service Cooperative, Multipurpose Cooperative
Principles of a Cooperative corporation
Open membership principle Any individual is accepted regardless of religion, political affiliation,
sex and age.
Open ownership principle Al members of the organization are presumed co-owners of the capital
assets of the business.
One-man-one-vote principle Regardless the number of shares in the organizations fund, a
member is limited for only one vote.
No proxy voting When election is held, each member is obliged to personally attend and cast only
one vote, unlike corporation members whose number of vote will always be based on the number of
their shares.
Patronage refund principle the members of the organization who patronize the merchandize or
credit services of the cooperatives are reimbursed or paid back with some amount computed based
from the total purchase.
Continuous education principle the members need not only to be educated but also trained to
operate the business based on the requirement of the self-help principles or on its being a service
oriented organization.
Lesson 8
THE MARKET SYSTEM
Perfect Market
In economics, a perfect market is defined by several conditions, collectively called perfect
competition. Among these conditions are:
- Perfect market information
- No participant with market power to set prices
- Non-intervention by governments
- No barriers to entry or exit
- Equal access to factors of production
- Profit maximization
- No externalities
The mathematical theory is called general equilibrium theory. On the assumption of Perfect
Competition, and some technical assumptions about the shapes of supply and demand curves, it is
possible to prove that a market will reach an equilibrium in which supply for every product or
service, including labor, equals demand at the current price. This equilibrium will be a Pareto
optimum, meaning that nobody can be made better off by exchange without making someone else
worse off.
Share and foreign exchange markets are commonly said to be the most similar to the perfect
market. The real estate market is an example of a very imperfect market. Note that the conditions
for Perfect Competition mean that a perfect market cannot be unregulated, since these
preconditions for market function cannot at the same time be products of the market, yet must be
provided somehow.
Another characteristics of a Perfect Market is normal profits, just enough to induce enough
participants to stay in the market to satisfy customer demand. The least efficient producer may have
very small profits, and be unable, for example, to pay dividends to shareholders, while more efficient
producers have larger profits.
This attribute of perfect markets has profound political and economic implications, as many
participants assume or are taught that the purpose of the market is to enable participants to
maximize profits. It is not. The purpose of the market is to efficiently allocate resources and to
maximize the welfare of consumers and producers alike. The market therefore regards excess
profits, or economic rents, as a signal of inefficiency, that is of market failure, which is to say, not
achieving a Pareto optimum.

Imperfect Market
A market where information is not quickly disclosed to all participants in it and where the matching
of buyers and sellers isn't immediate. Generally speaking, it is any market that does not adhere
rigidly to perfect information flow and provide instantly available buyers and sellers.
Monopoly
A situation in which a single company or group owns all or nearly all of the market for a given type of
product or service. By definition, monopoly is characterized by an absence of competition, which
often results in high prices and inferior products.
According to a strict academic definition, a monopoly is a market containing a single firm. In such
instances where a single firm holds monopoly power, the company will typically be forced
to divest its assets. Antimonopoly regulation protects free markets from being dominated by a single
entity.
Monopsony
A market similar to a monopoly except that a large buyer not seller controls a large proportion of the
market and drives the prices down. Sometimes referred to as the buyer's monopoly.
Oligopoly
A situation in which a particular market is controlled by a small group of firms. An oligopoly is much
like a monopoly, in which only one company exerts control over most of a market. In an oligopoly,
there are at least two firms controlling the market.
Duopoly
A true duopoly (from Greek duo (two) + polein (to sell)) is a specific type
of oligopoly where only two producers exist in one market. In reality, this definition is generally used
where only two firms have dominant control over a market. In the field of industrial organization, it is
the most commonly studied form of oligopoly due to its simplicity.
Cartel
In economics, a cartel is an agreement between competing firms to control prices or exclude entry
of a new competitor in a market. It is a formal organization of sellers or buyers that agree to fix
selling prices, purchase prices, or reduce production using a variety of tactics.[1] Cartels usually
arise in an oligopolistic industry, where the number of sellers is small or sales are highly
concentrated and the products being traded are usually commodities. Cartel members may agree
on such matters as setting minimum or target prices (price fixing), reducing total industry output,
fixing market shares, allocating customers, allocating territories, bid rigging, establishment of
common sales agencies, altering the conditions of sale, or combination of these. The aim of
such collusion (also called the cartel agreement) is to increase individual members' profits by
reducing competition. If the cartelists do not agree on market shares, they must have a plan to
share the extra monopoly profits generated by the cartel.
One can distinguish private cartels from public cartels. In the public cartel a government is involved
to enforce the cartel agreement, and the government's sovereignty shields such cartels from legal
actions] Inversely, private cartels are subject to legal liability under the antitrust laws now found in
nearly every nation of the world. Furthermore, the purpose of private cartels is to benefit only those
individuals who constitute it, public cartels, in theory, work to pass on benefits to the populace as a
whole.
Competition laws often forbid private cartels. Identifying and breaking up cartels is an important part
of the competition policy in most countries, although proving the existence of a cartel is rarely easy,
as firms are usually not so careless as to put collusion agreements on paper. Several economic
studies and legal decisions of antitrust authorities have found that the median price increase
achieved by cartels in the last 200 years is around 25%. Private international cartels (those with
participants from two or more nations) had an average price increase of 28%, whereas domestic
cartels averaged 18%. Fewer than 10% of all cartels in the sample failed to raise market prices.
Types of market structure
Perfect Competition many firms, freedom of entry, homogeneous product, and normal profit.

