Business Management & Application for Architecture 2 - Management Economics

Management Economics Notes

Learning Outcomes

  • Define and differentiate GDP and GNP in terms of measurement and significance.
  • Analyze the Philippine debt-to-GDP ratio from 1980s to 2020 and its implications on economic growth.
  • Compare global GDP per capita among countries and explain its role as an indicator of economic performance.
  • Identify and explain the causes and effects of inflation, deflation, and stagflation and interpret their key differences.
  • Identify different market structures and explain their defining characteristics.
  • Analyze pricing strategies under various market structures and evaluate how market dynamics influence them.
  • Examine local and international examples of market structures and compare their economic outcomes.

Gross Domestic Product (GDP)

  • Definition: Measures the economic value of all goods and services produced within a country's borders in a specific duration.
    • Indicates economic growth:
    • Increase signifies economic growth.
    • Decrease indicates economic shrinking.
  • Calculation Methods:
    • Income Approach: Considers compensation, gross profits, and taxes (minus subsidies).
    • Expenditure Approach:
    • Components:
      • C: Consumer Spending
      • I: Investments
      • G: Government Spending
      • (X - M): Net Exports
  • Value Types:
    • Nominal GDP: Total value at current prices, not adjusted for inflation.
    • Real GDP: Adjusted for inflation, reflecting the true growth of the economy.

Gross National Product (GNP)

  • Definition: Total value of all products and services produced by residents of a nation, including overseas assets, excluding non-residents.
  • Key Features:
    • Similar to Net National Product (NNP).
    • Capital Consumption Allowance (CCA) accounts for depreciation of capital.
    • NNP = MVFG + MVFS - Depreciation.

Differences between GDP and GNP

  • GDP measures economic activity within national borders, while GNP measures activity by residents, regardless of their location.

Debt-to-GDP Ratio

  • Definition: Ratio of a country's public debt to its GDP, indicating the ability to repay debts.
    • Formula: Debt-to-GDP Ratio = (Total Debt) / (Total GDP).
  • Historical Context and Philippine Example:
    • Significant increases in the debt-to-GDP ratio (70% in 1987) linked to periods of recession and economic stagnation.
    • The average value from 1980s to 2020 was 53.52% with notable peaks and troughs due to policy events.
  • Comparison:
    • The global average debt-to-GDP ratio is around 64.23% (as of 2021).

Inflation, Deflation, and Stagflation

  • Inflation:

    • Definition: Rising prices of goods and services, decreasing currency value.
    • Causes include demand-pull, cost-push, and built-in inflation.
    • Impacts involve lowering purchasing power and predicting growth expectations.

  • Deflation:

    • Definition: General decrease in prices, increasing purchasing power.
    • Can be caused by decreased consumer demand and overproduction.
    • Impacts include consumer delays in spending and increased unemployment.

  • Stagflation:

    • Definition: Simultaneous high inflation, slow economic growth, and high unemployment.
    • Causes may involve supply shocks and poor economic policies.
    • Impacts are detrimental to consumer spending and corporate revenues.

Market Structures

  • Definition: Economic settings that characterize industry competitiveness, entry barriers, and seller interactions.
  • Types of Market Structures:
    • Perfect Competition: Many small firms, identical products, no barriers to entry.
    • Monopolistic Competition: Many firms, differentiated products, low barriers.
    • Oligopoly: Few large firms dominate, may have standardized or differentiated products, high entry barriers.
    • Monopoly: One firm controls the market, unique product, high barriers to entry.
  • Special Types:
    • Duopoly: Market dominated by exactly two firms.
    • Monopsony: Only one buyer controls the market.
    • Oligopsony: Few buyers dominate market conditions.
    • Natural Monopoly: One firm can supply the entire market more efficiently.

Key Economic Terms

  • Trade Deficit: Imports exceed exports.
  • Trade Surplus: Exports exceed imports.
  • Depreciation: Decrease in economic worth or value.
  • Recession: Time period with declining economic activity.
  • Expansion: Increase in economic output and employment.
  • Purchasing Power Parity (PPP): Measure used to compare currency purchasing power across countries.