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%HE %OO2# O3 ECO!O4IC#

s a science, economics uses the following methods which compose a scientific

approach to e'plaining many phenomena and issues in economics.

O#E$5%IO!6 %his involves seeing and observing economic phenomena thaare happening presently and that had happened in the past. 3or e'ample,

economists study the causes of the 7reat "epression in the nited #tates in the

189:-s, where many people became unemployed6 the effects of inflation in the

present world markets; as well as rising prices. %hrough observation, economists

can determine the causes and effects of events to individuals, groups and

nations.

ECO!O4IC !2I#6 3acts and historical events are available to any person

or economist, but they have to see those phenomena in light of certain

assumptions and then come up with some pro

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ECO!O4IC CO!CE?%#

Scarcity-there is a greater desire for a product than the amount of that item is

available.ecause scarcity depends both on availability and desire, it can be altered bychanges in either of these. If a method were found to produce gasoline from sea water,

gasoline would be immediately become less scarce. ut eually, if the desire for gas

were reduced by discovery of an alternative fuel, it would also become less scarce.

Human wants are a basic part of scarcity. If a product or resource is not wanted, then it

cannot be a scarce. Human wants can be divided into three basic types; primary wants,

secondary wants and intangible wants.

Primary wants or needsare the necessities in life. %hese needs must be fulfilled for

our survival. (e need air to breathe, food to eat and some kind of clothing or shelter.

Secondary wantsdesire for things that are not necessary to support life directly butwhich enrich life by adding to our en

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ecause resources are limited, no economy is can afford to do anything. %hus, when an

economic choice is made, alternative possibilities are re

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percentage of our income once our income increases, and decrease the amount spent

for food.

In economics, it is more difficult to formulate universal laws since we are dealing with

individuals. $eactions to a given set of conditions will vary because of differences in

personality, environment, ID, and other factors.

ECO!O4IC# # $E2%E" %O O%HE$ #CIE!CE#

s a science economics is related to other sciences. #ome of its laws are based on

physical phenomena thus relating economics to physics. Economics is concerned with

the operation of the economy of the nation and its political structure; hence it is also

related to political science. Income is an important factor in determining standard of

living. low standard of living results in social problems. %his is an instance which

shows how economics is related to sociology. Economics deals with human behavior,so does psychology. #ound economic principles should be based on sound moral

principles. Economics in the advanced level is closely related to mathematics.

Economic theory and analysis make use of statistics, econometrics, calculus, computer

programming. 2astly, economics is related to logic, the science of correct thinking.

#CO?E O3 ECO!O4IC#

MACROECOOM!CS/ is the study of activity of the economy as a whole. Economy

refers to the management of income, e'penditures, wealth or resources of a nation. It

deals with aggregates or totals and studies market activities as a whole. It answersuestions such as; what factors determine the total level of production+ #hould the

government increase ta'es+ How will an increase in money supply affect the economy

of the nation+ ?roblems analy=ed in macroeconomics are inflation, unemployment,

growth balance of payments, fiscal policy and interpersonal finance.

M!CROECOOM!CS-Is the study of the activity in the individual markets.

4icroeconomics studies the actions of individual firms and households. It involves

specific markets such as those for rice, sugar or coconuts, ready to wear apparel and

colored televisions. #ome issues being e'amined in microeconomics are poverty,

monopoly, businesses,value of land, labor, capital and labor unions.

E5O2%IO! O3 ECO!O4IC #OCIE%&

1. Direct Appropriation Economy.nder this economy, man simply appropriated the

gifts of nature to satisfy his wants directly. He gathered fruits and honey, hunted

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wild animals or went fishing in the streams and rivers with his bare hands and

simple implements. #ociety supported by such form of production was

necessarily very primitive. 4an lived from hand to mouth. He had nothing stored

to satisfy his needs in case he was unable to engage in his primitive method of

production. %he chief if not the only preoccupation of people in a society was the

uest for food.

@. astoral Economy!4an lives in a very precarious e'istence if he has to depend

only upon hunting and fishing. %o attain greater security from want and hunger,

he must domesticate animals and not merely hunt them. In the primitive stage of

economic society, man simply live a nomadic life, which meant wandering from

place to place in search for pasture lands to gra=e his flock. %ribes were

continually at war among themselves, and members of those that were defeated

were enslaved. #laves were bought like any piece of property. (ealth consisted

chiefly of animals. %here was very very little trade, and it was carried on by

means of barter/ that is by the direct e'change of goods with goods.

9. Agricultural Economy!%o insure greater economic security, man settled down

and cultivated the soil in addition to tending the flock. (ith greater economic

security, population increased rapidly. %he family became the unit of production,

and the members of the family became were engaged in different tasks. 4any in

the nations of Europe were in this stage of economic development during 4iddle

ges.

A. The Town Economy"#andicraft $ystem!s population grew and manor could no

longer support a large population, people began to engage in other occupationsbesides farming. %owns sprang up and the control of economic life was largely in

the hands of the gilds, and so did engage in households industries or handicrafts.

4anufacturing was done in aid of simple tools. %he association of persons

involve in household industries were called craft gilds. #peciali=ation in

production became more common, and the various occupations were regulated

by the gilds. Each workshop was headed by a master craftsman. nder him were

the

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. %ndustrial Revolution!%his is the radical change in the method of production. It is

characteri=ed by the use of advanced technology like machines.

F. &lobal Economy! %his is the interdependence of many countries in e'change of

goods and services. lso called as International competition.

#IC ECO!O4IC ?$O2E4#/ %he !eed %o Choose

#carcity is the reason why people economi=e. It gives rise to economic problems and it

is the reason why man has to make a choice. %herefore, man has to confront the basic

economic problems.

1. (hat shall be produced+

@. How shall it be produced+

9. 3or whom shall it be produced+

"hat shall be produced#%he answer to this uestion depends to a great e'tent on

the values and basic needs of the society. Certainly, all societies need food, clothing

and shelter. %he people of the society need these things in order to live. ut not all

societies produce the same food, the same house and the same clothing. It is important

to know what product is the best to produce that the natural, capital and human

resources are available. n Eskimo society in the 3ar !orth amy satisfy its basic needs

by producing whale and seal meat, houses of snow and heavy clothing. ?ygmy tribe

in frica satisfies its needs with seeds, fruits and vegetables, grass house and clothing.

$ow shall it be produced#%he answer to this uestion depends upon the response to

the first uestion. (hat resources are available to produce the desired product. %his is

the decision of what resources are to be used in production by which by which the

goods will be produced, the technological manner in which production will take place.

country with an abundant labor supply would be e'pected to use a larger amount of

those resources in its production of goods and services.

%or whom shall it be produced# (ho will benefit from the production of goods and

services+ How much of the total production will each consumer get+ (ill the goods bebought by the poor or by the rich+ %he )for whom* uestion decides how goods and

services will be distributed within the economic system.

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ECO!O4IC C%I5I%IE#

Chapter II

PRO&UC'!O.%his is the creation of utilities. %he satisfaction of human wants is

the primary motive of the production of goods and the transformation of material

goods. %o satisfy human wants is the main task of production.

%our %actors of Production

a. 2and/ primary basis of production because it provides man with the natural

resources. It does not only refers to surface level but it embraces the whole

natural environment.

b. 2abor/ this is the physical and mental e'ertion of human efforts that provides

subsistence in the form of money.

c. Capital/ part of wealth other than land and labor used in the production of goods.

d. Entrepreneur/activator and coordinator of the factors of production.

