I.

Definitions 1. Macroeconomics It is the division of economics that pertains to the study of whole economies or systems. It includes: Inflation and employment; Government income and expenses; Total money supply, investments; International finance and economies; and Balance of payments, fiscal policy. Macroeconomics is about economics as a whole system. 2. Microeconomics It is the division of economics that is concerned with individual decisions within and economy: a single consumer, a group, a firm, a country. It pertains to the workings of individual markets. It includes: Prices of goods; Value of land, labor and capital; Specific markets: food, electronics, energy, etc.; Businesses, monopolies, and commercial empires; and Employees and employers. Microeconomics deals with individual units and choices. 3. Logic The science that studies the formal processes used in thinking and reasoning; A particular mode of reasoning viewed as valid or faulty; Interrelation or sequence of facts or events when seen as inevitable or predictable. The logic is the prime reason why financial managers consult to the theories in economics for finding out solutions for their day to day problems. 4. Statistics It is a branch of mathematics dealing with the collection, analysis, interpretation, and presentation of masses of numerical data. Economic statistics is a topic in applied statistics that concerns the collection, processing, compilation, dissemination, and analysis of economic data. It is also common to call the data themselves 'economic statistics', but for this usage see economic data. The data of concern to economic statistics may include those of an economy of region, country, or group of countries. Economic statistics may also refer to a subtopic of official statistics for data produced by official organizations (e.g.national statistical services, intergovernmental organizations such as United Nations, European Union or OECD, central banks, ministries, etc.). Analyses within economic statistics both make use of and provide the empirical data needed in economic research, whether descriptive or econometric. They are a key input for decision making as to economic policy. 5. Economic Resources The economical definition of a resource is a commodity or service used to meet human needs and desires. In the categorization of economic resources, there is entrepreneurship, land, labor, and capital. Entrepreneurs are leaders and visionaries responsible for creating businesses and moving economic resources in the business environment. Land includes natural resources and raw materials. Labor includes the work of humans. And, capital is the goods made by humans. These economic resources are also called the factors of production. The factors of production describe the function that each resource performs in the business environment. 6. Created wants Things that you would like to have, although it is not absolutely necessary. Created wants do not arise spontaneously from individual preferences but from advertising and salesmanship. John Kenneth Galbraith described such want creation as "the revised sequence". 7. Luxury Goods Products which are not necessary but which tend to make life more pleasant for the consumer. In contrast with necessity goods, luxury goods are typically more costly and are often bought by individuals that have a higher disposable income or greater accumulated wealth than the average. 8. Entrepreneurship Entrepreneurship or entrepreneurial ability is the skill of a person to combine land, labor and capital to come up with a good or service which would benefit other people, and him or her personally. The importance of entrepreneurial ability is paramount without the clear and proper directions- the combination of land, labor and capital would crumble. Land or natural resources utilized may be of the wrong type; capital goods and equipment may not be properly utilized; and the men and women working may not know what to do. 9. Land A factor of production that includes arable land, forests and fields, any territory, and natural resources such as mineral and water resources that are used in production. It is important because it is where raw materials came from. 10. Traditional Economy These are economies where economic decisions are made through social customs and traditions. In this system, the family serves as the basic economic unit. The family produces what it needs, and any excess or surplus goods are exchanged with other families and villages for other products that they need. Families, tribes and communities decide on what to produce, how to produce and for whom to produce.

