Licensure Examination for Teachers

Majorship: Social Science

Focus: General Economics
Prepared by: Prof. Serafin A. Arviola Jr.

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Part I: Content Update

ECONOMICS
 A social Science dealing with how societies and individuals allocate scarce
resources to satisfy their unlimited needs and wants
 A social science dealing with how societies and individuals make their choices

Tools of Economics
 Factual Tools – It includes statistics (Data and Methods), economic history, and
study of relationships of institutions (Organization, Customs, Pattern of Behavior)
 Theoretical Tools
o Economic Concepts – Words or phrase that convey a specific meaning in
economics
o Economic models – Simplified representation of the real world like words,
Mathematical equations and graphs.

Basic Economic Questions

 What to produce – The economic system must decide what goods and services
to produce with its land labor and capital
 How to produce - The economic system must decide how to produce each good
or service – determining what mix of land, labor, and capital to use in production
methods to employ
 For whom to produce – The economic system must decide which members of
society will receive how much of the goods and services produced – the process
of allocating income.

Divisions of Economics
 Microeconomics - The branch of economics that examines the functioning of
individual industries and the behavior of individual decision-making units, that is,
business forms and households.
 Macroeconomics - The branch of economics that examines the economic
behavior of aggregates – income, employment, output, and so on – in a national
scale.

Economic Measures of Development

 Gross National Product (GNP) – is the total market value of all final goods and
services produced by citizens in one year.
  Gross Domestic Product (GDP) - The sum of the money values of all final
goods and services produced in the domestic economy along a specified period
of time, usually one year.
 Stock Exchange - A measure of the performance of an economy based from the
portfolio investment, that is, indirect form of investment.
 Foreign Exchange Rates - State the value of one currency in terms of another
and this reference the patterns of world trade in important ways.

State of Philippine Economy

 Poverty remains a problem in the Philippines with 31M Filipinos live below the
poverty line according to Government estimates, 64M according to Ibon
 25M are unemployed or underemployed.
 9 Million are not eating 3 times a day.
 400 children die daily due to hunger
 Budget Deficit is predicted to reach 223B this year.
 According to World Economic Review, Philippines in 61st out of 80 among the
most uncompetitive country in the world
 Our foreign debt is at 3 Trillion now.
 65% of companies think that business in the Philippines is worse
 Transparency Intl.: Philippines is the 11th most corrupt country in the world
 Procurement Watch Inc.: Government loses 21B every year due to corruption
 the Philippines’ richest 20% owns 55.8% of the nation’s wealth while the poorest
20% of the population gets only 1.7%
 RP Population hits more than 80 Million and 32 million of them are considered
POOR -POPCOm Report. A new Filipino is born every 23.6 seconds; 3 every
minute; 206 every hour; 4,947 everyday 1.8 million every year
 For every 100 Filipino children who enters grade I, only 66 will finished grade VI,
60 will go to high school, 40 will graduate, 25 will go to college, 13 will complete a
degree and only 1-2 will get a stable job
 Every six minutes, one Filipino child dies of measles, every hour, 6 Filipinos die
of heart disease. Everyday: 4 Filipinos die of cancer, 28 babies die of tetanus,
1,277 children die of diarrhea, 55 die of tuberculosis, 15 die of renal disease, 300
develop malaria
 There are 1.5 million Street Children nationwide, With 75,000 in Metro Manila
alone. As regards child labor, the DOLE reports that there are about 777,000
workers aged 10 to 14 and 1.4 million between 15 and 17 years old.

Economic Systems

Capitalist System – an economy in which people and firms pursue their own self-
interest without any central direction or regulations. This is also known as laissez-faire
economy, free enterprise, price mechanism, or free market economy.

• Market Economy - (also called a free market economy or a free enterprise

economy) is an economic system in which the production and distribution of

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 goods and services take place through the mechanism of free markets guided by
a free price system. Market is a social arrangement that allows buyers and
sellers to discover information and carry out a voluntary exchange of goods or
services. It is one of the two key institutions that organize trade, along with the
right to own property. In everyday usage, the word "market" may refer to the
location where goods are traded, sometimes known as a marketplace, or to a
street market. A buyer is any person who contracts to acquire an asset in return
for some form of consideration. A "merchandiser" or buyer is a person who
purchases finished goods, typically for resale, for a firm, government, or
organization. A buyer's primary responsibility is obtaining the highest quality
goods at the lowest cost. This usually requires research, writing requests for
bids, proposals or quotes, and evaluation information received. They determine
demand. Sellers function as professionals who deal with trade, dealing in
commodities that they do not produce themselves, in order to produce profit.
They determine supply

Command Economy – an economy in which a central authority or agency draws up a

plan that establishes what will be produced and when, and makes rules for distribution.

