Decision- Making during Scarcity

MANAGERIAL  Because the resources is limited,

ECONOMICS in THE decision- makers should decide what
to have and to forgo.
21st CENTURY Opportunity Cost and Production Possibility
Frontier

(Scarcity forces people to choose, and when

EFFICIENCY- attaining maximum output people choose there’s an opportunity cost)
with the least possible input.
Opportunity Cost -is the cost we need to forgo
Ex. Jesus feeding thousand of to get something else. Economist also call it as
people with only small amount of sacrifice.
bread.  The cost of something is equal to the
EFFECTIVENESS – can be attained by sacrifice to obtain it.
getting desired outcome.
Ex. Graduating on College

Production Possibility
Scarcity and Shortage frontier
SCARCITY – The sources are limited for -defines the set of possible combinations of
unlimited wants of man goods and services a society can produce
given the resources available.
SHORTAGE- The demand on a certain

Commodity or service cannot be met by the

current supply. (can be solved by increasing
the production of a certain commodity)

The Economic Way of Frontier (black line) - maximum production

thinking with the available resources

Red lines – indicates that production is within

If all the things are managed well, we can the available sources.
achieve maximum satisfaction or want.
Blue lines – indicates that production is
 Three applicable ways to apply the outside the available resource.
economic way of thinking
1. Decision Making during scarcity Points A, B, and C attained the maximum
2. Rational Behaviour production with the available resources
3. Marginal Analysis Point E is impossible to attain due to limited
resources.
Point D is underutilizing the resources
available.

Everything outside the curve is unattainable

and everything inside the curve is inefficiency.

Rational Behaviour

 Utility – is the individual’s pleasure,

happiness, or satisfaction.
(Whatever makes a person happy and
satisfied gives him/her the specific
utility)
 Rational Behaviour- means that the
same person can make different
MP- Marginal Productivity
decisions under different
circumstances. Delta O – Change in Output

Delta Q – Change in Quantity

MARGINAL ANALYSIS
In this table counterpart ng Output ung Utility
Is an examination of additional benefits of an at Marginal productivity sa Marginal Utility so
activity compared the additional costs wag kang malito iba lang yung ginamit nating
incurred by the same activity. Refers to the table. Jejejeje.
cost and benefit or the next unit or individual

Ex.

 Marginal- Additional, change, or add

in.
 Where the marginal cost and
marginal benefit are compared
 In choosing a certain alternative, we
ask if it will be beneficial or not

marginal cost- the change in the total

cost that comes from making one
additional item or producing one ton
extra.

marginal benefit- is the maximum

account that a consumer pays for
consuming an additional unit of a
product or a service.

SO ON…
 NORMATIVE ECONOMICS –

 Focuses on how economy should be

 Often Influenced by value judgements
depending on circumstances
 Opinion based

BASIC CIRCULAR
FLOW

SAME HERE ALSO…

BRANCHES OF
ECONOMICS
MICROECONOMICS- Focuses on how
individuals and firms make decisions and
what are the consequences of those decisions  Shows the interdependence of two
are. entities and economy – household
and firms
MACROECONOMICS- Examines the aggregate  Describes the flow of money and
behavior of the economy, which includes the products throughout the economy
actions of all individuals and firms to produce  Divides market into two categories-
a particular level of economic performance as market for goods and services and
a whole market sold.

Aggregate- 'collection' or 'total' MARKET – buyers and sellers meet.

Buyers -are the ones who determine the

market demand
METHODOLOGIES OF Sellers – are the determinants of the

ECONOMICS supply in the market.

POSITIVE ECONOMICS
Demand – is the quantity of gods and services
 looks into how economy works that buyers are willing and able to buy.
 Based on facts
Law of Demand – As price increases, quantity
demand will decrease assuming all factors
are constant.
Ceteris paribus (assuming all factors are
constant)
COMMODITY – Product.

Ex. Coffee and Sugar.

OTHER FACTORS AFFECTING Hot dogs and Hot dog buns.
DEMAND Phone and Phone cases.

