BA CORE 1: BASIC MICROECONOMICS

MODULE: FINALS

Week 13: Market Structure

Learning Objectives:
a. Discuss and familiarize the concept of Market.
b. Describe the different structure and its role in giving fair market price.
c. Discuss the examples of products existing under different Market Structure.

Week 14-15: Inflation

Learning Objectives:
a. Define the meaning of Inflation.
b. Compare and contrast the two types of Inflation.
c. Define and explain the causes of cost-push and demand-pull inflation.
d. Explain why the consumer price index (CPI) overestimates actual inflation.
e. Explain the effect of inflation on borrowers and lenders.

Week 16-17: Labor and Employment

Learning Objectives:
a. Define Labor and Employment and its function.
b. Identify and discuss all the Labor problems.
c. Discuss the forms of Unemployment.
d. Enumerate the objectives and policies of Labor and Employment.

Week 13: Market Structure

Learning Objectives:
d. Discuss and familiarize the concept of Market.
e. Describe the different structure and its role in giving fair market price.
f. Discuss the examples of products existing under different Market Structure.

Market – This refers to the place where the consumers and the producers buy and sell products
at an agreed price.
Market Structure – This refers to the degree of competition in the market for a particular
product or services.

1. Perfect Competitive Market

A Perfect Competitive Market is a market structures composed of many buyers and many
sellers selling the same product. A perfectly competitive market has the following
characteristics:
 There are many buyers and sellers in the market. An industry that consists of many
small buyers and sellers is one of the characteristics of a perfectly competitive industry.
 The products sold by the sellers are homogenous. The sellers sells products that
consumers perceive as being identical products.
 Firms can freely enter or exit the market. Equal access to resources refers to a
condition in which all firms – those currently in the industry, as well as prospective entrants –
have access to the same technology and inputs.
 Perfect information about prices. It means that consumers are fully aware of the prices
charged by all sellers in the market. Future price should also be considered in order to attain a
thorough knowledge in ricing the commodity.
Example: a. Basic needs like food: rice, sugar, eggs, and chicken, meat, and fish; Clothing:
unbranded t-shirts, pants, socks, etc.
b. There is no need to advertise or promote because these are all basic needs.
Note: Basic food especially the agricultural products sold on the market are being regulated by
the Philippine government by having price ceiling and price floor to secure the welfare of the
people.

Imperfect Competition refers to any economic market that does not meet the rigorous
standards of a hypothetical perfectly or purely competitive market. In this environment,
companies sell different products and services, set their own individual prices, fight for market
share and are often protected by barriers to entry and exit.
Assumptions:
 As to type of products, they are not the same. Differentiated in features though gives the same
satisfaction.
Example: bath soap, toothpaste

2. MONOPOLY – A sole producer and has no close substitute. Since there are no rivals it can
push through on whatever price the producer wants the public to take. He can even fix price and
determine his own price policy and leave the consumer’s decision as to how many would they
take given the price of the product.
  It is the sole seller of its product or the only producer of goods and services. This
gives a reason why the seller in this type of market is price maker while the consumers are
price taker. Firms are the one which can set the price since it is the sole seller.
 Its product does not have close substitutes. There are times that you are the sole seller
of the said products but the problem is that there are goods or services which can satisfy the
same needs and wants. If this case occur in the market, you cannot be consider as monopoly
since seller does not have the control in the market. Consumer can make a choice between
two products.
Simple monopolies – charges the same price to all customers for the same commodity.
Example: Kilowatt used
Discriminating Monopolies – charges different prices to different customers for the same
commodity.
Example: Airtime for domestic and overseas.
3. OLIGOPOLY
This is the market structure that lies between perfect competition and monopoly. Oligopoly is a
market structure having few sellers.
The characteristics of an Oligopoly market are as follows:
  Few sellers offering similar or identical products. There is no specific number as long as
there are few sellers in the market.
  Interdependent firms. The firm under this type of market depend on each other. The action
of one firm has noticeable effect on the other firm.
  Best off cooperating and acting like a monopolist by producing a small quantity of output
and charging a price above marginal cost.
Because of the few sellers, the key feature of oligopoly is the tension between cooperation and
self-interest.
Cooperation is a situation in which firms under the market creates either collusion of cartel.
Collusion is an agreement among firms in a market about quantities to produce of prices to
charge,
Cartel is a group of firms acting monopolistically. An example of Cartel is OPEC. (Organization of
Petroleum Exporting Countries).
Self interest is condition in which the competition prevails among the group of sellers in the
industry. This is the opposite of cooperation. Because of self interest, strategic planning exists.
Firms must know to play the game of gaining customers.

