“My Reflection Paper in all topics of Micro-

Economics”

Rochelle Mingoy

1st BSBA HRDM

Study of Economics

The study of this subject is one that is highly valuable for any studying

business with provision of knowledge that will increase understanding of different

influences and support the decisions making processes. With the knowledge

gained, along with the skills in applying that knowledge developed through class

work and exercises for the different modules, there has also been the

development of increased confidence, both personal and the in the theories, in

using the relevant concepts and tools in a practical setting. Some of the

important knowledge gained for practical purposes concerned the concept and

application of supply and demand. All in all, demand refers to how much

(quantity) of a product or service is desired by buyers. And it is determined by the

determinants like taste and preferences, income, population and price

expectation. Price is always come first. Consumers are more tent to but a

product. If the price decreases. This kind of behavior on the part of buyers is

accordance with the law of demand. According to the law of demand, an inverse

relationship exists between the price of a good and the quantity demanded of

that good. As the price of a good goes up, buyers demand less of that good. This

law will only be valid if ceteris paribus assumption is applied that means “all other

are equal or constant”, it means that the determinants of demand must be

constant. This inverse relationship is more readily seen using the graphical

device known as the demand curve, which is nothing more than graph of the

demand schedule. Change in demand means the change in the determinants of

demand. So, an increase in demand shifts a demand curve into the left if there is
a change in demand, there is also change in quantity demand, this is different to

change in demand because it only shows a movement from one point to another

point (a price-quantity combination to another price-quantity combination).

Another thing is the supply, it is the schedule of various quantities of commodities

which producers are willing and able to produce and offer at a given, place, price,

and time. Its determinants are technology, cost of production, number of sellers,

prices of other goods, price expectation and taxes and subsidies.

Scarcity, Economic Problems and Economic System

Scarcity refers to resources being finite and limited. Scarcity means we

have to decide how and what to produce from these limited resources. It means

there is a constant opportunity cost involved in making economic decisions.

Scarcity is one of the fundamental issues in economics. Scarcity means that

human wants for goods, services and resources exceed what is available.

Resources, such as labor, tools, land, and raw materials are necessary to

produce the goods and services we want but they exist in limited supply. Of

course, the ultimate scarce resource is time- everyone, rich or poor, has just 24

hours in the day to try to acquire the goods they want. At any point in time, there

is only a finite amount of resources available. As noted, if scarcity did not exist,

all goods and services would be free. A good is considered scarce if it has a non-

zero cost to consume. In other words, it costs something. Almost every good we

consume as individuals, or as a society, costs something and is scarce. By

consuming one good, another good is foregone. Therefore, scarcity creates a

need for decisions and trade-offs to be made. Why are some scarce goods more

expensive than other scarce goods? The cost of a good is a signal of its scarcity.

One good may be more scarce than another, either because of limited resources

or higher want (demand) for that good. Let's take two scarce goods - shark meat

and chicken. Both have a non-zero cost/price, but we would all agree shark meat

is much more expensive to buy than chicken. Why is that? The resources to

produce shark meat are largely limited by the labor and capital it takes to catch a

shark, while the labor and capital required to produce chickens is less limiting.

Even though the resources to produce both are limited, there is much more labor

and capital available to produce chicken meat than shark meat. Not to mention

the quantity of sharks is also much more limited than that of chickens. Factors

like production costs and labor affect the cost of scarce items

Demand and Supply; Price

The most important topic I’ve learned in this class so far has been

analyzing supply and demand and how different real-life scenarios affect each of

them. It seems like everything in this class so far has boiled down to supply and

demand graphs, so I am sure these curves are the most important concept we

have learned this far. More specifically, I’ve finally learned beyond the basics of

supply and demand. Before this course, I could infer when supply and demand

change, simply based on logic, but now I can see and understand the more

complex side of it. Now I know the difference between a shift in the curves or a

movement along the curves well enough so that I can answer questions about
situations quickly and accurately. I know that a change in quantity supplied and

demanded is a movement along the fixed curve while a change in supply or

demand is a shift of the curve. With that, I can access economic situations and

see how outside factors affect the curves. Also, now that I know those basics, I

can focus on learning the more complex ideas that the curves show, such as

elasticity, equilibrium prices, surplus and shortages, price ceilings and floors, and

the effects of taxes. I know determinants of elasticity, how to calculate equilibrium

prices, what constitutes as a shortage or a surplus, and now I’m discovering price

ceilings, floors, and taxes. In reflection of this lesson, the team focuses on the

simple fact, supply is how much of an item there is, and demand is how many

people want to buy something. The laws of supply and demand explain how the

market determines the price and quantity of goods to be sold. The team

discussed in a meeting how the defining factor to understand is how an increase

in supply can affect demand and on the ways that an increase in demand can

affect future supply. This is kind of a general definition, but it really coved a major

part of Microeconomic. The team also discovered how fluctuations in supply and

demand affect pricing.

