GENERAL ECONOMICS WITH TAXATION AND ENTREPRENEURSHIP

Economics is the proper allocation and

efficient use of available resources for the maximum satisfaction of human wants.

Problem lies not on limited resources but on the unjust distribution of resources.

Nature of economics--- as a social

science. It uses scientific methods in gathering data, analyzing the data, and making conclusions. Data are obtained through observations and interviews. This is the empirical method which relies on practical experience.

Division of Economics.
1. Microeconomics- deals with the economic behavior of individual units such as the consumers, firms and the owners of the factors of production 2. Macroeconomics- deals with the economic behavior of the whole economy or its aggregates such as government.

Methods of Economics:
Positive economics- an approach to economics that seeks to understand behaviour and the operation of systems without making judgements. It describes what exists and how it works. Normative economics- an approach to economics that analyzes outcomes of economic behaviour, evaluates them as good or bad, and many prescribed courses of action. Also called policy economics.

Descriptive economics- the compilation of data that describe phenomena and facts. Economic Theory- a statement or set of related statements about cause and effect, action and reaction.

The three basic economic problems are:

1. What goods and services to produce and how much.

2. How to produce the goods and services.(technology),(intermediate technology)

3. For whom are the goods and services.

SCARCITY, CHOICE AND OPPORTUNITY COST Opportunity cost- the best alternative that we give up, or forgo, when we make a choice or decision.

SPECIALIZATION, EXCHANGE AND COMPARATIVE ADVANTAGE

Ricardos theory that specialization and free trade will benefit all trading parties, even those that may be absolutely more efficient producers. Absolute advantage- a producer has an absolute advantage over another in the production of a good or service if it can produce that product using fewer resources.

Comparative advantage- a producer has a comparative advantage over another in the production of a good or service if it can produce that product at a lower opportunity cost.
Economic system is a set of economic institutions that dominates a given economy. Economic System Models 1. Capitalism 2. Socialism 3. Communism

Judging an economic system. Abundance, growth, stability, security, efficiency, justice and equity, economic freedom. THE PRICES OF GOODS AND SERVICES In a market or capitalists economy, prices of goods and services are determines by the interaction between supply and demand of goods and services. Price is the value of a product or service which is expressed in terms of a monetary unit. The price system determines the allocation of goods and services among the members of society.

DEMAND- the schedule of various quantities which buyers are willing and able to purchase at a given price, time and place. Determined by some factors like income, population, taste and preferences, price expectation, prices of related goods.

Price 1 2 3 4 5

Quantity demanded 5 4 3 2 1

LAW OF DEMAND- consumers are most likely to buy more goods and services as price decreases and buy less goods and services as price rises. Law of Demand states: as price increases, quantity demand decreases and as price decreases, quantity demand increases(applicable if the principle of ceteris paribus is being followed). Changes in Demand refer to changes in the determinants of demands like income, population, price expectation and so forth.

Changes in quantity demand indicate the movement form one point to another point brought by changes in price.

Supply is the Schedule of various quantities of commodities which producers are willing and able to produce and offer at a given price, place and time.

Determinants are technology, cost of production, number of sellers, prices of other goods, price expectations, taxes and subsidies.
Price Quantity supplied

1 2 3 4 5

1 2 3 4 5

Law of supply states that as price increases, quantity supply also increases and as price decreases, quantity supply also decreases.

Changes in supply pertains to change in the determinants of supply.

Changes in quantity supplied show the movements form one point to another point on a constant supply curve. Change in quantity supplied is brought about by a change in price.

THE LAW OF SUPPLY AND DEMAND

Quantity supplied 1 2 3 4 5 price 1 2 3 4 5 Quantity demanded 5 shortage 4 equilibrium price 3 2 Surplus 1

LAW OF SUPPLY AND DEMAND states that when supply is greater than demand, price decreases; when demand is greater than supply price increases; when supply is equal to demand price remains constant.
Practical Application of the law

ELASTICITY AND CONSUMER BEHAVIOR Demand Elasticity refers to the reaction or response to the buyers to changes in price of goods and services.
Five types of demand elasticity 1. elastic demand 2. inelastic demand 3. unitary demand 4. perfectly elastic demand 5. perfectly inelastic demand

Determinants of Demand Elasticity 1. Number of goods substitutes 2. Price increase in proportion to income 3. Importance of the product to the consumers Elasticity of supply refers to the reaction or response of the seller/producer to price change of goods. 1. Elastic supply 2. Inelastic supply 3. Unitary supply 4. Perfectly elastic supply 5. Perfectly inelastic supply

The principal determinant of supply of elasticity is the TIME involved in the ability of producers to respond to price changes.
Theory of Consumer Behavior 1.Law of diminishing marginal utility. Utility means satisfaction. Marginal utility refers to the additional satisfaction of a consumer whenever he consumes one more unit of the same good. Consumption of more successive units of the same good increases total utility, but at a decreasing rate because marginal utility diminishes.

PRODUCTION Free goods- goods that are produced without costs; theses are produced by nature. Economic goods- produce by man and there is costs in each production. Factors of production 1.land 2.labor 3.capital 4.entrepreneur

Input=output Fixed factors Variable Factors

Production function- technical relationship between the application of inputs and the resulting maximum obtainable output.

LAW OF DIMINISHING RETURNS OR LAW OF DIMINISHING MARGINAL PRODUCTIVITY- When successive units of variable input work with a fixed input beyond a certain point the additional product produced by each additional unit of a variable, input decreases.
Message of the law- there is a proper combination of a variable input and fixed input to attain maximum output

The cost of production higher cost of production, the higher the price of the product Does not only affect the producer but also the buyers Economic Costs: 1.Total cost- sum total cost of production, also known as factor payments. Equivalent to fixed cost and variable cost 2.Fixed costs it remains constant regardless of the volume of production. 3.Variable costs- changes in proportion to volume of production

4.Average cost- also called unit cost 5.Marginal cost 6.Explicit cost 7.Implicit cost 8.Opportunity cost

Marginal cost and average cost relationship- when MC is falling it pulls down AC, When MC is rising it pulls up AC.