11. Market Economy These are economies where economic decisions are made by individuals in a given marketplace. These individuals are collectively called consumers. The best example of this type of economy is capitalism, where means of productions is controlled and owned by individuals and groups. 12. What to produce? Society, as a group of people working together for their mutual benefit, must know what to produce. It must know and give priority to what are essential in lifethings such as food, clothing and shelter. Resources must be allocated for producing one product over anotherand in this manner society must be able to choose well what is good for it. 13. How to produce? It is important to determine because it guides government and private planners about how to allocate resources for production. The question of how to produce may have related queries: Will a man or machine be used for production? What equipments should be usedthe foreign-made or the locally-made ones? Shall people be trained in producing goods and services? 14. For whom to produce? The ones who will use goods and services produced should first be determined. Most of the time, who gets what kind of goods and services is determined by market forces and the kind of access to a variety of goods and services. There are societies that try to equalize its different sectors by providing housing, for example, to underprivileged workers or welfare of unemployed. II. Definition/Complete the sentence 1. The price system Is a means of organizing economic activity. It does this primarily by coordinating the decisions of consumers, producers, and owners of productive resources. Millions of economic agents who have no direct communication with each other are led by the price system to supply each others wants. In a modern economy the price system enables a consumer to buy a product he has never previously purchased, produced by a firm of whose existence he is unaware, which is operating with funds partially obtained from his own savings. 2. The value of forgone alternative Is also called opportunity cost. It is the real cost or value of a product or service compared to an alternative. It is what is lost when you choose one product over another that you give up. Opportunity costs are fundamental costs in economics, and are used in computing cost benefit analysis of a project. Such costs, however, are not recorded in the account books but are recognized in decision making by computing the cash outlays and their resulting profit or loss. 3. Economics is concerned with The efficient use of scarce resources for the purpose of attaining the maximum possible satisfaction of our unlimited material wants and needs. 4. Problems of scarcity economics Scarcity is a naturally-occurring phenomenon in the world, and people and countries produce goods exactly as a continuing response to scarcity. Scarcity is a social problem and it is a permanent economic situation. Because of scarcity, people and governments need to be more responsible in their use of resources, and renewable resources should, at least, be made sustainable. Proper allocation of resources is the answer to the problem of scarcity. 5. Economic analysis Approach wherein facts and historical events are available to any person or economist, but they have to see those phenomena in the light of certain assumptions and then come up with some projections using logic. Example is raising taxes, where public planners try to project the possible income of the government, as well as the services that will be benefited by such increase. 6. Human wants Wants are things you would like to have, although it is not absolutely necessary. It is something you may have or you may not have. (i) Wants are unlimited; (ii) A single want is satiable; (iii) Some wants arise again and again; (iv) Varying nature of wants; (v) Present wants are more important than future wants; (vi) Wants change and expand with development. 7. Built-in needs Need is something that you must have. It is something that you cannot afford not to have, or something you cannot do without. Examples are food, air, water, shelter and clothing.

8. Economic goods An economic good is a physical object or service that has value to people and can be sold for a non-negative price in the marketplace. 9. Labor supply Availability of suitable human resources in a particular labor market. 10. Man-made goods A man-made good is a material that is manufactured through human effort often using natural raw materials. 11. Land includes Arable land, forests and fields, any territory, and natural resources such as mineral and water resources that are used in production. III. Give an example for each of the following: 1. Luxury goods: Buberry, Channel, Gucci, Hermes (signature clothing, accessories and bags); Rolex (watches), Mercedes,Audi (cars); Apple, Samsung, Nokia, Sony (Gadgets) 2. Basic goods: food, clothes, shelter 3. Public Wants: infrastructures, highways, education 4. Natural resources: land, minerals, water, plants, animals and sunlight 5. Capital goods: building, equipment, machinery 6. Economic resources: land, labor, capital and entrepreneurial skills 7. Free goods: air, water, sunlight, intellectual ideas, by products, 8. Economic system: Capitalism, Communism, Socialism 9. Economic tools: observation, economic analysis, statistical analyses and experiments. 10. Opportunity cost: explicit cost and implicit cost Someone gives up going to see a movie to study for a test in order to get a good grade. The opportunity cost is the cost of the movie and the enjoyment of seeing it. At the ice cream parlor, you have to choose between rocky road and strawberry. When you choose rocky road, the opportunity cost is the enjoyment of the strawberry. IV. Differentiate; Define ; Find the relationship of the following: 1. Demand and Supply Demand may be defined as a pattern or schedule showing different quantities of a product that consumers can purchase given possible prices within a certain time period. Demand represents the quantity that consumers are willing to purchase. On the other hand, supply is a pattern or schedule of the quantities of a product that a producer is willing and able to produce and sell given possible prices within a certain time period. In simplest term, supply is the quantity of products that producers are willing to produce for the market.

