Subject Title: APPLIED ECONOMICS MODULE

Grade 12- ABM & GAS

 
Subject Title: APPLIED ECONOMICS
Grade 12 Subject Description: This course deals with the basic principles of
No. of Hours: 4 hours per week applied economics, and its application to contemporary economic issues
Academic Track: ABM & GAS
  facing the Filipino entrepreneur such as prices of commodities,
minimum wage, rent, and taxes. It covers an analysis of industries for
Vision
identification of potential business opportunities. The main output of the
A Christ-centered life-giving learning institution committed to
persons into becoming competent, service-oriented and spiritually course is the preparation of socioeconomic impact study of a business
driven members of the Church and society. venture.
Mission  

We commit ourselves to:

Learning Outcomes:
1. Hasten spiritual leadership and professional development of
stakeholders through deepened Carmelite formation and continuing  Analyze and propose solution/s to the economic problem using the
education.
principles of applied economics
2. Provide integral catholic education marked by quality instruction,
research and community extension services.  Conduct a survey of current economic situations within the vicinity
3. Pursue entrepreneurial endeavors for the sustainability of value  Apply tools and techniques for business opportunities like the
innovative programs and services.
SWOT/TOWS analysis
 
 Conduct survey of macro and micro environments affecting business
“Into the land of Carmen, I brought you to gather in a locality
loads of charming foods.”  Conduct a socioeconomic impact study on consumers; suppliers;
NOTE: investors; government; households and international trade leading
This module is exclusively for the students of Carmelite College to options in venturing into a business.
of Siquijor, Inc. only. No part of this booklet may be reproduced and/or
used in any form or by any means without a written permission of the  
school authorities.

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  Adam Smith is known as father of modern economics.
 Positive Economics deals with describing relationships of cause and
effect. It deals with Explanation and prediction.
MODULE 1  Normative economics deals with what ought to be or what should
be. It is related to value judgements.
 Partial equilibrium analysis is the study of the behavior of
Introduction to Economics individual decision- making units and working of individual markets
  in isolation.
 General equilibrium analysis is the study of the behavior of all
Chapter Objectives: individual decision- making units and all individual markets
After this chapter, you should be able to: simultaneously.
   Partial equilibrium analysis is developed by Marshall whereas
 To understand fundamental principles of economics
General equilibrium analysis is developed by Walras.
 Meaning of economy, economics, microeconomics, macroeconomics,
 
positive and normative economics, partial and general equilibrium
 
analysis
Definition of economics:
 Scope of microeconomics macroeconomics
 Identify the basic problems of the Philippine Economy  “Economics enquire into the nature and causes of wealth of nations”
 Describe the various economic system (Adam Smith)
 “Economics is a study of mankind in the ordinary business life and
Points to be remembered: examines that part of individual and social action which is connected
 Economy: A study of providing living to people. with material requisites of wellbeing” (Marshall)
 Microeconomics: Study of the behavior of individual, small, isolated,
 “Economics is a science which studies human behavior as a
and disaggregated units.
 Macroeconomics: Study of groups and broad aggregates of the relationship between ends and scares resources which have
economy. alternative uses.” (L. Robbins)
 Firm: An individual producing unit.
 Economics as a study of wealth
 Industry: A group of firms producing identical or closely related
goods. o Utilization of wealth for production and consumption
 The term microeconomics and macroeconomics were first given by  Economics as a study of making choices
Ragner Frisch in 1933.
o Opportunity cost: forgone benefits of an alternative when
 Adam Smith wrote the book- “An Enquire into the Nature and Causes making a choice
of Wealth of Nations” or in short “Wealth of Nations” in 1776.  Economics as a study of allocation

