James Kenneth P. Gudito

Cost – Benefit Analysis and Opportunity Cost: Practical Use of Economics

The broadness of economics makes it difficult to distinguish its practical uses. For Economics in a sense, is used on a daily basis by anybody who makes decisions: from the common fish ball vendor to the lustrous financial managers.

This article focuses on the practical use of economics in our everyday lives. The topic is actually quite ironic, in a sense economics is used on a daily basis by every living human being (living meaning being able to make his or her decisions). Economics is not exclusive to the Economics majors out there nor is it reserved for those in the stock market and the government. It is applied and used by everyone- the ‘Masa’ as we commonly refer to them.

It is the 15^th day of the month. Mang Pandoy just got his 5000 Pesos earnings from the construction firm he is working for. Mang Pandoy has a wife and 8 children to feed at home. He needs to buy dinner tonight, his options are sardines or noodles but he can also buy lechong manok. Surely lechong manok can make his family more satisfied, although will he risk wasteful spending on a delicious dinner. He could also opt to go with noodles to save more money; after all raising 8 children requires a lot of resources. He must weigh the benefits of the two choices – in this case lechong manok or sardines. Does it not sound more like a short run problem and a long run problem?

In this case Mang Pandoy has to choose between the short-run happiness of his family and the long-run financial stability of his family. Their 250 pesos they may spend on lechong manok can also be Junior’s ( Mang Pandoy’s 7^th son) school supply allowance. It can also be their monthly electric bill.

But Mang Pandoy is not very fond of weighing his economic options and chooses to make his family happy for the night and goes ahead to buy lechong manok. Mang Pandoy’s family is satisfied for the mean time. And have I told you of Mang Pandoy’s philosophy that “life is short”? His short run benefits have more value to him. But it does not necessarily mean that he chose the lesser option.

Junior might be motivated because of his father’s good intentions and gets high marks in school, gets a scholarship and graduates a cum laude. These unforeseen events are what we may call externalities. They are things of which we have no control over, but are consequences of our economic decisions.

Junior gets a good job working abroad. He sends his brothers and sisters to school. They all graduate and Mang Pandoy and his family is better off economically. And all these because of the day they ate lechong manok.

To identify one by one the usefulness of economics

First things first, what is Economics really? Surely it must be something more than a course to take in college, something more than what determines the poorness and richness of a country. It is more than a social science with its many theories, and certainly more than supply and demand. Economics is a way of life. We live it in our everyday lives.

Going back to the basics, history has its own definition of what economics is. The term economics comes from the ancient Greek word oikonomos (οἰκονομία), oikos meaning household and nomos which means law, putting them together we come up with household law or law of the household. Households are the smallest units of our economy and laws are fundamental regulations imposed on us by society. Wait, does that not sound too simplistic? No. As a matter of fact households represent a fundamental aspect of the economy, inasmuch as they are economies themselves.

Are these households the very same residential areas we live in? The answer to that question is a very loud YES! Day in and day out people make economic choices on many categories in life and most of the decision-making begins at home. What shampoo to use? How many kilos of pork to consume? What type of refrigerator to invest in? Buy a Plasma TV, or a Regular one? Spend millions on a sports car or buy a smart car? The list goes on. These many little decisions, insignificant as they seem, have an impact on the overall economy. It may not be obvious to the normal person but through the trainedl eyes of an economist, these details come to life.

If economic decisions do in fact occur in every household, then it is also true that every person “out there” makes economic decisions on a daily basis. The fact that a person has money and spends it or either saves it contributes to the whole of the economy. He or she does not have known any complicated economic theories. He or she does not even have to have an economic degree of any kind.

Remembering Mang Pandoy

Mang Pandoy was our normal Filipino masa. He was unaware of any economic theories. Oblivious to the ups and downs of the economy, and yet he suffers from every economic woe and rejoices at every economic gain. Put simply, everyone who lives in this world is affected by the economy. The same thing can be said in another way: anyone who lives in this world performs economic decisions knowingly or unknowingly.