&!S'R!(U'!O- $efers to the allotment and remuneration of the factors of

production. In commerce distribution refers to physical movement of commodities

into channels of trade and industry. In economics, the term applies to two different

but related processes; a. the division among the members of the society as

individuals, of the national income and wealth b. the apportionment of the value of

the output of goods among the factors or agents such as land, labor, capital and

management,

COSUMP'!O-Is the use of economic goods and services that satisfy humanwants. It is classified into, direct, productive and wasteful consumption. "irect

consumption directly satisfies human wants like food, water and lu'urious items.

?roductive consumption is the use of an economic good that will produce other

goods. Industrial machines land and trees are e'amples of productive consumption.

(asteful consumptions the use of economic goods that neither satisfy human wants

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nor produce other goods. #carcity in the environmental resourcesand the pulling

down in the nation-s economy is the result of wasteful consumption.

)RO"'$-nder constant pressure of high population growth rate, it is urgent and

compelling that all our effort should be directed towards acceleration of economic

growth. %his is not only increasing production but also increasing capital formation,use of some indigenous materials and their transformation to finished products and

the opportunity to e'port more.

%H$EE #IC ECO!O4IC 7O2# O3 %HE !%IO!

1. Economic 7rowth

@. 3ull Employment

9. Eual "istribution of (ealth

%HE CI$C2$ 32O( O3 ECO!O4IC C%I5I%&

%he top loop in the diagram shows the business firms supplying the household with

goods and services in e'change for payments representing consumption

e'penditures. On the other hand, the business firm has to use economic resources

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consisting of land, labor, capital and entrepreneur to produce the goods and

services. %he household provide the firms with these resources in e'change for

payment in the form of rent, interest, wages, salaries and profit. %he circular also

shows the flow of money and the flow of goods and services in both directions. %he

financial flow which is the money flow depicted in the money payment by the firm to

the household of its money income, and by the household to the firm for its purchase

of goods and services. On the other hand the physical flow which is the goods flow,

is depicted in the flow of economic resources from the household to the firm and in

the flow of goods and services from the firm to the household.

ECO!O4IC #%E4

Chapter III

n Economic Systemis a set of economic institutions that dominates a given

economy. n institution is a set of rules and conduct, established ways of thinking, orways of doing things. E'amples are ta'ation, profit motive, economic planning,

production and banking. %he principal ob

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often resist change and are usually content to continue doing things as they have

been done.

5ery likely no economic system is purely all one or all another of these systems. lmost

all present day systems have elements of two or more of according to which of these

basic systems. ut we do classify economic systems according to which of these basicsystems they tend to favor. ear in mind that we consider the dominant trait of an

economic system when we call it traditional, command or free enterprise. %he system

will most likely show aspects of other basic systems as well.

%HE E4E$7E!CE O3 4$E% ECO!O4& I! %HE ?HI2I??I!E #E%%I!7

similar attempt to trace the roots of the development of the market economy in the?hilippines begins with the description of the 3ilipino as a salesman. It is widely held

that as a people, the 3ilipinos are more known for their buying and selling abilities rather

than for their entrepreneurial and manufacturing skills. (e are a nation of salesman

rather than producers.

%he historical root our lack of )production consciousness* is the fact that our ancestors

)produced* what they merely found from nature. Our articles of trade were shells from

seashore, bird-s nest from mountain rocks, etc, which our ancestors did not alter or

transform. %he only unstable e'ception was the brassware produced by our 4uslim

ancestors.

%he barangay economy we had was an outgrowth for e'tended family system. 2ike the

European manor, barangay was traditional and self sufficient. %here was an absence of

manufactured goods due to the simplicity of people-s needs. #urplus production was

unheard of. ecause of the self sufficiency of the barangays, trade among the

communities was e'tremely limited. %here was no need for currency and whatever trade

e'isted it was carried out by barter.

%he coming of the #paniards forced 3ilipinos to engage in surplus production to support

the non producing #panish civil authorities. In spite of the unpleasant biases about the

friars, some are of the opinion that the friars were precisely agents of a technological

revolution in a relatively backward ?hilippine setting. !ew crops and tools were

introduced; natives were encouraged to be skilled.

Our colonial e'perience with the nited #tates did not contribute to our productive

capacities. In truth, .#. colonial policy reinforced the e'port of agricultural products and

made the ?hilippines the market for merican manufacture goods. %he technological

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dualism, as evidenced by the slow pace of growth of subsistence agriculture, resulted in

chronic insufficiency of food that confronts us even in the decades of seventy.

%HE 4$E% ECO!O4&G C?I%2I#4

%he market economy is only one type of economic system in which problems ofproduction, distribution and growth are solved by means of the decisions of the

multitude of people acting individually or in groups.

In principle, the market economy spells economic opportunities for everyone.

nfortunately however, in real economic world of developing countries like the

?hilippines, the market economy is hardly characteri=ed by euality in economic

opportunities. formidable to reckon with is the continued concentration of economic

power in the hands of the few. %rue, there had been moves to privati=e government

corporations and to encourage entrepreneurial activities but much more can be done.

%here is also a widespread ignorance about the real economic opportunities because ofdifficulties in transport and communication as well as the low uality of mass education.

ecause of these imperfections of the market economy, competition and private

enterprise do not always promote the economic good of each and every individual.

?eople have bargaining power in the )economic voting process*. %he overwhelming

ma

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4$E%

Chapter Iv

situation or place, where buying and selling take place. %wo markets are productmarket and resource market. ?roduct marketis a market in which products are sold byfirms and bought by households while resource market is a market in which householdssell and firms buy resources or the services of resources.

"I33E$E!% 4$E% #I%%IO!#

. ?$E CO4?E%I%IO!. 3or such a market situation to e'ist, the government isleft on the sidelines allowing the operation of purely private economy, privatebusiness carry on all production. nder pure competition, the competitive

process functions so effectively that no one firm has control over the price it willreceive for its products. %his is because there is ever present an indeterminablenumber of traders all dealing on the same product where no one among themcan demand or offer a uantity sufficiently large as to affect the market price.E'amples of perfect competition are agricultural products like fish, vegetables,eggs, salt , rice, corn and others.

$euisites of a ?ure Competition

1. There must be large number of small sellers and buyers. %he inability of anindividual seller to control the price under pure competition follows from the fact

that he offers only a negligible and distinguishable portion of the total supply ofthe commodity. In pure competition, the demand schedule for the individualseller-s product is perfectly elastic.

@. The commodity must be standardi'ed and in large supply. ecause purelycompetitive firms are producing a standardi=ed product e'plains the absence ofbig price competition that is competition on the basis of differences in uality,advertising or sales promotion. y definition, each firm is producing identicalproduct. Hence, no firm has a uality edge over its competitors. In fact,

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advertising by individual firms will prove to be of no avail in as much as eachfirm-s product has no distinguishing features to be adverti=ed or promoted.

9. The presence of organi'ed market. nder this condition, there is a continuoustrading with adeuate information available to both buyers and sellers. s such,all units of the products sold at the same time will sell at a common price.

A. Absence of restraints in any kind. In a competitive industry, no artificial obstaclesprevent new firms from entering or old firms from leaving the industry. 3irms andresources they employ are mobile or could easily be shifted.

B. rices are sensitive.oth the prices of the resources as well as the products aresensitive to changes in supply and demand. %his simply means that the marketprice is sufficiently fle'ible in demand supply relationship of products that resultsin its rise or fall.

