The Economic Problem and Economic Factors

An overview about the basic economic problem and economic problem of a country

1. THE ECONOMIC PROBLEMS LESSON 2

2. 2 Annual Review September 5, 2021 OBJECTIVES   At the end of this lesson, you will be able to: state the central economic problem of resource allocation; enumerate the four factors of production needed to produce economic goods and services ; enumerate the three economic questions and know how economic systems differ in managing these questions; and define and draw the production possibilities frontier and use it to analyze production, resource allocation, and growth of the economy over time.

3. 3 Annual Review September 5, 2021 Following up on the discussion of scarcity as the central economic problem having limited resources to satisfy unlimited wants and needs, a nation is faced with three economic problems that deal with the production, distribution and consumption of goods and services. Introduction

4. 4 Annual Review September 5, 2021 Factors of Production There are four main factors of production used to create goods and services in the economy. They pertain to the term resources or inputs of production. The return on the use of these inputs of production is called factor income. There resources are as follows: Land – This represents land and similar natural resources available such as farms and agricultural land. Factor income: Rent Labor – This represents human capital such as workers and employees that transform raw materials and regulate equipment in production. Factor income: Wage Capital – This represents physical assets such as production facilities, warehouse, and technology used in the production. It can also refer to investment capital. Factor income: Interest Entrepreneurship – This represents the managerial ability of man in deciding how much of and what way the other factors are to be used in production. Factor income: Profit

5. 5 Annual Review September 5, 2021 Goods and Services Resources are combined in a variety of ways to produce goods and services. Good – an item you can see, feel and touch that requires scarce resources to produce and satisfies human wants. Service – something not physical that requires scarce resources to produce and satisfies human wants. The Circular Flow Diagram – This is an economic model that illustrates the flow of factors of production in the economy.

6. 6 Annual Review September 5, 2021 Figure 3.1 Basic Circular Flow Diagram

7. 7 Annual Review September 5, 2021 Households provide factor inputs to firms in exchange for income in the form of wages, rent and dividends. Firms provide goods and services to households in exchange for profit in the form of payments for the goods and services. Three Economic Questions What to produce? This first question relates to resources. Given limited resources of labour, raw materials and time, economic agents have to decide what to produce. If there is an abundant supply of labor in the society, then the society will consider labor-intensive products or will focus on providing services instead of manufacturing goods. How to produce? This question focuses on the actual production of goods and services. Economic agents will try and produce goods for the most profitable and cost-effective method. This motivation is behind the growth of technology and more efficient production methods, such as the assembly line. For whom to produce? The final question focuses on the distribution and consumption of goods and services. Is the good or service for end consumers or for other businesses for further production? Does it address a need or want? These questions are considered along with other business-related factors such as marketability and pricing.

8. 8 Annual Review September 5, 2021 These economic problems or dilemmas are the center of each country’s economic policies. Government policies are geared toward addressing the concerns on a national level. For instance, should the Philippine government invest in research to produce vaccine for Covid-19 or should it rely on China or Russia? Should it prioritize building roads and improving infrastructure or should it focus on health and poverty alleviation programs? Because resources are limited (in this case, the government budget) the country cannot afford to address all economic issues, at the same time in equal manners. These are illustrations of economic issues faced by the country that are grounded on the same concepts of what , how , and for whom .

9. ECONOMIC P RO B LE M S O F TH E COUNTRY

10. 10 Annual Review September 5, 2021 U N E M P L O Y M E N T P O V E R T Y P O O R Q U A L I T Y O F I N F R A S T U C T U R E I N C O M E I N E Q U A L I T Y

11. 11 Annual Review September 5, 2021 UNEMPLOYMENT COMMON CAUSES The number of people entering the job market has been greater than the number of jobs created. The rural-urban migration increases due to employment opportunities. May of the unemployed individuals are college graduates.

12. 12 Annual Review September 5, 2021 RURAL TO URBAN MIGRATION

13. 13 Annual Review September 5, 2021 WHAT CAN BE DONE TO SOLVE UNEMPLOYMENT PROBLEM? Appropriate economic policies for labor-intensive industries. Improve the educational system of the country especially in the rural areas Minimize rural-urban migration by improving the economic environment in rural areas.

14. 14 Annual Review September 5, 2021 WHAT CAN BE DONE TO SOLVE UNEMPLOYMENT PROBLEM? Proper coordination between government and the private sector to solve the problem of job mismatch. Slowing population growth. Philippine growth must increase faster than the population. Limit the size of 6. Provision of more investment opportunities to encourage local and international investment.

15. 15 Annual Review September 5, 2021 POVERTY COMMON CAUSES Increase in population Increase in the cost of living Unemployment Income inequality

16. 16 Annual Review September 5, 2021 WHAT CAN BE DONE TO SOLVE THE POVERTY PROBLEM? Reduce unemployment Appropriate policy on labor income Provision of unemployment benefits for those who will be unemployed due to natural or man made calamities. Ex. Typhoon, Bombing of terrorists, Earthquake

17. 17 Annual Review September 5, 2021 WHAT CAN BE DONE TO SOLVE THE POVERTY PROBLEM? 4. Increase social services like education, health care and food subsidies for sustainable poverty reduction Subsistence Subsistence Sustainable Self- ex i s t i ng 5. Appropriate policy on labor income.

18. 18 Annual Review September 5, 2021 POOR QUALITY OF INFRASTRUCTURE 91 ST OUT OF 144 COUNTRIES ON POOR INFRASTRUCTURE QUALITY LOST ABOUT $250 BILLION IN ECONOMIC GROWTH

19. 19 Annual Review September 5, 2021 WHAT CAN BE DONE TO IMPROVE THE QUALITY OF INFRASTRUCTURE? The government shall implement fiscal reform program Continue reform in key sectors- particularly power, roads and water – to improve cost recovery, competition, and institutional credibility and to sharply reduce corruption.

20. 20 Annual Review September 5, 2021 WHAT CAN BE DONE TO IMPROVE THE QUALITY OF INFRASTRUCTURE? Improving central oversight of the planning and coordination of investments Focus on investments through public-private partnerships to achieve faster delivery of service

21. 21 Annual Review September 5, 2021 INCOME INEQUALITY Income is the money that an individual earned from work or business received from investments. Income inequality – refers to the gap in income that exists between the rich and the poor

22. 22 Annual Review September 5, 2021 MAJOR CAUSES OF INCOME INEQUALITY Political culture “ palakasan” “utang na loob” Ex. Voting for the wrong person during election Indirect taxes – poor people shoulder this taxes like the Value Added Tax – 12%

23. 23 Annual Review September 5, 2021 3. Income Taxes INCOME INEQUALITY Minimum Wage – No Tax A little more than minimum wage – 32% T A X

24. 24 Annual Review September 5, 2021 WHAT CAN BE DONE TO SOLVE THE PROBLEM OF INCOME INEQUALITY Policies to enforce progressive rates of direct taxation on high wage earners and wealthy individuals. Direct money transfers and subsidize food programs for the urban and rural poor

25. 25 Annual Review September 5, 2021 SOLUTIONS TO INCOME INEQUALITY Direct government policies to keep the price of basic commodities low Raise minimum wage Encourage profit sharing

26. Thank you Thanks to your commitment and strong work ethic, we know next year will be even better than the last. We look forward to working together. Contoso [email protected]