Philippines Economics

The following are some Filipino economists:

* Solita Collas-Monsod, an economics professor in the School of Economics of the University of the Philippines (UPSE). During the time of President Corazon Aquino, she was appointed as Director General of the National Economic and Development Authority and as Socio-economic Planning Secretary. * Felipe Medalla, also a professor of UPSE. He did extensive research in such subjects as exchange rate policies, economic crisis and economic growth. Like Solita Monsod, he became Director General of NEDA and Socio-economic Planning Secretary during the time of President Joseph Estrada. * Dr. Dante B. Canlas, a professor of UPSE, whose expertise is in the areas of macroeconomic planning, social development policy formulation, public investment programming and project monitoring. He became Director General of the National Economic and Development Authority and Socio-economic Planning Secretary when President Gloria Macapagal-Arroyo, his student, asked him to take the posts. * Gerardo P. Sicat, a Professor Emeritus of UPSE who has written economic books and textbooks. His books delve on such subjects as political economic reform, electricity reform, and labor market and issues. * Ernesto M. Pernia, a professor of UPSE and author of many economic books and publications dealing with regional development. He was once a lead economist of the Asian Development Bank. * Cielito Habito, former Director General of the National Economic and Development Authority. Before his stint in NEDA, we was Undersecretary of the Department of Finance. * Raphael Lotilla, former Deputy Director General of the National Economic and Development Authority. After his stint in NEDA, he was appointed Secretary of the Department of Energy. * Ralph Recto, the current Director General of the National Economic and Development Authority. * Gloria Macapagal Arroyo, the President of the Philippines. She has a doctorate degree in Economics from the University of the Philippines.

The classical economists were of the opinion that the taw of diminishing returns applies only to agriculture and to some extractive industries, such as mining, fisheries urban land, etc. The law was first stated by a Scottish farmer as such. It is the practical experience of every farmer that if he wishes to raise a large quantity of food or other raw material requirements of the world from a particular piece of land, he cannot do so. He knows it fully that the producing capacity of the soil is limited and is subject to exhaustation. As he applies more and more units of labor to a given piece of land, the total produce

no doubt increases but it increases at a diminishing rate. For example, if the number of labor is doubled, the total yield of his land will not be double. It will be less than double. If it becomes possible to increase the. yield in the very same ratio in which the units of labor are increased, then the raw material requirements of the whole world can be met by intensive cultivation in a single flower-pot. As this is not possible, so a rational farmer increases the application of the units of labor on a piece of land up to a point which is most profitable to him. This is in brief, is the law of diminishing returns. Marshall has stated this law as such: "As Increase in capital and labor applied to the cultivation of land causes in general a less than proportionate increase in the amount of the produce raised, unless it happens to coincide with the improvement in the act of agriculture".

This law can be made more clear if we explain it with the help, of a schedule and a curve.

Fixed Input

Inputs of Variable Resources

Total Produce TP (in tons)

Marginal product MP (in tons)

12 Acres

12 Acres

12 Acers

12 Acres

12 Acers

12 Acres

1 Labor

2 Labor

3 Labor

4 Labor

5 Labor

6 Labor

50

120

180

200

200

195

50

70

60

20

0

-5

In the schedule given above, a firm first cultivates 12 acres of land (Fixed input) by applying one unit of labor and produces 50 tons of wheat.. When it applies 2 units of labor, the total produce increases to 120 tons of wheat, here, the total output increased to more than double by doubling the units of labor. It is because the piece of land is under-cultivated. Had he applied two units of labor in the very beginning, the marginal return would have diminished by the application of second unit of labor. In our schedules the rate of return is at its maximum when two units of labor are applied. When a third unit of labor is employed, the marginal return comes down to 60 tons of wheat With the application of 4th unit. the marginal return goes down to 20 tons of wheat and when 5th unit is applied it makes no addition to the total output. The sixth unit decreased it. This tendency of marginal returns to diminish as successive units of a variable resource (labor) are added to a fixed resource (land), is called the law of diminishing returns. The above schedule can be represented graphically as follows:

Point of diminishing marginal return In Fig. (11.2) along OX are measured doses of labor applied to a piece of land and along OY, the marginal return. In the beginning the land was not adequately cultivated, so the additional product of the second unit increased more than of first. When 2 units of labor were applied, the total yield was the highest and so was the marginal return. When the number of workers is increased from 2 to 3 and more. the MP begins to decrease. As fifth unit of labor was applied, the marginal return fell down to zero and then it decreased to 5 tons.

Marginal return

The table and the diagram is based on the following assumptions:

(i) The time is too short for a firm to change the quantity of fixed factors.

(ii) It is assumed that labor is the only variable factor. As output increases, there occurs no change in the factor prices.

(iii) All the units of the variable factor are equally efficient.

(iv) There are no changes in the techniques of production.

The nominal GNP is the value of all the production valued at this year's prices. Real GNP is valued at prices of a base year. Thus, if an economy produces in year 1 2 oranges and 3 apples, at prices 5 and 6 respectively and in year 2, 4 oranges and 6 apples, at prices 9 and 8, then:

Notice that you can not compare production between two years because prices increased. It is not correct to state that production multiply by 3. So you should compute real GNP at prices of year 1

Real GDP year 1 (at prices of year 1) = 28 (same as before)

Real GDP year 2 (at prices of year 1) = 4*5+6*6=56