. ?$E 4O!O?O2&. 4onopoly means that only one company is the seller of a

good or service. Ordinarily, it means control over supply, therefore over theproduct, and as a result the si=e of his output influences the price so that theproducer may receive the monopoly profit. pure monopoly could only e'ist foras long as there is no competition which may be due to a number of reasons.%he most important one, being barriers to entry. #uch barriers maybe economic,technological, legal or other obstacles that prevent new competitors fromentering into the industries. legal barrier may in the form of franchise granted toa firm conferring it the right to engage in a particular enterprise withoutcompetition such as the construction and operation of electric light or watersystem. lso, on account of huge capital involved in industry, those possessingeven with the technical knowhow may not be able to enter into the industry. %his

industry is looked upon as capitalistic industry.

Characteristics of 4onopoly

1. One firm industry@. %he product is uniue

9. Capacity to oppose with the competitors

Regulated (onopoly. %he nature of some industries is such that the operation ofcompeting firms would be costly and socially undesirable or impractical. E'ample ispublic utilities.

C. 4O!O?O2I#%IC CO4?E%I%IO!. %his is imperfect competition. It differs fromboth competition and monopoly, but it display element of both. 2ike in a marketsituation called pure competition, monopolistic competition necessitates thepresence of large numbers of sellers who are acting independently of oneanother. 3or this reason, each firm has a fairly small share of a total uantityoffered for sale as against pure competition where product is standardi=ed. In

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case of monopolistic competition, product differentiation is a ma

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nother argument in favor of the price system is the presence of personal freedom.

?roducers are free to produce goods and services to satisfy their own economic

interests as long as these do not conflict with legal and moral traditions. Other personal

freedoms include free choice of workers or employees. On the part of buyers, they are

free to purchase goods and services that give them the highest satisfaction.

?$ICE#

Our economic system is based on buying and selling of goods that have economic

value. Every one of us buys goods and services. Every time we buy, somebody sells.

Economic value e'pressed in terms of money is a rice; the amount of money which

will be given for a good or a service.

%he bases of economic value are6

1. )tility or )sefulness! the ability of goods and services to satisfy our wants for

food, clothing, shelter and others. However, wants or desires do not have any

effect in prices unless they are backed up by sufficient purchasing power, that is

ability to pay.

@. Economic" $carcity!this means that the amount available is smaller than people

would like to have. ptly observe, when goods are scarce, they have a costbecause labor, capital and other factors of production must be spent to get them.

%hese costs are very important in determining prices.

52E !" ?$ICE

%here are countless number of people who entertain the erroneous idea that something

that is very scarce will have automatically of value. %his is not always correct. 3or

instance, one may find an e'tremely old book on ?hilippine Economics which the

bookseller refuses to buy because it has absolutely no value. nd yet, on the other

hand, there are many things which are plentiful in terms of absolute numbers whichcommand high value because there are large number of people who desire to buy

them. #uch articles, it may be pointed out correctly, have a high marginal utility for

them. %he value of any good is its power to command other goods in e'change for a

sack of rice, the value of rice is two sacks of corn. 52E e'pressed in terms of any

kind of wealth, property or services. %he measure of value is ?$ICE, which is always

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e'pressed in terms of money. 4oreover, price is always held to refer to only one unit of

a particular good.

%&?E# O3 ?$ICE#

1. Competitive ?rice/ it is the price which results from the two competitive forces inthe market/ that is the supply and demand forces. nder the conditions of pure

competition, which invariably termed perfect competition, the demand and supply

of a single person is negligible in so far as their effect upon the market price is

concerned. %hus, it is the total demand for a good, together with the supply in the

market that accounts the price.

@. Euilibrium ?rice/ it is the price wherein that supply and demand are eual. %he

uantity of goods offered by the sellers will

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and social monopoly Jpost officeK. ?rivate monopolies are legal J4E$2COK,

natural Jdiscovery of mineral in one-s landK, labor Jclosed unionK and capitalistic.

Conditions that prevent the monopolist from increasing his price6

a. ncertainty of demandb. %he possibilities of substitute

c. ?ossible Competition

d. 3ear of public control

B. Customary ?rice/ price that does not conform to laws of demand and supply

Jsari/ sari store or )tingi system*K

. uthoritarian ?rice/ this is government regulated price. E'amples are the basic

goods and services.

F. $ationing/ not a price system but a method of ensuring a fair distribution of

supply by selling coupons.

3!C%IO!# O3 ?$ICE# I! O$ ECO!O4&

1. ?rices indicate the relative demand for goods.

@. ?rices and the allocation of the factors of production

9. ?rices apportion consumer goods.

%HE $O2E O3 7O5E$!4E!% I! %HE ?$ICE #%E4

In view of limitations of the price system, the government has to regulate and supervise

production, distribution and consumption of goods and services. %he government

provides incentives in the production of goods and services that greatly contribute to the

socioeconomic development of the country. It interferes in the allocation of goods and

services in order to protect and to promote the welfare of the poor. #imilarly, it has to

control the consumption of goods and services, which are wasteful and detrimental to

the growth of the economy. 3or e'ample, our government discourages importation of

lu'ury goods and pleasure trips abroad due to the scarcity of our dollar reserves.Instead, we are being encouraged to be more self reliant, and productive for our own

good and of the whole economy.

In developing countries, the role of the government has been more active and direct.

Infrastructure like roads, bridges, communication facilities, electrification, schools and

hospitals have to be set up. %hese speed up the process of economic growth. Economic

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growth means more employment, production and income. Eventually, this leads to

higher standard of living. However, this does not happen if the productive resources of

the society belong to very few families. #o the most important role of the government is

to redistribute fairly wealth and income. If there is an euitable distribution of resources,

then the price system can allocate efficiently and fairly goods and services. %he

government

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A. ?rice E'pectation. (hen people e'pect the prices of goods, especially basic

commodities like rice, soap, sugar, or oil to increase tomorrow or ne't week, they

buy more of these goods. In the same manner, they decrease their demand for

such product if they e'pect the prices to decline tomorrow or in a few days. %he

reason for such consumers behavior is to economi=e.

B. ?rices of related goods. (hen the price of a certain product increases, people

tend to buy a substitute product JcompetitorK. 3or e'ample, if the price of %ide

soap increase, consumer buy less of %ide and more of the other substitutes like

Champion or 4r. Clean. Conversely, if the price of %ide decreases, then demand

for it increases while demand for the other competitors decreases.

ased on personal and scientific observations, consumers usually make their

purchases depending on the price of commodities in the market. %he higher the

price, the lesser is the uantity of goods demanded. %he relationship between the

price and uantity demanded is called "emand #chedule.

"emand schedule is a tabular representation of demand. %able 1

Eggs !umber of eggs sold in a week

@.B: 9:: eggs

@.FB @L: eggs

9.:: @B: eggs

9.@B @@B eggs

9.B: @:: eggs

A.:: 1: eggs

3igure 1. Individual demand curve showing a downward slope.

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2( O3 "E4!"

Consumers are most likely to buy more goods and services as price decreases and buy

less goods and services as price increases. %his is the law of demand. #uch generaltendencies of consumers can be e'plained for two reasons.

1. Income effect. t lower prices, an individual has a greater purchasing power.

%his means he can buy more goods and services. ut at higher prices, naturally

he can buy less. 3or e'ample, before the prices of the one bottle of coke was

only 1: centavos. #o, a peso then can buy 1: bottles. t present, the same one

peso cannot even buy one bottle. %his show that the same amount of money or

income can buy more goods when prices are lower, but lesser goods when

prices are higher.

@. #ubstitution Effect. Consumers tend to buy goods with lower prices. In case theprice of a product that they are buying has increased, they look for substitutes

whose prices are lower. 3or e'ample, if the price of ?epsi increases, consumers

shift to other similar soft drinks with lower prices. %his is one of the reasons why

the rise of price of a certain product reduces the uantity demanded for such

product.

