Economics is the social science studying the production, distribution and consumption of goods

and services.
Applied economics is the application of economic principles and theories to real situations,
and trying to predict the outcomes.
Opportunity Cost-is the benefit you give up because you take one action in favor of another.
Absolute Advantage- having the ability or capacity to produce more output compared to
another entity.
Comparative Advantage-means having a lower opportunity cost.
Basic Economic Problems:
1. What goods to produce and services to provide? This relates to resources. The
availability of resources influences the decision on what to produce.
2. How to produce and how much to produce of these goods and services? This
focuses on the actual production of goods and services and the allocation of resources
3. For whom to produce these goods and services? This focuses on the distribution
and consumption of goods and services
4. Economic Goods- covers goods, services, products and the like that are sold in a
market.
Factors of Production:
1. Land- represents lands and similar natural resources such as farms and agricultural
lands
2. Labor- represents human capital such as workers and employees that transform raw
materials and regulate equipment to produce goods and services. The return on labor is
wage.
3. Capital- represents physical assets such as production facilities, warehouses,
equipment and technology used in the production of goods and services.
4. Entrepreneurship- sometimes referred to as enterprise. It represents the factor that
decides how much of and in what way the other factors are to be used in production.
The return on entrepreneurship is profit.
Circular Flow Diagram- is an economic model that illustrates the flow of factors of production
in the economy.
Methods Used in Economic Analysis:
1. Qualitative Approach-economic data analysis focuses on directional relationship of
different economic variables. This is often used interchangeably with descriptive
analysis.
Ex. Money supply is positively correlated to price./Consumption drives economic growth
2. Quantitative Approach- involves mathematical and statistical analysis of economic
data which is sometimes referred to as econometrics.
Ex. What is the corresponding increase in National income if the government increases
spending by a certain amount?
Other quantitative and qualitative tools used extensively in the study of economics are
variables, equations, functions and graphs.
Economic Variables- are important in explaining and understanding economic theories or
models. It is an element that can be change.
Functions(f)- explain the relationship between two or more economic variables.
Graphs- provides a visual representation of the relationship between two or more economic
variables.
Economic Theories and Models:
Economic Theories- simplify economic phenomena. These are statements or observations on
the relationship of variable.
Marginal Utility Theory- is an example of economic theory. It states that people buy goods that
give the highest personal satisfaction.
Economic Models- are the representations of economic and social phenomena analyzed using
research, observation and testing.
Time series versus Cross Sectional Data
1. Time series- means that data are collected for particular elements for several periods.
Ex. Census is conducted every 5 years to gather information about the population.
2. Cross Sectional Data- include different variables for single time period.
Ex. It compares age, gender, income level and other similar variables of individuals from
one period.
Normative versus Positive Economics
Normative Economics- evaluates economic decision, policies or outcomes as good or bad.
Ex. It is based on opinions and is subjective. For instance, asking you to provide your opinion on
whether the Philippine economy is doing good or bad.
Positive Economics- evaluates economic scenarios and policies based on qualitative and
quantitative analysis.
Ex. Observing Philippine economic growth based on the data for the past three quarters.

