ECONOMICS AS A SOCIAL SCIENCE

Economics
 Seeks to understand how choices are made.
 Is considered a social science as it seeks to study humans with empirical tools.
The Economic Problem
 Human wants are unlimited; however, resources are scarce.
 The reason why individuals are forced to make choices.

Scarcity
 The limited availability of resource, good, or service,
 A resource is scarce when quantity is limited relative to the demand for it.
Example of Scarcity:
 In March, the WHO had already shipped out over 500 million sets of PPE. However,
the WHO also reported that 89 million surgical masks are needed every month.
 Face masks are a scarce resource.
Choice
 Because there is scarcity, people have to choose which wants to satisfy first.
 People decide how to allocate their limited resources.
Utility
 The satisfaction or usefulness the consumption of a good can bring.
 One of the considerations when making decisions.
 Economists believe that humans are rational beings, and as such will make decisions
that maximize their utility.
Example of Utility
 If you enjoy instant noodles, then economics would say you gain utility from
consuming or eating that good.
Opportunity Cost
 The value of the next best alternative.
 What we give up by choosing something else.
 Includes the monetary costs, time, and effort.
Example of Opportunity Cost:
 Choosing to pursue the ABM strand under the academic track means missing out on
the opportunity to take STEM or HUMSS.
 The strands and tracks you did not pick are your opportunity costs.
Production Possibility Frontier
 Diagram that models scarcity, choice, and opportunity cost.
 Shows the choice between two options (PPE and Food)9
 Blue curve represents their limited resources.
 o Points on or inside the PPF curve
represent the possible choices for
production.
Example:
Points A, B, C,
and D are all on or inside
the curve.
o Points on the PPF curve are efficient. They
maximize all available resources.
Example:
Points A,
B, and C are all on
the curve.
o Points inside the PPF curve are possible
but inefficient as it leaves resources unused.
Example:
Point D is inside the curve.
o Points outside the PPF curve are impossible given the current limited resources.
Example:
Point E is outside the curve.

PPF in the Concepts of Scarcity, Choice, and Opportunity Cost

 Scarcity is seen with how the curve prevents us from fulfilling all the wants for both PPE and
food.
 Choice is visualized through the different points of production (A, B, C, and D) that are available.
 Opportunity cost is present because choosing any of the points means missing out on the other
alternatives.

BRANCHES OF ECONOMISTS
Microeconomics
Subset of economics that focuses on the decisions of smaller agents.
Ex. A SHS student choosing what strand to take.

Macroeconomics
Subset of economics that focuses on aggregates and groups of agents.
Ex. Understanding how the student population of Luzon chose their tracks for SHS.

KEYPOINTS
1. Economics is a study of choices and understanding how scarce resources can be allocated to
fulfill unlimited human wants and needs.
2. Scarcity or the reality that resources are limited, forces humans to choose where to allocate
them.
 3. In making choices, we inevitably have to give up the alternatives. This represents opportunity
cost or the value of the next best option.
4. The production possibilities frontier is a fundamental model that economists use to illustrate
the concepts of scarcity, choice, and opportunity costs.
5. The fields of economics differ on the scope of their study. Microeconomics focuses on
individuals and smaller agents, while macroeconomics looks at aggregates and larger economic
agents.

WEEK 2: WHAT DOES GROWTH LOOK LIKE?

What does growth look like?

The Philippines has often been given the title of a tiger economy, or an economy poised to breakout as a
stronger power.

However, apart from the numbers, how do we know our economy is doing better?

Three Economic Questions

 The economic problem forces people to make choices, and this same obstacle affects societies,
nations, and the world itself.
 In addressing this problem, societies are met with three economic questions of what, how, and
for whom.

1. What should we produce?

 Asks what products and services an economy should focus on producing.

 Forces societies to consider which of their members’ needs they will prioritize.
2. How should we produce it?
 Asks what methods will be used to produce the goods and services needed.
 Considerations include the use of manual labor, automation, or a mix of both.
3. For whom should we produce it?
 Asks who should receive the final goods and services produced by the economy.
 Goods can be given to all equally, or given to those who need it most.
 Another consideration is whether goods should be given to those who can afford it.

Three Economic Questions

 All three economic questions focus on proper resource allocation.

 This enables society to make choices in consideration of their scarce resources.