Monopoly One firm dominates the market, barriers to entry, possibly supernormal profit.
Monopoly Diagram
Oligopoly An industry dominated by a few firms, e.g. 5 firm concentration ratio of > 50%
Oligopoly Diagram
Monopolistic Competition Freedom of entry and exit, but firms have differentiated products.
Likelihood of normal profits in the long term.
Contestable Markets An industry with freedom of entry and exit, low sunk costs. The theory of
contestability suggests the number of firms is not so important, but the threat of competition.
Types of market structure and their characteristics
Different types of market structure include:
1.Pure competition:
The market consist of buyers and sellers trading in a uniform commodity such as wheat, copper,
or financial securities. No single buyer or seller has much effect on the going market price. A
seller cannot change more than the going price, because buyer can obtain as much they need at
the going price. In a purely competitive market, marketing research, product development,
pricing, advertising, and sales promotion play little or no role. Thus, sellers in these markets do
not spend much time on marketing strategy.
2.Pure monopoly:
In economics, an industry with a single firm that produce a product, for which there are no close
substitutes and in which significant barriers to entry prevent other firms from entering the industry
to compete for profit is called pure monopoly. Example: When the City Cell mobile service
company first started their business in Bangladesh, they were the only mobile service provider
then. Before the GrameenPhone came into the market, they enjoyed pure monopoly.
There are two types of pure monopoly:
1.Regulated monopoly
2.Nonregulated monopoly
Regulated monopoly:
The government permits the company to set rates that will yield a fair return. Example: Power
Company.
Nonregulated monopoly:
Company is free to price at what the market will bear. Example: City Cell (When it first
introduced mobile service in Bangladesh).
3.Monopsony:
This is the market situation where there is only one buyer in the market. When City Cell first
introduced mobile service network in Bangladesh, they were the only mobile phone and its
accessories buyer from Nokia and Motorola in Bangladesh.
4.Monopolistic competition:
In economics, the market consist of many buyers and sellers who trade over arrange of prices
rather than a single market price is called monopolistic competition. Arrange of price occurs
because sellers can differentiate their offers to buyers. Sellers try to develop difference by using
customer segments, and in addition to price, freely uses branding, advertising, and personal
selling to set their offers apart.
5.Oligopoly:
In economics, the market consist of few sellers who are highly sensitive to each others pricing
and marketing strategies. There are few sellers because it is difficult for new sellers to enter the
market. Each seller is alert to competitors strategies and move.
6.Oligopsony:
In economics, oligopoly is a market where there is a small number of buyers for a product or a
service. In this market structure, buyers have power over the seller. Because as there are small
number of buyers, if they are united and pressure the seller to sell the product or service in a
reasonable and affordable price, the seller must have to consider that.
7.Price discrimination:
In economics, if one product or service has different price for different buyers which is provided
by the same provider, then we call that price discrimination market strategy. A good example of