MICRO ECONOMICS- is the branch of economics that examines the individual or company
level. It deals with households and firms, such as the buying behavior of consumers and profit
maximizing behavior of sellers.
MACRO ECONOMICS- studies the aggregate or country level which focuses on the effect on a
larger scale, such as national economy. Indicators include GDP, inflation and interest rate.
Gross Domestic Product (GDP)- defined as the total value of final goods and consumed
during a given period. Also known as the economy’s output.
Nominal GDP- derived when the value of goods is expressed in current prices.
Real GDP- adjusted for inflation and is expressed at constant or base year prices.
Inflation
Consumer Price Index- measures the purchasing power of the peso through regular survey of
the price level of consumer goods and services.
Interest Rate- macroeconomic concept which is the factor income for capital.
Nominal Interest Rate- is the rate stated in bond or the rate typically quoted by banks and
lending institutions.
Real Interest Rate- is the rate adjusted for inflation.
Economic System- refers to the different ways of managing nation’s available resources to
answer the three economic questions.(what to produce, how to produce, for whom to produce)
Types of Economic System
1. Free Market Economy- characterized by competition and a high level of private
ownership.
2. Centralized Economy-sometimes referred to as command economy, characterized by
heavy involvement of the government in managing the economy.
3. Mixed Economy- economic system that combines the features of free market and
centralized systems.
4. Traditional Economy- characterized by customs and habits.
Barter- is a mechanism where goods are exchanged for another good.
Market Failures- problems arising from inefficiencies in the allocation of resources.
Economic Growth- typically measured through GDP
Business Cycle- characterized by the upward and downward trend of the GDP observed over
a period of time, usually years.
Recession- means a period of economic turndown characterized by high or increased
unemployment, slow business, and decline in consumer purchases.
Expansion- features low or decreased unemployment, increase production and a rise in
consumer spending driven by higher income.
Exchange Rate- measures the strength of the domestic currency.
Commodity- pertains to a homogeneous good that commands a price. Ex. Rice, corn, utilities
such as electricity, and other products normally produced in bulk such as sugar, oil, etc.
The Law of Demand- states that as the price of good goes up, the quantity demanded of that
good goes down. This means that consumers tend to buy more of a certain good at lower
prices. Conversely, as this good becomes more expensive, consumers will tend to buy less.
The Law of Supply- states that an increase in price causes an increase in quantity supplied.
Conversely, a fall in price causes a drop in quantity supplied.
Excise tax- is a tax imposed on a manufactured good. It is applicable to producers and sellers
as opposed to value added tax (VAT) that is paid only by consumers or end users.
Subsidy- is monetary assistance by the government in support of target industries or sectors of
the economy.
Market- a meeting place for buyers and sellers where the buyer can purchase goods from a
seller for a price that is agreeable to both.
Market price- refers to the price that the buyer and seller must agree for an exchange good to
happen.
Market equilibrium- the point where consumer and supplier expectations meet.
Prevailing market price- equilibrium price that consumers pay.
Suggested Retail Price- provide a benchmark for consumers with which to compare market
prices.
Aspects of the Different Market Structures
1. Degree of Competition- the higher the number of firms, the greater the degree of
competition
2. Number of Firms- pertains to the actual number of competitors in the market
3. Bargaining Power of Consumers- ability if the consumers to influence market prices.
4. Barrier to Entry-.ease with which new films can penetrate the industry.

Monopoly- a market structure that has a single player that controls the market.
Oligopoly- characterized by having only a few player in the industry. Ex. Telecommunications
company in the Philippines
Labor Force- refers to the total number of people identified as employed and unemployed.
Employed- represents those individuals who have a job in either full time or part time capacity.
Unemployed- refers to people who are presently searching for a job, workers who are
temporarily laid off but are waiting to be called for a job.
Underemployed- describe those workers who are better skilled than what their current jobs
require.
Population Growth- is the increase in the total number of human beings in the country.
Census- official collection of population information, is locally conducted once every five years
by the Philippine Statistics Authority
Full employment is another MACROeconomic goal of a nation.
Unemployment rate- measures the percentage of individuals in the labor force who do not
have a job.
Wage- is what a worker gets as compensation for hours of labor.(hour or daily rate)
Salary- refers to the aggregate amount received.(every 15th,30th basis)
Minimum Wage- is the least possible amounts firms must pay their employees as mandated by
the country’s labor laws.
Labor Migration- Filipinos working abroad are OFW’s. Choosing to work in a foreign country is
the concept of Labor Migration.
Foreign Exchange Rate- is the market for exchange of foreign currencies. The market also
known as Forex or FX.
 SECOND QUARTER
I. Distinguish Environment Analysis from Industry Analysis
MACRO ENVIRONMENT is the condition that exists in the economy as a whole, rather than in a
particular sector or region. In general, the macro environment includes trends in gross domestic
product (GDP), inflation, employment, spending, and monetary and fiscal policy. 
MACRO ENVIRONMENT ANALYSIS- deals with factors that may affect several or all industries
in the economy.
MACROENVIRONMENT FACTORS- refers to all the external factors that influence
organizations. These factors include the economic factors; demographics; legal, political,
and social conditions; technological changes; and natural forces. Specific examples of
macro environment influences includes competitors, changes in interest rates, changes in
cultural tastes, disastrous weather, or government regulations.
INDUSTRY is a group of manufacturers or businesses that produce a particular kind of goods or
services. Industry comes from the Latin industria, which means "diligence, hard work,"
Primary INDUSTRY -include mining, quarrying, farming, fishing and forestry, all of which
produce raw materials that can be processed in to a finished product. People working in
these industries are described as being in the primary sector.
SECONDARY INDUSTRY- industry that converts the raw materials provided by primary
industry into commodities and products for the consumer; manufacturing industry. Ex. Workers
in the textile industry design, fabricate, and sell cloth.