Factors of Production

● On a micro level, scarce resources refer to time, money, and opportunities for new experiences.
 ● On a macro level, there are four resources that societies have to properly allocate.

Factors of Production

These four resources are:

1. Land

2. Labor

3. Capital

4. Entrepreneurship

Land

● Refers to resources that can be attributed to the land or the sea.

● Consists of all natural resources, physical land, and even raw materials.

Examples:

● Solar and wind energy

● Coal, oil, and fossil fuels

● Crops and plant life

What examples of land can you think of?

Labor

● Refers to the tangible human element in the production process.

● These are the contributions of the workforce, whether physical or mental.

Examples:

● Courier for food and parcel delivery

● Teachers in the classroom

● Security guard at banks

Capital

● Refers to investments made to improve production.

 ● It can come in the form of physical capital or human capital.

Physical Capital

● Physical tools and equipment that make production more efficient

Examples are heavy machinery, vehicles, and improved technology.

Human Capital

● Investments made toward improving the human element of production

Examples are better healthcare and improvements to education.

Entrepreneurship

The intellectual capacity to organize and put together other factors of production to produce goods
and services the society needs.

CEOs and founders of private businesses in different sectors

Economics as an Applied Science

Economic Growth

● The overall expansion of an economy

● Measured by an increase in gross domestic product (GDP)

● Considered as one of the most important goals that an economy should strive for.

● However, it has its issues:

● An increase in military spending can cause GDP to rise but yield no improvements in
living conditions.

● Increase in wealth can be concentrated among a small group of elites.

● Economic growth does not accurately represent the welfare or well-being of the members of a
particular society.

Economic Development

● Measure of the welfare of an economy’s members

● Takes into consideration a wider range of statistics beyond wealth

 ● Looks at quality of life and living standards

Some factors taken into consideration are:

● Quality of education

● State of poverty

● Environmental sustainability

Economic Growth & Development

● Economic growth can contribute to economic development.

● An increase in an economy’s wealth may create more jobs and opportunities.

● However, economic growth is not needed to improve the economic development of a society.

Sustainable Development

 Economic development that meets meets the needs of the present without compromising the
needs of future generations.

Inclusive Growth

● One of the key goals of AmBisyon 2040

● Growth that not only benefits the elite but helps all members of a society

● Helps eliminate poverty and improves living standards

Why study economics?

● You will learn to discern decisions (by governments and societies) not just by their explicit costs
but also their opportunity costs.

● It will enable you to make well-informed opinions and decisions.

● It will help you make better decisions not just for yourself or for those around you, but also for
future generations.

Summary

● The three economic questions are “what should be produced?”, “how should they be
produced?”, and “for whom should they be produced?”
 ● The four factors of production that societies try to allocate are land, labor, capital, and
entrepreneurship.

● Economic growth refers to an increase in the GDP of a country within a specific time period.
Economic development focuses on the improvement of the welfare of a country’s citizens.

● Economics is valuable as a discipline because of how it teaches you to make better decisions for
yourself, the people around you, and future generations.

WEEK 3 – 4: PHILIPPINE SOCIOECONOMIC DEVELOPMENT IN THE 21ST CENTURY

Economic Systems
 System that dictates how resources are allocated to different sectors of society.
 Who answers the three economic questions (what to produce, how to produce it, and for whom
to produce it for).

Types of Economic Systems

 Traditional Economic System

o Answers the economic questions through the honoring of tradition and established
trends.
o Often little division of labor, and jobs are usually inherited from parents.
o Can still be seen in some rural or indigenous communities.
Ex. If Jon was a farmer and had a son named Rick, then under a traditional system Rick
will eventually inherit the farm and work as a farmer himself.
 Command Economic System
o Central authority provides the answers to the three economic questions.
o The role of this central authority is usually filled by the government.
POSITIVES:
1. Can easily adapt to changing circumstances.
2. A central authority is more likely to take into consideration the needs of the less
fortunate.
NEGATIVES:
1. Because all resources are allocated by the government, there is no profit
incentive.
2. Individuals would have no motivation to work harder.
 Market Economic System
o Has little to no government intervention.
o The free market and the opportunity for profit answers the three economic questions.
POSITIVES:
1. Workers are more likely to be motivated to work harder as they can make more
money.
 2. Usually leads to economies with stronger growth rates.
NEGATIVES:
1. The distribution of resources is less fair and the poorest of society are usually
worse off.
2. There is no economic incentive to help the marginalized and vulnerable sectors.
 Mixed Economic System
o System that takes the best characteristics from each of the other three systems.
o A balance between the free market and government intervention.
o All economies have a mixed system, though there are no two that are alike.
o Each country has its own system that fits the needs of their society.

