SOCSCI4

Basic Economics with Taxation

and Agrarian Reform
WEEK 4
TOPICS:
I. Unemployment and Underemployment
II. Inflation and Deflation
III. GDP and GNP
IV. Market Structures
 I. UNEMPLOYMENT
AND
UNDEREMPLOYMENT
UNEMPLOYMENT
• It is defined as People able, available and
willing to find work and actively seeking work –
but not employed.
 TYPES OF UNEMPLOYMENT
• Frictional Unemployment
– caused by interruptions in production, for technical
reasons, or when workers are temporarily laid off due to
renovation works. It is also a situation when workers left
their jobs and are looking for new ones.
• Structural Unemployment
– a change in technology renders the skills and talents
of some workers obsolete.
 TYPES OF UNEMPLOYMENT
•Cyclical Unemployment
- caused by the fall of business activities in the
economy.
•Seasonal Unemployment
- during slacks period, many workers in farming and
construction are laid off.
 EFFECTS OF UNEMPLOYMENT
• The productive resources of the economy are not fully
used. This means less goods and services are produced. On
the part of the country, unemployment means decline in
national income or gross national product.
• In such situation, government revenues likewise fall.
Evidently, the government has to put side some of its
important projects due to lack of funds.
• Unemployment could lead to loss of self-confidence or to
more serious social crimes.
UNDEREMPLOYMENT
• the condition in which people in a labor force are
employed at less than full-time or regular jobs or at jobs
inadequate with respect to their training or economic
needs.
• a situation in which workers are employed below their
education or their availability.
UNDEREMPLOYED
• a person not having enough paid work or not doing work
that makes full use of their skills and abilities.
 COMMON TYPES OF
UNDEREMPLOYED WORKERS INCLUDE
• Skilled workers in low-paying jobs.
• Skilled workers in low-skill jobs.
• Part-time workers preferring full-time hours.
• Unemployed workers currently looking for work.
 FULL EMPLOYMENT
• When there is an available job for every person who is
willing and able to work, it is full employment.
• Several Factors of unemployment during a period of full
employment:
• Sickness, dissatisfaction,
• Legal minimum wage is more than the value of the
output of many young workers.
• Old age, disabilities.
II. INFLATION
INFLATION
• It is said that there is an
inflation when there is a rising
general level of prices.
• Nevertheless, it does not
necessarily mean that all prices
are increasing.
INFLATION
• In fact, some prices remain
constant or even fall.
• Other prices rise very suddenly.
• In short, there is no even
escalation of prices.
INFLATION
• Inflation adversely affects many
sectors of the economy,
particularly the fixed income-
groups.
• Needless to say that their
purchasing power declines as
prices rise.
INFLATION
•Inflation also aggravates
unemployment problems.
•Demand for goods and
services decreases when
prices increase.
INFLATION
• Unfortunately, inflation
creates more inflation.
• When prices keep on
increasing, people are
inclined to spend their
money before it loses its
value.
INFLATION
• It is to be noted that the
tendency of people to
spend their money is of
short duration.
• Once they have exhausted
their surplus money, the
natural demand for goods
and services takes place.
 TYPES OF INFLATION
•Demand-pull Inflation
– occurs when demand for goods and services exceed
supply. This is based on law of demand and supply. When all
the productive resources are fully employed, an additional
demand for goods increases prices. It is no longer possible to
expand output or supply.
Another cause would be the excess of Money supply.
When money supply increases, without corresponding
increase in production of goods and services, prices rise.
 TYPES OF INFLATION
•Cost-push Inflation
