APPLIED ECONOMICS

3RD QUARTER – WEEK 2

Learning Activity Sheet
Lesson 2.1: Economic Resources and Basic Questions

For us to better understand the way of life of the individuals, business

activities, government actions and policies, we need to study economics. As we go
along with our study, we noticed that resources and the behaviour of human and
society are always mentioned in economics. We already discussed that resources are
limited in nature. It is hard to replenish once the resource has been used. This is the
reason why scarcity exists. For this module we will further understand what these
economic resources are and how the basic economic questions will answer scarcity.

Economic Resources
We need resources in order for us to survive in everyday living. We all know that there
are many available resources in the market. However, some of the resources available
cannot satisfy our wants.
In economics, there are four classifications of resources: land, labor, capital, and
entrepreneurial skills. These are the factors of production used to produce goods and
services.

1. Land
Land refers to the natural resources. It includes materials found in forest, water
and air. Minerals, oil, and petroleum are also part of this economic resource. Once
this resource has been used, the owner of the land will receive a payment called rent.

The country is rich with natural resources. According to Philippine Government

Website, Philippines is composed of 7,641 islands with terrestrial territory of more
than 300,000 square kilometers. Since the country is an archipelago, it is surrounded
by bodies of water. A total of 2,400 fish species found within the territory. Moreover,
the country has fertile, arable lands, diverse flora and fauna, extensive coastlines, and
rich mineral deposits. The Philippines’ primary source of livelihood is its fertile land.
The country’s main agricultural production are rice, corn, banana, sugarcane,
pineapples, coconut, abaca, and tobacco. Before the Rice Tariffication Law enacted,
there are less rice supply in the market which are too pricey. This is an evidence that
the country is facing rice shortage. However, the country is one of the top exporters of
banana and coconut around the world.

According to Philippine History Organization, the country’s mineral deposits are

estimated at 21.5 billion metric tons for metal. Nickel is the abundant mineral in the
country, followed by iron, and copper. Gems, precious metals, and copper are the top
export products of the country in 2019. Meanwhile, there are 19.3 billion metric tons
of non-metal. Cement, lime, and marble are top non-metal products of the country.

2. Labor
This economic resource refers to human capital. Laborers used their physical
effort to produce goods and provide services. They are receiving an income called wage
for the work done. Wage depends on the worker’s ability in terms of education, work
experience, and training.

Philippines is tagged as labor-intensive country. Meaning, the country relies on

its human capital. The rate of population in the country is increasing, this is the
reason why we have a lot of people who are ready for a job. Is it good for a country to
have a bigger population? The answer depends on how the country uses its human
capital. There are many workers available in the market, however, the job does not
suit for the skills that the company is looking for. Hence, labor supply cannot suffice
the labor demand that would result to unemployment. As of July 2018, data showed
that 42.982 million Filipinos were part of the labor force and 94.59% or 40.659 million
were employed (PSA).
 As we have discussed in the previous lesson, Adam Smith emphasized that if
the country wants to prosper, there’s a need to divide the task among its
specialization. The management should utilize effectively the specialized skills of an
individual.

3. Capital
It refers to the man-made materials used in production. It also serves as an
investment in capital goods for future use. Capital is categorized as fixed and working
capital. Fixed capital includes machineries, factories, buildings, and equipment.
Working capital refers to finished goods or semi-finished goods which will be utilized
in near future. Financial resources are also part of the capital. The payment of the use
of capital is called interest.

According to the April 2020 Report of Philippine Statistics Authority (PSA), the
country’s top export products are electronics such as integrated circuits, office
machine parts, computers, semiconductor devices, and electrical transformers.

4. Entrepreneurial Ability
It is also known as entrepreneurship. This economic resource refers to an
individual who has the special skills needed to produce goods and services.
Entrepreneurs are the ones who own the economic resources. They use their skills in
managing the resources, decision-making for the business, and handling risks for
such economic situation. They receive an income called profit after deducting the
payment from owners of land, labor, and capital.