52I"I%& O3 %HE 2( O3 "E4!"

%he law demand states6)nder the condition of ceteris paribus, as price increase

*uantity demand decrease, and as price decrease *uantity demand increase. #uch

theory is only true if the assumption of ceteris paribus is applied. It means )all other

things are eual or constant.* %he law of demand is correct if the determinants of

demand are held constant; that there is no change in income, taste or population. 3or

e'ample, if the price of the transistor radio increases by @:, then the uantity

demanded for such good decreases. %his is true if the income of the buyer is the same.

ut supposing that the income of the consumer has increased by 1::.(ould uantity

demanded for the radio fall since there is an increase of price+ Certainly not, because

the income of the consumer has increased. %his means more purchasing power.

Obviously, more goods and services are being bought at present than before the

war. Mnd yet, prices at present have increased a hundred times compared with pre

war prices. %hey say one centavo could buy a cone of an ice cream at that time. If we

base this consumer-s behavior on the law of demand, then the law is not correct. %he

uantity demanded at present should be lower than in the past because prices at

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E'pressed the degree of satisfaction the individual takes in each successive unit of the

commodity he consumes or acuires.

E2#%ICI%& O3 "E4!"

%he e'tent to which consumers react in the price of a commodity. (ith some

commodities, a change in price with little or no difference at all. %hus, a consumer buys

substantially the same amount of commodity as before. In the case of other items, it is

not as even as a slight change in price of a commodity generates a considerable effect.

Elasticity of demand measures the relative changes in the amount of a commodity

purchased in response to relative changes in price.

?ercentage change in uantity

N ////////////////////////////////////////////

?ercentage change in price

?rice Elasticity measures the response of uantity demanded to changes in price or

alternately, it shows the way prices respond to changes in the amounts of a commodity

in the market. It emphasi=es the price uantity relationship in a given market demand

schedule.

Income Elasticity measures the response of consumer purchases to changes in incomeand thus point to the impact of income changes in production.

1. Elastic "emandIf consumer purchase much more when price decreases slightly ormuch less when price increases slightly. If the percentage change in the uantity

purchased is greater than the percentage change in price. %he coefficient of elasticity is

1.

3C%O$# O3 E2#%IC "E4!"

a. availability of close substitute

b. when commodity has many uses

c. when prices are relatively high

@. Inelastic "emand. If consumers purchase only a few more with substantial price

decrease, and only a few less with a substantial price increase. %he percentage change

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in uantity purchased is less than the percentage change in price. %he coefficient of

elasticity is less than one.

3C%O$# O3 I!E2#%IC "E4!"a. when no close substitute e'ists

b. when commodity has few uses

c. when prices are relatively low

9. nitary Elastic. If total spending remains the same as price goes up or down.

Elastic "emand Inelastic function nitary elastic

#??2&

It is schedule of various uantities of commodities which produces are willing and able

to produce and offer at a given price and time. Its determinants are6

a. %echnology

b. Cost of production

c. !umber of sellers

d. ?rices of other goods

e. %a'es and #ubsidies

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On the supply side, prices are fi'ed by costs of production and distribution, as

determined by scarcity of materials, technology, organi=ational limits like the law of

diminishing returns, labor costs and so on. %he producer will decide his pricing strategy

to ma'imi=e his profits, though other wishes of the sort covered by the theory of the firm

may also operate. However, the nature of the market also comes into play. In a

monopoly or oligopoly, the price can be raised still further because competition still

operating freely.

#upply is the e'pression in the market of the cumulative willingness of all firms to

produce various amount of a product at various prices. %he amount of goods produced

depends upon the market price the firms can get for the goodJsK produced. . %he seller

offer more goods because they make more profits.

%able 1. #upply #chedule

?rice Duantity supply of egg per week@.B: 9:: eggs

@.FB 9B: eggs

9.:: A:: eggs

9.@B AB: eggs

9.B: B:: eggs

3igure 1. #upply Curve

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2( O3 #??2&

As price increases, *uantity supply also increases, and as price decreases *uantitysupply also decreases.%his direct relationship between price and uantity supplied is

the law of supply. ?roducers are willing and able to produce and offer more goods at a

higher price than at a lower price. %his is obvious, sellers offer more goods at higher

price because they make more profits. 4ore profits create more goods. #uch behavior

of sellers or producers is a natural inclination. !o businessman is willing to produce

goods if he makes no profit. However, the law of supply is only correct if we apply the

assumption of ceteris paribus. %his means the law of supply is valid if the determinants

of supply like cost of production, technology, prices of other goods and so forth are held

constant. Here are illustrations

4arket ?rice ?@:.::

Cost Of ?roduction ?1B.::

?rofit ?B.::

If price increases from ?@: to ?@9 and the cost of production remains the same, the

producer gets more profit. %herefore, he is stimulated to produce more. %o illustrate6

4arket ?rice ?@9.::

Cost of ?roduction ?1B.::

?rofit ?L.::

ut supposing price increases from ?@9 to ?@B and the cost of production also

increases from ?1B to ?@B, would the producer increase his uantity supplied+

Certainly not, because he gets no pure profit. %hus, the law of supply does not apply in

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In the market, a contradiction in interest between the producers or sellers and the

buyers normally e'ists. %he sellers want a high price for more profits while the buyers

like a low price. (hen sellers increase price and produce more goods but the buyers

purchase less goods, the result is a surplus. %his means uantity supplied is greater

than uantity demanded. #hortage of goods arises when buyers take more goods at a

lower price that discourage the producers to produce and offer goods at a lower price.

%his means uantity demanded is greater than uantity supplied. It is at this point that

buyers are compelled to pay a higher price to get available goods. In the process of

interaction between the sellers and the buyers, an euilibrium price results. It is in this

situation where uantity supplied and uantity demanded are eual. t euilibrium,

there are more market forces operating to change uantity or price. It operates within

the law of supply and demand. %he law states that when supply is greater than demand,

price decreases. (hen supply is eual to demand, price remains constant. It is at this

point when market price or euilibrium e'ists when both sellers and buyers have mutual

agreement. %he producers are able and willing to offer the same uantity of goodswhich buyers are willing and able to purchase at a given price.

EDI2I$I4 %2E

?rice Duantity #upplied Duantity "emanded

1:.:: 1:: @::

@:.:: 1@B 1FB

9:.:: 1B: 1B:

A:.:: 1FB 1@B

B:.:: @:: 1::

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Euilibrium price that resulted from the process of interaction between sellers and

buyers. bove the euilibrium price is shortage.

4C$OECO!O4IC#

Chapter 5II

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4acroeconomics studies the aggregate of the total movements of income, investments,

production, savings, etc. It is the measure of the total income derived by all 3ilipino

working. !ational Income may be defined as a measure of the money value of the total

flow of goods and services produced in an economy over a specified period of time.

Economics is based on the simple circular flow of Income

?$O"C%IO!

E4?2O&4E!% CO!#4?%IO!

I!CO4E

%he interrelationships are necessary. %here are people who produce because there are

people who need to consume. nd people earn incomes because they are employed.

%he economy therefore is a system made up of four interdependent parts. Employ more

and work harder, you get to produce more and income increases. %his enablesconsumers to increase their consumption. Change more to less and the ability to

consume would normally decrease. %he interdependence of parts works out so that if

anyone on the parts increases, then there is a pressure for all the other parts to

increase too. "ecrease anyone of them, and all the others will decrease as a result.