 Income – if a person earns a minimum  Taste and Preference

wage, he/she naturally has lower Increasing in this factor can increase
purchasing power, so the demand for in demand for that product, vice
commodities is fewer. versa.
-when income increases,
quantity demand will generally
increase.  Expectation on Future prices
People expects prices to increase in
Normal Goods – goods and services that have the future, so QD (Quantity
an increasing demand whenever income Demanded) at present will increase,
increases. and if prices decrease in the future,
Inferior Goods- Goods or services that have QD at present will decrease.
decreasing demand whenever income (bibilin ko ung product ngayon kasi
increases. mas mahal na siya in the future)

 Changes in Population
 Price of Related Goods and Services As population increases, QD is likely
to increase as well, and vice versa.
Substitute Goods – goods that can be
replace another commodity in its
absence. SUPPLY- is the quantity of goods or services
If the price of a commodity that sellers are willing and able to sell at
increases, we can expect the demand different prices.
of its substitute good to increase as, -if demand depicts the willingness and
well and vice versa the ability of people to purchase a
Ex. Butter and Margarine commodity, supply shows the behavior of
producers in selling their commodities.
Physical Books and E books.

LAW OF SUPPLY- As price increases, quantity

Complementary Goods – goods that supplied will also increase assuming all
go hand in hand with each other. factors are constant.
If the price of a commodity
increases, we can expect the demand
for its complementary good to
decrease, and vice versa.
  A point where buyers and sellers get
along in the price.
OTHER FACTORS AFFECTING
SUPPLY
COMPUTING THE MARKET EQUILIBRIUM

GIVEN:
INPUT PRICE (COST OF PRODUCTION)  QD =1,245- 0.1 p
 If the cost of the input increases,  QS= 965 + 0.1 P
quantity supplied is likely to decrease,
and vice versa.
EQUATE QS TO QD:

QS = QD 1,245- O.1 P= 965 + 0.1 P

COMMODITY - SERVICE
TRANSPOSE SIMILAR TERMS:

 1245- 965 = 0.1 + 0.1 P + 0.1 P

INPUT PRICE- COST IN PRODUCING A GOOD  280 = 0.2 P
OR SERVICE
DIVIDE BOTH SIDES BY 2

 1,400 = p
PRICE OF RELATED GOODS AND SERVICES

 If the price of a substitute good for a

commodity, increases, the supply of SURPLUS-refers to an amount or
the other will also increase, and vice quantity that remains when a use or
versa. need is satisfied, or when there is an
 If the price of a complementary good excess of something over what is
of a commodity, increases, the supply required or expected.
of the other will decrease, and vice
versa. SHORTAGE -a condition where the
quantity demanded is greater than
NUMBER OF SUPPLIERS the quantity supplied at the market
 If the number of suppliers increases, price.
the supply will also increase,

UNEXPECTED CALAMITIES or NATURAL

DISASTER

 Unexpected calamities or Natural

Disasters will decrease the supply in
the area.

MARKET EQUILIBRIUM
 Is a point where quantity demanded is
equal to the quantity supplied.
 PRICE ELASTICITY OF DEMAND
ELASTICITY
Measure of percent decrease in the quantity
The impact of one variable to another. demanded of goods and services when there
(Possible variables; DEMAND, SUPPLY, PRICE) is a percent increase in their price. This will
remain true assuming all factors are constant.
 if the ‘DEMAND’ increases or
decreases; what will happen to the
other variable (SUPPLY, PRICE) vice
versa.

PRICE ELASTICITY OF DEMAND- how much

the quantity demanded of a good, response to
a change in the price of that good.

INCOME ELASTICITY OF DEMAND – how

much the quantity demanded of a good
response to a change in consumer’s income

CROSS-PRICE ELASTICITY OF DEMAND- how

much the quantity demanded of one good
response to a change in the price of another
good.

(SUBSTITUE GOODS, COMPLEMENTARY

GOODS.)

PRICE ELASTICITY OF SUPPLY – how the

quantity supplied of a good, response to a EXAMPLE:
change in the price of that good.
PREVIOUS PRICE: 179
NEW PRICE: 150

PREVIOUS QUANTIY: 210

NEW QUANTITY: 420
 GRAPHICAL REPRESENTATION OF PED (PRICE
ELASTICITY OF DEMAND)

 PERFECTLY INESLATIC DEMAND

-is a commodity with an elasticity of
zero. Means that even if the price
change, the quantity demand will still
remain the same or only have slight
decrease.

Ex. Necessary goods in life.