Projects for SY 2009-2010

VIA |1st Semester

VIA is a weeklong event to be held together with Mall of AEA on the third week of August 2008. It aims to raise funds for the organization and hone the entrepreneurial skills of AEA members. Instead of following the tradition where AEA members work in harmony to raise funds, this year VIA will have major changes. The first two days of the week will be allotted for student volunteers in selling flowers, cards and chocolates. On the other hand, the next three days will be allotted for participants willing to join the contest. The game is simple. Three teams will be chosen to participate. This year’s VIA will be a battle of economic principles and marketing strategies. Thus, each team must come up with their own strategies/gimmicks /promos for the goods to be sold. The team with the highest profit wins and will receive certificates & a cash prize. Tentative theme for this year’s VIA is Awesome Threesome.

Oikonomos | Quarterly

For the coming Academic Year 2009-2010, Okionomos will be a a newsletter released every quarter. Discussion of current economic issues will dominate the content of the magazine but members will also be updated on AEA’s activities. We will try to lure everyone to read Oikonomos by changing the mood of the layout from serious reading to something fun but at the same time informative. Oikonomos will serve as ground where students and faculty can discuss current economic issues. This magazine will try to give light on events to prevent people form being misled by erroneous information.

UBE

UBE is no longer a week-long event. Starting this academic year, around 7-10 UBE’s will be held throughout the year. UBE designed as a supplement to the GA in terms of bonding the members and getting to know each other through fun activities that are designed for the members to enjoy. Planned UBE activities include TambAEAn, SAEAssions, Dept. Talks, Magic Sing Competitions, mUBE Day, etc.

1st GA | 1st Semester

The 1st General Assembly will be the first meeting of all the members of AEA both old and new. The event will give opportunity for the members to know the new ExeCom of AEA, know the upcoming projects for the 1st semester and finally, volunteer for projects.

2nd GA | 1st Semester

The 2nd General Assembly will be held at the end of the 1st semester. The event will give members an opportunity to be updated on what has happened for the past semester. Furthermore, this will be the time to celebrate and champion the accomplishments of AEA for the past semester.

3rd GA | 2nd Semester

The Ateneo Economics Association 3rd General Assembly will serve two basic objectives: one, the reinforcement of previously instilled values, principles and visions presented earlier in the year during the 1st General Assmebly, and secondly, as a year-ender Christmas party for all AEAns.

KamalAEAn

KamalAEAn creates a venue for people to express their opinions about current issues in the Philippines. Through a series of talks, this project aims to raise social and economic awareness to everyone in the Ateneo community. KamalAEAn tries to steer away from the usual type of seminar, as it gives more time for the audience to interact with the speakers.

Culmination Night | 2nd Semester

The Culmination Night will serve three purposes: (a) Induction of incoming Executive Committee of AEA, (b) Awarding of Best Thesis, and (c) a Benefit Dinner for Alumni. Current students, alumni, and professors will gather over dinner to celebrate the achievements of AEA and the Economics Department for the past school year. Furthermore, it shall also be an income-generating activity for AEA.

YES | 2nd Semester

Ateneo Youth Economics Summit is a conference for third fourth year high school students all over Metro Manila. The conference will consist of talks, group dynamics, a quiz bee, and an extemporaneous speech competition provided by the Economics Department and Ateneo Economics Association. This event shall serve as a venue where tomorrow’s economists are pitted against one another in healthy competition, and as a means of encouragement for the youth to take up Economics and be aware of its relevance and application.

Ec102 Quizbee | 1st Semester

The Ec102 Quizbee aims primarily to test the knowledge of interested undergraduate students of Ateneo de Manila University who are taking ECO 102 at the time of project implementation using application questions of practical economic theories and concepts learned in class.

EcoTours | 2nd Semester

EcoTours is an observation tour of the BSP and the ADB conducted for all Ateneo Eco102, Macroeconomics, and Money and Banking students who are interested in the workings and technicalities of the country’s premier bank—the Bangko Sentral ng Pilipinas; and the development efforts against poverty of the Asian Development Bank which is based here in our country. Moreover, it provides a first-hand experience that would allow the students to explore the comings and goings of the BSP and ADB.

AEA Tutorials

The AEA Tutorials hopes to instruct interested AEA members and Ateneans who find certain Economic subjects, theories and concepts difficult. The project is exclusively oriented towards EC102, EC111, EC116, EC112, EC117 and EC115. Other economic subjects can be granted tutorials upon request.

tAEAms | 2nd Semester

tAEAms or Trainings for AEA members is a daylong activity wherein members who are interested in running for a position Execom could harness their potenial as student leaders and to be able to grasp more knowledge on what being part of the AEA Execom is all about.