 Planned Economy - (also known as a command economy, centrally planned

economy, or command and control economy) is an economic system in which the
state or government controls the factors of production and makes all decisions
about their use and about the distribution of income.

Mixed Economy – it is a regulated market economy. In reality, all economies are, to

some extent, mixed. It is just a matter of degree of intervention. Mixed Economy is an
economy that has a mix of characteristics essential to different economic systems. It is
usually defined as an economy that contains both private-owned and state-owned
enterprises or that combines elements of capitalism and socialism, or a mix of market
economy and command economy characteristics.

Inputs and Outputs

INPUTS - Are commodities or services that are used to produce good and
services. Examples are the Factors of Production: Land, Labor, Capital,
Entrepreneur

OUTPUTS - Are various useful goods or services that result from production
process and either consumed or employed in further production. Examples are
the Rent, Wages, Income and ideas.

Opportunity Costs

In economics, opportunity cost, or economic cost, is the cost of something in terms of

an opportunity forgone (and the benefits which could be received from that opportunity),
or the most valuable forgone alternative (or highest-valued option forgone), i.e. the

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second best alternative. An early representation of the concept of opportunity cost is the
broken window fallacy illustrated by Frédéric Bastiat in 1850. Example: Getting married
vs Completing College.

Competition

Perfect Competition: Homogeneous Products, Buyers and Sellers are Price Takers
Monopolistic Competition: One seller controls price
Oligopolistic Competition: Few Sellers, not aggressive competition

Demand, Supply and Price Determination

What is a Demand? - Is the desire to buy goods and services with the ability to pay.
Simple, demand is the willingness and the ability to pay for goods and services.
Demand in this context would refer to effective demand

Price Quantity
of Demanded for
Choc-nut choc-nut (QD)
(P)
1.00 2
0.80 4
0.60 6
0.40 8
0.20 10

Law of Demand

 When Price increases, Demand decreases, When Price decreases, Demand

increases. Price is the independent variable quantity Demand is the dependent
variable. Factors affecting demand include
o Fashion, Taste and Demand
o Changes in Income
o Changes in Population
o Changes in the Price of Related Goods
o Advertisement
o Introduction of New Product
o Social and Economic Conditions

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 o Festive Seasons
o Goods with Snob effect or Ostentatious Goods
o Emergency Situation

What is Supply? Supply can be defined as the quantity of any good and service offered
for sale at a given price. Simply, it is the willingness and ability of seller to sell goods
and services at different prices.

Price of Quantity
Choc-nut (P) Supplied for
Choc-nut (QS)

0.20 20

0.40 40
0.60 60
0.80 80

1.00 100

Law of Supply

 When price increases, supply increases. When price decreases, supply

decreases. Price is the independent variable quantity, supply is the independent
variable. Factors affecting supply include:
o Climatic Condition
o Cost of Production
o Technological Advancement
o Government Policies
o Time Period
o Price of Related Goods

Supply and Demand Together

 Equilibrium refers to a situation in which the price has reached the level where
quantity supplied equals quantity demand.

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  Equilibrium Price - The price that balances quantity supplied and quantity
demanded. On a graph, it is the price at which the supply and demand curves
intersect.
 Equilibrium Quantity - The quantity supplied and the quantity demanded at the
equilibrium price. On a graph it is the quantity at which the supply and demand
curves intersect.

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Practice Test in Economics

MULTIPLE CHOICE. Encircle the letter of the best answer.