NOTE: THE ANSWER CAN’T BE NEGATIVE IN

FINAL ANSWER.

 INELASTIC GOODS are good with PED

less than 1
Ex. Infant, salt, electricity, rice,
 PED with UNIT ELASTIC DEMAND- is
medicine, and sugar.
when the percentage increase in price
is equal to the percentage decrease in
 ELASTIC GOODS are goods with PED
quantity demanded.
greater than 1
Ex. Signature bags, chocolates,
perfumes, imported shoes, high-end
furnitures.

 UNIT ELASTIC- PED IS EQUAL TO 1

 Forecasting demand Using
Elasticity

%change in quantity= Ped (%percentage

change in price.

 PED with Elastic Demand

-when the change in price has a
Ex. If the price elasticity of demand is -2 and
significant effect on quantity demand.
price goes up by 10%, then quantity is
forecast decrease by 20%

=.2(0.1) = -0.2 or 20%

MIDPOINT FORMULA
 PED with Perfectly Elastic Demand
-if the price remains the same, the
quantity demand will be infinite.
 INFERIOR GOODS
INCOME ELASTICITY OF
DEMAND
PERCENTAGE INCREASE IN QUANTITY
DEMANDED GOODS AND SERVICES WHEN
THERE IS A PERCENT INCREASE INCOME

(PANO NA AAPEKTUHAN NG INCOME ANG CROSS-PRICE ELASTICY OF

QUANTITY DEMAND GOODS)
DEMAND
IF THE INCOME INCREASE WHAT WILL
HAPPEN TO THE DEMAND PERCENTAGE INCREASE IN THE QUANTITY
DEMANDED OF GOODS AND SERVICES WHEN
THERE IS A PERCENT INCREASE IN THE PRICE
RELATED GOODS

= PERCENTAGE CHANGE IN
QUANTITY DEMAND
= PERCENTAGE CHANGE IN
INCOME

NORMAL GOODS

Are goods or services that have an increasing

demand whenever income increase.

IED > 0 IS GREATER THAN ZER0 – NORMAL

GOODS

IED > 1 – INCOME ELASTIC OR A LUXURY

IED < 1(LESS THAN 1) -INCOME INELASTIC OR

A NECESSITY

IED < 0 – INFERIOR GOODS

 ORIGINAL NEW

PRICE QUANTITY PRICE QUANTITY

GOOD 50 30
X
GOOD 10 15
Y

TABLE FOR THE UPPER SOLUTION

SUBSTITUTE- CPED greater than 0

COMPLEMENTARY GOODS – CPED less than 0

PRICE ELASTICITY OF SUPPLY WHEN THE INCREASE IN PRICE LEADS
TO A HIGHER INCREASE IN QUANTITY
PERCENTAGE INCREASE IN THE SUPPLIED (SAME MEANING WITH
QUANTITY SUPPLIES OF GOODS AND UNIT ELASTIC PERO MAS MATAAS
SERVICES WHEN THE PERCENT LANG ANG PRICE RITO.
INCREASE IN PRICE SUCH.
 PERFECT ELASTIC SUPPLY
PANO NAAPEKTUHAN NG PRICE ANG
THE PRICE REMAINS THE SAME, BUT
QUANTITY SUPPLY.
THE QUANTITY SUPPLY WILL BE
INFINITE. (MORE THEORATICAL TO,
IMPOSSIBLE MANGYARI, LAHAT NG
PRICE AY NAG IINCREASE SO THERE’S
EFFECT ON OTHER VARIABLE. NASA
LANGIT KANA KUNG TOTOONG
MANGYAYARI TO.)

 PERFECTLY INELASTIC SUPPLY

ELASTICITY IS EQUAL TO 0

 EVEN THERE IS A CHANGE IN PRICE,

THE QUANTITY SUPPLY WILL STILL
REMAIN THE SAME

 INELASTIC SUPPLY

DESPITE THE LARGE INCREASE IN

PRICE, QUANTITY SUPPLY HAS VERY
MINIMAL INCREASE. KAPAG
WALANG HIGH DEMAND ANG
PRODUCTS.

 UNIT ELASTIC SUPPLY

WHEN AN INCREASE IN PRICE HAS A

CORRESPONDING INCREASE IN
QUANTITY SUPPLY.

 ELASTIC SUPPLY