The Ateneo Economics Association on HR 1109

House Resolution 1109 (HR1109) calls upon the members of congress to convene for the purpose of considering proposals to amend the constitution. The Ateneo Economics Association (AEA) stands firmly on the side of public interest and strongly condemns the brazen manner in which the House of Representatives forcefully pushed for the convening of a Constituent Assembly aimed at revising the constitution. The Ateneo Economics Association (AEA) believes that amending the constitution, particularly the provisions for House Resolution 737 on specific economic amendments is an essential movement towards a more effective and efficient system of trade and government, but that the hasty passage of HR1109 threatens not only the economic, but also the present socio-political dynamics of the country. The Ateneo Economics Association bases its decision on the following grounds:

1. The untimely passage of HR 1109 is not in the best interest of the country and its people. While an inquiry into the workings of amending the constitution may be beneficial in the near future, more urgent bills pending in the House of Representatives are being set aside for HR 1109.

2. In the face of the Global Economic Crisis, the legislative body of the Philippine Government must focus its attention, resources and energy in a long term effort to alleviate poverty, raise the standards of  living of the urban-poor, generate sustainable employment and support small-medium enterprises (SMEs).

3. The objectives of passing HR1109 remain clouded in controversy. While proponents of the HR1109 have stressed repeatedly that no extensions will be made to the terms of office, particularly to the President of the Philippines, the manner in which the resolution was passed and the evident use of numbers present a certain scenario worthy of the public’s vigilance.

4. The railroading of HR1109 is considered “baseless” by many and has sparked several heated debates both in the plenary and on the streets plunging the nation in a state of suspended confusion.  It is the duty of Congress to serve the public through meaningful and effective legislation, free from vested interests and personal biases. While public opinion is never a basis for passing resolutions, public interest is.

5. Political inefficiency translates into economic instability. Political turmoil, disagreements in Congress and anti charter-change protests scare away foreign investors, international trade agreements and local entrepreneurs damaging the already fragile state of the economy.

Oikonomos is a year-long select collection of the Ateneo Economics Association’s work and research which captures and highlights the different economic issues that have transpired during the course of S.Y. 2008-2009. The very essence of this magazine encapsulates AEA’s thrust of initiating socio-economic awareness, leading to the development of a community with a firm understanding of pertinent economic issues.

We have provided this free 2009 issue in our downloads section in pdf format for you to read. Enjoy!

Ateneo Junior Economics Summit

January 17 2009 Saturday, Escaler Hall at the Ateneo de Manila University. 7:30 am to 5:00 pm.

For inquiries, please contact aea@gmail.com or any of our representatives:

Jason Hermosa(09228527664) or Paolo Rodriguez(09172461985)

We all know very well about how runaway mortgage policies have led to banks defaulting, leading to buyouts and the eventual government bailout.  Here’s a flowchart from Fair Loan Rate that shows the whole process from start to finish. You can see how this all went in a clear but simple-stated manner.

Follow the link at the bottom of this article to get to the flowchart.

In order to fully understand the dynamics and depth of current global recession, It is very important to know what led us to this crisis. I have found the illustration below very thought-provoking and useful. It helped me explain the reasons effectively.

R.MAK.

The Reasons Behind Global Economic Crisis, written by R. MAK, from Fair Loan Rate

The HOUSE BILL NO. 5043, “”Reproductive Health and Population Development Act of 2008″, or more popularly known as the Reproductive Health Bill, is a bill of rational motives and is pro-economic development in nature.

We, the Ateneo Economics Association, believe that the Reproductive Health Bill:

1. PROTECTS LIVES – Some 3.1 million pregnancies occur each year in the Philippines.

Dr. Johnny Noet Ravalo on the Inquirer speaks about about there are principles that haven’t been changed by the financial crisis. One of those is not to abandon saving.

Read more, the article itself.

Mikhail Oñate

Implications of VAT Removal: An Analysis

Although the removal of Value Added Taxes (VAT) on oil and petroleum products seems very desirable to most of us consumers, careful study of it and its implications to the overall Philippine Economy reveals much surprising fact than what is presented to us in the media. The following fallacies are presented in the hope of shedding light on the true consequence of the removal of VAT.