Major industries
 Aerospace industry.
 Agriculture /Agribusiness, Fishing Industry
 Chemical industry. Pharmaceutical Industry.
 Computer industry. Software industry.
 Construction industry.
 Defense industry. Arms industry.
 Education industry.
 Energy industry. Electrical power industry. Petroleum industry.

Industry Analysis Example (Porter's Five Forces and Complementors)

The Socioeconomic Factors Affecting Small Businesses

Income is the amount of money individuals earn from their daily economic activities, be it
employment, business or investments. The availability of disposable income influences spending
habits. Your customers are likely to purchase expensive or luxurious items whenever there is an
increase in their disposable incomes

Education equips members of the society with the skills and knowledge they require to be employed
in different jobs and professions.

Occupation refers to the type of jobs people perform by virtue of their skills, experiences or choices.
You may be self-employed or work as an employee of an individual or organizational entity. The
different types of occupation dictate the income earned by people in the society
INDUSTRY ANALYSIS- deals with factors that may impact only the industry under study. It is a
tool that facilitates a company's understanding of its position relative to other companies that
produce similar products or services. Understanding the forces at work in the overall industry is
an important component of effective strategic planning.
Industry Analysis Example (Porter's Five Forces and Complementors)

Competitive scenario
This is the most important step of any industry analysis. In this, you need to study the
competitive scenario using Porter’s Five Forces Model.

The model acts as the framework for industry analysis. Michael Porter, a famous strategist, and
author, first came up with this model. In this model, five parameters are analyzed to see the
competitive landscape.

They are:

1. Barriers to Entry
2. Supplier Power
3. Threat of Substitutes
4. Buyer Power
5. Degree of Rivalry

The Porter’s model is extensively used while analyzing any industry.

“The environment is everything that isn’t me.”

 ― Albert Einstein
Remember the time you walked into an exam without ever having opened the textbook? The first thought
that probably came to your mind was that you should have done your homework, right? When you’re
starting a new business, there’s a lot more at stake than just a passing or failing grade, so you’re going to
want to show that you’ve done your research and care enough about your own success.

Market Size
Industry Forces and Trends

Now you’ll need to outline what’s happening in the industry and plan whether if its a good or bad place to
be. A great general-purpose tool for doing this is called the PEST Analysis. Here’s what it stands for and
what you should consider:
PEST Analysis
P - Political factors
What role the government plays in your industry?
E - Economic factors
What is the state of economy on both a local and national level?
S - Social factors
What the relevant changes in matters like lifestyle trends, demographics, consumer attitudes, buying
patterns and opinions?
T - Technological factors
What is the impact of changing technological trends on your industry?

Another handy tool to have in your mind when conducting industry research is the Porter’s 5 Forces
Analysis.

Porter's 5 Forces Analysis

1. Threat of New Entrants
How difficult (or easy) is for someone to enter your specific vertical? If it’s very easy then most likely the
space will be crowded with competitors fighting for margins. Conversely, if it’s very difficult, that that in
itself can become a competitive advantage.
2. Threat of Substitute Products (or Services)
How likely is it that another product or service could decrease demand or displace you and potentially the
entire industry all together?
3. Bargaining Power of Customers
When it comes to pricing and terms, how much power does your customer have? Are they organized
enough to exercise their purchase power or is their so much competition that they have their pick resulting
in pricing wars amongst providers?
4. Bargaining Power of Suppliers
This refers to how dependant you are on a given supplier to operate your business. If it’s difficult or near
impossible for you to switch, that means they have the upper hand, whereas, if the switching costs are
low, you can negotiate better terms for yourself.
5. Competitive Rivalry of Market
Factoring in the first four forces, you can arrive at a good understanding of the playing field and whether
it’s in your favour you enter it, how long you’ll be able to last, through what means you’ll carve a space for
yourself, and what you’re up against.

Competition

SWOT Analysis stands for:

SWOT Analysis
S - Strengths
What do they have going for them? Is it their technology, brand, people, or lean value chain?
W - Weakness
What do they not have going for them? Are they missing experienced management, have unreliable
customer service, or just plain old poor customer retention?
O - Opportunities
What are they positioned to take advantage of? Are their environmental trends or changes they are likely
to benefit from?
T - Threats
What’s keeping them up at night? Or what should they be worried about?