(O$ in the 4I! #EC%O$#

7$IC2%$E/ this includes farming, fishing and forestry

I!"#%$&/ this includes mining, manufacturing and construction

%$!#?O$%%IO! !" CO44!IC%IO!

%$"E !" CO44E$CE/ retail and wholesale business

7O5E$!4E!%/ includes professionals, educational, recreational and personal

services.

(O$ !" %HEI$ !%IO!2 I!CO4E

%imeG#killsG2abor ////////////////////////////(ageG#alary

3unds ////////////////////////////////////Interest$eal Estate /////////////////////////////////// $ent

Capital ///////////////////////////////////////// ?rofit

!ational income received by labor and those who provide funds, real estate and capital

for the production process is related to the amount and uality of goods and services

made available. !ational income normally rises if the amount and uality of goods and

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services rise. It fails if the latter falls. It is in this sense that national income is said to be

a measure of the economy. It is the measure of income and conseuently of production.

In general, it is also a measure of employment. It also shows how much consumption

there can be in the economy.

#?E!"I!7 !" CO!#4?%IO!

Income determines consumption because in general, one can spend provided he has

money to spend. %hus, one must earn in order to spend. usual and important use of

income is consumption. It is the demand for the goods and services that production has

made available. ?roduction makes consumption possible.

3ilipino Consumption is estimated as follows6

B1/ food, 1B.8/ rice alone, @@.F/ house maintenance like electricity, rent, cleaning

etc. , @A/ services like education, health etc., L/ clothing

5$IO# %&?E# O3 #?E!"I!7

1. Consumption

@. Investments JsavingsK

9. 7overnment E'penditures Jta'K

A. E'port less Imports

ll spending is 7!?. ?utting all the pieces together, one identifies consumption,

investment, government e'penditures and e'ports less imports, as the various types of

spending that provide funds to the production process and conseuently help it directly.

7!? is the total spending that supports local ?hilippine production. It is the measure of

local ?hilippine production. If spending or 7!? rises, production rises as a result and

vice versa. %he mathematical representation of 7!? is e'pressed as6

7!?N CP I P 7 P net e'ports

C/ stands for consumption e'penditures

I Q stands for investments e'penditures7/ stands for government e'penditures

?$I!CI?2 4E%HO" O3 4E#$I!7 7!?

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1. E'penditure pproach where 7!?N CPIP7P!'

@. Income pproach where 7!?N wagePinterestsPrentPprofit

9. Industrial Origin pproach Jvalue added approachK

N griculturePIndustryP#ervices P !et 3actor Income from broad

CO!#4?%IO! P I P 7 P !'

7!?

?$O"C%IO! I!CO4E

E4?2O&4E!%

%he relation between spending and production is basic in the economic process. (hile

it is true that they help and cause each other, they do not always match. 4atching tem

is the task of the economy. One step would be to keep production up or down directly

so that it keeps pace with the spending. %here is lack of immediate fle'ibility in

production. ut spending can easily be ad

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business cycle refers to the fluctuations in total national output, income and

employment. It usually occurs when economic activity speeds up and down.

3urthermore, a business cycle is a swing in total national oputput, income and

employment that will last from two to five years. It is marked by widespread e'pansion

or contraction in many sectors of the economy. It is also the study of patterns of output

of growth in a capitalist economy which shows e'pansion and contribution in real 7!?.

?H#E# O3 #I!E## C&C2E

%he phases of business cycle have been classified into ma

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ECO!O4IC ?O2IC&

Chapter 5III

Economic policies are designed to help the country-s economic growth.

4oney is a fascinating aspect of the economy and a crucial element of economics.4oney is more than a tool for facilitating the economy-s operation. (hen it is working

properly, the monetary system is the lifeblood of the circular flow of income and

e'penditures which characteri=e all economies. well operating monetary system helps

achieve both full employment and efficient use of resource. malfunctioning monetary

system can contribute to severe fluctuations in the economy-s level of output,

employment, and prices; and can distort the allocation of resources.

4O!E%$& ?O2IC& Q is the process by which the government, central bank or

monetary authority controls the supply of money, availability of money, cost of money or

interests rates in order to attain a set of ob

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HO( 4O!E%$& ?O2IC& C! #%I42%E ?$O"C%IO!+

?$O"C%IO! Je'pandsK

I!5E#%4E!%# JincreasesK

Incomes #aved

!# Jcredit e'pansionK

CE!%$2 !

4onetary ?olicy helps stabili=e the economy. %he three forms of monetary controls are6

changing the legal reserve reuirements, discounting, and opening market operations.

%hey are the most fle'ible tools of monetary control and the most utili=ed. %o curb

inflation, the government offers securities in its possession for sale at attractive prices.

%he sales work out the transfer from the commercial banks to the national government.

%his reduces the ability of the banks to e'pand their lending activities, thus raising

interests rates and conseuently the aggregate demand. (hen there-s too much

money, the government buys securities from banks, business firms, or private

individuals. %his action provide more reserves into the banking system which create an

e'pansionary effect on the economy.. %he government can also raise the discount rate

it charges on loans to financial institutions. %his move is contractionary because it limits

money supply. It is the opposite of discount rate reduction which is e'pansionary.

$aising the reserve ratio is the most forceful monetary tool; and since it is the least

fle'ible, it is not often used. 2owering the legal reserve reuirement can have an

e'pansionary effect.

I!32%IO!

Inflation or increase in price levels, occurs when total demand for goods and services

e'ceed the supply Jdemand pull inflationK or when certain events push up production

costs Jcost/ push inflationK

"emand/ ?ull Inflation/ normally results from e'cess money supply generated by fiscal

deficits andG or loose monetary policy Jgenerating additional spendingK. It also occurs

when production and supply cannot be e'panded to accommodate additional demand.

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"emand/?ull Inflation

Cost/?ush Inflation/ can be triggered by events such as sudden currency devaluation,

increases in prices of imported commodities like crude oil, and large increases in wagesnot matched by labor productivity gains. Cost/push inflation can result in the

phenomenon called )stagnation*.

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3I#C2 ?O2IC&

%he ob

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surplus than the government previously had, or a surplus if the government

previously had a balanced budget.

9. !eutral #tance J 7N%K government spending is fully e'panded by ta' revenue

and overall the budget outcome has a neutral effect of economic activity.

?2IC E>?E!"I%$E# !" %HE !%IO!2 "7E%

%he e'penditures of the government are reflected in the national budget which shows

the specific programs and pro

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International %rade/ the e'change of goods and services between nations. International

trade enables the nation to speciali=e in those goods it can produce cheaply and

efficiently. %rade also enables a country to consume more than it would be able to

produce if it depended only on its own resources. %rade enlarges the potential market

for the goods of a particular country. %rade has always been the ma

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faster growth of e'ports, the more goods and services we can purchase from abroad. In

the recent years, earnings from e'ports have constituted about B: of total dollar

receipts of a country.

Other #ources of "ollars

1. "ollars from 7old/ income from the sales of gold also helps in our balance of

payments.

@. "ollars from Invisibles/ non commodity items like foreign government

e'penditures, transportation, insurance, travel, foreign investments and foreign

loans.

alance of aymentsQ %his is the record of country-s international transactions

e'pressed in terms of cash receipts forms and payments to foreign countries in a givenperiod.%his simply reflects the amount of money that any country gets for giving up

something/the cash amount paid to other countries in e'change for the total value of

goods and services rendered to that country.

alance of %rade/ it is the total amount of imports and e'ports of a country-s foreign

trade. %he difference between volume of imports Jin dollar valuesK and e'ports gives the

debit or credit balance

E'ample6 alance of %rade in @::F

E'ports T 11.L

Imports T 1F9.B

%otal T 99B.9

Out of this balance T11.L were e'ported and T1F9.B were imported. (ill these balance

of trade be in credit Jmore e'ports than importsK or debit+Jmore imports than e'ports.