An economic system dictates how the three economic questions are answered.
 Traditional economies follow accepted practices from the past.
 Command economies have a central authority to make the decisions.
 Market economies allow the laws of supply and demand to decide.
 Mixed economies take the best characteristics from each system.

Macroeconomic Goals
 Tangible targets that almost all economies strive towards.
 If hit, they allow countries to improve their socioeconomic development.
 The macroeconomic goals are:
o Low unemployment
o Stable inflation rate
o Economic growth
o Equity in income distribution

Low Unemployment
- A person is unemployed if they are actively seeking work but are unable to find any.
- They represent a factor of production (labor) that is not being efficiently allocated.
- Having a low level of unemployment means your country is being efficient at pursuing
economic growth.
- It also gives people an opportunity to earn an honest living and provide for their
families.
Stable Inflation Rate
- Inflation refers to an increase in the average price levels of an economy’s basket of
goods over a period of time.
- Having prices remain stable allows households to consume what they need. Increasing
prices means the families will have to consume less.
- Erratic changes in price also affect how individuals prepare and budget their financial
resources.
Economic Growth
- The increase in real gross domestic product or GDP.
- GDP is the measure of the value of all final goods and services produced in a country
over a given period of time.
- GDP can be measured in three ways:
 Expenditure Approach
 Income Approach
 Output Approach

Expenditure Approach
GDP = C + I + G + NX
Where;
 Consumption ( C ) - purchase of goods by individuals and households.
 Investments ( I ) - spending by firms and households on capital and long term
goods.
 Government spending ( G ) - all spending made by the government (ie., salaries,
public projects, etc.)
 Net exports ( NX ) - value of all exports (local goods sold abroad) minus imports
(goods from abroad bought by local consumers).

If the details of a country’s expenditures are given, you can compute for the value of the
GDP.

Step 1: Identify the different expenses incurred by the economy as well as their
respective monetary costs.
Step 2: Multiply each expenditure by its respective monetary cost.
Step 3: Add together all of the expenses to find the GDP.

Income Approach
GDP = W + R + I + P
Where;
 Wage ( W ) - income generated by the labor force. It can come from jobs or self-
employment.
 Rent ( R ) - income that comes from the ownership of the land.
 Interest ( I ) - increase in the value of capital goods.
 Profit ( P ) - income generated by firms operating in the country.

In the income approach, the GDP is equal to the value of total national income (TNI).

TNI is the sum of all wages, rents, interests, and profits earned by members of the
economy in a given period of time.

If the income produced by the economy is given, you can solve for the value of GDP.
 Step 1: Identify the different sources of income of an economy as well as their
respective monetary goods.
Step 2: Multiply each source of income by its respective monetary gain.
Step 3: Add together all of the income to find the GDP.

GROSS DOMESTIC PRODUCT

 Nominal GDP
o Refers to the value of the GDP that is not adjusted for inflation. This
measure takes the overall value of goods and services produced in a given
period with respect to the current prices.
o Based on the current year.
 Real GDP
o Focuses on the value of goods and services produced in a given time period
with constant prices.
o The use of constant prices means that it is computed using the prices of a
year called the base year (from previous year)
o Solving for Real GDP:
Step 1: Identify the different expenses incurred by the economy in a given
year.
Step 2: Identify the monetary cost for each expense for the given base year.
Step 3: Multiply each expenditure by its monetary cost in the given base
year.
Step 4: Add all of the expenses to find the real GDP.

ECONOMIC GROWTH
 Another measure is the gross national product (GNP) which is similar to the GDP
except that it includes net income from abroad.
 The value of goods and services produced by a country’s citizens regardless of
where they are located.

Example:
Filipino businesses abroad contribute to GNP but American businesses in the
Philippines do not contribute to GNP.

 Leads to higher income and more incentive to innovate.

 Could also indicate increased competitiveness with the international market.