Determination in Competitive Markets

price is determined in a perfectly competitive market through interactions

between demand and supply. That is, demand and supply have an equally

important role to play in the process of price determination. According to the law

of demand, as price of the good increases or decreases, the quantity demanded

of it decrease or increases. Again, because of the law of supply, as price

increases or decreases, the quantity supplied also increases or decreases. We

generally assume that if the price of good changes, its buyers may instantly

change the quantity of its purchase. They do not require any time lag to do this.

On the other hand, if the price of a good changes, then, whether quantity

produced and supplied of it would actually change, and by how much, would

depend on the length of time given for adjustment. But within a short span of time

he might not be able to increase supply as such as he wished. However, if he is

allowed a longer span of time, he might be able to produce more. This is

because, as we know, in the short run, he cannot change the quantities of the

fixed inputs which he may do in the long run. Now, as we have seen above, the

length of time obtained for necessary adjustments will determine the extent of

change in quantity supplied and thereby influence the price. That is why it is said

that time plays an important role in price determination in a perfectly competitive

market. We may discuss the process of price determination in this market in

three phases, depending on the length of time given for adjustment.

These are price determination:

In the very short period,

In the short period, and

In the long period.

Elasticity of Demand and Supply

Elasticity is the reaction of demand or supply due to some changes.

Demand elasticity is the change in demand which happens in a result of a

change in other variables. It helps the organization to calculate the change in

demand in case other variables change. There are three factors that can affect

demand. People purchase goods and services according to their abilities and

needs. Given the scarcity of resources, consumers are usually compelled to

make choices not only on the type of commodities to buy, but also on the

quantity of the commodities to purchase. The general law of demand states that

consumers are likely to reduce their quantities of consumption in case prices

increase. Nevertheless, the law is not specific in explaining whether quantity

demanded will be reduced by a higher or a lower margin in response to increase

in price. Moreover, there are other factors that affect demand besides price. This

problem is solved by the concept of elasticity of demand. Elasticity of demand

informs people on the direction of change in demand resulting from not only a

change in other factors, but also the magnitude of the change. When it comes to

a product that has many close substitutes goods, it makes the product elastic.

This is due to the consumers having the ability to change the brand or type of

product they buy in order for them to avoid the increase in price. This can also

work the other way if a business lowers the price of their substitute it will lead to

an increase in demand, as more consumers will be more inclined to buy the

product. In addition, the amount of income that a consumer has to spend on a

product affects the price elasticity of demand. For example, some products the

consumer can go without if the price increases such as foreign holidays. The

consumer will keep their income back in order to purchase necessities they

require which makes these products inelastic as they will be sold no matter the

price as people need them. Supply and demand are both very important to

economic activity. Supply is the total amount of a particular good or service

available at a given time to consumers. Demand is a representation of a

consumer's desire to purchase goods and services; it acts as a measurement of

a consumer's willingness to pay a price for a specific good or service. These two

economic forces influence each other; they are both important for the economy

because they impact the prices of consumer goods and services within an

economy.

Supply and demand are both important for the economy because they

impact the prices of consumer goods and services within an economy.

According to market economy theory, the relationship between supply and

demand balances out at a point in the future; this point is called the

equilibrium price.

Economists and companies analyze the relationship between supply and

demand when making strategic product decisions.

