INTRODUCTION TO Services: work that is performed for others.

ECONOMICS
FACTORS OF PRODUCTION
Economics: is the study of how individuals and
 Land - natural resources like water,
societies make decisions about ways to use scarce
natural gas, oil, trees (all stuff we find on,
resources to fulfill wants and needs.
in, and under the land).
 Labor – physical and intellectual. Labor
is manpower.
STUDY OF ECONOMICS
 Capital – tools, machinery, factories.
 Macroeconomics ~ the big picture: The things we use to make things. Human
growth, employment, etc. Choices made by capital is brainpower, ideas, innovation.
large groups (like countries).  Entrepreneurship – investment.
 Microeconomics ~ how do Investing time, natural resources, labor and
individuals make economic decisions. capital are all risks associated with
production.

5 ECONOMIC QUESTIONS
THREE PARTS TO THE
(SOCIETY MUST FIGURE OUT)
PRODUCTION PROCESS
1) What to produce (make)?
2) How much to produce (quantity)?  Factors of Production, what we
3) How to produce it (manufacture)?
need to make goods and services.
4) For whom to produce (who gets what)?
5) Who gets to make these decisions?  Producer, company that makes goods
and/or delivers services.
 Consumer, people who buy goods and
Resources: are the things used to make other services (formerly known as stuff).
goods.

Scarcity: is unlimited wants and needs but limited CAPITAL GOODS AND
resources.
CONSUMER GOODS
Choices: we make choices about how we spend our
 Capital Goods ~ are used to make
money, time, and energy so we can fulfill our needs
other goods.
and wants.
 Consumer Goods ~ final products
Needs: stuff we must have to survive, generally: that are purchased directly by the consumer.
food, shelter, clothing.

Wants: stuff we would really like to have (fancy

CHANGES IN PRODUCTION
food, shelter, clothing, big screen TVs, jewelry,
conveniences which also known as luxuries.  Specialization – dividing up

Trade-offs: you can’t have it all so you have to production so that goods are produced
efficiently.
choose how to spend your money, time, and energy.
These decisions involve picking one thing over all  Division of Labor – different people
the other possibilities. perform different jobs to achieve greater
efficiency (assembly line).
Opportunity Cost: the value of the next best  Consumption – how much we buy
choice. (consumer sovereignty).
 If we increase land, labor, and
Production: is how much stuff an individual, capital, we increase production.
business, country, even the world makes.  If we decrease land, labor, and
capital, we decrease production.
Stuff: goods and services.

Goods: tangible (you can touch it) products we can Gross Domestic Product (GDP): the
buy. total value of all final goods and services produced in
a country in a year.
Cost: the total amount of money it takes to produce  A command economy
 Governments control facets of economic
an item (to pay for all factors of production).
production.
Revenues: the total amount of money a company
Mixed Economy (Socialism) is where all
or the government takes in.
the resources are distributed to both the public and
private sectors.
Fixed Costs: the amount of money a business
must pay each month or year (like rent and capital  Free market co-exists with government
expenses). intervention.

Variable Costs: the amount of money a business

pays that changes over time (labor and raw Demand refers to the consumer’s desire to
materials).
purchase goods and services and willingness to pay a
price for a specific good or service.
Total Costs: fixed costs + variable costs.
Demand Schedule is a table that shows the
Marginal Costs: the additional cost of the next
quantity demanded of a good or service at different
unit produced. price levels.

Profit: the difference between total costs and Demand Curve (pababa) is a graphical
revenues. This is why you’re in business (profit representation of the relationship between the price of
motive!). a good or service and the quantity demanded for a
given period of time.
 Profit = Revenues – Total Cost
 Profit Motive – why you are in business---to
make money.
Law of Demand (inverse relationship)
stated that a higher price leads to a lower quantity
Cost Benefit Analysis: weighing the demanded and that a lower price leads to a higher
quantity demanded.
marginal costs vs. the marginal benefits of producing
an item or making any economic decision. If the
benefit is greater than the cost, then business does it.
DETERMINANTS OF DEMAND
 Price
CHAPTER 2 THE CONCEPT OF  Tastes and References
DEMAND, SUPPLY, AND  Price of Complements
 Price of Substitutes
MARKET EQUILIBRIUM  Income
▫ Normal Goods

Market Mechanism. A term used to describe ▫ Inferior Goods

 Expectations (of future prices)
the manner in which the producers and consumers
 Population
eventually determine the price of the goods that are
produced. Producers usually set a price to respond to
how many goods are being purchased, and
consumers, on the other hand, react to that price. Changes in Quantity Demanded and
Movements along the Demand Curve
refers to a change in the specific quantity of a product
MARKET MECHANISM CAN that buyers are willing and able to buy, this change in
EXIST IN EITHER quantity demanded is caused by a change in the price.
In this case, the demand curve doesn’t move; rather,
Free Market Economy (Capitalism) is we move along the existing demand curve.
where all the resources are given to the private sector,
that is, individuals, groups of individuals, and Ceteris Paribus Assumption (all other
households. things being equal) is typically used to describe an
economic situation of cause and effect while
 Freedom of choice based on government assuming that all other factors stay the same.
control
 Primary and secondary industry Changes in Demand and Shifts in the
 Not essential
Demand Curve refers to a shift in the entire
Planned Economy (Communism) is the demand curve, which is caused by a variety of factors
public sector, that is, both the local and central (preferences, income, prices of substitutes and
government owns the public sector. complements, expectations, population, etc.). In this
case, the entire demand curve moves left or right.
Supply refers to the quantity of goods and services  Expectations of Price Change
 Habitual Goods
that are available to be sold.

Supply Schedule is a table which lists the

possible process for a good and services and the VIOLATIONS OF LAW OF
associated quantity supplied. SUPPLY
Supply Curve (pataas) is simply a supply  Closure of Business
 Agricultural Products
schedule presented in graphical form. The standard
 Monopoly
presentation of a supply curve has price given on the
 Tight Competition
Y-axis and quantity supplied on the X-axis.

Changes in Quantity Supplied and

 Management is a step-by-step procedure
Movements along the Supply Curve is
that needed to have in order to do something. It
a movement along the supply curve in response to a
is the process of undertaking the functions of
change in price.
management.
Law of Supply (positive relationship)  General Manager - common department.
states that there is a positive relationship between  Functional Manager - specific
price and quantity supplied, leading to an upward-
department.
sloping supply curve.
 POSDiCon - planning, organizing, staffing,
directing, and controlling
DETERMINANTS OF SUPPLY  Strategy - solution plan to achieve goals. It
is long-term and broad.
 Price
 Level of Technology Used  Tactical - solution plan to achieve objectives.
 Prices of Inputs Used It is a short term and specific.
 Government Regulation and Taxes in a
Market
 Expectations of Future Prices
 Weather
▫ Favorable
▫ Unfavorable
 Number of Producers

Changes in Supply and Shifts in the

Supply Curve refers to a shift in the entire
supply curve, which is caused by shifters such as
taxes, production costs, technology, etc. Just like with
demand, this means that the entire supply curve
moves left or right.

Market equilibrium is the state in which

market supply and demand balance each other, and as
a result prices become stable.

Shortage occurs id the market price is below the

equilibrium price, quantity supplied is less than
quantity demanded.

Surplus occurs if the market price is above the

equilibrium price, quantity supplied is greater than
quantity demanded.

VIOLATIONS OF LAW OF
DEMAND
 Giffen Goods (Robert Giffen)
 Veblen Goods (Thorstein Veblen)