Equity in Income Distribution

Income Distribution talks about how the national output is distributed to the
population.
Income Inequality occurs when some people earn more than others.
 Equity - fairness, giving more to those who need more.
Equality - giving everyone the same resources.

 The idea is to provide all individuals the resources needed to live a quality life.
 Still leaves incentive to innovate and work hard for profit as compared to having
equal income distribution.

KEYPOINTS
The four macroeconomic goals represent the targets most economies strive toward in the pursuit of
socioeconomic development. These include:
 Low unemployment
 Stable rate of inflation
 Economic growth
 Equity in income distribution

The Philippines in the 20th Century

The Marcos Administration

 The Philippines was under the Ferdinand Marcos administration in the 1970s and early
1980s.
 Called the Martial Law era.
 Initially showed strong economic growth on the back of strong exports and infrasture
projects.
 However, also had reports of widespread corruption.

Towards the end of the Marcos regime, inflation had skyrocketed with prices increasing by
over 50% in 1984.

 Wages for skilled and unskilled workers also decreased.

 Agricultural sector was hit very hard with farmers losing almost 30% in average income.
 The administration relied on foreign debt which helped fund the different projects.
 By the end of the term, the debt was at about $28B.
 Was also hit by the 2 worst economic contractions where GDP shrank by -7.3% in 1984 and
1985.
 The Philippines gained the title of the “Sick Man of Asia”.

All of these culminated in the People Power Revolution of 1986 which led to the ousting of
the Marcos regime.
 The Aquino Administration
 Corazon Aquino immediately followed as the next president.
 She inherited a struggling economy that was debt-ridden.

While the initial focus was on paying off the debts, by the end of the term it had actually
slightly increased.

Though the debt was not fixed, the economy did experience respectable growth.

 Also pushed for land reform with CARP in 1988 in an effort to curb poverty in the
agricultural sector.
 This was poorly done and thus led to minimal improvements.

The Ramos Administration

 Fidel V. Ramos succeeded Aquino as the next president.
 His focus was maintaining the momentum established by the previous term.
 The country opened up to the international economy, joining the World Trade
Organization.
 This improved economic growth and trade.
 The term was also plagued by the Asian Financial Crisis of 1997 and the national power
crisis of the early 1990s.
 Both became hurdles to further economic growth.
 Poverty became an increasing concern during this time.
 Land reform projects continued to be done poorly. While there was growth, the population
was rising at a faster rate.

The Estrada Administration

 Then incumbent vice-president Joseph Estrada took over in the following term.
 The term was hit with reports of corruption and cronyism.
 The administration had a strong focus on addressing poverty.
 One of the notable programs was the improvement of the poor’s access to basic social
services.

All the accusations of corruption came to a head when the second EDSA revolution forced
Joseph Estrada out of office.

This marked the end of the 20th century and the entrance of Gloria Macapagal Arroyo, the 14th
president.

Modern Economic Problems of the Philippines

Poverty
  The condition where people lack the resources to meet their basic needs.
 Reducing poverty requires the coordination of a number of economic factors.

Data suggests that the Philippines has reduced poverty over the past two decades, starting
at 26.6% in 2006 down to 16.6% in 2018.

Programs to address the problem include the 4Ps, the TRAIN law, and land reform acts.

Corruption
 The misuse of public power in the pursuit of private gain.
 Typically done at the expense of the greater good/society.
 All administrations have been plagued by corruption cases.
 There were cases of electoral fraud, and the PhilHealt15-B fund corruption.
 Corruption leads to the inefficient allocation of resources.
 Instead of resources going to those who need it, it ends up in the pockets of the powerful.

Sustainable and Inclusive Growth

 The Philippines has consistently been able to maintain good GDP growth rates.
 Experts say that this growth has yet to be inclusive.
 While the country is becoming richer, many people are being left behind, particularly those
in the vulnerable sectors.
 Environmental sustainability is another concern.

The country hopes to address this with the introduction of the AmBisyon 2040 program,
which seeks inclusive and sustainable growth for all Filipinos.

KEYPOINTS
The Philippines’ history of socioeconomic development is rife with both good and bad. Each
administration brought about some positives and negatives to lead us to the current state of affairs.

The primary economic problems that the country has to contend with are poverty, corruption, and
the pursuit of sustainable and inclusive economic growth.