THE INDUSTRIAL REVOLUTION AND CLASSICAL ECONOMICS 1. ADAM SMITH AND THE CLASSICAL SCHOOL 2. DAVID RICARDO & THE THEORY OF COMPARATIVE ADVANTAGE 3. THOMAS ROBERT MALTHUS & THE PRINCIPLE OF POPULATION 4. MARGINALIST SCHOOL 5. THE MARXIST ECONOMICS

SELF-INTEREST OF MAN IS CONSTRAINED BY THE COMMON GOOD (MORALITY)

WHICH IS MORE IMPORTANT? LABOR, CAPITAL, OR LAND? CREATIVITY & PRODUCTIVITY OF THE MIND

PHYSIOCRATS (LAND) VS MORALISTS (WORKERS) –ADAM SMITH

INCREASE IN WAGES = INCREASE IN PRODUCTIVITY OF WORKERS

CURE TO PRODUCT SHORTAGE? INCREASE IN PRICE ZERO PROFIT? PRODUCERS EXIT THE MARKET

Invisible hand = efficient allocation of resources through the price mechanism

ADAM SMITH

Self-interest: constrained by morality, markets, and government Division of labor ↑production ↑ wage = ↑production Product shortage ↑price ↑profit ↑production ↓product shortage ↑producers = competition ↓price ↓profit ↓producers

INCREASE IN PRODUCTIVITY = SPECIALIZATION OF PRODUCTS = INCREASE IN PROFIT = TRADE (OPPORTUNITY COST IS ELIMINATED)

COST OF GIVING UP AN ALTERNATIVE SELECTING THE BEST CHOICE MEANS OTHER OPTIONS ARE FOREGONE “TO GIVE UP SOMETHING IN ORDER TO GET ANOTHER (TRADE-OFF)”

Point in which the economy is most efficiently producing its goods and services

DAVID RICARDO

GEOMETRIC RATE: 2,4,6,8 ARITHMETIC RATE: 1,2,3,4

LIMITED RESOURCES INCREASE IN NUMBER OF CONSUMERS

POTENTIAL RETURNS JUSTIFY THE INVESTMENT (TIME, MONEY, ENERGY)?

IF ONE FACTOR OF PRODUCTION IS INCREASED WHILE OTHER FACTORS ARE THE SAME (HELD CONSTANT) OUTPUT OF PRODUCTION = DECREASES Law of Diminishing Returns INPUT OF PRODUCTION (FACTORS OF PRODUCTION) = INCREASES

MARKET’S EFFICIENCY = ALLOCATION OF RESOURCES MARKET’S DEFICIENCY = DISTRIBUTION OF INCOME SOLUTION? INTERVENTION OF STATE

MARGINALISTS PRICES ARE DETERMINED BY THE COST OF PRODUCTION PRICES ARE DETERMINED BY THE LEVEL OF CONSUMER SATISFACTION TO EXPLAIN THE DISCREPANCY IN THE VALUE OF GOODS AND SERVICES BY REFERENCE TO THEIR UTILITY

PRICE INCREASES = HOW THE COMMODITY WAS PRODUCED AND WILL BE USED (SATISFACTION)

MARGINAL COSTS: additional cost to you from the costs you have already incurred. SUNK COSTS: costs that have already been incurred and cannot be recovered. MISCELLANEAOUS TUITION

Man → WorldSchool → WorkDeath? MARX Loss of Meaning Framework: loss & gain Recovery? Thesis: Bourgeois (Capitalist) Antithesis: revolution Synthesis: Communist Society No Private Ownership Capitalist State Businessmen Workers Exploitation/ Suffering Class Structure Religion: Opium Alienation/ separation Worker to the product/ activities ↑Meaning in life: free time →→→ → → → → → → → → →→ → → → Parts: Replaceable → SOCIALISM: no private individual would own the “means of production” but the community as a whole Wealth and power will be equally shared by all

ALFRED MARSHALL INSTITUTIONALISTS KEYNESIAN ECONOMICS (JOHN MAYNARD KEYNES)

DETERMINANTS OF PRICE & QUANTITY TO SYSTEMATIZE SUPPLY & DEMAND ALLOCATION OF OUTPUT & INCOME MARKET EQUILIBRIUM

SPECIALIZATION: MICROECONOMICS Study of individual choice and firms and builds up from there to an analysis of the whole economy Pricing policies of firms Households’ decisions on what to buy FROM PARTS TO WHOLE WHOLE TO PARTS: MACROECONOMICS INFLATION, UNEMPLOYMENT, ECONOMIC GROWTH

PRICE: DETERMINED BY SUPPLY AND DEMAND PRICE ELASTICITY OF DEMAND: BUYERS’ SENSITIVITY TO PRICE

CONSUMER SURPLUS: consumer is willing to pay more for a given product than the current market price. difference between the maximum price a consumer is willing to pay and the actual price he do pays consumer satisfaction in terms of utility.

P 800 P 400 BUDGET: P 1500 CONSUMER SURPLUS?

P28,000 P38,000 P12,000

Consumer surplus. Imagine you are sitting at home and decide that you are going to buy a new computer. You then decide that for the features you need you are willing to spend up to P50,000.00; that is you have set yourself a budget of p50, So the next day you go down to the computer store and find a computer with all the features you wanted for p40, This meant you spent P10,000 less than your budget. What is the consumer surplus here? That 10,o00 is your consumer surplus. Consumer surplus is the difference between what you are willing to pay and what you actually pay.

the difference between the amount that a producer receives from the sale of a good and the lowest amount that producer is willing to accept for that good. As the price rises, there is a great incentive to supply

PM: MINIMUM PRICE THE PRODUCER IS WILLING TO SUPPLY

1. MARKET PERIOD 2. SHORT PERIOD 3. LONG PERIOD

How long the product is at the starting price in the market E.g. 32 INCHES LCD TV WAS INTRODUCED AT AN INITIAL MARKET PRICE OF p42, 000 AS LONG AS THE PRICE IS P 42,000, THEN THIS IS THE MARKET PRICE As long as the demand is high the price stays constant

The time when the number of a certain product is being increased through labor or other methods But there is no more capital being invested E.g. Last series of increase in production of LCD TVS Foresight: the demand might become low Investment on LCDs decreases

The time it takes for there to be a need for the increase in capital to uphold/ continue to production of a good EG. People’s preferences/ demand evolve

INSTITUTIONALISTS VS. LAISSEZ-FAIRE GOVERNMENT SHOULD CONTROL THE SOCIETY FOR THEY CAN BRING ABOUT THE NEEDED SOCIAL CHANGE

EMPLOYMENT = GOVERNMENT SPENDING = TAX DECREASE INCOME = DECREASE IN SPENDING = FEW TAX INCREASE IN UNEMPLOYMENT = DEPRESSION

MACROECONOMICS = INFLATION & UNEMPLOYMENT SAVING VS INVESTMENT = INCREASE IN INCOME AND EMPLOYMENT