Economics in a Nutshell

ECONOMICS IN A NUTSHELL

by Kim Angelo

Economy is something that we should give a very serious attention in order to facilitate our resources. It can be as simple as budgeting your daily allowance to survive the whole day and can be as complicated as budgeting government’s funds for our country’s development.

General understanding about economics will introduce us to the DEMAND and SUPPLY. The law of demand states that when the price increases, the demand decreases, and all else constant (ceteris paribus – there are other variables that affects the demand like income, tastes and preferences, expectation on future prices, prices of substitute goods, etc.). The law of supply states that order things assumed as constant, price and quantity supplied are directly proportional. Eventually, the laws of demand and supply were combined as proposed by the British economist, Alfred Marshall – this is the birth of the Market Equilibrium.

With the use of Market Equilibrium, the graph of demand and supply becomes the basis of analyzing the production and consumption of the products. This is the point of the graph wherein the demand and supply curves intersect with each other. It determines the amount of products to be produced and for how much people are willing to buy such. In the consumers’ side, quantity demanded that were not satisfied due to lack of supply falls under the ‘excess demand’.  For the suppliers, the excess of production, supplies that were not bought will be placed under the ‘surplus supply’.

Aling Nena is used to buying rice in the price of 30 pesos per kilo. However, the supply for that rice that she is demanding is not sufficient and so it was sold out before she intends to buy it. Now, there are higher quality of rice originally priced at 55 pesos per kilo – there’s a huge supply for this class of rice because not too many are getting it due to the higher price. It reached the surplus point and the producer decided to sell it in the surplus price of 40 pesos per kilo. Definitely, AlingNena will consider buying this as an alternative. She will consider buying this out of no other option. It’s a win-win situation for both the seller and the buyer because of the following reasons:

1.      Suppliers/Seller will be able to sell their excess stocks by introducing the surplus price. This will help them avoid losses for the threat of spoilage of their stocks.

2.      Consumers will be given an alternative for their ‘sold out’ commodities.

The Circular Flow of Economics: INFLOW and OUTFLOW

In economics, we call the money that goes into the flow of economic activity as “INFLOW”. On the other hand, the money that goes out of the economic activity is called “OUTFLOW”. By determining the economic activity of our country and labeling each transaction whether it is an inflow or outflow will help us understand why our country’s economy is fluctuating and most of the time, weak.

OUTFLOW

TAXES

According to Atty. Allan Liquigan, my business taxation professor, “there are only two certain things in life, DEATH and TAXES”. Even before we receive our income, it is already deducted by a gruesome percentage of tax. If for example a regular employee earning 500 per day and after taxes it will be down to 350 pesos per day. Instead of this employee being able to spend all that 500 pesos for his consumptions, only 350 pesos is the potential amount to circulate in our economy. It constitutes as an outflow because it lessens the economic activity of that employee.

SAVINGS

However, that 350 pesos income per day will not be fully spent. The employee aims to save some amount from his earnings for his future use. He will then save 100 pesos per day and that amount is considered as our 2^nd outflow.

IMPORTS

Colonial mentality is prevalent and considerably a part of our Filipino brand. Our country tends to import and allow foreign investors to invade our country to satisfy people’s demand for foreign products that our country can’t produce. The money we use to buy foreign products (imports) will flow NOT in OUR OWN ECONOMIC CYCLE but in foreign countries’, from whom we purchased the imports. In addition, as we import, we pay taxes to those countries where those imported products came from. Imports + taxes that goes to other countries will definitely lessen our economic activity.

In order to siphon back the outflows – our government should take action to make INFLOWS. Otherwise, we will experience a continuous recession if the government fails to balance the economic activities.

INFLOW

For TAXES

The collected taxes should not be accumulated and make huge government savings. The money collected from taxes should be diversified into purposeful expenditures

like funding social services, education, infrastructure, and others. As the government defray for such expenses, it will give an opportunity to put the money back into the economic cycle.

For SAVINGS

The money spared for savings will go to the banks as deposits. Now, the role of the banks is to equalize the economic activity by means of investments. Banks will not keep the money being deposited to them idle – they will use the money to provide investment opportunity to business sectors.

For IMPORTS

As we buy products from other countries, we need to encourage them to reciprocate our purchases. Our government should make sure that we export products as much as we import so that we are getting back the money into our country’s economic cycle.

POLICIES

In order to adjust the economic activity of our country, government should facilitate the process by implementing the proper policies.

With the use of the policies, the government will be able to manipulate the inflows and outflows.

It is given that the outflow is difficult to manipulate because the control is in the hands of the consumers/households. Inflow is the right leverage to maintain the balance in our economic cycle. The government should encourage exports, investments and increase in governmental expenditures to put the money back into the cycle.

·         Monetary policy is the one that moderates the savings and investments.

·         Fiscal policy controls taxes and government expenditures.

·         Trade policy affects the country’s imports and exports.

Author’s Note:

After writing down all above information that intends to give the very essence of economics, I was able to come up with my personal analysis on why is our country’s economy fluctuating and most of the time, weak.

If there is one thing that our country is abundant of, there’s nothing else I can suggest but CORRUPTION. Like evil, it comes in many faces – from simple to complex. It can be as complex as the ‘napoles scam’, ‘PDAF’, Binay’s issue, etc.. And it

can be as simple as a teacher not giving the knowledge that are due for his students whilst he is having a full enjoyment of his salary – that’s an absolute corruption.

One major factor that ruined the economic cycle of the Philippines is the corrupt officials who only think about themselves. My idea is that when they are opening swiss accounts (the intention is to safeguard their money due to a much stricter bank secrecy law), they are putting a whopping amount of money to other country’s economic cycle just to hide their ill-gotten wealth. Also, these officials are eluding taxes and the tax burden is being passed on to poor people – this is exactly where the famous candidates’ spill is derived from “Angmgamayayaman ay lalongyumayamansamantalangangmahihirap ay lalo pang humihirap”

Second is that our government’s failure to fix the imbalance of import and export. We export terribly less than what we import. The invasion of foreign products that are selling more than our local products also hurts the economic activity of our own country.

Third is the poor budgeting of the Bureau of Internal Revenue. They have collected more than enough taxes but they are not spreading out the money through different government expenditures. Our government has admitted that they are under-spending and that’s an indication that they are not increasing the level of economic activity.

Fourth is the MONOPOLY – large business corporations are taking away the opportunity to earn from small businesses. Imagine the small bakeries out there that cannot compete to larger businesses like Pande Manila, French Baker, Bread Talk, etc. Also, the public markets wherein local products are diverging to make them available for public consumption but being rivaled by business magnates. SM supermarkets, PureGold, Shopwise, etc. are hindering the earning abilities of those small businessmen in the public market.

In conclusion, there’s an uncountable reason why our economy is dropping so low but it all boils down to our government’s incompetence to facilitate the country’s inflow and outflow.