– an increase in the cost of production results to an
increase in prices. Cost increases whenever there is an
increase in wages, oil prices, or prices of raw materials.
In addition, profit-push version of the labor sector is
the cause of inflation.
 TYPES OF INFLATION
•Structural Inflation
- explains that the inability of some sectors of our
economy to respond immediately to demand for goods and
services.
When supply cannot meet demand, prices increase. If
there are no obstacles or constraints (financial, physical or
institutional), whenever prices rise, producers are
encouraged to enter the market.
This increases supply and therefore prices fall.
THE PHILIPPINE EXPRIENCE
• 1984
• The Philippine Economy turned from bad to worse.
• Foreign loans did not come, dollars were difficult to obtain
and both domestic and foreign markets declined.
• The average inflation rate for 1984 was 50 percent.
• As of the end of December 1983 to March 1984, almost
one million workers lost their jobs.
THE PHILIPPINE EXPRIENCE
• On the other hand, there were groups who reaped
economic benefits from our economic crisis.
• It has been claimed that a few rich Chinese businessmen
owned the black market and they dictated the rates.
• Likewise, foreign banks at the beginning of the crisis in
1983 realized a 79 percent profit on their investments.
THE PHILIPPINE EXPRIENCE
• Economic recession in the industrial countries has greatly
affected our exports to said countries.
• Since exports of raw materials and primary farm products
are the main sources of our dollar earnings, their reduction
has a great impact on our developing economy.
• Another reason was the increase in OPEC prices of oil
products.
THE PHILIPPINE EXPRIENCE
• The UP Report pointed out authoritarianism and crony
capitalism as the roots of the existing crisis.
• It can be said therefore, that economic opportunities were
not equal and the principle of business efficiency was likely
ignored.
• Everything depended on right connections
THE PHILIPPINE EXPRIENCE
• The government has introduced economic reforms or
measures to reduce the problems of inflation and
unemployment and these have been planned for
economic recovery. Some of these measures have
been:
• To increase the production of short-gestation crops
and other small-scale industries.
• To reduce over-supply of money.
GOVERNMENT POLICIES
• To reduce government expenditures through more
economical use of its resources.
• To concentrate more on the development of less
expensive agricultural projects and have shorter
gestation than industrial projects.
• To encourage more foreign investments to accelerate
our economic recovery.
• To transform the people into more self-reliant and
productive groups.
ECONOMIC RECOVERY DEPENDS
ON GOVERNMENT OFFICIAL
• Honesty is one main reason why other countries
experienced success.
• Attitudes and values should be favorable to the
economic growth.
• Economic programs are useless if they are not
properly implemented.
 HOW DO WE
MEASURE INFLATION?
• The most known measuring tool for inflation is the
Price Index.
• is a normalized average (typically a weighted
average) of price relatives for a given class of goods
or services in a given region, during a given interval
of time.
• The most common type of Price Index is Consumer
Price Index.
 Different Kind of Price Index
•GNP Implicit Price Index or GNP Deflator
•Wholesale or Producer Price Index (PPI)
•Consumer Price Index (CPI)
Measuring Inflation through CPI
ITEM 2016 2017
RICE GRAINS P700 P800
SUGAR P120 P160
COOKING OIL P100 P120
FISH P100 P150
PORK P160 P220
CHICKEN P120 P180
TOTAL WEIGHTED 1,300 1,630
PRICE
Measuring Inflation through CPI
•Consumer Price Index (CPI)
𝑻𝒐𝒕𝒂𝒍 𝑾𝒆𝒊𝒈𝒉𝒕𝒆𝒅 𝑷𝒓𝒊𝒄𝒆 𝒐𝒇 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒀𝒆𝒂𝒓
CPI= x100
𝑻𝒐𝒕𝒂𝒍 𝑾𝒆𝒊𝒈𝒉𝒕𝒆𝒅 𝑷𝒓𝒊𝒄𝒆 𝒐𝒇 𝑩𝒂𝒔𝒆 𝒀𝒆𝒂𝒓

