Economics & Taxation - Cheat Sheet
Your last-minute revision companion for Economics & Taxation concepts essential for elementary teaching and LET exam success.
Basic Economic Concepts
Formulas
Opportunity Cost = Value of Next Best Alternative Given Up
Meaning
The true cost of any choice is what you sacrifice
Watch out
Don't confuse with monetary cost - opportunity cost is about alternatives
When to use
When analyzing decision-making scenarios in economic problems
Important facts
- Four factors of production: Land, Labor, Capital, Entrepreneurship
- Land earns rent, Labor earns wages, Capital earns interest, Entrepreneurship earns profit
- Philippines has a mixed economic system combining market freedom with government regulation
- Traditional economy based on customs, Command economy controlled by government
- Market economy driven by prices and competition
Key definitions
Economics
Example
A family deciding between buying rice or vegetables with limited money
Study of how individuals, firms, and governments allocate scarce resources
Scarcity
Example
Only 30 seats in a jeepney but 50 people waiting
Limited resources but unlimited wants, forcing choices
Microeconomics
Example
A sari-sari store owner deciding product prices
Study of individual economic units like households and firms
Macroeconomics
Example
BSP setting interest rates for the entire Philippines
Study of economy-wide phenomena like inflation and unemployment
Diagrams to know
- Factors of production diagram
- Economic systems comparison chart
- Scarcity and choice flowchart
Supply and Demand
Formulas
Equilibrium: Quantity Supplied = Quantity Demanded
Meaning
Market balance where supply meets demand at specific price
Watch out
Equilibrium shifts when either supply or demand curves move
When to use
Finding market-clearing price in supply-demand problems
Important facts
- Demand shifts due to: income, preferences, population, related goods prices, expectations
- Supply shifts due to: input prices, technology, number of sellers, taxes, expectations
- Increase in demand shifts curve right (higher prices, higher quantities)
- Increase in supply shifts curve right (lower prices, higher quantities)
- Shortage occurs when price below equilibrium, surplus when price above equilibrium
Key definitions
Law of Demand
Example
Higher rice prices lead to less rice purchased
As price increases, quantity demanded decreases (inverse relationship)
Law of Supply
Example
Higher fish prices encourage more fishermen to sell
As price increases, quantity supplied increases (direct relationship)
Market Equilibrium
Example
Palengke price where vendors sell all goods and buyers get what they want
Price where quantity supplied equals quantity demanded
Diagrams to know
- Supply and demand curves intersection
- Demand curve shifts (left and right)
- Supply curve shifts (left and right)
- Market equilibrium point identification
Market Structures
Important facts
- Perfect competition: price takers, no market power
- Monopoly: price makers, highest market power, barriers to entry
- Oligopoly: strategic interdependence, few competitors
- Monopolistic competition: product differentiation, some market power
- Market power increases from perfect competition to monopoly
Key definitions
Perfect Competition
Example
Farmers selling rice in Divisoria market
Many sellers, identical products, easy entry/exit
Monopoly
Example
MERALCO as sole electricity distributor in Metro Manila
Single seller controlling entire market for unique product
Oligopoly
Example
Globe, Smart, DITO in telecommunications
Few large sellers dominating market
Monopolistic Competition
Example
Different restaurants in food courts
Many sellers with slightly different products
Diagrams to know
- Market structure comparison chart
- Number of sellers vs market power graph
Money and Banking
Important facts
- Four functions of money: medium of exchange, unit of account, store of value, standard of deferred payment
- BSP issues Philippine peso bills and coins
- Electronic money includes GCash, Maya, online banking
- Commercial banks accept deposits and make loans
- Interest rate is cost of borrowing and benefit of lending
- Credit cards and consumer loans provide purchasing power
Key definitions
Medium of Exchange
Example
Using peso bills to buy groceries
Money accepted for buying goods and services
Unit of Account
Example
Pricing items in pesos in a store
Money as measure of value for goods and services
Store of Value
Example
Saving peso bills in bank for future use
Money holds purchasing power over time
Bangko Sentral ng Pilipinas
Example
BSP sets monetary policy and issues peso currency
Central bank regulating Philippine financial system
Diagrams to know
- Functions of money circular diagram
- Philippine banking system hierarchy
- Money flow in economy diagram
Economic Indicators
Formulas
GDP per capita = Total GDP ÷ Population
Meaning
Average economic output per person in the country
Watch out
Higher GDP per capita doesn't guarantee equal distribution of wealth
When to use
Comparing living standards between countries or regions
Common values
Value
12%
Symbol
VAT
Quantity
Philippine VAT rate
Important facts
- Real GDP adjusted for inflation, nominal GDP at current prices
- Types of unemployment: frictional, structural, cyclical, seasonal
- Inflation causes: demand-pull, cost-push, imported inflation
- High inflation erodes savings and creates economic uncertainty
- GDP measures economic size, not income distribution
- Philippine economy heavily service-oriented (BPO, tourism)
Key definitions
Gross Domestic Product (GDP)
Example
Philippines GDP includes all production from Luzon to Mindanao
Total value of goods and services produced in a country annually
Inflation
Example
Rice costing PHP 40/kg this year vs PHP 35/kg last year
General increase in prices reducing purchasing power
Unemployment
Example
Fresh graduates looking for first employment
People actively seeking work but unable to find jobs
Diagrams to know
- Types of unemployment classification