Basic Economic Questions

If the resources are unlimited, individual and society could have whatever they
want. With this, scarcity is not a concern instead society enjoys the resources at its
optimum satisfaction. However, this is antithetical on what is happening in reality.
The principle of scarcity-forces-tradeoff recognizes that although human desires are
unlimited, the resources needed to fulfill it are scarce. The scarcity forces individuals
to make choices in what to have and what to give up. The larger and more advanced a
society is, the more numerous and complex these choices would be. Paul Samuelson,
America’s first Nobel Prize winner for economics, drawn three basic economic
questions to allocate properly the limited resources. Each society must answer the
economic questions depending on their economic goals to address the desires of the
people.

1. What to produce?
No society can produce everything what its people might want because scarcity
exists. This raises the question: What goods and services are most wanted and
needed? For instance, due to global pandemic, Philippines has a limited budget,
should the government produce more testing kits or provide more public goods to its
people? Should the government continue the lockdown or continue the business
activities? Should the government produce technological devices or printed materials
for the learners?

Economists must decide what to produce given the limited land, labor, and
capital. In traditional economy, the focus is on producing basic necessities like food
and shelter. In advanced economy, there are more available resources which can be
used for non-necessary goods, such as leisure and technology. In a free market
economy, production is determined by market forces. Businesses will provide goods
and services demanded by consumers. In a mixed economy, with government
intervention, the government may decide to produce more public goods which are not
profitable but do improve economic welfare.

2. How to produce?
Economists must look for the best combination of economic resources in such a
way the production is effective and efficient. For example in a free market, we all know
all that Marikina City is known of its shoe products. Some of the shoe businesses in
Marikina are still producing handmade shoes, while others are using machines.
However, which is least-cost and more effective should apply.
In a mixed economy, a government may regulate production methods to limit the
negative externalities. There are many factors to consider such as environment,
technology, and human welfare before we decide on how to produce such product.

3. For whom are goods and services to be produced?

This question will relate to the economic goals: equity and fairness. It tries to
answer: Who will benefit of this product? Is there any specific group of people who
deserves this product? Are all the constituents will get this product?
In a free market, goods are provided for those with the ability to pay. This may be
through a simple exchange or in more advanced economies through cash payments. In
more humane societies, we may seek to produce goods and services for those who may
not be able to afford them.

Lesson2.2: Economic Systems and Possibilities Frontier

Economic System
The economic system determines how resources are being distributed to the society.
There are four types of economic system: traditional economy; command economy;
market economy; and mixed economy (Argawal, 2020).

1. Traditional Economy
The traditional economy is the most basic type of economic system and
considered as the old form of economic activity. Many countries in the world still adopt
this economic system. The basic economic activities of this system are engaged in
agriculture such as farming, fishing, and the like. People are living in the rural areas
and get their needs mostly on the natural resources.

This economy adopts the old form of commerce which is the barter system.
Bartering is the exchange of goods and services between two or more parties without
the use of money (Kenton, 2020). If the household has a less supply of rice but
abundant in corn products, it can barter their corns with others who have surplus in
rice. In general, the way of life in a traditional economic system is simple. However,
the disadvantage of this economic system is lack of technological access.

2. Command Economy
In a command economy, a large part of the economic system is controlled by a
centralized power of the government. Since the government is a central feature of the
economy, they involve everything from planning to redistributing resources to the
society. It is among the theories of politics and economy of Karl Marx. In this case, the
government is not only involved in making all decisions but it is also included in the
price formulation and control.

This type of economic system dictates and answers the basic questions in
economics. This capability also means that the government usually owns the factors of
production and the major industries like utilities, transportation, and
telecommunication.
In a command system, people work for the public goods. The interests and profits are
shared amongst the citizens, hence socialism applies in this system. The social welfare
is a top priority, as there are free and equal access to education, housing and
healthcare for everyone. However, the freedom and entrepreneurial spirit are not
evident because the government has the full control of major industrial resources.