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 o Allocation of scarce resources to answer unlimited human o Market: state where buyers and sellers transact on the
wants purchase or sale of a good or service
 Economics as a social science o Price as cost (sacrifice) and benefit (satisfaction)
o As a science, uses scientific method of inquiry o The problem of scarcity is addressed through the changes in
o As a social science, uses the scientific method to study how price and the corresponding responses of the buyers and
society creates its material wealth, how it makes this wealth sellers
available to its people with minimum difficulties and it o How can the market system address shortage? or surplus?
expands its wealth
o 3 basic economic questions:
 Resources and the study of economics
o What to produce: increasing prices = high demand
o Natural resources, Human resources, Physical or man-made
o How to produce: maximize profit by lowering cost of
resources production
o Raw materials: inputs of production subject to further o For whom to produce: allocating a higher proportion of
processing and transformation
output to members of a society with high purchasing power
o Factor inputs: transforming inputs that process the raw
materials and intermediate inputs into final goods and  Command system as an allocation mechanism
services
o Resources are limited: time-consuming, competing uses o The state or agency of the government may be in charge in
 Human wants and economic analysis the allocation of resources by using its political power in
addressing the basic economic problems of production and
o Human wants are differentiated human needs brought about distribution
by differences in income, taste, environment, socioeconomic o Used in times of calamities, disasters or national emergencies
status, etc. when the market system cannot fully operate
 Scarcity as a source of economic problem o Used in normal times by totalitarian and socialist states to
o Scarcity: limitation of resources to answer the expanding pursue industrialization and self-reliance, dictated by the
human wants planning agency of the government
o Economic goals of society: material survival, stability and
growth  Tradition in the process of allocation
o Scarcity vs. Shortage vs. Surplus o Useful in situations where the operation of a market may not
 Allocation and the act of economizing be appropriate or the power of an organized state has no
o Allocation: Social mechanism of distributing limited control over a certain community
o Uses culture, social norms to temper wants by use of
resources to meet expanding human wants
community pressure and criticisms; resources are
 Market system as an allocation mechanism communally owned and distribution is collectively practiced

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 o Used by indigenous communities  Macroeconomics
 

Economics as Applied Science

• Economics is a social science and it deals with how people interact

with one another to sustain, stabilize and develop the material
dimension of a society

• Many of the principles, laws and theories developed in economics

can be applied to a number of fields.

The basic problems/ questions in an economy:

1. What goods are produced and in what quantities by the productive

resources;
2. How to produced, that is what production methods are employed for
production of various goods and services;
3. How to distribute, that is how is the total production of goods and
services is distributed among its people;
4. Are the users of production resources economically efficient?
5. Whether all available products resources with a society are being
fully utilized?
6. Is the economy’s productive capacity increasing, declining or
remaining constant over time?
 

Economics has been divided into two parts by Ragnar Frisch (First
Nobel Prize Winner in Economics):

 Microeconomics

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 MICRO means small and MACRO means large. ¨ Applied Economics- is the application of economic theory and
econometrics in specific settings with the goal of analyzing
 Microeconomics deals with the analysis of small individual potential outcomes.
 
units of the economy such as individual consumers, individual ¨ Economics- as a study, is the social science that involves the use of
firms and small aggregates or groups of individual units such as scarce resources to satisfy unlimited wants. Well- known
economist Alfred Marshall described economics as a study of
total national output and income, total employment, total
mankind in the ordinary business of life, which examines part of
consumption, aggregate investment, etc. the individual and social action which is most closely connected
  with the attainment and use of material requisites of well-being.
 
 Macroeconomics deals with the analysis of the economy as a ¨ Scarcity- is a condition where there are not sufficient resources to
whole and its large aggregates such as total national output and satisfy all the needs and wants of a population. Scarcity may be
relative or absolute.
income, total employment, total consumption, aggregate
investment, etc. ¨ Relative Scarcity- is when a good become a scarce compared to the
demand for that good.
 Differences between Microeconomics and Macroeconomics:  
  ¨ Absolute Scarcity- is when by the very nature of good, its supply is
Differences based Microeconomics Macroeconomics limited.
on
1. Subject- matter: Small segments such Large aggregates ¨ Economic Resources- also known as factors of production, are the
resources used to produce goods and services. These resources
as individual such as demand,
are, by nature, limited and therefore, command a payment that
household, individual aggregate supply,
becomes the income of the resource owner.
firm, individual price, national income,
 
