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Take advantage of these interesting times.
Know Your Numbers
Dr. Alvin Ang
President | Philippine Economic Society

A lot of issues that affect us require a certain level of
economic sense to comprehend and properly evaluate.
Examples:
•Rising prices of oil and basic necessities
•K to 12
•Global financial meltdown
•Or as simple as buying a product, getting a loan, voting a candidate
Economics Matters So Literacy Matters

• Surveys have shown that what people know
about basic economics affects what they
think about an economic issue
• Similarly, people with no basic knowledge of
economics are almost always willing to state
an opinion.
@newleafph What
people know about
basic economics
affects what they
think about en
economic issue
#betterbusiness
@newleafph
Tweet Sheet
Economics Matters So Literacy Matters

• People’s incentives and choices, and
what happens to coordinate their decisions
and activities
• Organization and information are crucial
aspects
• Economic failures are mostly failures of
coordination
• Social Institutions are involved
Economics is...
@newleafph
Economics is about
people’s incentives
and choices
#betterbusiness
@newleafph
Tweet Sheet

• OPPORTUNITY COST –You cannot be in two places at
the same time!
• Watching a movie does not cost you the price of the ticket
alone but the time spent watching
Principle I

• We all make trade-offs when making a
decision
• The choice of one, lets go of another
• Being here – means no lunch date
Principle 2
@newleafph The
choice of one,
affects others
#betterbusiness
@newleafph
Tweet Sheet

• People are rational – systematic and
purposeful in decision making
• When making choices, people order
possibilities consistently – if you prefer
Apple over Sony, and Sony over Samsung,
then you prefer Apple over Samsung
Principle 3
@newleafph
People are rational-
systematic and
purposeful in
decision-making
#betterbusiness
@newleafph
Tweet Sheet

• Rational people decide on the
marginal cost. (Cheaper by the
Dozen)
• Why do people take graduate
studies? What do managers think of
when they increase production?
Why can airlines offer piso fares?
Principle 4
@newleafph
Rational people
decide on the
marginal cost
#betterbusiness
@newleafph
Tweet Sheet

• Rational people respond to
incentives
• Why not a license discount if there
are no traffic violations?
• Incentive structure requires strict
implementation of rules
Principle 5
@newleafph
Rational people
respond to
incentives
#betterbusiness
@newleafph
Tweet Sheet

• We are all made better off by trading
• Why is it better to eat out or take out
food?
• You cannot cut your own hair!
Principle 6
@newleafph
Rational people
respond to
incentives
#betterbusiness
@newleafph
Tweet Sheet

• A channel to improve people’s standards of living within
the limit of available resources
• Solve the problems of society
1. Unemployment
2. Inflation
3. Inequitable income distribution
Goals of Economic Activity

• People who are addicted to anything are
not necessarily unaware that they are
making an irrational choice.
• Demand for addictive goods are insensitive
to price, but if there is an announced price
increase, demand will fall.
Rational Addicts
@newleafph
Demand for
addictive goods are
insensitive to price,
but if there is an
announced price
increase, demand
will fall
#betterbusiness
@newleafph
Tweet Sheet

• People are motivated by things apart from material
well-being, e.g. leisure, love or altruism
Motivation

• If real disposable income is falling due to inflation, do you prefer to
have an increase in salary and a higher increase in expense vs
constant salary but a smaller increase in expense?
People Think In Nominal Terms

• Why do we continue to hear of scams?
• People think in rule of thumb: inductive rather
than deductive manner
• Hence, people crowd together creating
bubbles – a cheap and practical alternative
Decisions Based On Recent Data
@newleafph
People make
decisions based on
recent data
#betterbusiness
@newleafph
Tweet Sheet

• Why do people without health insurances
bet on lotto – which on the average is
priced the same?
• The greater one’s future well-being is, the
more one will invest in thinking about the
future (hence, rich invest more than the
poor)
Why?
@newleafph
People make
decisions based on
recent data
#betterbusiness
@newleafph
Tweet Sheet

• People who will go to heaven care about the future as
much as the present.
• People who will go to hell seek maximum pleasure today!
Why?

• Shoot the messenger – confusing consequences and
causes
• Allergy to change – People object to competition.
Issues in Economic Analysis

• One-sided Coin
• What is the better exchange rate? USD 1 = PhP 43 or USD
1 = PhP 50
• What is the better interest rate?
10% or 5%
Abuse of Economic Analysis

• Availability of Numbers
• Interpretation of Numbers
• …as they affect our way of life
Our ability to make rational choices depends on:
Decision Making

Thank You!
@newleafph
facebook.com/newleafventures
newleafventures.com.ph
info@nlv.com.ph

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Better Business Brunch: Know your Numbers-The Economic Way of Thinking (Part 1)

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