• Based on the hypothetical chart provided, 2016 will be the

based year while the current year will be 2017.
Measuring Inflation through CPI
• Based on the hypothetical chart provided, 2016 will be the
based year while the current year will be 2017.
𝟏,𝟔𝟑𝟎
CPI = x100
𝟏,𝟑𝟎𝟎
CPI = 125.38
• Remember, the CPI measures the average change in the
product that is usually consumed by the consumers.
• Then solve for Inflation Rate.
Measuring Inflation through CPI
•Inflation Rate
𝑪𝑷𝑰 𝒐𝒇 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒀𝒆𝒂𝒓 − 𝑪𝑷𝑰 𝒐𝒇 𝑷𝒓𝒆𝒗𝒊𝒐𝒖𝒔 𝒀𝒆𝒂𝒓
Inflation Rate = x100
𝑪𝑷𝑰 𝒐𝒇 𝑷𝒓𝒆𝒗𝒊𝒐𝒖𝒔 𝒀𝒆𝒂𝒓
Measuring Inflation through CPI
• Substitute the value
𝟏𝟐𝟓.𝟑𝟖 −𝟏𝟎𝟎
Inflation Rate = 𝟏𝟎𝟎
x100
= (𝟎. 𝟐𝟓𝟑𝟖)x100
Inflation Rate = 25.38%
• According to the data above, the inflation rate is 25.38%.
• Meaning to say, there were 25.38% price increased among
the basic commodities in the market between 2016 to
2017.
 Measuring Inflation through CPI
• Another information you can derive from the CPI is the
Purchasing Power.
𝑪𝑷𝑰 𝒐𝒇 𝑩𝒂𝒔𝒆 𝒀𝒆𝒂𝒓
Purchasing Power =
𝑪𝑷𝑰 𝒐𝒇 𝑪𝒖𝒓𝒓𝒆𝒏𝒕 𝒀𝒆𝒂𝒓
𝟏𝟎𝟎
=
𝟏𝟐𝟓.𝟑𝟖
= 0.7976
• It pertains to the ability of the single peso (P1.00) to purchase a certain commodity.
• Based on the data, a single peso in 2017 has an actual purchasing value of 0.7976.
• It is important to know that the value of our currency is decreasing because of the
inflation.
 Let’s solve
INFLATION PURCHASING
Year TWP CPI RATE POWER
2012 1,300
2013 1,500
2014 1,660
2015 1,985
2016 2,000
2017 2,300

*Use 2012 as the Base Year.

 III. GDP
AND GNP
GDP
•Gross Domestic Product (GDP)’s technical
definition is the total value of the production
and consumption of all the goods and services
of the country.
 HOW IS GDP COMPUTED?
• GDP can be solved using the formula:
GDP = (C) + (I) + (G) + [( X) – (M)]
C = Consumer Spending
I = Investment
G = Government Spending
X = Exports
M = Imports
 EXPLANATION OF FORMULA
• Consumer spending (C) is the sum of expenditures by
households on durable goods, nondurable goods, and
services. Examples include clothing, food, and health care.

• Investment (I) is the sum of expenditures on capital

equipment, inventories, and structures. Examples include
machinery, unsold products, and housing.
 EXPLANATION OF FORMULA
• Government spending (G) is the sum of expenditures by all
government bodies on goods and services. Examples
include naval ships and salaries to government employees.

• Net exports [(X) – (M)] equals the difference between

spending on domestic goods by foreigners and spending on
foreign goods by domestic residents. In other words, net
exports describes the difference between exports and
imports.
WHAT DOES GDP INDICATES?
• This number is important because it gives an indication of
how successfully society is addressing the scarcity
problem.