Product and services under this market structure include the oil and telecommunication. These
industries are composed only of few firms competing in the market

4. MONOPOLISTIC COMPETITION
Monopolistic competition is a type of market structure in which a relatively large number of
small producers or suppliers are offering or selling similar but not identical products. These firms
are less than in number compares to perfect competition but more than the number compared
to perfect competition but more than the number of firms in oligopoly. The firms under this
market structure sell differentiated product. The cost incurred in producing the goods varies on
the raw materials they used in production.

The characteristics of Monopolistic Competition are the following:

1. Many sellers . This characteristics of this type of market is being adopted in the perfect
competitive market. From under perfect competition have millions of buyers and sellers of a
product compared to monopolistic competition.
2. Product differentiation. In this type of market, the product is differentiated of
heterogeneous. Each product produced by a certain firm is not similar to those produced by
other businesses. For example is shampoo, the product of each firm producing shampoo differs
from its rival in various ways. There are different brands of shampoo where they can choose
from.
3. Free entry and exit. Unlike the monopoly and oligopoly, there are low barriers to entry in
this type of market. The technology adopted by this firm most of the time is not too
sophisticated which requires small
amount for capitalization.
Examples of products under this type of market structure are toothpaste, shampoo, bath soaps,
novel, books, restaurants, apparels among others. If you observe the way of setting their price,
each firm can set its own price. Even the product itself is different in specification but similar in
nature.

Week 14-15: Inflation

Learning Objectives:
f. Define the meaning of Inflation.
g. Compare and contrast the two types of Inflation.
h. Define and explain the causes of cost-push and demand-pull inflation.
i. Explain why the consumer price index (CPI) overestimates actual inflation.
j. Explain the effect of inflation on borrowers and lenders.

Inflation is a situation of rising prices in the economy. It is an increase in the cost of living as
the price of goods and services rise. The rate of inflation measures the annual percentage
change in the general price level.

INFLATION LOSERS:
  Fixed Income Earners are affected during inflation. With increased in prices, people
who belong to this group would lose out because the income they receive now would be able
to buy less than before.
  Pensioners from SSS or GSIS are also inflation losers since the amount of the monthly
pension that they receive is fixed and is not adjusted with inflation hike. Would result in a
net loss to the pensioner.
  Creditors lose out during inflation because the fixed amount of principal and interest they
lent out would now have lesser value once the money will be returned to them.
INFLATION GAINERS:
  Flexible income earners. Business would gain more if prices of commodities they
produce and sell go up. An increase in inflation means that their income would obviously
register a bigger gain since they can sell their products at a higher price.
  Speculators are inflation gainers when they perceive that the inflation rate will increase.
They will buy goods at cheaper prices and then sell them later at higher prices, because of
increase in inflation rate.
  Debtors are gainers because the value of the money they borrowed before would now
have more value considering the present value of money before an inflation hike.
  Borrowers from SSS and GSIS through housing loan. They are gainers since they
have built houses before where prices of all construction materials were still affordable.
THEORIES OF INFLATION:
1. Demand-Pull Inflation exists when aggregate demand for a good or service outstrips
aggregate supply.
It starts with an increase in consumer demand. Sellers meet such an increase with more supply.
But when additional supply is unavailable, sellers raise their prices. It occurs under the following
situations:

Increases in the money supply - If an economy has too much money among its citizens, they
will demand more product than firms can keep up with, pulling up prices.

Increases in government spending - When the government spends large amounts of money
in the private sector through purchases and contracts, this increases demand for products and
creates supply issues, ultimately pulling up prices.

Foreign growth or foreign price increases - If prices are rising in other countries, foreign
consumers may demand the domestic products you buy at cheaper rates. This increase in
demand can result in higher prices paid by you. If other countries experience large population
growth, this can result in foreign citizens demanding more products from other countries and
pulling up prices, too.

Another reason is during elections – Election campaigns include a big amount of
expenditures injected into the economy.

2. Cost-Push Inflation occurs when overall prices increase (inflation) due to increases in the
cost of wages and raw materials. Higher costs of production can decrease the aggregate supply
(the amount of total production) in the economy. Since the demand for goods hasn't changed,
the price increases from production are passed onto consumers creating cost-push inflation.

Increase in the price of oil results to a major increase in the general price level of all the
commodities.

Increased salary and wages of the workers will increase in the salary and wages of the workers
will increase in the price of goods and services since the employer have no recourse but pass on
the higher prices to the consumers.

