APPLIED

ECONOMICS
 CONTENT
INTRODUCTION TO APPLIED
ECONOMICS
❖ Economics as an applied science.
❖ Economics as a social science.
❖The basic economic problems and
the Philippine socio-economic
development in the 21st century.
 LEARNING
COMPETENCY
✓Define
basic terms in applied
economics. (ABM_AE12-Ia-d-1)

✓Thelearners identify the basic

economic problems of the
country.
(ABM_AE12-Ia-d-2)
CONTENT PERFORMANCE
STANDARDS STANDARDS
The learner The learners
demonstrates an shall be able to
understanding of… analyze and
economics as an propose solution/s
applied science to the economic
problems using the
and its utility in principles of
addressing the applied
economic problems economics.
of the country.
 OBJECTIVES

At the end of the lesson, the

learners should have:
 Defined economics as an applied &
social science;
 Identified the basic economic
problems;
 Enumerated the things to be done
to solve the economic problems in
the country.
4 PICS 1 WORD
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SCEIO NE CE
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SCIENCE
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ALITIPUPACON
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APPLICATION
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E IH TIRYO
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T H E O RY
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ELWIDRO
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WORLD
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PVTOEARY
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POVERTY
 ANALYZE

ANSWERS
SCIENCE APPLIED
APPLICATION
ECONOMICS
THEORY
WORLD
POVERTY
 APPLIED
ECONOMICS
As a science, is an application
of theory/theories in the real-
world situation to fight problems
such as poverty.
APPLIED ECONOMICS

“brings economic
theory nearer to reality”
WHAT IS ECONOMICS?
Economics as defined
ECONOMICS From the Greek words Oikos
meaning household and nomos meaning
management = household management

The wise production and use of wealth to

meet the demands or needs of the people
Economics is from the Greek words
oikos which means household or
family and
nonos meaning management. During
the ancient times, family is the most
observed
organization. Oikonomos includes the
management of wealth and customs
of the
family which later on form part of the
society.
ECONOMICS –

✓ is defined as the science of

SCARCITY.
✓ is the study of how individuals and
societies choose to use the scarce
resources that nature and previous
generations have provided.

✓ Itis the study of economic problems.

Wants are motive for economic
activity. Wants leads to efforts and
which lead to satisfaction
SCARCITY
Is defined as the limited
availability of resource,
good, or service.
1. Scarcity- a situation wherein the
amount of something available is
insufficient to satisfy the desire for it
2. Resources-The labor, capital,
land and natural resources and
entrepreneurship that are used to
produce goods and services.
3. Unlimited – without limits, infinite
4. Wants –desires
ECONOMICS
✓ Is a Social Science because it
deals with the behavior of people as
they deal with the issue of Scarcity.

THE ELEMENTS OF ECONOMICS

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THREE WORDS TO REMEMBERED AND
UNDERSTOOD IN STUDYING
ECONOMICS:
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[Link] OF SCARCE RESOURCES

In other words, Economics is the

study of production, distribution
and consumption of goods and
services.
 ECONOMICS AS AN APPLIED
SCIENCE
 Its primary aim is to increase human
welfare by the investigation and analysis
of economic problems of the real world.
 It focuses on social problems, the health-
care crisis, agricultural problems,
poverty, economic growth and the
environment.
Is studying Economics
important?
Why? Why not?
IT IS A SCIENCE…BUT
It does no EXPERIMENTS in LABORATORIES

It does USE ACTUAL DATA OF PEOPLE AS

THEY BEHAVE IN THE REAL WORLD!
Economics
Is Economics a Science?

Or An Art?

Or Economics is Both?

“Science requires
Art; Art requires
Science, Each
being
complementary to
each other”.
IT IS ALSO AN ART
ECONOMICS AS AN ART?
 Art is a skill acquired by experience,
discipline, study or observation
 It is also considered an art because it
will give you a certain kind of skill which
can only be gained through the
application of economic principles in
one’s life or through study and
observation on how economics is put to
use by others
 ECONOMICS AS A SOCIAL
ItSCIENCE?
is a social science because it
studies people comprising the
economy
It studies the economic behavior
of man in the market
 DESSERTED ISLAND WISHLIST

Imagine finding yourselves on a

deserted island with no food, water,
or any other readily available
resources. After your first few days
of surviving on the island, you come
across a shipwrecked container
that contains ten supplies.
 TWO TYPES OF
SCARCITY
1. Relative Scarcity
2. Absolute Scarcity
RELATIVE SCARCITY
- is when good is scarce
compared to its demand

ABSOLUTE SCARCITY
- is when supply is limited.
 A B C D

DECISION MAKING-SKILLS
PROBLEM SOLVING ABILITIES
OPPORTUNITIES
 ECONOMICS AS AN APPLIED
SCIENCE

- Decision-Making Skills
- Problem Solving Abilities
- Opportunities
OPPORTUNITY COST
- refers to the value of
the best foregone
alternative.

