AS students at the University of the Philippines School of Economics (UPSE), we have to deal with various economic theories, econometrics and applied economics, involving a deluge of formulas and graphs.
The law of supply and demand is one of the basic theories we first encounter in our Economics 101 class.
It is a theory that explains the interaction between the sellers of a resource and the buyers of that resource. The law of supply predicts a positive relationship between pricing and supply.
As prices of goods or services rise, suppliers increase the amount they produce—as long as the revenue generated by each additional unit they produce is greater than the cost of producing it. The law of demand, on the other hand, states that rising prices reduce demand. So, as prices rise, customers buy less.
The four basic laws of supply and demand are: (a) If supply increases and demand stays the same, prices will fall; (b) If supply remains constant and demand decreases, prices will fall; (c) If supply decreases and demand stays the same, prices will rise; and (d) If supply remains constant and demand increases, prices will rise.
Cielo Magno’s social media post on September 1, 2023 on the supply and demand graph with a price ceiling accompanied by the the caption “I miss teaching” became viral recently. It appeared on the day that Malacañang announced the order on rice price caps.
The supply and demand graph visually illustrates the relationship between supply and demand.
The x-axis represents the quantity and the y-axis represents the price. On the supply and demand curve, quantity determines how much suppliers offer and how much consumers demand.
Levels of supply and demand for varying prices can be plotted on a graph as curves. The intersection of these curves marks the equilibrium, or market-clearing price at which demand equals supply, and represents the process of price discovery in the marketplace.
In general, economics is the study of scarcity and its implications for the use of resources, production of goods and services, growth of production and welfare over time, and a great variety of other complex issues of vital concern to society.
Economics is derived from the Greek word oikonomia, which in turn is composed of two words: “oikos,” which is translated as “household;” and “nemein,” which is best translated as “management and dispensation.”
This situation requires people to make decisions about how to allocate resources efficiently, in order to satisfy basic needs and as many additional wants as possible.
Magno’s unwavering stance on the disputed mandatory rice price controls, which she believed ran contrary to fundamental economic principles, caused the cessation of her role in the government as undersecretary of the Department of Finance (DOF).
Executive Secretary Lucas Bersamin said Malacañang has “terminated the appointment” of Magno for supposedly being unsupportive of the administration.
Former Director-General of the National Economic and Development Authority (Neda) Cielito Habito, said in his column that price caps could be a cure worse than the disease itself.
Habito noted that forcing price caps in a largely competitive market where prevailing prices are much higher is, in effect, an attempt to “repeal” the law of supply and demand, the consequences of which could be more disastrous than the problem it hopes to solve.
When price is forced lower than the market equilibrium price—that is, the price at which quantities sold would match quantities demanded—more will be demanded than what suppliers would like to sell, leading to a shortage.
Former Social Weather Stations head Mahar Mangahas likewise described the price cap as “quite uneducated and ignorant of the law of supply and demand” as he warned that the price cap could cause unintended negative effects.
“The true quality of rice sold will suffer. Sellers may stop selling rice openly; they may even stop selling rice altogether, and leave it as work for the government to do. Buyers will cooperate in transacting business secretly,” Mangahas said in his column.
The Sandigan para sa Mag-aaral at Sambayanan (SAMASA) said Magno’s removal is a great loss to the present administration but will inure to the benefit of UP where she will go back to teach. Magno’s post said: “A wise man told me, if you do your job with integrity, you will be back in UPSE soon.”
SAMASA commended Magno’s standing firm on her principle against a policy that might be popular at first glance but which will eventually be detrimental to the public.
Magno is a UPSE alumna and associate professor. She also has a PhD in law and public policy from the Northeastern University in Boston. She was a SAMASA member who became the chairperson of the University Student Council from 1999 to 2000.
“It is our responsibility as civil servants to say if a policy is flawed. It’s very dangerous to just say ‘yes’ because we don’t want to offend the boss. Policies have real consequences on people’s lives. They have to be well thought out,” Magno said.
The university taught us how to choose the most efficient option that benefits the greatest number of people without fear of questioning deeply rooted assumptions and proposing alternative solutions.
Peyups is the moniker of University of the Philippines. Atty. Dennis R. Gorecho heads the seafarers’ division of the Sapalo Velez Bundang Bulilan law offices. For comments, e-mail info@sapalovelez.com, or call 0917-5025808 or 0908-8665786.