Monopolies in the society. If more monopolies are encourage, they have the tendency to
increase their mark-up as much as would be profitable.

Devaluation of the Philippine peso. When this happens, it would be more expensive to import
goods. Since our economy is a highly import-dependent economy, higher cost of import means
higher prices. If the prices of crude oil and capital goods increases, the increase in costs would
be passed on to the consumers.
MEASUREMENT OF PRICE INCREASES
1. Consumer price index, measure of living costs based on changes in retail prices. Such
indexes are generally based on a survey of a sample of the population in question to determine
which goods and services compose the typical “market basket.” These goods and services are
then priced periodically, and their prices are combined in proportion to the relative importance of
the goods. This set of prices is compared with the
initial set of prices (collected in the base year) to determine the percentage increase or
decrease. Consumer price indexes are widely used to measure changes in the cost of
maintaining a given standard of living.
2. RETAIL PRICE INDEX
The retail price index measures the change of average prices over a certain amount of time. The
measurements are made by recording the essential goods and services people are expected to
buy, putting them into an imaginary shopping basket called the "Basket of Goods".
A price index is shown as a single number which indicates the price change in a number of
different goods.
This is calculated by comparing the price of goods to the base year.
3. Wholesale Price Index (WPI)
A wholesale price index (WPI) is an index that measures and tracks the changes in the price of
goods in the stages before the retail level – that is, goods that are sold in bulk and traded
between entities or businesses instead of consumers. Usually expressed as a ratio or
percentage, the WPI shows the included goods' average price change and is often seen as one
indicator of a country's level of inflation.
4. Stock Market Index
A stock market index is a measure of a stock market, or a smaller subset of the market, that
helps investors compare current price levels with past prices to calculate market performance.
Investors use the calculated values of stock market indexes as an indicator of the current value
of their component stocks, and they can determine returns over time by comparing current and
past index levels.
Stock market indexes come in many different sizes. Some indexes have only a handful of stocks
that determine their value, while others take thousands of stocks into account. You can't invest
directly in a stock market index, but by investing in index funds that allow investors to track the
performance of those indexes, you can make money and profit when those indexes go up .
These index funds can be structured as mutual funds or exchange-traded funds (ETFs).
INFLATION RATE
Inflation refers to a general rise in prices measured against a standard level of purchasing power.
Previously the term was used to refer to an increase in the money supply, which is now referred
to as expansionary monetary policy of monetary inflation. Inflation is measure by comparing two
sets of goods at two points in time, and computing the increase in cost not reflected by an
increase in quality. There are therefore, many measures of inflation depending on the specific
circumstances. The most well-known are the CPI which measures consumer prices, and the GDP
deflator, which measures inflation in the whole of the domestic economy.
Related concepts include: deflation, a general falling level of prices; disinflation, the reduction
of the rate of inflation; hyper-inflation, an out-of-control inflationary spiral; stagflation, a
combination of inflation and poor economic growth; and reflation, which is an attempt to raise
prices to counterpart deflationary pressures.

Week 16-17: Labor and Employment

Learning Objectives:
e. Define Labor and Employment and its function.
f. Identify and discuss all the Labor problems.
g. Discuss the forms of Unemployment.
h. Enumerate the objectives and policies of Labor and Employment.

Human resources is the set of the people who make up the workforce of an organization,
business sector, industry, or economy. A narrower concept is human capital, the knowledge
which the individuals embody. Similar terms include manpower, labour, personnel, associates or
simply people.
A human-resources department (HR department) of an organization performs human resource
management, overseeing various aspects of employment, such as compliance with labor law and
employment standards, administration of employee benefits, organizing of employees files with
the required documents for future reference, and some aspects of recruitment and employee off
boarding.
LABOR PROBLEMS
Labor problem is a working situation conflict which is considered below the ideal. Contracts
between the employees and the employer are governed by the policies of the Department of
Labor and Employment (DOLE). Now, if the employees feel that the employment policies are not
fully implemented by their employer, conflict or labor problems exists.
1.Unemployment
Unemployment is both economic and social problem. Unemployment can lead to social
dissatisfaction and petty crimes. Crimes like robbery, hold-ups, drug trafficking and others are
usually caused by unemployment.
Forms of Unemployment
1.1 Unproductive Unemployment is a situation wherein people are not gainfully employed by
choice. This means that they chose not to be employed.
1.2 1.2 Frictional Unemployment is a situation where some workers have special skills but
these skills cannot be utilized in any type of work. So rather than work on jobs which do not
utilize one’s skills, they would rather choose to stay idle or out of work for a while. Examples are
the nursing graduates working as salesclerk.
Disguise Unemployment is a situation when workers who are laid off when their contractual
work is completed. While waiting for another contract that would need their special skills,
workers accept minorjobs just to fill their time. Examples are the OFW who finished their contract
abroad while waiting for the next contract, they would choose to accept other jobs.
2. Underemployment
This is a situation wherein people are employed but they work for less that forty (40) hours per
week despite the fact that they want to work for more than 40 hours. Underemployment usually
exists in part time workers like those who work part time in the food chains, jeepney drivers,
among others.