Theory of Production

One of the most fundamental, yet essential concepts in the economics

discipline is the Theory of Production. In short, Production Theory is a process

that attempts to analyze how a firm determines the quantity of output in which it
wishes to produce. As the Theory of Production is such an extensive process

and incorporates a broad range of economic ideas and concepts, it is nearly

impossible to place appropriate attention and detail on each idea in one

introductory composition. Therefore, we will first focus on the production function

in the short-run. In doing so, we will analyze total products, average products,

and marginal products before exploring the relationship between them. We will

then examine the law of diminishing returns in association to short-run

production. Moving forward, the reader will understand the production function in

the long-run which will include analysis of isoquants and the marginal rate of

technical substitution. Finally, we will consider one of the most well know

production theories in economics as we know it today, known as the Cobb-

Douglas Production Function. Throughout, practical examples will be given in

order to better illustrate and understand the concepts set forth. As production

theory supports and aids in shaping many other thoughts and philosophies, it is

extremely important to recognize and appreciate such concepts prior to delving

into more complex strategies and concepts. The Theory of Production explains

the principles by which a business firm decides how much of each commodity

that it sells (its “outputs” or “products”) it will produce. And how much of each

kind of labor, raw material, fixed capital goods, etc., that it employs (its “inputs” or

“factors of production”) it will use. Economics, models, and theories are not

dynamic; they are fixed to a period. So, economists base their models on the

short run, medium run or long run. The difference in these time frames is the

ability to change the factors of production. For example, in the short run, its
impossible set up a new factory, but its more plausible to hire a new worker. It

shows that in a period, the current output can change only so much. While in the

long run, you can make many more changes.

Price Theory - The theory of production plays a vital role in the price

theory. It provides a base for the firm’s demand for factors of production,

which together with their corresponding supply determine the prices of the

factors.

Theory of Firm - The theory of production helps us to determine the profit

maximizing output, which depends on marginal and average costs of

production besides demand conditions (marginal and average revenues).

Demand for Factors of Production - Theory of production explains the

forces which determine the original productivity of the factors. Hence, the

relative prices of the factors, i.e., wages (of labor), rent (for land), interest

(on capital) and profits (to entrepreneurs) are determined through their

corresponding demands, which depend on the marginal productivities of

the factors.

Theory of Distribution - The theory of production can also be used to

determine the aggregate distributive shares of the various factors in the

economy. Elasticity of substitution between factors (discussed later in this

chapter) is an important concept of the theory of production, which can be

used for this purpose to determine the aggregate shares of various factors

like those of wages and profits in national income. This will resolve the

problem of for whom to produce or the problem of distribution

 Study of Production Function - The theory of production is essentially a

study of the production function, to which we now turn. Production function

like the demand or supply function is to be considered with reference to a

particular period of time. It expresses a flow of inputs resulting in a flow of

output in a specific period of time.

Analysis of Cost

Cost analysis is all about the study of the behavior of cost with respect to

various production criteria like the scale of operations, prices of the factors of

production, size of output, etc. It is all about the financial aspects of production.

In order to understand the cost function well, in this article, we will look at various

cost concepts. The Cost Analysis refers to the measure of the cost – output

relationship, the economists are concerned with determining the cost incurred in

hiring the inputs and how well these can be re-arranged to increase the

productivity (output) of the firm. in other words, the cost analysis is concerned

with determining money value of inputs (labor, raw material), called as the overall

cost of production which helps in deciding the optimum level of production. Cost

Analysis Cost refers to the amount of expenditure incurred in acquiring

something. In business firm it refers to the expenditure incurred to produce an

output or provide service. Thus the cost incurred in connection with raw material,

labor, other heads constitute the overall cost of production. A managerial

economist must have a clear understanding of the different cost concepts for

clear business thinking and proper application. Output is an important factor

which influences the cost. The cost-output relationship plays an important role in

determining the optimum level of production. The knowledge of the cost output

relation helps the manager in cost control, profit, production, pricing, promotion

etc. the relation between cost and its determinants explained through the

following function.

OPPORTUNITY COST – • Opportunity cost of a product is value of the

next best alternative forgone (that is not chosen). • It can also define as

the revenue forgone for not making the best alternative use. • The concept

of opportunity cost is useful for manager in decision making.

ECONOMIC COST • This cost includes explicit and implicit cost both. In

other words, economic cost includes both recorded and unrecorded cost.

EXPLICIT COST is the actual money expenditure on inputs or payments

made to the outsiders for hiring the factor services. Example – wages paid

to employees, payment for raw materials etc.

IMPLICIT COST is the cost of self - supplied factors. Example- Interest on

own capital, Rent of own land etc. The sum of explicit cost and implicit

cost is the total cost of production of a commodity.