3. Market Economy
In a free-market economy, firms and households act in self-interest to
determine how resources get allocated, what goods and services need to produce and
who buys the products. This system is opposite to how a command economy works.
 There is no government intervention in a pure market economy. This
mechanism is called laissez-faire or let alone policy. It is a French word for "leave to
be", this means that the government do not intervene the market activities, hence, the
policy is favorable to the capitalists. A business’ goal is to make maximum profit,
however, there is a rigid competition in the market that offers the similar products.
This is an advantage for the consumers because there will be many alternatives to
choose from. Adam Smith’ invisible hand dictates the prices of the goods and services
– based on the demand and supply. Consumers pay the highest price they want to,
and businesses only produce profitable goods and services.

There is a lot of incentives for entrepreneurship. Businesses invest heavily in

research and development for constant innovation as companies compete to provide
better products for consumers. One of the disadvantages of pure market economy is
lack of focus on societal benefit which leads to higher income inequality.

4. Mixed Economy
A mixed economy is a combination of different types of economic systems. This
system is commonly a mixture of market economy and command economy. It is also
known as Keynesian Economic System or Dual Economic System. There is a
government intervention while everyone has freedom to choose and opportunities to
innovate. Individuals have the freedom to enter the market. Unlike the free market
where the price is formed by supply and demand, in this system, the price is
controlled as there is the motive to make a profit without sacrificing the social welfare.

In mixed economy, the government provides environmental protection,

employment standards, competition policies, and standardized welfare system. The
government is usually involved in the regulation of private businesses. The idea
behind a mixed economy was to use the best of both worlds – incorporate policies that
are socialist and capitalist.

Trade-off and Opportunity Cost

In economics, trade-off means the exchange in which a person sacrifices one or
more things for getting a particular product, service or experience. It is a deal that
arises as a compromise, wherein in order to obtain a certain aspect we have to lose
another aspect.

For example: Suppose a company wants to start a new project, which requires huge
investment and other resources. The trade-off entails the reduction in certain
expenses, in order to invest in the new project. There is an exchange of resources from
expenses to the new project. Hence, trade-off implies the way forsaking one or more
desirable alternatives, in obtaining a specified outcome.

Trade-offs create opportunity costs, one of the most important concepts in

economics. Whenever you make a trade-off, the thing that you do not choose is your
opportunity cost. It refers to a benefit that a person could have received, but gave up
to take another course of action. An opportunity cost represents an alternative given
up when a decision is made.

For example: Suppose after pursuing Bachelor’ Degree in Business Administration you
have two options: (1) to start your own business and earn Php20,000 per month; or
(2) join in a company and get Php25,000 per month. If you commence your own
business you will earn Php20,000, but you will not get Php25,000 per month. This
Php25,000 is your opportunity cost, which you will get for serving the company and
not starting your own business.

Production Possibilities Frontier

The Production Possibilities Frontier (PPF) shows the combinations of goods and
services that can be produced and those that cannot given the resources.
 Lesson 2.3: Basic Economic Problems in the Philippines

Economic Problem
Economic problem exists because of imbalances of resources and satisfaction of
human needs and wants. Resources are limited to suffice the unlimited desires of the
society. Because of this, all societies are not excused with the economic problem.
Philippines is one of the competitive countries in the world. In the past years, the
economy has been increasing and stable. According to the study of World Bank in
2019, the Philippine economy remains strong and is projected to grow 5.8% in 2019,
before recovering to 6.1% and 6.2% in 2020 and 2021, respectively. Filipinos are very
proactive to attain these figures. However, there are hindrances to meet this goal –and
these are economic problems. It is hard for the Philippines to fully eradicate poverty,
unemployment and other problems because of the resources.

Unemployment
As per NSCB Resolution No. 15 dated October 20, 2004, unemployed consists
of persons in the labor force who are reported as (1) without work; and (2) currently
available for work; and (3) seeking work or not seeking work because of the belief that
no work is available, or awaiting results of previous job application, or because of
temporary illness or disability, bad weather or waiting for rehire or job recall.