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?$O2E4# O3 ?HI2I??I!E 3O$EI7! %$"E

1. Over dependence on few primary products . "emand for primary products grows

only very slowly through time Je.g. sugarK while prices for our e'port productshave increasing at a slower rate than those of imports. In addition primary

products especially agriculturally based are sub

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#O2%IO!# %O ?HI2I??I!E %$"E ?$O2E4#

1. "evelop tourism and sell our services abroad.

@. llowing foreign governments to spend substantial amounts in the ?hilippines.

9. Encouraging foreign investments in the ?hilippines.

A. $esorting to foreign loans.

$$IE$# %O 3$EE %$"E

1. Infant Industry rgument

@. $evenue $aising %ariffs

9. %he alancing of International ?ayments

A. $etaliation

B. 2ack of International Euality

%$"E 7$EE4E!%#

ilateral greements/ a country is obliged to e'tend to a country with which it has

most favored nation agreement all trade rights it gives to any other country.

E'ample, if .#. had a most favored nation agreement with the ?hilippines, the .#.

would be obliged to e'tend to the ?hilippines all concessions it gives to the nited

ingdom in any trade agreement. If the ?hilippines on the other hand, has a mostfavored nation agreement with 0apan, the trade preferences granted to the .#. by

the ?hilippines would also have to be e'tended to 0apan.

42%I2%E$2 7$EE4E!%#/ trade preferences between more than two

countries are negotiated at the same time. E'ample is 7eneral greement on %ariffs

and %rade J7%%K. nder 7%%, representatives of various government meet at

freuent intervals, and there are rules that must be followed among the member

countries. Important rules are6

1. Duotas are forbidden

@. "iscrimination is forbidden

9. %ariffs are not forbidden but tariff increases are.

7%% stands for free trade. %rade barriers among the member from different

countries are being abolished gradually. y the year @:1B, trade barriers among the

rich countries will have totally disappeared, and by the year @:@: trade barriers for

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poor countries will have disappeared. 7%% envisions the global market without

boundaries. ?roducts will freely flow from country to any country. 3ree trade means

free competition. %his will result in better uality, better service and lower price. In

the process of competition, it is the fittest that survives in the market. %he inefficient

enterprise gets out of the market.

4E#$E# %O ?$O4O%E 3O$EI7! %$"E

1. 3ree %rade ?olicy

@. %rade greements

9. Common 4arkets and %rade ssociations. E'. European Economic nion

A. E'port ?rocessing Uone JE?UK. E'. 4arivele=, ataan, Cebu, Cavite

B. "uty 3ree #hops J"3UK It promote foreign trade because they sell imported

goods at no ta' basis.

I!%E$!%IO!2 ECO!4IC O$7!IU%IO!#

1. International 4onetary 3und . It was intended to prevent economic policies that

provoke nations to go to war in the past, It-s main ob

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ECO!O4IC "E5E2O?4E!%

Chapter >

Economic "evelopment is a progressive process of improving human conditions,such as the reduction or elimination of poverty, unemployment, illiteracy, ineuality,

disease and e'ploitations. It is a process whereby people of a country can come to

utili=e the resources available to bring about a sustained increase in per capita

production of goods and services. It encompasses ualitative dimension such as

changes in the technical and institutional arrangement by which output is produced

and distributed.

Economic 7rowth is the increase in output or production while economic

development properly relates to an increase in the welfare of the people of the

economy-s productive capacity like an increase in the economy-s ability of individualor collective desires for different kinds of goods and services.

%$"I%IO!2 ?$OCE## O3 "E5E2O?4E!% by (.(. $ostow

1. %raditional #ociety / economic is static, limited technology, low income from one

generation to the ne't, economic is dominated by search of food, shackled by

religious beliefs and attitudes of indifference, communication was almost

none'istent, poor transportation, production is primarily intended for domestic

consumption, patriarch government, hereditary hierarchal rules and bounded by

common custom and tradition.

@. ?re Conditions for %ake Off . olitical! the needs and importance of strong

political organi=ations based upon the establishment of minimally effective

national government. Economic ife/ improves rates of production way above

consumption.$ocial and /ulture!development of human resources,

improvement of agricultural sector, installation of infrastructure facilities, laying

down of basic transportation, communication, irrigation and power facilities.

9. %ake Off #tage / is in the interval when old block and resistances to steady

growth6 rise in the productive investment, development of one or more

manufacturing sector with high growth rate and the e'istence of rapid emergence

of a political, social and institutional frame.

A. "rive to 4aturity / economy has e'tended its range into more refined and

technologically comple' processes.

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B. 4aturity / period when a society is effectively applied range of modern technology

to the bulk of its resources.

. ge of High 4ass Consumption / state of tremendous volume of production which

offers a citi=en wide range of choice goods and services for the satisfaction of

their wants and needs, level of income increased, system of credit is e'istent.

I!"E>E# O3 !"E$"E5E2O?4E!%

%he studies of underdevelopment which has been describes as )poor economic

performance* as evidenced by the comparatively low average of consumption and

material well being of the people, plus the potentiality of improvement through well

known )means* may be approached through a consideration of important factors and

conditions that contributed to such a circumstance. %hey are referred to as inde'es

of underdevelopment.

1. opulation ressure. %he tremendous pressure e'erted by accelerated rate ofpopulation growth is one of the dominant characteristics of the present century.

s to 4althus, there are two classes of checks that prevent the population from

actually outrunning food supply6positive checksuch as high incidence of

diseases and therefore death, pestilence, epidemics, famine and war; and

preventive checkconsists of moral restraints that are postponement of marriage,

as well as birth control measures.

@. opulation olicy. ccording to advocates of optimum population, the population

of any country would tend to be that si=e which secures the highest capita

production of the goods and services that the population wants and needs. If thepopulation increases beyond this number, the spread of subsistence becomes

too thin. If there are too few people there is insufficient speciali=ation or division

of labor to bring about ma'imum production. s to .!. ?opulation Commission,

the population policy is the measures and program designed to contribute to the

achievement of economic, social, demographic, political and other collective

goals through the si=e and growth of the population, its geographic distribution

and demographic characteristics.

9. ow %ncomeQ a low level of production notwithstanding the e'istence of

adeuate resources, natural or human result in annual per capita income of thepeople in the regions oftentimes run short of one tenth of that of the people in the

more highly developed areas. In less developed countries6 9/ national income,

@/ population, 1/ per capita income. per capita income computed with care

and caution could provide a clear insight in the life of the people.

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A. 0idespread overtyQ while the e'tent of poverty is difficult to determine for there

are no absolute norms from which deviations can be measured, however this is a

phenomenal characteristic of many underdeveloped countries.

$everity of overty

a. $elative ?overty/ is the incidence of poverty based on the received income

shares by some various sector of the economy.

b. bsolute ?overty/ is the capacity of the economic groups to meet specified

minimum needs. It is also the number of people living below an imaginary

poverty line.

c. ?overty ?erception/ is the incidence of poverty based on the set standard of the

society. It depends on how the society benchmarks the subsistence level for

survival, cost of living and acuisition for basic necessities.