ACCOUNTING COST • Accounting cost is the cost based upon

accounting records in the book of accounts. • They are recorded in the

book of accounts when they are actually incurred. It’s based on Accrual

concept. • Accounting costs are explicit cost and must be paid

PRIVATE COST & SOCIAL COST • Private costs are those which are

actually incurred by a firm on the purchase of goods and services from the
market. For a firm, all actual costs both explicit and Implicit are private

costs. • Social Costs refers to the total cost borne by the society due to

production of a commodity

Incremental and Sunk Costs • Incremental costs are closely related to

marginal cost incremental costs refer to the total additional cost

associated with the expand in output.

Sunk Costs are those which cannot be altered, increased or decreased by

varying the rate of output.

Short Run and long run costs • Short run costs are costs that vary with

variation in output. Short run costs are the same as variable costs • Long

run costs are costs that are incurred on fixed assets like plant, machinery,

etc.

DIRECT AND INDIRECT COST • Direct cost are the costs that have direct

relationship with a unit of operation. This includes items such as software,

equipment, labor and raw materials. • Indirect cost is those cost whose

cost can’t be easily traced to a product such as electricity, stationary and

other office expenses.

TOTAL COST Total cost is the actual money spends to produce a

particular quantity of output. It is the summation of fixed and variable costs

TC = TFC+ TVC TFC (Total Fixed Cost): Total fixed costs, the cost of

plant, building, equipment etc. remain fixed with a change in output.

AVERAGE COST Average cost is the total cost of producing per unit of

commodity. It can be found out as follows AC= AFC +AVC AC= Total
 cost/no. of units produced AFC (Average fixed Cost)- Fixed cost of

producing per unit of the commodity. AFC= total fixed cost / no. of units

produced. AVC (Average Variable Cost) Variable cost of producing per

unit of the commodity. AVC= total fixed cost / no. of units produced.

MARGINAL COST • Marginal cost is the additional to total cost when one

more unit of output is produced. • It can be arrived by dividing the change

in total cost by the change in total output

Pricing and Output Determination Under Perfect Competition

Perfect competition refers to a market situation where there are a large

number of buyers and sellers dealing in homogenous products. Moreover, under

perfect competition, there are no legal, social, or technological barriers on the

entry or exit of organizations. In perfect competition, sellers and buyers are fully

aware about the current market price of a product. Therefore, none of them sell

or buy at a higher rate. As a result, the same price prevails in the market under

perfect competition. Under perfect competition, the buyers and sellers cannot

influence the market price by increasing or decreasing their purchases or output,

respectively. The market price of products in perfect competition is determined by

the industry. This implies that in perfect competition, the market price of products

is determined by taking into account two market forces, namely market demand

and market supply. In the words of Marshall, “Both the elements of demand and

supply are required for the determination of price of a commodity in the same

manner as both the blades of scissors are required to cut a cloth.” As discussed

in the previous chapters, market demand is defined as a sum of the quantity

demanded by each individual organization in the industry. On the other hand,

market supply refers to the sum of the quantity supplied by individual

organizations in the industry. In perfect competition, the price of a product is

determined at a point at which the demand and supply curve intersect each

other. This point is known as equilibrium point as well as the price is known as

equilibrium price. In addition, at this point, the quantity demanded and supplied is

called equilibrium quantity. Let us discuss price determination under perfect

competition in the next sections. Perfect competition is defined as a market

situation where there are a large number of sellers of a homogeneous product.

An individual firm supplies a very small portion of the total output and is not

powerful enough to exert an influence on the market price. A single buyer,

however large, is not in a position to influence the market price. Market price in a

perfectly competitive market is determined by the interaction of the forces of

market demand and market supply. Market demand means the sum of the

quantity demanded by individual buyers at different prices. Similarly, market

supply is the sum of quantity supplied by the individual firms in the industry. Each

seller and buyer take the price as determined. Therefore, in a perfectly

competitive market, the main problem for a profit-maximizing firm is not to

determine the price of its product but to adjust its output to the market price so

that profit is maximized.

Imperfect Competition and Monopoly

There are a number of market structures that can exist in the economy.