Subdivisions of Underemployment
2.1 Visible Underemployment is a situation wherein people are working for less than 40 hours
per week and wanting additional hours of work. This exists among part time workers.
Invisible underemployment exists when workers work for more than 40 hours or more per
week and still wanting additional hours of work. This exists among street vendors.
2.2 Inadequate Wage. Wages which are insufficient and fail to provide the minimum
requirements for his family to live a comfortable life is considered inadequate wage, inadequate
wages result from the inability of wages to catch up with the increases in the prices of basic
commodities. It can also result from the inability of the workers to provide himself with the
needed skills and intelligent to perform work needed by most of the firms.
The Department of Labor and Employment (DOLE) defined poverty as the condition where a
family receives insufficient income to purchase or meet the recommended minimum nutrient
requirements and basic needs in food, clothing, education, medical care, housing and fuel.
The concept of subsistence income is the level of income which affords only minimum
consumption of basic necessities.
This income is called the poverty threshold, below which family is considered poor.
3. Industrial and Labor Management Conflict
3.1. Strike, is a temporary work stoppage, caused by the mass refusal of employees to work. A
strike usually takes place in response to employee grievances
3.2 Lockout is a work stoppage or denial of employment initiated by the management of a
company during a labor dispute. In contrast to a strike, in which employees refuse to work, a
lockout is initiated by employers or industry owners. Lockouts are usually implemented by
simply refusing to admit employees onto company premises, and may include changing locks or
hiring security guards for the premises. Other implementations include a fine for showing up, or
a simple refusal of clocking in on the time clock.
3.3 Economic Insecurities. People need to provide funds for emergencies like illness,
accidents, and threats
of strikes or lockouts. If workers cannot provide funds for all of these because their wages are
just enough to meet subsistence, therefore, provisions for emergencies could not be met.
OBJECTIVES AND POLICIES OF LABOR AND EMPLOYMENT
1. Generation of More Employment and Livelihood Opportunities
The government is expected to provide financial support in the form of seed capital, priming
activities, technical support, marketing and promotions as well as expansion and growth. These
will be the instruments to foster the values of self reliance, self-help and self-determination
among the beneficiaries.
2. Promotions of Employment
The promotions of local and overseas employment includes intensive training, rational and
efficient allocation of manpower resources and improvement of better employee services.
Local Employment
Local employment services will be strengthened through the continued operation of an efficient
labor market information system to accurately monitor the employment situation. Structural
changes aimed at enhancing the effectiveness of public employment exchange centers and at
improving data retrieval and collection between the government and the private sector.
A. Overseas Employment
The policy on overseas employment is to promote the responsiveness of local labor supply to
overseas demand along with the continuous development of the domestic market’s ability to
absorb labor.
B. Protection of Workers
Appropriate policies and programs will be adopted to ensure every working man to just,
reasonable and humane terms and conditions of work. Specific groups of workers such as
women, minors, rural workers and those in the informal sector will continue to accorded
protection in accordance with the provisions of the Labor Code.
C. Maintenance of Industrial Peace
As a measure to ensure industrial viability and stability of employment, a labor relations policy
conducive to a healthy labor-management relationship will be enforced vigorously.
D. Enhancement of Labor Productivity
Within the framework of the national productivity improvement program, efforts to enhance
worker’s productivity will be stepped up. Measures to increase worker’s as well as employer’s
consciousness of the need for productivity improvement will sustained. Approaches and
techniques in the areas of training, research and other supportive activities for the improvement
of national productivity, including labor productivity will be continuously developed, promoted
and disseminated
E. Development of Appropriate Technology
The policy in this area will be directed to the reconciliation of the aims of technology
development with employment objectives. A re-orientation of the existing
research and development program to one which emphasizes labor productivity facilities rural to
be undertaken. The adoption of technologies appropriate to local conditions will also be
promoted. Through nationwide manpower training, appropriate skills to implement these
technologies will be developed.