B. "eath of #killed 2abor and ?re/Eminence of 2iteracy / the most pressing need in

many of the underdeveloped countries is for skilled labor due to the e'istence of

widespread poverty for failure to land good paying

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%H$EE O0EC%I5E# O3 "E5E2O?4E!%

1. Increase availability and eual distribution of basic life sustaining goods.

@. $aise the level of living as to promote self esteem

9. E'pand the range of economic, political and social choices. In the ?hilippines , tohave economic growth it must have full employment and price stability.

#O$CE# O3 "E5E2O?4E!%

1. Capital 3ormation/ the net added capital stock and goods after subtraction

depreciation and damage to capital stock within a given period of time.

@. Human $esource and Entrepreneurial ability/ the need for a uality labor stock of

knowledge and skill and increase in productivity.

9. #ocial Overhead Capital/ infrastructure

I!#%$4E!% O3 "E5E2O?4E!%

1. 3amily/ it provides the most basic needs of body, mind and spirit of young

children.

@. #tate and 4arket/ the state should provide the visible hand thru its strong

intervention while the market would provide the invisible hand.

9. 5alue #ystem/ this affects the people-s way of thinking and shaping their acts.

.

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CO!CE?%# O3 7$$I! $E3O$4

Chapter 11

4eaning of 2and $eform

$eform implies tne e'istence of defects that something is malformed and does not suit

to e'isting conditions. 2and reform refers to the full range of measures that may or

should be taken to improve or remedy the defects in the relations among men Je.g.

between the tiller and the owner of the landK with respect to their rights in the land. 2and

$eform is often used interchangeably with )agrarian reform* but in actuality, the latter is

much broader than the former.

4eaning of grarian $eform

%he term comprises not only land reform but also the reform and development of

complimentary institutional framework such as the administrative agencies of the

national government, rural educational and social welfare institutions, and not limited

only to the uestions of relationships of farmers to the land. It encompasses all

programs designed to bring about improvement in all the institutions surrounding farm

life, as well as companion measures necessary to make the work of the tenant, farm

worker and owner/ cultivator successful. It means remedying not only the defect in the

distribution and use of land but also and especially, the accompanying human relations

regarding land, including economic, social and political relations. It is concerned not

only with the farmer and the land he tills but also with the community he lives in.

HI#%O$IC2 C7$O!"

Here in the ?hilippines, the agrarian refor problem has two important dimensions6 the

2and Jagricultural productivityK and ?eople Jsocial aspects and human rightsK. %he more

important of two dimensions is the people. %he person that tills the land does not own

the land and the person who owns the lad does not till the land. In the course of time,

the non tilling owner gets more income while the non/owning tillers get relatively poorer.

%his imbalance or gap permeates the cultural, social and political spheres and reinforceeach other, thus creating a vicious cycle of poverty.

%his problem of the ?hilippine society is so rampant nowadays. 4ost of the farmers are

poor and they cannot afford to pay more ta'es and the govrnment cannot raise

sufficient funds to support its operation. "ue to this agrarian problem farmers leave their

farms and flock to the urban areas to try their luck.

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7$IC2%$2 "E5E2O?4E!%

!early half of the world-s population is underfed or otherwise undernourished. ?eople

are tired, weak, and vulnerable to diseases/ prisoners of vicious cycle that keeps their

productivity far below and so defeats their efforts to feed their families adeuately.

4alnutrition and disease kill a high proportion of the people. Obviously, the firstnecessity of the underdeveloped countries like the ?hilippines is to develop more and

better food. 4uch will depend upon agriculture for their livelihood.

I4?O$%!CE O3 7$IC2%$2 "E5E2O?4E!%

s predominantly agricultural country, the ?hilippine draws its lifeblood from its farms,

forests, rivers, lakes and seas. Conseuently on their production depends the strength

and weakness of our national economy. %he problem of agriculture is not the problem of

the 3ilipino farmer alone. It is the problem of the 3ilipino nation as a whole. gricultural

development involves many issues other than the volume of food production.

?$O7$4 O3 7$IC2%$2 "E5E2O?4E!%

a. %o produce adeuate basic food reuirement of the people, this at the same time

will mean conservation of foreign e'change.

b. %o produce raw materials which we used to import that are necessary to feed the

wheels of our manufacturing plants for the processing of finished products and

c. %o produce raw materials not only for domestic market but also for thee'portation to the world market when the same cannot yet be manufactured or

processed into finished products in the ?hilippines

I4?O$%!CE O3 7$IC2%$E

1. #ources of $aw 4aterials

@. Consumer of Industrial ?roducts

9. ?rovide Employment

A. #ources of "ollars

40O$ ?$O2E4# O3 7$IC2%$E

1. 2ow gricultural ?roductivity due to 2ack of dvanced %echnology

@. ?rice Instability

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9. 4arketing of 3arm ?roducts due to ?oor Infrastructure

A. #oil Erosion

B. 5agaries of (eather

. 2ack of Capital

F. 2ack of 7enuine Implementation of 2and $eform

HI#%O$& O3 7$$I! $E3O$4 I! %HE ?HI2I??I!E#

#panish ?eriod

?re/ #panish society can be characteri=ed as feudalistic, communal, and at the same

time single proprietorship. 3or loyalty and faithful service to the #panish crown, lands

JencomiendasK were granted to special persons, officials who contributed greatly to

colonial e'ploration. ig tracts of land were owned by religious orders. %he rest offarmers possessed lands under the so/called share tenancy.

merican ?eriod

#ome measures were undertaken to improve land tenure such as purchase of fair lands

for distribution, institution of homesteads J@A hectares for every familyK and

development of agricultural lands. Church land were sub divided as a measure of land

reform and sold to farmers basically to resolve peasants unrest. %his set/up enabled a

number of 3ilipino farmers to a mass big tract lands which later on became haciendas.

4acapagal-s 2and $eform J$ 9LAAK

land reform code was passed in 189 during the term of ?res. "iosdado 4acapagal

ensuring more transition from tenancy to owner/operated farms. %he said land reform

however applied only to rice lands.

4arcos 2and $eform

In 18F@, ?res. 3erdinand 4arcos instituted a more aggressive agrarian reform which

was provided in ?.".no. @F. ccordinhly, tenancy in all rice and corn land throughoutthe country has been abolished. %enants were allowed to own five JBK hectares through

amorti=ation covering lands planted to rice and corn.

E'isting 2and $eform

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%he 18LF 2and $eform ct is comprehensive in its coverage as compared to the

previous land reforms the government had implemented. It covers almost all crops

planted on agricultural lands and includes in its coverage lands of public and private

domain.

%HE CO4?$EHE!#I5E 7$$I! $E3O$4 ?$O7$4

?resident Cora=on uino signed on 0uly @@, 18LF or five days before the opening of

the new congress proclamation no. 191 instituting a Comprehensive grarian $eform

?rogram JC$?K and E'ecutive Order no. @@8 providing the mechanism needed initially

to implement the program. (ith the enactment of $epublic ct no. BF, signed by the

?resident on 0une 1:, 18LL, otherwise known as the Comprehensive grarian $eform

2aw JC$2K, all matters involving the implementation of agrarian are now governed by

the said act.

CO5E$7E6 #cope of the ?rogram1.7eneral6 %he C$2 covers, regardless of tenurial arrangement and commodity

produced, all public and private agricultural lands including other lands of the public

domain suitable to agriculture.

@. In ?articular6 JaK all alienable and disposable lands of the public domain devoted to or

suitable for agriculture J bKall lands of public domain including forest or mineral lands

reclassified to agricultural lands after the approval of the act in e'cess of the specific

limits as determined by the congress taking into account the ecological considerations

JcK all other lands owned by the government devoted to suitable for agriculture JdK all

private lands devoted to or suitable for agriculture regardless of the agricultural productsraised or that can be raised thereon. 3ishpond are also agricultural lands.