• In a larger gross domestic product, there are more goods

and services that can be used to satisfy unlimited wants
and needs.
 TYPES OF GDP
• Nominal GDP is the sum value of all produced goods and
services at current prices.
• Real GDP is the sum value of all produced goods and
services at constant prices (price from a specified base
year)
• By keeping the prices constant in the computation of real
GDP, it is possible to compare the economic growth from
one year to the next in terms of production of goods and
services rather than the market value of these goods and
services.
 IS GDP AN EFFECTIVE
INDICATOR?
•GDP can show a country’s production, but it is
not a reliable indicator for a country’s welfare
or well-being.
 IS GDP AN EFFECTIVE
INDICATOR?
•GDP can show a country’s production, but it is
not a reliable indicator for a country’s welfare
or well-being.
GNP
•Gross National Product (GNP)’s technical
definition is the combined value of all the final
goods and services produced in a country
during an accounting year, including net factor
income from foreign countries.
HOW IS GNP COMPUTED?
• GNP can be solved using the formula:
GNP = GDP + NFIFA
GDP = Gross Domestic Product
NFIFA = Net Factor Income From Abroad
- difference between income earned in foreign
countries by residents of a country and income earned by
foreign nationals domestically.
 EXPLANATION OF FORMULA
• GNP includes the final value of goods and services
produced by the residents of a country, without
considering their geographical location.
• Based on this definition, net income from abroad is
necessary since in order to focus only on a specific country,
income from foreign residents must be subtracted.
WHAT DOES GNP INDICATES?
•GNP helps to measure the contribution of
residents of a country to the flow of goods and
services within and outside the national
territory.
 IS GNP AN EFFECTIVE
INDICATOR?
•It is not an effective indicator for a
country’s welfare.
 GDP vs. GNP
• GDP is the sum value of all goods and services
produced within a country.
• GNP is the sum value of all goods and services
produced by permanent residents of a
country regardless of their location.
 GDP vs. GNP
• GDP of a particular country, production by foreigners
within that country is counted and production by
nationals outside of that country is not counted.
• For GNP, production by foreigners within a particular
country is not counted and production by nationals
outside of that country is counted.
 GDP vs. GNP
• GDP is the value of goods and services produced
within a country.
• GNP is the value of goods and services produced by
citizens of a country.
 IV. MARKET
STRUCTURES
MARKET
- is a group of buyers and sellers.
- a regular gathering of people for the purchase
and sale of provisions, livestock, and other
commodities.
- need not be in a single location.
MARKET STRUCTURE
• Market structure is the interconnected
characteristics of a market, such as the number and
relative strength of buyers and sellers, degree of
freedom in determining the price, level and forms of
competition, extent of product differentiation and
ease of entry into and exit from the market.
MARKET STRUCTURE
• The types of market structures include- Perfect
Competition and Imperfect Competition (a.
Monopoly, b. Monopolistic Competition, c. Oligopoly,
d. Duopoly).
• Market structure is best defined as the
organizational and other characteristics of a market.
 PERFECT COMPETITION
1. All firms sell an identical product.
2. All firms are price takers.
3. All firms have a relatively small market share.
4. Buyers know the nature of the product being sold
and the prices charged by each firm.
5. The industry is characterized by freedom of entry
and exit.
It is also referred as “PURE COMPETITION”.
 PERFECT COMPETITION
• Potatoes are sold in
markets where all vendors
sell homogenous products
at homogeneous prices.
IMPERFECT COMPETITION
a. Monopoly
b. Monopolistic Competition
c. Oligopoly
d. Duopoly
 A. MONOPOLY
• A Monopoly is a market structure in which there is
only one producer/seller for a product.
• In other words, the single business is the industry.
• Entry into such a market is restricted due to high
costs or other impediments, which may be economic,
social or political.
 A. MONOPOLY
Gillette- Razor blade
• Gillette is a razor blade that
enjoys monopoly in market
because every consumer
purchases this brand and
this is a trusted brand.
 B. MONOPOLISTIC
COMPETITION
• Monopolistic competition is a type of imperfect
competition such that one or two producers sell
products that are differentiated from one another as
goods but not perfect substitutes (such as from
branding, quality, or location).
 B. MONOPOLISTIC
COMPETITION
• In monopolistic competition, a firm takes the prices
charged by its rivals as given and ignores the impact
of its own prices on the prices of other firms.
• Consumers may like some special thing in the
particular brand.
 B. MONOPOLISTIC
COMPETITION
• Shoes are produced by many
producers but consumers may feel
that a particular company is branded
or the quality produced by one
company is better than the other.
• Different company’s shoes can be
easily differentiated and despite
differentiation each product remains
close substitute for the rival
product.
 B. MONOPOLISTIC
COMPETITION
• There is no pure competition
• Shoes come under monopolistic
competition because there are
many producers and consumers
choose according to the brand,
quality, location, trademark,
design, colour, packaging, etc.
and not on the basis of price
only.
 C. OLIGOPOLY
• It is a situation in which a particular market is
controlled by a small group of firms.
• An oligopoly is a market form in which a market or
industry is dominated by a small number of sellers
(oligopolists). Because there are few sellers, each
oligopolist is likely to be aware of the actions of the
others.
• The decisions of one firm influence, and are
influenced by, the decisions of other firms.
 C. OLIGOPLY
• These companies produce instant
noodles.
• Earlier Maggi used to enjoy
monopoly in this sector but with
the entry of the other three
companies Maggi now comes in
oligopoly.
• These four companies majorly
rule the market in instant
noodles so they come in
oligopoly.
 D. DUOPOLY
• A situation in which two companies own all or nearly
all of the market for a given product or service.
• It 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.
 D. DUOPOLY
• In the market Pepsi and Coca-
Cola rule in soft drinks. So
they come under Duopoly.
• Other soft drinks are also
there bur these two
companies cover large share
in soft drinks market.