- Inflation effects diagram
- GDP components breakdown
International Trade
Formulas
Balance of Trade = Exports - Imports
Meaning
Difference between goods sold abroad and goods bought from abroad
Watch out
Positive balance (surplus) is generally better than negative (deficit)
When to use
Analyzing country's trade position with other nations
Important facts
- Major Philippine exports: electronics, semiconductors, garments, coconut products, tropical fruits
- Major Philippine imports: oil, chemicals, machinery, electronics
- OFW remittances major source of foreign exchange earnings
- Trade deficit when imports exceed exports
- Exchange rate affects import/export competitiveness
- ASEAN promotes regional trade cooperation
Key definitions
Exports
Example
Philippine semiconductors sold to Japan
Goods and services sold to other countries
Imports
Example
Oil purchased from Middle Eastern countries
Goods and services bought from other countries
Exchange Rate
Example
PHP 56 = USD 1
Price of one currency expressed in another currency
OFW Remittances
Example
Nurse in Dubai sending dollars to family in Philippines
Money sent home by overseas Filipino workers
Diagrams to know
- Philippine trade flow diagram
- Exchange rate impact on trade
- OFW remittance flow chart
Taxation System
Common values
Value
12%
Symbol
VAT
Quantity
Philippine VAT rate
Important facts
- BIR collects national taxes, BOC collects customs duties, LGUs collect property tax
- Types of taxes: income, VAT, excise, property, donor's, estate, documentary stamp
- VAT rate: 12% on most goods and services
- Income tax progressive based on earning levels
- Excise tax on alcohol, tobacco, fuel
- Property tax collected by local government units
Key definitions
Tax
Example
Withholding tax deducted from teacher's salary
Mandatory payment to government to fund public services
Bureau of Internal Revenue (BIR)
Example
BIR processes income tax returns of employees
Government agency collecting national taxes
Value Added Tax (VAT)
Example
Additional PHP 12 on PHP 100 grocery purchase
12% tax on most goods and services in Philippines
Diagrams to know
- Philippine tax collection agencies
- Types of taxes classification
- Tax flow from collection to public services
Economic Sectors
Important facts
- Philippine economy dominated by tertiary (service) sector
- BPO industry major contributor to GDP and employment
- Primary sector includes coconut, rice, fishing, mining
- Secondary sector includes electronics manufacturing, construction
- Tourism important service industry for foreign exchange
- Agriculture employs many but contributes less to GDP
Key definitions
Primary Sector
Example
Rice farming in Central Luzon
Agriculture, fishing, mining, forestry - extracting natural resources
Secondary Sector
Example
Garment factories in Cavite
Manufacturing and construction - processing raw materials
Tertiary Sector
Example
Call centers in Makati CBD
Services like retail, transport, tourism, finance, BPO
Diagrams to know
- Three sectors of economy with examples
- Philippine sector contribution to GDP
- Employment distribution by sector
Must remember
- Philippines uses MIXED economic system combining market freedom with government regulation
- Four factors of production: Land (rent), Labor (wages), Capital (interest), Entrepreneurship (profit)
- Law of Demand: Price up, quantity demanded down. Law of Supply: Price up, quantity supplied up
- BSP is Philippines' central bank issuing currency and setting monetary policy
- GDP = total value of goods/services produced. GDP per capita = GDP ÷ population
- Balance of Trade = Exports - Imports. Philippines imports more than exports
- VAT rate in Philippines is 12% on most goods and services
- BIR collects national taxes, BOC collects customs, LGUs collect property tax
- Three economic sectors: Primary (agriculture), Secondary (manufacturing), Tertiary (services)
- OFW remittances major source of foreign exchange for Philippines
Last minute tips
- Focus on Philippine-specific examples: BSP, BIR, BOC, VAT rate, OFW remittances, major exports/imports
- Remember the four functions of money mnemonic: Medium, Unit, Store, Standard (MUSS)
- For supply-demand problems: identify what shifts curves (demand shifters vs supply shifters)
- Market structures: count sellers and product similarity to identify type
- Tax questions often test which agency collects what: BIR (national), BOC (customs), LGU (property)
Comparison tables
Market Structures Comparison
| Feature | Perfect Competition | Monopoly | Oligopoly | Monopolistic Competition |
|---|---|---|---|---|
| Number of Sellers | Many | One | Few | Many |
| Product Type | Identical | Unique | Similar/Different | Differentiated |
| Market Power | None | High | Medium | Low |
| Entry Barriers | None | High | Medium | Low |
| Philippine Example | Rice farmers | MERALCO | Telecoms | Restaurants |
Types of Unemployment
| Type | Cause | Duration | Philippine Example |
|---|---|---|---|
| Frictional | Job searching | Short-term | Fresh graduate seeking first job |
| Structural | Skills mismatch | Long-term | Textile worker replaced by machine |
| Cyclical | Economic downturn | Medium-term | Tourism worker during pandemic |
| Seasonal | Seasonal work | Predictable | Farm worker between planting seasons |
Tax Collection Agencies
| Agency | Tax Types Collected | Scope | Examples |
|---|---|---|---|
| BIR | Income, VAT, Excise | National | Salary deductions, business tax |
| BOC | Customs duties, Import tax | Borders | Tax on imported goods |
| LGU | Property, Business permit | Local | Real estate tax, barangay permits |
Diagrams
Economics & Taxation Concept Map
Comprehensive overview of all major economics and taxation topics covered in elementary LET exam
Supply and Demand Analysis Process
Step-by-step process for analyzing how market changes affect supply, demand, and equilibrium price/quantity
Philippine Economic Sectors GDP Contribution
Approximate distribution of Philippine GDP by economic sector, showing dominance of service sector including BPO industry