etc. general price level,
¨ Land- refers to soil and natural resources which are found in nature
etc.
and not man-made. Owners of land receive a payment for known
2. Use of Technique: Partial analysis General equilibrium as rent.
3. Assumptions: Full employment in Underemployment of  
the economy resources. ¨ Labor- refers to the physical, human effort exerted in production;
4. Core differences: Prices is the main Income is the main covers manual workers like construction workers, machine
determinant determinant of operators, and production workers, as well as professionals like
microeconomics macroeconomics nurses, lawyers, and doctors. The term also includes jeepney
drivers, farmers, and fishermen. The income received by labor is
referred to as wage.
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 boost their country's economy and GDP by buying local goods and
services.
¨ Capital- includes manmade resources used in the production of goods
and services, and includes machines and equipment. The owner of ¨ Positive Economics- deals with what is – things that are actually
capital earns an income called interest. happening such as the current inflation rate, the number of
  employed labor, and the level of the Gross National Product. It is an
¨ Gross national product (GNP) - is an estimate of total value of all the overview of what is happening in the economy that is possibly far
final products and services turned out in a given period by the from what is ideal.
means of production owned by a country's residents. GNP is  
commonly calculated by taking the sum of personal consumption ¨ Normative Economics- refers to what should be- that which
expenditures, private domestic investment, government embodies the ideal such as the ideal rate of population growth or
expenditure, net exports and any income earned by residents from the most effective tax system. It focuses on policy formulation that
overseas investments, minus income earned within the domestic will help to attain the ideal situation.
economy by foreign residents. Net exports represent the  
difference between what a country exports minus any imports of
goods and services.
  A Framework in Understanding Decisions using Economic Analysis
¨ Gross domestic product (GDP) -is the total monetary or market
• Marginal Benefit – additional benefit derived from an additional
value of all the finished goods and services produced within a activity
country's borders in a specific time period. As a broad measure of
overall domestic production, it functions as a comprehensive • Marginal Costs – additional cost incurred from an additional
scorecard of a given country’s economic health. production of a good or service
  • MB>MC = Net MB positive = Total Net Benefit increasing
Example of GNP vs GDP:
• MB<MC = Net MB negative = Total Net Benefit decreasing
The output of a Toyota plant in Kentucky isn't included in GNP,
although it's counted in GDP, because the revenue from the sales of • MB=MC = Net MB zero = Total Net Benefit maximum
Toyota vehicles goes to Japan, even though the products are made and
sold in the United States. It is included in GDP because it adds to the
health of the U.S. economy by creating jobs for Kentucky residents, who Variations in Benefits and Costs due to Stage of Recognition
use their wages to buy local goods and services.
  • Explicit costs: easily recognized since they are expressed in
Similarly, the shoes made in a Nike plant in Korea will be counted monetary terms and may involve actual financial outlays
in U.S. GNP, but not GDP, because the profits from those shoes will boost • Implicit costs: may not have to incur any monetary expense;
Nike's earnings and stock prices, contributing to higher national income. opportunity costs
It doesn't stimulate economic growth in the United States because
those manufacturing jobs were outsourced. Its Korean workers who will • Explicit benefits: can be measured in monetary terms or levels