9. Implementation6 %he distribution shall be implemented immediately and completed

within 1: years from the effectivity thereof.

A. $etention 2imits6 %hree J9K hectares may be awarded to each child of the landowner

sub

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%>%IO!

Chapter 1@

%a'ation is the act of laying at ta', i.e., the process or means by which the sovereign,through its law making body, raises revenue to defray the necessary e'penses of the

government. E'pressed in another way, it is the method of apportioning the cost of

government among those who in some measure are privileged to en%IO!

1. It is inherent in sovereignty. %he power of ta'ation is inherent in a sovereigntybeing essential to the e'istence of every government. Hence, the state can still

e'ercise the power even if the Constitution had not mentioned anything about the

ta'ation.

@. It is legislative in character. %he power of ta' is legislative. It cannot be e'ercised

by the e'ecutive or legislative branch of the government. nder the Constitution,

only the legislative body JcongressK can impose ta'es. %he power to ta' is also

granted by the Constitution to local governments sub

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2I4I%%IO!# O3 ?O(E$ O3 %>%IO!

1. Constitutional 2imitation/ is e'pressly found in the constitution or implied from its

provisions.

@. Inherent 2imitation/ refers to those that restrict the power although they are notembodied in the constitution.

%> "I33E$E!%I%E" (I%H O%HE$ %E$4#

1. $evenue/ refers to all the funds or income derived by the government, whether

from ta' or any other source. It may refer to the amount collected while ta' refers

to the amount imposed.

@. Internal revenue/ refers to ta'es imposed by the legislature other than duties on

imports and e'ports.

9. Custom duties/ are ta'es imposed on goods e'ported from ot imported into a

country.

A. "ebt/ is generally based on contract while a ta' is based on law; debt is

assignable while a ta' cannot be assigned; debt may be paid in kind while ta' is

generally payable in money; and persons cannot be imprisoned for non/payment

of debt while imprisonment is a sanction for noin/payment of ta' because it is an

obligation of every citi=en of the country.

B. ?enalty/ any sanction imposed as a punishment for violation of law or acts

deemed in%IO!

%he e'ercise of the power of ta'ation involves two J@K aspects and they are6

1. 2evying or imposition of the ta' which is legislative act; and

@. Collection of the ta' levied which is essentially administrative in character.

9. ?ayment. %his is referred to as an incidence of ta'ation.

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#IC ?$I!CI?2E# O3 #O!" %>

1. 3iscal deuacy/ which means that the sources of the revenue should be

sufficient to meet the demands of public e'penditures;

@. Euality or %heoretical 0ustice/ which means that the ta' burden should beproportionate to the ta'payers- ability to pay. J%his is called the ability to pay

principleK

9. dministrative 3easibility/ ta' laws must be clear and concise. It must be capable

of proper enforcement that is not burdensome and is convinient as to time and

manner of payment. nybody who is authori=ed to collect can do such function

with ease.

%>E# "E3I!E"

%a'es are enforced proportional contribution from persons and property levied bythe law/making body of the #tate by virtue of its sovereignty for the support of the

government and all public needs.

E##E!%I2 CH$C%E$I#%IC# O3 %>%IO!

1. %t is an enforced contribution. ta' is not a voluntary payment or donation and its

imposition is in no way dependent upon the will or assent of the person ta'ed;

@. %t is generally payable in money. nless ualified by law, the term )ta'es* or )ta'*

is usually understood to be a pecuniary burden/ an e'action to be discharged

alone in money which must be legal tender;

9. %t is proportionate in character. ta' is laid by some rule of apportionment

according to which the persons or property share the public burden. It is

ordinarily base on ability to pay.

A. %t is levied on persons or property. ta' may also impose on acts or

transactions. In each case, it is only a person who pays the ta'.

B. %t is levied by the $tate which has 1urisdiction over the persons or property. %he

persons and property must be sub

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governments but the power of the latter is sub

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?HI2I??I!E %> 2(# !" %>E#

1. !ational Internal $evenue Code of 188F J?" 11BL as amendedK

a. Income ta'es Jindividual and corporateK

b. Estate and "onor-s %a'es

c. 5alue/added ta'

d. Other percentage ta'es

e. E'cise ta'; and

f. "ocumentary stamp ta'

@. %ariff and Custom Code of 18FL J?" 1AA as amendedK

a. Import duties

b. E'port duties

9. 2ocal 7overnment Code of 1881 J$ F1:K

a. $eal property ta'

b. usiness ta', fees and charges

C2##I3IC%IO! O3 %>E#

1. Classes of %a'es as to #ub

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c. ?roportionate %a'/ refers to those ta'es imposed upon persons which amount of

ta' maybe higher or lower, depending the bracket or classification. E'. $eal

?roperty %a'

"E3I!I%IO! O3 %E$4#

Income %a'/ ta' on the person-s income reali=ed in one ta'able year.

Estate %a'/ ta' on the right to transmit property at death, and is measured by the

value of property.

usiness %a'/ imposed usually for transfer or e'change of property with

precautionary consideration in connection with trade or the e'ercise of profession or

occupation.

%ariff/ book of rates; a table of catalogue drawn usually in alphabetical order,

containing the names of several kinds of merchandise with the duties or customs tobe paid for the same settled by authority or agreed on between several states and

hold commerce together.

"ocumentary #tamp %a'/ ta' on the person-s document like, marriage contract,

passport, birth certificate and transcript of records.

"onor-s %a'/ imposed on the e'ercise of the donor-s right during life to transfer

property to others in the form of a gift or donations.

#hifting/ transfer of the burden of ta' by original payer to another person.

Capitali=ation/ special form of backward shifting. It occurs when the goods is durable

goods, the whole series of ta'es is to be shifted backward at the time of the

purchase.

%ransformation/ it occurs when the producer pay ta'es and recover e'penses due to

improving his production thereby turning out his units of production at lower costs.

%a' Evasion/ the use of illegal or fraudulent means to avoid payment of ta'.

%a' voidance/ the use of legal means to avoid payment of ta'.

%a' E'emption/ grants of immunity to a particular person or corporation from ta'

upon properties which they are obligated to pay.

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HO( I!CO4E %> I# CO4?%E"+

7ross Income

2ess6 llowable "eductions

N !et Income

2ess ?ersonal and dditional E'emptions

N%a'able Income

4ultiply by %a' $ate JB/9@K

N Income %a' "ue

%> %2E

If %a'able Income Is6 %a' "ue

!ot over ?1:,::: B

Over ?1:,::: but not over ?9:,::: ?B:: P 1: of the e'cess over ?1:,:::

Over ?9:,::: but not over ?F:,::: ?@,B:: P 1B of the e'cess over ?9:,::

Over ?F:,::: but not over ?1A:,::: ?L,B:: P @: of the e'cess over ?F:,:::

Over ?1A:,::: but not over ?@B:,::: ?@@,B:: P @B of the e'cess over ?1A:,:::

Over ?@B:,::: but not over ?B::,::: ?B:,::: P9: of the e'cess over ?@B:,:::

Over ?B::,::: ?1@B,::: P9A of the e'cess over ?B::,:::

?E$#O!2 !" ""I%IO!2 E>E4?%IO!#

#ingleGHead of the 3amilyG4arried N ?B:,::: per year

?lus ?@B,::: per dependent limited only to four children.

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$eferences6

Economics; 4odule/based 2earning by Ongsotto, $amilo

Economic "evelopment by 3a

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