The term ‘market structure’ refers to the way producers and consumers interact
to determine price and quantity in the market. It can be described by looking at

the different attributes of a market which includes the number of producers,

number of consumers, the size of the market, and the growth forecasts. In

general terms, a market can be categorized into two wide categories; imperfect

competition and perfect competition. Imperfect market can be further subdivided

into for instance, monopolies, monopsony, oligopoly, and monopolistic

competition. From the economic theory point of view, imperfect competition can

be defined as competitive conditions in a market where perfect competition

conditions are not met. On the other hand, a monopoly can be defined as an

individual or an enterprise with adequate control over a certain service or product

to an extent of determining the terms and conditions that of acquiring such a

product or service. As mentioned above, a monopoly is an example of an

imperfect competition. However, there are a number of significant features which

differentiates the two markets. To begin with, a monopoly is characterized by a

single seller but many buyers in the market. The seller is also responsible for the

production of that particular good or service. As such, the entire market is served

by a single enterprise or rather a single firm. On the other hand, in the case of an

imperfect competition there are many buyers and sellers in the market who are

generally trading in differentiated goods and services. However, although there

are numerous sellers and buyers in the market, others have an advantage of

influencing activities in the market. For instance, some sellers and buyers may

have an upper hand in determining the prices of products due to one reason or

another.
In the case of a monopoly, there is a restricted entry into the market. The barriers

to entry include such factors as; legal issues in that the monopoly has been

created by the state hence there is limited entry into the market, the monopoly

emerged due to a popular trademark hence ensuring consumers’ loyalty, copy

rights and patents, high cost of entering into the market, as well as restricted

control of a resource. On the other hand, there is no restriction in entering into an

imperfect competition market. This makes firms in the imperfect competition

vulnerable if they are making significant profits. In the long run, their profits will

decline due to the free entry of other firms. Moreover, although firms in imperfect

competition have the ability of deciding the price of their products independently,

they also take into consideration the pricing strategy of other firms. This is very

vital as helps in maintaining their clients. This is not the case with the monopolies

who solely determine their prices. Lastly, in the imperfect competition there is

product differentiation unlike in the case of a monopoly. In the imperfect

competition firms deals in goods that have differences may it real or perceived.

However, the differences are very minimal hence, does not eliminate goods as

substitutes. The main differences are reflected in the type, quality, appearance,

and style. In the case of a monopoly, goods have no close substitutes. In most

cases, monopolies are viewed as being ‘bad’ from the consumers’ point of view.

Firstly, monopolies are considered as being exploitative. Due to the absence of

competitors, monopolies charge higher prices for their products. The fact that

these products have no close substitutes or alternatives, give no option to the

consumers. For instance, in the motor industry, there are many companies that
produce vehicles of different models. Therefore, the consumers have an

alternative to buy a model of their choice depending on their income. If the

vehicles were being produced by one company, clients would not have that

opportunity to choose what kind of vehicle as per their incomes but they would go

for what is being offered in the market. Secondly, generally the quality of the

products of monopolies is lower as compared to the quality of these products if

produced under the perfect competition market. Competition leads to innovation

and invention hence constant improvement in the quality of the products. Due to

lack of competition, monopolies are reluctant in investing in product

improvement. For instance, in the mobile phone industry competition has played

a major role in improving the quality of mobile phones that have been produced.

A good example is the introduction of the iPhone by Apple came as result of

competition. If the mobile phone was dominated by one firm, invention of such

phone could have taken a long time. Lastly, monopolies lead to increased prices.

It is very possible for a firm to increase the price of their products in order to

increase their profit margin if it is the only producer of a particular product.

Moreover, the fact that the firm controls the resources of production such product

increases the possibility of increases prices without affecting its sales. A good

illustration is the Saudi Telecom Company in Saudi Arabia which was the only

telecom company in this country. In this period, the call costs in Saudi Arabia

were extremely high. Entry of other firms into this industry has led to the

reduction of the call costs that exist in Saudi Arabia to-date.

Principle of Taxation

In this reflection, I will focus on some important topics such as, what I

learned about individual and business taxation from this course, what was my

experience with the group project and what were the challenges that I faced

during both the group project and this course. I am also going to add some main

overall points that I learned.