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 of satisfaction or utility – Discount rate: rate which a stream of future values is
reduced to make them comparable with present values
• Implicit benefits: non-measurable
• Spacial Dimensions in the Issue of Recognition
Basic Economic Problems Confronting the Development of the
– Implicit benefits and implicit costs are harder to Philippines in the 21st Century
recognize because of the spacial consideration of the
decision maker who may not be aware of the social or
public effect of his actions
• Poverty and Unequal Distribution of Income
– Exclusion of implicit social benefits and implicit social
– Absolute Poverty: lack of income to buy the basic food and
costs will lead to improper allocation of resources with
necessities for subsistence living
its accompanying consequences
– Poverty Threshold: income needed to purchase the
• Temporal Dimension in the Issue of Recognition
minimum nutritional requirements and other basic
– Present benefits and present costs are readily realized necessities for daily survival
while future benefits and future costs (which are implicit
– Poverty Incidence: proportion of households in the country
benefits and implicit costs) are too distant in time to
with family income lower than the poverty threshold
affect the awareness of the decision maker
– Relative Poverty: the structure on how the national income
– Exclusion of future benefits and future costs will lead to
is being distributed among households in an economy
improper allocation of resources with its accompanying
consequences – Lorenz Curve: shows the share of the various household
groups on the total national income
– Gini Coefficient: measure of income inequality derived from
Variations in Benefits and Costs due to Differences in Valuation
the Lorenz Curve
• Even if the decision maker recognizes the implicit benefits and
• Perfect equality = 0; Perfect inequality = 1
implicit costs of his action, the differences between marginal
benefits and marginal costs can still persist • Demographic Changes and its Economic Implications
• The proper pricing and valuation of these implicit costs may – Population growth, is it good or bad?
have an effect on the optimal decision
– Economics of Childbirth: looks at the benefits and costs of
• Spacial Dimension in the Issue of Valuation having a child
– Even if the decision maker has recognized the social • Low Investment in Human Resource Development
benefits and social costs of his action, various individuals
may have different valuation of these social impacts – Knowledge capital: heavy investments in higher education,
science and technology, and research and development
• Temporal Dimension in the Issue of Valuation

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 • Weak Infrastructure Applied Economics Chapter 1: Introduction to Applied Economics
Read:
– How to finance? Borrowing, taxation, public-private
partnership ¨ Lesson 1.1. Introduction to Economics
à Choices and Decision Making
à Economic Resources
• Pursuing Food Security à Economics as Social Science
à Macroeconomics and Microeconomics
– Food security vs. food self-sufficiency
à Basic Economic problems of the society
• Slow Adaptation of Modern Technology à Economic Systems
à Why is Economics Important
– Labor intensive technology vs. Capital intensive technology
à Scientific Approach in the Empirical Testing of an Economic
• Environmental Sustainability and the Country’s Development Theory
Thrust à Positive Economics versus Normative Economics
– The environment is part of natural resources where we à Measuring Economy
derive income from the utilization of its wealth. ¨ Lesson 1.2. Economic as an Applied Science
à Applied Economics in Relation to Philippine Economic Problems
– However, excessive use of our natural resources may
compromise its ability to provide income and other benefits à ASEAN ICON
in the future.  

Activity 1.1
1. Answer the following:
 SUMMATIVE ASSESSMENT I, II, & III;
 DISCUSSION QUESTIONS # 1 & 2

Further Reading

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   Learners Attributes:
At the end of the course, the learners will be able to become
socially aware, proactive, and involved in both public and civic affairs in
order to be emotionally mature using the acquired mastery of the
subject matter and further master the concepts and skills for lifelong
learning.

Academic Policies:

 All learning modules are exclusive only for students enrolled at

Carmelite College.
 Do not write anything on the modules and handle them with care for
they will be returned.
 Please follow the scheduled retrieval and collection of learning
modules provided by the school.
 Submit all duly accomplished learning tasks/activities on or before
the designated time.
 Wear appropriate attire and follow health protocols upon
submitting, retrieving, and collecting learning modules and
accomplished learning activities.

Grading System:

 Written Works - 30%

 Performance - 50%
 Quarterly Exam - 20%

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 Methods of Instruction/ Subject Format/ Delivery
 This course is offered in modular delivery provided by the
subject teacher.
 All quizzes, assignments, portfolios and projects will be
submitted on the given schedule in the module provided. Failed
to submit or complete by the deadline will result in a zero for the
task given. Submission will be through face-to-face.
 Web-Based Instruction and Multimedia Instruction will be given
in the module.
o (Using Web resources to support learning. a. blogs b.
building a website c. discussion boards d. online testing
and quizzes e. research f. virtual tours g. web-streaming
h. wikis)
o (Multimedia Instruction - Integrating varying formats
such as lecture, text, graphics, audio, video, Web
resources, projection devices, and interactive devices in a
lesson.)
 Exams will be scheduled according to course and year level.

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