ECODEV M1

• MICROECONOMICS studies the behavior of the simplest units, such as households, businesses, and individuals, and their relationships with markets.
• Microeconomics studies the individual variables and units, while macroeconomics studies it as a whole.
• The field of study covers:

  1. Consumption theory
  2. Theory of production
  3. Market theory
• Macroeconomics focuses on three big questions:

  • What determines the standard of living?
  • What determines the cost of living?
  • Why does our economy fluctuate?
• STANDARD OF LIVING is the level of consumption that people enjoy, on the average, and is measured by the average income per person.
• COST OF LIVING is the amount of money it takes to buy goods and services that a typical family consumes. A rising cost of living is called inflation and deflation as otherwise.
• The concept of production is limited by the amount of resources available in the (PPF). The basic measure of a nation’s income, that is the (GDP)
• ECONOMIC GROWTH refers to the percentage change in a nation’s per capita GDP – the money value of all goods and services produced by one country over a long period of time.
• ECONOMIC DEVELOPMENT

  • Increase in living standards
  • Increase in educational standards
  • Improved health care
  • Improved infrastructure
• In 2013, the World Bank Group adopted the twin goals to guide its work:

  1. Ending extreme poverty
  2. Boosting shared prosperity
• SAVING AND INVESTMENT - There is a need

  for a country to promote both domestic

  and foreign investments in order to

  reduce unemployment. Ideally, a

  reduction in unemployment will reduce

  poverty levels and the government’s

  social burden, which will allow for

  increased public savings.
• DIMINISHING RETURNS AND CATCH-UP

  EFFECT - Productivity is considerably

  affected minimally when the workers with

  a large quantity of capital they use in the

  production process are given extra units

  of capital. In the long run, a higher saving

  rate leads to greater productivity and

  income but not greater growth in these

  variables.
• INVESTMENT FROM ABROAD - An

  investment that is sponsored with foreign

  money and operated domestically is

  called a foreign portfolio investment. It is

  expected that the use of foreign money

  would mean more opportunities to

  produce where the money is capitalized,

  but, of course, a certain interest in that

  money is foreseen as well.
• The World Bank (WB) and the

  International Monetary Fund (IMF) were

  established to ensure that there is

  economic prosperity around the world by

  financing public goods and services with

  funds accumulated from more advanced

  economies like the United States of

  America.
• EDUCATION - Education benefits human

  capital which is as important as physical

  capital. In fact, the largest chunk of the

  annual budget is dedicated to the

  education sector. More quality educated

  people produced in a country would

  mean an opportunity to generate more

  and better ideas to produce goods and

  services.
• HEALTH AND NUTRITION - A healthy

  population would also mean human

  capital, just like education, hence are

  capable to produce more goods and

  services because they can maximize

  employment as compared to an

  unhealthy population.
• PROPERTY RIGHTS AND POLITICAL STABILITY ensures rights over one’s property and these

  guarantee more production of goods and

  services. In addition, when there is less

  uncertainty in government decisions and

  policies, especially in terms of market

  trading, there is an opportunity to improve

  production processes and distribute

  products in the country.
• A stable political environment is

  considered to have efficient executive,

  legislative, and judiciary systems, working

  together for the country’s economic

  development.
• FREE TRADE - A competitive economy that

  reduces or eliminates trade restrictions

  experiences economic growth after

  benefitting from more products to be

  used as input to production.
• RESEARCH AND DEVELOPMENT - The

  products of research and development

  (R&D) are new ideas, goods, and services

  that people consume.
• To protect idea, a patent is awarded to an

  innovator for a certain number of years to

  encourage more researchers to discover

  beneficial things.
• A relatively large population means

  more human resources working and

  contributing to the production of the

  country
• In production, we consider the factors

  such as quantity of labor (L), the quantity

  of physical capital (K), quantity of human

  capital (H), quantity of natural resources

  (N), and technological advances (T), and

  if we are to summarize the output of

  production (Y), we say Y=Tf{L, H, N}
• PRODUCTIVITY means the amount of

  goods and services produced from each

  unit of labor.
• PHYSICAL CAPITAL are Assets that are utilize to produce goods

  and services
• HUMAN CAPITAL are knowledge, skills, and abilities (KSA) humans develop
• NATURAL RESOURCES refers to the bounty of the land and water used in production
• TECHNOLOGY refers to innovation and advances to make life easier and more efficient production
• WHAT IS THE O-RING THEORY

  • WHAT IS THE O-RING THEORYTakes the name after what happened to happened to

  the Space Shuttle Challenger in 1986. The rocket exploded because a part – the O- Ring – failed to expand.
• Output depends on completion of a

  series of tasks/processes.
• Failure at any one of these tasks reduce

  the value of the output can be zero (The

  Weakest Link)
• Quantity cannot substitute quality.
• O-Ring theory of economic

  development was proposed by

  economist Michael Kremer in 1993, which

  explains that production is composed of a

  set of tasks, and each task must be

  carried out proficiently for each one of the

  tasks to have value.
• In neoclassical economics, one of the

  most popular models that is used to

  understand long-term growth is the use

  of the Solow Model.
• The model was developed by Robert

  Solow, an American economist and a

  Nobel Prize winner in Economic Science

  and in 1956,
• the Philippines ranks 132nd out of

  an estimated 211 countries or states with a

  per capita GDP
• The Philippines joined the United Nations

  in 1945 and is currently a member of the

  Asia-Pacific Economic Cooperation

  (APEC). Association of Southeast Asian

  Nations (ASEAN), World Trade Organization (WTO), Intergovernmental group of 24 on International Monetary Affairs and Development (G24), and Non-Aligned Movement (NAM).