Tax is generally an amount of money that is charged by a government on a

product, income, or activity so that it can pay for public services. In addition,

there are several very common types of taxes:

Income Tax (a percentage of individual or corporate earnings filed to the

government)

Sales Tax (taxes charged on certain goods and services)

Property Tax (taxes charged on the value of land)

However, there are some people that do not know about the positive effects of

the tax system, so they might think that it only comes along with negative effects.

In fact, not so many people know this but taxes are considered one of the most

important sources of revenue for the government and one of the main reasons

for developing the country's economy. Still, tax systems widely vary between

countries, and it is essential for individuals and corporations to carefully have

good knowledge of a new country’s tax laws before earning income or doing any

business there.
During the course, I became aware of the different types of tax systems,

purposes, how to calculate it and how they actually worked.

In fact, my group members were very helpful and whenever one of us had trouble

with something we would all participate in solving her problem or giving her

helpful tips to solve it. By helping, supporting and motivating each other it made

the project easier to solve and it helped us in achieving our work in the most

effective time and ways. Here are some points I loved about the experience,

firstly being a part of a group helped in developing my skills and we were able to

achieve more.

Although they need to be reinterpreted from time to time, these principles retain

remarkable relevance. From the first can be derived some leading views about

what is fair in the distribution of tax burdens among taxpayers. These are: (1) the

belief that taxes should be based on the individual’s ability to pay, known as the

ability-to-pay principle, and (2) the benefit principle, the idea that there should be

some equivalence between what the individual pays and the benefits he

subsequently receives from governmental activities. The fourth of Smith’s canons

can be interpreted to underlie the emphasis many economists place on a tax

system that does not interfere with market decision making, as well as the more

obvious need to avoid complexity and corruption.

Distribution of tax burdens - Various principles, political pressures, and

goals can direct a government’s tax policy. What follows is a

discussion of some of the leading principles that can shape decisions

about taxation.
 Horizontal equity - The principle of horizontal equity assumes that

persons in the same or similar positions (so far as tax purposes are

concerned) will be subject to the same tax liability. In practice this

equality principle is often disregarded, both intentionally and

unintentionally. Intentional violations are usually motivated more by

politics than by sound economic policy (e.g., the tax advantages

granted to farmers, home owners, or members of the middle class in

general; the exclusion of interest on government securities). Debate

over tax reform has often center on whether deviations from “equal

treatment of equals” are justified.

The ability-to-pay principle - requires that the total tax burden will be

distributed among individuals according to their capacity to bear it,

taking into account all of the relevant personal characteristics. The

most suitable taxes from this standpoint are personal levies (income,

net worth, consumption, and inheritance taxes). Historically there was

common agreement that income is the best indicator of ability to pay.

The benefit principle - Under the benefit principle, taxes are seen as

serving a function similar to that of prices in private transactions; that

is, they help determine what activities the government will undertake

and who will pay for them. If this principle could be implemented, the

allocation of resources through the public sector would respond directly

to consumer wishes.

Agrarian Reform
 Agrarian reform has several effects to rural economy in terms of

agricultural productivity, poverty reduction, income and living standards,

employment, investment and capital formation, and impartiality in rural

population

‘Land for the Landless’ is a slogan that underscores the acute imbalance in

the distribution of this precious resource among our people. But it is more

than a slogan. Through the brooding centuries, it has become a battle-cry

dramatizing the increasingly urgent demand of the dispossessed among us

for a plot of earth as their place in the sun. The fact that these provisions are

scattered throughout the present Constitution is reflective of the fact that

Agrarian Reform covers all aspects of institutional development. Its coverage

includes tenure, production and supporting services and structures, and

related institutions such as local government, public administration,

education, and social welfare institutions. The provisions in the present

constitution that relate to agrarian reform as a means to achieve social justice

are listed in Textbook on Agrarian Reform & Taxation (With Cooperatives and

CARP). They are as follows:

First and foremost is Article XIII Section 4 on the promotion of agrarian

reform. The said constitutional provision requires the State to undertake an

agrarian reform program which shall be “founded on the right of farmers and

regular farmworkers, who are landless, to own directly or collectively the

lands they till or, in the case of other farm workers, to receive a just share of

the fruits thereof.” And in order to attain this end, the State shall encourage
and undertake the just distribution of all agricultural lands, subject to such

priorities and reasonable retention limits. Income and living standards –

Agrarian reform measures increase in the productivity and thus results to rise

in income of rural farmers which will in turn improve the living standard of

rural people.