Short Run And Long Run Economic of scale External economies of scale are factors w/c are outside the firm but contribute to the efficiency of the latter. Internal economies of scale are those factors inside the firm w/c contribute to the efficiency of the latter. Appropriate Techniques of production Labor-intensive technology Capital-intensive

Revenue-income side of the firm Total Revenue=price times unit sold Total Revenue-total cost=profit Under a short run period the rule is if TR> VC, operate; If TR<VC, shut down. Under a long run where all costs are variable this means TC is equivalent to variable cost. The rules are: TR>TC: produce more TR<TC: stop production TR=TC: maintain production In TR=TC the firm gets a normal profit.

Marginal Revenue-Marginal Cost Approach If marginal revenue is greater than marginal cost, increase production: if Marginal revenue is less than marginal cost, does not increase production. Most profitable output for a firm is when MR=MC

MARKET STRUCTURE AND PRICE-OUTPUT DETERMINATION Basic Market Models 1.Perfect/pure type a. perfect or pure competition b. pure monopoly 2. Imperfect/ non-pure type a. monopolistic competition b. oligopoly

FACTOR MARKET AND INCOME DISTRIBUTION Determinants of Factor Demand Direct demand Derived demand-productive factors because of their productivity Demand for labor-wage as determinant
Supply in the Factor Market Supply of labor- more are willing to work when wage rates are higher when there are abundant job opportunities.

Labor Market

Individual supply of Labor

Income Distribution- the allocation of income among the owners of the factors of production Types of Income distribution Personal distribution- allocation of income among persons or households Functional distribution-allocation of income among the factors of production.

Cause of Income inequality 1. Intelligence and talents 2. Education and training 3. Unpleasant and risky jobs 4. Ownership of productive factors 5. Luck and connections
Theories of income Distribution Marginal Productivity Needs Social Usefulness Equality

Pricing of Resources determined by law of supply and demand Wages the price of labor. Supply and demand Minimum wage Labor unions Economic Rent- payment for the use of land and other natural resources which are fixed in total supply.

Taxation- inherent power of the state acting through the legislature to impose and collect revenue for the purpose of supporting the government and its recognized objects. Two-folds nature of taxation 1. inherent- it exists w/o the necessity of any specific grant of the power of the constitution. 2. legislative- exercised by the legislature though the enactment of statutes.

Theory of taxation- that w/o money the government would have no funds to meet the various essential expenses it has to incur to enable it to exist and function effectively. Basis of Taxation- based on the reciprocal duties of protection and support between the state and its citizens as well as residents and on the sovereign power as well as jurisdiction by the state over its people and sovereignty. Purpose of Taxation is to raise revenue or funds to support the government and its services.

Source of taxation- constitution, statutory enactments, administrative rules and regulations, judicial decisions, opinions of legal luminaries.
Limitations on the taxing power according to Malcolm: 1. tax must be for public purpose. 2. person, property or interest taxed must be within the jurisdiction of the taxing power. 3. rule of taxation must be uniform and equitable

4. in the assessment and collection of certain kind of taxes, certain guarantees against injustice to individual especially by way of notice and opportunity for hearing must be provided. 5. properties exempt from taxation under the constitution can not be taxed.
Situs of taxation: 1. Property Tax a. Real property tax- place where it is located regardless of domicile or citizenship of the owner.

b. personal property- taxable in the domicile of the owner. 2. income tax- residence/ citizenship of the taxpayer or sources of income. 3. poll or residence tax- residence or domicile of the person taxed. 4. transfer taxes- residence or citizenship or location of the property. 5. business or occupation taxes- place where the act or occupation is engaged in regardless of the domicile of the owner or proprietor and regardless of the location of the property used for business.

6. franchise tax- state which granted the franchise.

Tax- an enforced proportionate contribution imposed upon persons, property or interest by the legislature for a public purpose and generally payable in money.

Elements/ requisites of a tax. 1. enforced contribution 2. proportionate in character being based on ability to pay. 3. levied by the legislature directly or by delegation. 4. levied for a public purpose. 5. generally payable in money

TAX 1.Revenue measure 2.Imposed on the exercise of The power of taxation 3.Non-payment does not Necessarily Render the Business illegal 4.Not limited to the cost of regulation

License Fee 1.regulatory measure. 2.imposed on the exercise of police power 3.non payment as a rule renders the business illegal 4.limited to shoulder only cost of regulation

Taxes Classified a. As to subject matter

1. poll, personal or capitation tax, one imposed on residents. 2. Property tax- imposed on property. 3. Excise tax- imposed on a privilege or right.

b. As to who bears the burden 1.direct tax- imposed on a privilege or right. 2.indirect tax- which forms a part of the purchase price of the commodity and passed on to consumers.

c. As to purpose 1. general tax- imposed for general purpose.

Interest- payment for the use of money.

Profits BUSINESS ORGANIZATION AND MANAGEMENT Major forms of Business Organization Single or sole proprietorship Partnership Corporation Multinational Corporations

Characteristics of an Entrepreneur 1. Reasonable risk-takers 2. Self-confident 3. Hardworking 4. Innovative 5. Leadership-selfless dedication, purpose and vision, courage, conviction, enthusiasm, integrity, tact, hardwork 6. Positive thinker 7. Decision-maker

Determinants of successful entrepreneur Managerial skills 1. ability to conceptualize and plan. 2.ability to manage others. 3.ability to manage time and to learn. 4.ability to adapt to change.