this strategy could be the airlines company-Emirates. It has offered different prices for different
category of passengers for the same destination. Such as, it has Student package for the
students, Honeymoon package for the couples which are of lower price than their regular one.
'Law of Demand'
The law of demand states that other factors being constant (citrus pervious), price and quantity
demand of any good and service are inversely related to each other.
Definition: The law of demand states that other factors being constant (citrus pervious), price and
quantity demand of any good and service are inversely related to each other. When the price of a
product increases, the demand for the same product will fall.
Description: Law of demand explains consumer choice behavior when the price changes. In the
market, assuming other factors affecting demand being constant, when the price of a good rises, it
leads to a fall in the demand of that good. This is the natural consumer choice behavior. This
happens because a consumer hesitates to spend more for the good with the fear of going out of
cash.

DEMAND CURVE

The above diagram shows the demand curve which is downward sloping. Clearly when the price of
the commodity increases from price p3 to p2, then its quantity demand comes down from Q3 to Q2
and then to Q3 and vice versa.
'Law of Supply'
A microeconomic law that states, all other factors being equal, as the price of a good or service
increases, the quantity of goods or services that suppliers offer will increase, and vice versa. The
law of supply says that as the price of an item goes up, suppliers will attempt to maximize their

profits by increasing the quantity offered for sale.

Law of Supply And Demand


A theory explaining the interaction between the supply of a resource and the demand for that
resource. The law of supply and demand defines the effect that the availability of a particular
product and the desire (or demand) for that product has on price. Generally, if there is a low supply
and a high demand, the price will be high. In contrast, the greater the supply and the lower the
demand, the lower the price will be.

SUPPLY AND DEMAND SCHEDULE

SUPPLY AND DEMAND CURVE

LESSON 9
DETERMINANTS OF DEMAND AND SUPPLY
FACTORS OF DEMAND
There are five known determinants of demand or the factors that affect demand:
1. Income as a factor, when income rises, so will demand, and vice versa. However, even
if your income doubles not necessarily that youll buy twice of a particular good.
2. Population as a determinant, an increase in population will result an increase in
demand. The number of consumers affects demand. As more consumers enter, the market rises.
3. Price Speculation as a factor is an expectation for price increase or decrease. When
people expect that the price of something will rise, then they react immediately to buy the goods.
4. Taste and Preference when tastes increases, so does the demand.
5. Seasons/ Occasions as a determinant of demand refers to the climatic condition or
occasions celebrated by group of people in a certain place. There is a tendency of high
consumption of goods during occasions.

NEW DEMAND SCHEDULE


PRICE

OLD QUANTITY DEMAND

NEW QUANTITY DEMAND

1
2

50
40

60
50

3
4
5
6

30
20
10
0

40
30
20
10

DEMAND CURVE SHIFT

FACTORS OF SUPPLY
1. Tax- Tax is an inevitable mandatory collection of the law-making body of the state from
the citizens to supplement national needs. An increase of this generally decreases quantity supply.
2. Price Speculation- it refers to the unsure increase or decrease in price of commodities in
the future. An increase of price would boost quantity supply for much greater profit and vice versa.
3. Subsidy- it is a financial assistance from the government to the producers. An increase of
this tends to rise production capabilities of producers, ergo, rise of quantity supply or vice versa.
4. Change in the Cost of Factors of Production- these are the essential elements of
producing goods and services. An increase in cost on one of these would lessen the production
power of producers or vice versa.
5. Technology- refers to either machine-intensive of labor-intensive technique of production.
The help of machineries hastens production of goods and services thus increase the quantity supply
or vice versa.

NEW SUPPLY SCHEDULE


PRICE

OLD QUANTITY SUPPLY

NEW QUANTITY SUPPLY

1
2
3
4

10
20
30
40

0
10
20
30

5
6

50
60

40
50

SUPPLY CURVE SHIFT

LESSON 10
ANALYSIS OF MARKET CASES USING THE COMBINED SUPPLY AND DEMAND GRAPH
MODEL

Guidelines:
*The specific market cases below are items which could be interpreted using a graph based on the
following:
1) If in general, the producer as key player/supplier/seller influenced change , the general curve of
supply will move sideward (to the left in the influence brings about more of a negative result ; to the
right if it is more on positive consequences).
2) If in general, the consumers/buyer/end user influence change , the curve demand move sideward
( to the left if the influence will have much of a negative result ;to the right if it is more of a positive
consequences).