The latest unemployment report posted by Philippine Statistics Authority (PSA)

was in April 2020. According the report, unemployment rate increased to 17.7 percent
with 7.3 million unemployed Filipinos in the labor force in April 2020. This is a record
high in the unemployment rate reflecting the effects of Corona virus disease 2019
(COVID-19) economic shutdown to the Philippine labor market. Unemployment rate
in January 2020 was 5.3 percent, while in April 2019 it was recorded at 5.1 percent.
This global pandemic has a great effect not only in our country but the rest of world.
Let’s us find out what are the causes of high unemployment.

Major Causes of Unemployment

There are reasons why unemployment occurs. These causes are categorized as
structural, cyclical, frictional, and seasonal unemployment.

1. Frictional Unemployment
It is transitional unemployment due to people moving between jobs because of
the many factors. Frictional unemployment can be both voluntarily leaving from their
jobs and new entrants in the labor market. Workers quitting their job to look for better
pay adds to frictional unemployment. In other cases, workers may resign from their
job to go back to school or learn a new skill because they believe they need the skill to
earn more income. Others might leave the workforce for personal reasons, such as to
care for a family member, sickness, retirement, or pregnancy.

2. Structural Unemployment
This happens when there is a long-term decline in demand in an industry
leading to fewer jobs as demand for labor falls away. This type of unemployment exists
because though jobs are available, there’s a mismatch between what companies need
and what available workers offer. Technology tends to worsen structural
unemployment. Jobs on a production line being replaced by robots e.g. motor
manufacturing, online banking and online retailing. Thus, structural unemployment is
long-lasting unemployment due to shifts in an economy.

3. Cyclical Unemployment
Cyclical unemployment is the impact of economic recession or expansion on the
total unemployment rate. This is also known as Keynesian unemployment or demand-
deficient unemployment. During recession, there’s an increase in unemployment
because of business closures and failures that would result to mass lay-offs. Firms are
likely to reduce employment to cut costs and/or maintain profits – this is called
“labour shedding" or “down-sizing"

4. Seasonal Unemployment
 The concept of seasonal unemployment describes a situation when workers
experience unemployment at certain times of the year when the demand has
decreased. Although unemployment is always problematic, the upside is that seasonal
unemployment doesn’t last–eventually, the peak season of a given industry arrives and
many workers become employed once again.
Many workers adapt to seasonal unemployment by working quite a bit when demand
is high and saving up much of their earnings, then living off of those savings during
their seasons of unemployment. Employment opportunities are offered only during
holiday seasons, increase in number of tourists, and agriculture.

Poverty
Basically, poverty is a condition where people’s basic needs for foods, clothing,
and shelter are not being met. In the final report of Family Income and Expenditure
Survey (FIES) in 2018, the poverty incidence among population, or the proportion of
poor Filipinos whose per capita income is insufficient to meet their basic food and
non-food needs, is now estimated at 16.7 percent. This translates to about 17.7
million Filipinos living in poverty. (PSA, 2020). The poverty incidence has been
decreased throughout the years. This is a good indicator that the economy is really
performing.

Major Causes of Poverty

1. Corruption
The World Bank recognizes the harmful effects of corruption. Public sector
corruption is defined as the abuse of public power for private benefit. Corruption
refers to preferential access to public goods and services, gratuitous insuring of public
procurement and contracts, illegal hiring in the public sector, bribery or grafting,
abuse of official information, inconsistent application of rules etc.

2. Education
Poverty is not only a problem of low incomes but it is a multidimensional
problem that includes low access to opportunities for developing human capital and
education. Poor countries increase their poverty level due to lack of training skills,
productive knowledge and transforms human beings into more valuable human
capital and education. Poverty levels are strongly linked to educational attainment.
Two-thirds of poor households are headed by people with only an elementary school
education or below. Access to quality education is identified as a key pathway out of
poverty. Without proper training for the respective skills and knowledge in the work
force such as read, write, communicate and be able to choose different alternative
choices in more informed way would lead to low earnings and therefore increase
poverty level.