The opportunity cost of any item is

whatever must be given up to obtain it.
It is the relevant cost for decision
making.
The opportunity cost of…
…going to college for a year is not
just the tuition, books, and fees,
but also the foregone wages.

…seeing a movie is not just

the price of the ticket, but the
value of the time you spend
in the theater.
 Opportunity Cost
Opportunity Cost
Perhaps the most fundamental concept to Economics, opportunity cost
is what must be given up in order to undertake any activity or economic
exchange.
• Opportunity costs are not necessarily monetary, rather when you buy
something, the opportunity cost is what you could have done with
the money you spent on that thing.
• Even non-monetary exchanges involve opportunity costs, as you may
have done something different with the time you chose to spend
undertaking any activity in your life.

Examples of opportunity costs

• The opportunity cost of watching TV on a weeknight is the
benefit you could have gotten from studying.
• The opportunity cost of going to college is the income you
could have earned by getting a job out of high school
• The opportunity cost of starting your own business in the wages
you give up by working for another company
• The opportunity cost of using forest resources to build houses is
the enjoyment people get from having pristine forests.
 Opportunity Cost
 Opportunity costs
 Making choices in the face of scarcity implies
a cost.
 Opportunity costs - cost of one choice in
terms of the best forgone alternative – the
next alternative that you choose not to do is
the cost of thing that you choose to do.
 The second best alternative that has to be
forgone for another choice which gives more
satisfaction.
 The higher the opportunity cost, the less likely
to do it.
WHY
OPPORTUNITY
COST IS ESSENTIAL
IN THE STUDY OF
ECONOMICS?
One of the fundamental
diagrams that economists
familiarize themselves with is the
PRODUCTION POSSIBILITIES
FRONTIER (PPF). This diagram
serves as the primary model
that shows scarcity, choice, and
opportunity cost.
 The PPC
Opportunity Cost in the Production Possibilities Model
The tradeoff we face between the use of our scarce resources (or
even time) can be modeled in a simple Economic graph known as the
Production Possibilities Curve (the PPC). Study the graph below:

Tradeoffs in the PPC:

Sarah faces two tradeoff. She
can either work or play with
her limited amount of time.
• The opportunity cost of an
hour of work is an hour of
play
• As she goes from 3 hours of
work to 7 hours of work, she
gives up 4 hours of play.
• She cannot spend 10 hours
working AND 10 hours
playing, so Sarah has to
make CHOICES
PPC Video Lesson

SCARCITY, OPPORTUNITY COST AND THE

PRODUCTION POSSIBILITIES CURVE
PPC Video Lesson

THE LAW OF INCREASING

OPPORTUNITY COST AND THE PPC
MODEL
Free Goods and Economics Goods
Goods in Economics are those things we like to
consume.
They are called “goods” because consuming them
makes us feel good!
• Free goods are those things that we desire but that
are not limited.
• Economic goods are those that we desire but that
ARE limited.

Which of these goods are Free Goods and which are Economic
Goods?
Haircuts Cars Toothbrushe T.V.S Movies Happiness
s
Shoes Vacation Friendship Hamburgers Love Jewelry
s
Education Air Fresh Water Public Sunshine Etc.
Transportation
Goods and Services
The ice cream is a good. A good is something you can feel, or
any kind of merchandise.
A service is any kind of work performed for others.

 Goods  Services
ECONOMICS AS AN APPLIED
SCIENCE
Quote
ECONOMIC RESOURCES

also known as factors

of production, are the
resources use to produced
goods and services.
The Factors of Production
The production of all of the
good we desire requires
scarce resources. It is the
allocation of these resources
between humans’
competing wants that
Economics focuses on.
 PRODUCTION, cont.
Production is how STUFF – Goods and
much stuff an Services.
individual, business,
country, even the
Goods – tangible (you
WORLD makes.
can touch it) products
we can buy
But what is “STUFF”?
Services – work that
is performed for
others
ECONOMIC RESOURCES

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 The productive Resources
Land Labor Capital Entrepreneurship

Capital refers to the This refers to the

tools and innovation and
Labor refers to the technologies that creativity applied
Land resources are used to produce
human resources in the production
are those things the goods and
used in the of goods and
that are "gifts of services we desire.
production of Since more and services. The
nature". The soil in
goods and better tools physical scarcity
which we grow
services. Labor is enhance the of land, labor and
food, wood,
the human work, production of all capital does not
minerals such as
both physical and types of goods and apply to human
copper and tin services, from cars to
intellectual, that ingenuity, which
and resources computers to
contributes to the itself is a resource
such as oil, goal, education to
production of that goes into the
gas and uranium haircuts, yet the
goods and amount of capital in production of out
are scarce
services the world is limited, economic
capital is a scarce output.
resource.
Three Types of Resources work
together in our economy

Natural Resources Human Resources

Capital Resources
THREE parts to the Production
Process
Factors of Production – what we need to make
goods and services

Producer – company that makes goods and/or

delivers services

Consumer – people who buy goods and services

(formerly known as “stuff”)

Which Came First?

