ECONOMICS AS AN

APPLIED SCIENCE
Economics is a study
of economic
activities of a man. It
is only concerned
with the wealth-
getting and wealth-
using activities of a
man.
Applied Economics
The term applied economics is
believed to have started 200 years
ago in the writings of two economists:
Jean Bapiste Say (1767-1832)
John Stuart Mill (1806-1873)
Jean-Baptiste Say, in the introduction to his 1803
Treatise, spoke of applying the general principles
of political economy to
ascertain the rule of action of
any combination of
circumstances presented to us

Jean Bapiste Say (1767-1832)

John Stuart Mill gave his 1848
compendium of political
economy the title Principles
of Political Economy with
Some of Their Applications
to Social Philosophy

John Stuart Mill (1806-1873)

APPLIED ECONOMICS
Is the study of economics in
relation to real world
situations. It is the application
of principles and theories to real
situations, and trying to predict
what the outcomes might be.

how theories work in practice.

IMPORTANCE OF APPLIED
ECONOMICS APPLICATION
1 Applying economics to a company, household or
a country helps sweep aside all attempts to
dress up a situation so that it will appear worse
or better than it actually is.

Applied economics becomes a powerful tool to

reveal the true and complete situation in order
to come with things to do
Example

Applied Economics
can assess the profits of
a certain company.
The result can help
the executives to do
some strategies in order
to boost its sales
IMPORTANCE OF APPLIED
ECONOMICS APPLICATION
2 Applied economics acts as a mechanism to
determine what steps can reasonably be
taken to improve current economic situation

To examine each aspect, one can strengthen

areas where performance is weak
Example
• Purchase of goods
and services
• Usage of raw
materials
• Division of labor
within entity (e.g.
firm, company,
agency)
IMPORTANCE OF APPLIED
ECONOMICS APPLICATION
3 Applied economics can teach valuable lessons on
how to avoid recurrence of a negative
situation, or at least minimize the impact.

To view what steps were taken to improve and

correct similar situations and continue good
strategies to keep the economy flowing in a
correct direction.
ECONOMETRICS
 WHAT IS
ECONOMETRICS?
Is the application of statistical
and mathematical theories to
economics for the purpose of:
1. Testing hypothesis
2. Forecasting future trends
 WHAT IS
ECONOMETRICS?
The results of
econometric are compared
and contrasted against real
life examples
Econometrics
Example
Real life application of
econometrics would be
to study the hypothesis
that as a person’s
income increases,
spending increases
 Studying applied economics,
the courses of action of individuals,
businesses, and policy makers are
not just simple decision-making
activities but they further evaluate
the best alternatives.
Applied economics is
the application of
core theoretical
economics and
econometrics to
answer questions in a
wide range of fields.
Applied economics
can illustrate the
potential outcomes
of financial choices
made by individuals.
Applied economics
can also help
businesses make
better decisions.
Applied economics is an
invaluable tool for public
policy makers.
Applied economics
is a tool to help
solve certain real
world problem
based on economic
theories.
ECONOMIC THEORY
• It is composed of principles and
concepts in economics.
• A statement that describes the
economic phenomenon.
• It analyses the circumstances for
better understanding, make
possible future events.
 EXAMPLE OF
ECONOMIC
THEORIES
1. Law of Demand and
Supply
2. Laissez Faire
3. Rational Choice
Theory
 ECONOMIC MODEL
It represents the economic theories
through tables, graphs, mathematical
equations, and diagrams to
better understand the
economic events.
How do we come up with a good
solution using the economic theories
and models?

We have to understand the concept of

Positive Economics and Normative
Economics.
POSITIVE
ECONOMICS
Describes the economic
phenomenon based on
the factual information
and evidences. It
answers the question,
what is as an
explanation to an event.
POSITIVE
ECONOMICS
• Consumers will tend to
buy more if the prices
are low.
• High interest rates
discourage borrowers
to owe money from
the bank.
POSITIVE
ECONOMICS
• Improper use of
resources will lead to
scarcity
• Agricultural
production has been
decreased due to
bad weather
POSITIVE
ECONOMICS
• The stoppage of
economic activity
due to COVID 19
will decline the
overall production.
NORMATIVE
ECONOMICS
It describes the economic
phenomenon based on the
value judgment or opinions.
It answers the question,
what should be as an
explanation to an event.
NORMATIVE
ECONOMICS
• It is better to quarantine
the entire country than
selected areas.
• The reduction of
unemployment is
important than inflation.
NORMATIVE
ECONOMICS
• Building infrastructures
in Metro Manila are
highly prioritized than in
provinces.
• More imports are better
than exports.
NORMATIVE
ECONOMICS
• Increasing the budget of
Defense Department will
ensure the security of
the country.
 How do we come up with a good solution using the
economic theories and models?

We have to understand the concept of Positive Economics

and Normative Economics.

• They inform government policies

on issues such as taxation, trade,
and regulation.
 How do we come up with a good solution using the
economic theories and models?

We have to understand the concept of Positive Economics

and Normative Economics.

• They guide business decisions on

pricing, production, and
investment.
 How do we come up with a good solution using the
economic theories and models?

We have to understand the concept of Positive Economics

and Normative Economics.

• They help analysts and researchers

understand and predict trends in
markets, employment, and
consumer behavior.
Wrap-up:
1. Applied economics can illustrate
the potential outcomes of financial
choices made by individuals.
2. Applied economics can also help
businesses make better decisions.
Wrap-up:
3. Applied economics is an invaluable tool
for public policy makers.
4. The central focus of economics is choice
and decision making while applied
economics uses the insights gained from
economic theory and research to make
better decisions and solve real-world
problems.
Wrap-up:
5. Economics is a science concerned
with human behavior while in
applied economics, individuals can
also benefit from applying economic
thinking and insights to personal
and financial decisions.
Wrap-up:
6. Economics is concerned with
man’s welfare while applied
economics is a popular tool in
business planning and for public
policy analysis and evaluation.
Wrap-up:
7. Economic theory is a statement that
describes the phenomenon.
8. Economic model represents the
economic theories through tables,
graphs, mathematical equations,
and diagrams to better understand
the economic events.
Wrap-up:
9. Positive Economics describes the
economic phenomenon based on
the factual information and
evidences.
10. Normative Economics describes
the economic phenomenon based
on the value judgment or opinions.