3. Natural and Geographical Characteristics

Many countries are inherently poor due to their geographic characteristics that
predispose them to weak economic growth. In the Philippines, the majority live in rural
areas and work in the agriculture sector. Asian Development Bank (ADB) suggests
that there’s a need of agricultural development for the farmers and fishermen to
generate more income. Also recurrent shocks and exposure to risks such as economic
crisis, conflicts, and natural disasters are the main drivers of the poverty in the
country.

4. Ineffective Governance & Government Policies

The ineffective local governance and government policies seem to prevent the
chronically poor from escaping the poverty trap. In time of high inflation, people can’t
afford to buy goods and services that they need. ADB also highlight that there’s a high
level of population growth in the country. Most large families, with six members or
more, are having difficulties to cope with every living. The government needs to put
effort in creating jobs, quality and accessible education, strong macroeconomic
policies, and programs to alleviate poverty.
ACTIVITIES
I. Directions: Identify the following terms in each statement. Write your answer in the
space provided.

____________1. It refers to the resources found in nature.

____________2. A payment for the service rendered by human.
____________3. It is the top export product of the Philippines during 2019.
____________4. A principle that reminds resources are scarce
____________5. A question that is intended to answer the products most wanted by the
society.
____________6. It is an income after deducting the payments from the owners of the
land, labor, and capital.
____________7. A question that answers the combinations of resources and
technologies which will be used to produce goods and services at lowest cost.
____________8. It refers to an individual who has the special skills needed to produce
goods and services like managerial and organizational skills.
____________9. These are also known as factors of production.
____________10. These are the three basic economic questions.

II. Directions: Identify the following terms in each statement. Write your answer in
the space provided.

____________1. It determines how the resources are allocated in the society.

____________2. This economic system is controlled by the government.
____________3. An economic system that applies laissez-faire.
____________4. This system is a combination of a market economy and command
economy.
____________5. This economy adopts the old form of commerce.
____________6. It refers to the exchange of goods and services between two or more
parties without the use of money.
____________7. It means the exchange in which a person sacrifices one or more things
for getting a particular product, service or experience.
____________8. It represents an alternative given up when a decision is made.
____________9. It shows the combinations of goods and services that can be produced
and those that cannot given the resources.
____________10. It is achieved when the resources are fully utilized without any
waste. .

III. Directions: Identify the following terms in each statement. Write your answer in
the space provided.

____________1. It refers to persons in the labor force who are reported as without work
and currently available for work.
____________2. A condition where people’s basic needs for foods, clothing, and shelter
are not being met.
____________3. It is a type of unemployment caused by economic recession or
expansion.
____________4. It is an unemployment due to people moving between jobs because of
the many factors.
____________5. It is a report conducted by Philippine Statistics Authority about the
poverty incidence of the country.
 Published by the Department of Education - Schools Division of Pasig City

Development Team of the Self-Learning Module

Writer: Emmanuel B. Penetrante

Editor: Hedelita B. Calonia
Reviewers:
Content/Language: Hedelita B. Calonia
Technical: Emmanuel B. Penetrante
Management Team:
Ma. Evalou Concepcion A. Agustin
OIC-Schools Division Superintendent Aurelio G. Alfonso EdD
OIC-Assistant Schools Division Superintendent Victor M. Javeña EdD
Chief, School Governance and Operations Division and OIC-Chief, Curriculum
Implementation Division

Education Program Supervisors

Librada L. Agon EdD (EPP/TLE/TVL/TVE) Liza A. Alvarez (Science/STEM/SSP)
Bernard R. Balitao (AP/HUMSS) Joselito E. Calios (English/SPFL/GAS) Norlyn D.
Conde EdD (MAPEH/SPA/SPS/HOPE/A&D/Sports) Wilma Q. Del Rosario
(LRMS/ADM) Ma. Teresita E. Herrera EdD (Filipino/GAS/Piling Larang) Perlita M.
Ignacio PhD (EsP) Dulce O. Santos PhD (Kindergarten/MTB-MLE) Teresita P.
Tagulao EdD (Mathematics/ABM)