3) If the government is the one that regulates or set the price ,as a matter of public interest or policy
< the curve of demand or supply does not move sideward. In this case , the price line shifts upward
( for increase in price) or shifts downward ( for decrease in price).

Specific market cases


1) HOARDING
* Is the price of obtaining and holding scarce resources. As you can see om the graph
below , it says that the price rises while the QD and QS decrease if hoarding exist or
practiced by some producers of commodities . The price became higher because of the lack
of supply of goods . The quantity demand and supply also decrease as a result of artificial
shortage created by business individuals who intentionally desire to manipulate the price
with the ultimate aim to gain a higher profit.

2) When the government lessen the subsidy to the farmers.


*Subsidy is a determinant of supply . Then the law of supply and demand states that If
the supply is lesser than the demand ( S<D) , the price increases, so if the government
lessen the subsidy of the agricultural producers , the QD tends to decrease due to lack of
supply that causes the price to increase .

3) The government implements the mandates of the new law on salary and wage hike for only
public institution.
*Income is a determinants of demand where in it referred to any amount of money
received over a period of time. As the graph shows, the government implemented the
decrease of the salaries and wages of the employees to the public agencies, the
demand decrease. The decrease in the compensation of the employees did not
encourage the producers , that leads to the decrease of supply .Which is often ,
sellers think that the decrease makes the consumers not capable of buying the
goods .Hence that the decrease in demand tip off , some sellers must consider
decreasing of price.

4) The government implemented the Extended Value Added Tax( E-VAT)


*If the opposition of E-VAT is strongly perceived not bearable among producers, this
reduces the capacity to produce the usual quantity of goods or to provide the regular quality
services. In this case the additional tax charged on goods and services would to a certain
extent be regarded a burden which in turn reduces supply in the market .Also the price tends
to increase when supplier finds the increase a burden.

5) The Energy Regulatory Board (ERB), a Philippine government agency, has set the
permissible increase in the cost of fuel per litter on the world market based on world market
price per barrel.
*The graph infers that when the government regulates the price , i.e. hike on the cost
of fuel, the seller in the market are encourage to offer more of their products within their
desires. However, the consumer who are heavily affected normally reduce their consumption
\. As a consequences, possible surplus of goods are available in market.
6) The Philippine Government approved the importation of spices in neighboring agricultural
countries significantly to augment domestic spice shortage in the market.
The importation done by the supplier/producer is a determinant of supply. The increase
of spice supply in the local market would bring about the increase of price .Quantity
demand will eventually decrease as a result of price increase marked by the shift of
supply curve to the left .
7) The government implement local log ban
If the government through the DENR implements the total log ban, this would mean
that the supply of lumber in the market dramatically decreases as shown by the shift of
supply curve. As a consequences, price of wood products would became exorbitant.
Much of the desire of the consumer to obtain the lumber product, simply they can not
avail much of them due to government control.
8) There is dramatic rise in urban migration from rural areas.
Migration is determinant of demand, it is the movement of people from one place to
another which tends to increase the population of the destination place. Example is in
Korea , where in there is a war between the south and north part of it ,people who are
affected and wants to survive ,moves out on their places and went to their nearby
countries where in , on that place where the people migrated increase in population
and corresponding demand.
9) The industrial sector of the Philippines use machine intensive production technology...
This determinant of supply is classified by a traditional or modern. If the industrial firms
used a high grade machines-based technology in making productivity, it may improve it
or it can make the production easier and faster and also saves money time and raw
materials. So if the goods are produced at lower production cost, the market price will
offered fair.
10) The increase in a countrys produce of rice is just enough to respond to the required quantity
of goods demanded by a populace.

Rice production is a relative determinant of supply while population is the determinant


of demand. When supply of rice is just adequate to meet the demand, price tends to
settle at equilibrium point as shown by the equilibrium 1(E1).

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