 Production Process

Land

Goods

Labor Production/
Manufacturing
“Factory” Consumers
Capital

Services

Entrepreneurship
Needs vs. Wants
 Needs– what  Wants – the
people must things we would
have to live. like to have, but
Food can live without.
Clothing
Shelter
 Scarcity of resources is the
root cause of all economic
problems. Resources are scarce in
relation to what we demand. In
view of this scarcity of resources, a
society cannot produce unlimited
quantities of goods and services.
The Basic “Economic Problem”?
In a world of finite resources, the wants
of man are virtually infinite. The basic
Economic Problem is how to allocate
those limited, scarce resources between
the unlimited wants of man. This
problem gives rise to three questions
that any and all economic systems must
address.
The Three Basic Economics Questions
are :
 BASIC ECONOMIC
PROBLEMS
There are three Basic Economic
Problems to make the right decisions:

1. What Should be Produce?

2. How Should Things Produce?
3. For Whom Should Things be
Produce?
1. What should be produced?
Given the resources with which society is endowed, what
combination of different goods and services should be
produced?
2. How should things be produced?
Should production use lots of labor, or should lots of capital
and technology be used?
3. Who should things be produced for?
How should the output that society produces be distributed?
Should everyone keep what he or she makes, or should trade
take place? Should everyone be given equal amounts of the
output, or should it be every man for himself?

These are the three guiding questions of

any Economic system
The Economic Problem
BASIC ECONOMIC
PROBLEMS
 BASIC ECONOMIC PROBLEMS
What to Produce? How to Produce? For Whom to
Produce?
Enough Supply of Desalination For all the people
Potable Water in the community

Bags made of Means of For the people

Water Hyacinth Weaving/Handicraft who need bags
In general…
 WHAT’S THE DIFFERENCE?

MICROECONOMICS MACROECONOMICS

I A
 BRANCHES
MICROECONOMICS
vs.
MACROECONOMICS
TREES VS. THE FOREST
Two major fields/divisions
1. Macroeconomics = Forest
 Studies how the economy
behaves as a whole
GNP/GDP, Inflation, and
employment and
unemployment, balance of
payments and exchange
rates
Gross National Product (GNP)

Gross Domestic Product (GDP)

TREES VS. THE FOREST
2. Microeconomics = Trees
 About INDIVIDUAL economic units
such as CONSUMER and FIRM or
BUSINESS
Demand & Supply, Elasticity, Utility.

PRICE THEORY
Process of setting prices of
goods.
 The Scope of Economics
EXAMPLES OF MICROECONOMIC & MACROECONOMIC CONCERNS
Production Prices Income Employment

Microeconomics Production/Output in Price of Individual Distribution of Income Employment by

Individual Industries and Goods and Services and Wealth Individual Businesses &
Businesses Industries
Price of medical care Wages in the auto
How much steel Price of gasoline industry Jobs in the steel industry
How many offices Food prices Minimum wages Number of employees in
How many cars Apartment rents Executive salaries a firm
Poverty Number of accountants
National Aggregate Price Level National Income Employment and
Production/Output Unemployment in the
Macroeconomics Consumer prices Total wages and salaries Economy
Total Industrial Output Producer Prices Total corporate profits
Gross Domestic Product Rate of Inflation Total number of jobs
Growth of Output Unemployment rate
 ASSIGNMENT
Direction:
in a 1 whole sheet of pad paper
 You’re planning to buy at a nearby sari-sari
store, grocery or mall. You have noticed that
stores have enough stocks of commodities to
sell, you probably cannot afford to buy all
you want, and so you have to make choices
on how to use your limited resources (money,
time, energy).
 Given Php500.00 as your allowance for the
whole week. How will you allocate your
budget for your expenses for the week?
 ASSIGNMENT

Direction:
 Listyour choices and describe the
advantages and disadvantages of each
choice.
CHOICE 1 CHOICE 2 CHOICE 3
Advantages Disadvantages Advantages Disadvantages Advantages Disadvantages