2. Quantity demanded and Quantity supplied

If the market price of a product decreases, then the quantity demanded increases, and vice versa. I f the market price of a product increases, then the quantity supplied increases, and vice versa. 3. Movement along the supply and demand curve Movement along the supply curve clearly illustrates the direct relationship between the prices of goods and the quantity supplied by producers. The supply curve has a slope going upward. On the other hand, the movement along the demand curve illustrates the inverse relationship between the price of a product and the quantity demanded. The demand curve has a slope going downward.

4. Changes in the demand and supply curve 1. If the quantity demanded increases (demand curve shifts to the right) and the quantity supplied remains unchanged, shortage occurs, leading to a higher equilibrium price. 2. If the quantity demanded decreases (demand curve shifts to the left) and the quantity supplied remains unchanged, surplus occurs, leading to a lower equilibrium price. 3. If the quantity demanded remains unchanged and the quantity supplied increases (supply curve shifts to the right), surplus occurs, leading to a lower equilibrium price. 4. If the quantity demanded remains unchanged and the quantity supplied decreases (supply curve shifts to the left), shortage occurs, leading to a higher equilibrium price. 5. Equilibrium price and Equilibrium quantity When supply and demand are equal (i.e. when the supply function and demand function intersect) the economy is said to be at equilibrium. At this point, the allocation of goods is at its most efficient because the amount of goods being supplied is exactly the same as the amount of goods being demanded. Thus, everyone (individuals, firms, or countries) is satisfied with the current economic condition. At the given price, suppliers are selling all the goods that they have produced and consumers are getting all the goods that they are demanding. As you can see on the chart, equilibrium occurs at the intersection of the demand and supply curve, which indicates no allocative inefficiency. At this point, the price of the goods will be P* and the quantity will be Q*. These figures are referred to as equilibrium price and quantity. In the real market place equilibrium can only ever be reached in theory, so the prices of goods and services are constantly changing in relation to fluctuations in demand and supply. 6. Excess demand (Shortage) and Excess supply (Surplus) Shortage happens when the quantity of products demanded exceeds the quantity that is supplied. Shortages become problem of consumers, especially those who are at the tail end of consumption; that is, those who are late in buying. Also, competition by buyers could make the prices higher, making it an additional burden. On the other hand, surplus is the situation that happens when the quantity of products supplied exceeds the quantity demanded. Surplus poses a problem especially for producers because a very large surplus would make it hard for them to store. Also, the competition among producers would force them to take the price down so that they will be able to reduce their surplus. Thus, surpluses tend to make the prices go down. 7. Normal and Inferior goods A normal good is an economic term used to describe the quantity demanded for a particular good or service as a result of a change in the given level of income. It is the one that experiences an increase in demand as the real income of an individual or economy increases. On the other hand, inferior goods can be viewed as anything a consumer would demand less of if they had a higher level of real income. This occurs when a good has more costly substitutes that see an increase in demand as the society's economy improves. 8. Complements and Substitutes. Complementary products are products that go hand in hand. Example would be whiteboard and whiteboard marker. With complementary products, the price of one is inversely related to the demand for another. On the other hand, substitute goods are those which can be used in place of another because they can perform the same function. Example would be butter and margarine. For two substitute products, there is a direct relationship between the price of one product and the demand for another. 9. Price ceilings and Price floors A price ceiling occurs when the government puts a legal limit on how high the price of a product can be. In order for a price ceiling to be effective, it must be set below the natural market equilibrium. On the other hand, price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage--the minimum price that can be paid for labor. Price floors are also used often in agriculture to try to protect farmers. For a price floor to be effective, it must be set above the equilibrium price. a a a a