1. The following are basic economic questions except

a. What to produce c. For whom to produce
b. How to produce d. Why do we produce

2. The sum of the money values of all final goods are services produced in the
domestic economy along a specified period of time, usually one year is
a. Gross Domestic Product c. Foreign Exchange Rates
b. Philippine Stock Exchange d. All of the above

3. It is an economic system characterized by free enterprise and private ownership

of the means of production.
a. Command Economy c. Socialist Economy
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 b. Mixed Economy d. Market Economy

4. The following are concerns of microeconomics EXCEPT

a. Supply c. Elasticity
b. Demand d. Gross National Product

5. It is an inherent power of the state to impose and collect revenues to defray the
necessary expenses of the government
a. Police Power c Power of eminent domain
b. Taxation d. None of the above

6. The following except one is an example of factual tools used in the study of
economic problems
a. Data c. Customs
b. Method d. Mathematical equations

7. It is the restructuring or setting a new global economic order

a. privatization c. deregulation
b. globalization d. liberalization

8. It is concerned with issues and problems concerning the overall economy of a

nation or the world economy
a. Microeconomics c. Macroeconomics
b. Economics d. Political Economy

9. It is concerned with issues and problems facing the individual or the firm or
specific goods and services
a. Macroeconomics c. Economics
b. Microeconomics d. Political Economy

10. Scarcity exists because

a. Humans have unlimited requirements for survival
b. Technology limits the level of production
c. Floods, fires and other natural disasters destroy available resources
d. Human wants are enormous relative to the means available to satisfy
them

11. Opportunity cost are

a. the nominal dollar cost of goods and services
b. the value of the next best alternative when a choice is made
c. the price people would be willing to pay for goods and services
d. the price you must pay (i.e. for gas) in order to get to the stire and have
the opportunity to purchase things.

12. As used in economics, scarcity refers to

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 a. The absolute amount of available physical resources
b. The absolute amount of both goods and services
c. The absolute amount of both goods and resources available relative to
desired consumption and production uses
d. The economic situation in developing countries such Ethiopia

13. The distribution of economic resources among existing alternatives.

a. Production c. allocation
b. Consumption d. conservation

14. The direct exchange of goods and services without the use of a medium.
a. banking c. barter
b. loans d. bank expansion

15. Which of the following is a productive resource of an economy?

a. a serving machine c. an unskilled 10-year old
b. an acre of rocky land d. all of the above

16. A kind of freedom wherein an individual is free to seek any opportunity of

employment for living.
a. political freedom c. academic freedom
b. cultural freedom d. economic freedom

17. A radical change in the methods of production from hand tools to state-of-the-art
machinery.
a. Industrial Revolution c. feudalism
b. agricultural development d. cultural development

18. Which of the following strategy can the government implement to attain total land
reform?
a. Improve infrastructure like irrigation and marketing facilities
b. distribution of lands in the public domains
c. financial assistance to the farmers
d. all of the above

19. Which of the following is the central theme in economics?

a. causation c. scarcity
b. abundance d. ceteris paribus

20. According to the law of demand, when the price of a good increase,
a. people will choose to purchase less of that good and more of other goods
b. people will provide more of that good
c. people will choose to purchase more of that good and less of other goods
d. people will provide less of that good

21. Which of the following is most likely to be studied by a microeconomist?

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 a. inflation of the general price level
b. unemployment in the economy
c. employment of labor in furniture production
d. the growth rate of aggregate output

22. The following are factors affecting demand, EXCEPT…

a. Changes in Income
b. Changes in Population
c. Changes in the Price of Related Goods
d. Climatic Condition

23. The following are factors affecting supply, EXCEPT …

a. Cost of Production
b. Goods with Snob Effects
c. Technological Advancement
d. Government Policies

24. INPUTS are commodities or services that are used to produce good and services.
The following are examples of inputs as used in economics EXCEPT …are the
a. Land
b. Rent
c. Labor
d. Capital

25. Which of the following statements best describe a “buyer”?

a. A buyer is any person who contracts to acquire an asset in return for some form
of consideration.
b. A buyer is a person who purchases finished goods, typically for resale, for a firm,
government, or organization.
c. A buyer's primary responsibility is obtaining the highest quality goods at the
lowest cost.
d. All of the above.

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 1. D
2. A
3. D
4. D
5. B
6. D
7. b
8. C
9. B
10. A
11. B
12. C
13. C
14. C
15. A
16. D
17. A
18. D
19. C
20. A
21. C
22. D
23. B
24. B
25. D

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