APPLIED ECONOMICS

WHAT IS ECONOMICS? What it isn’t

Study of money or getting rich
Study of stock market
Forecasting market

Economics is the social science that ECONOMICS AS A SOCIAL

involves the use of scarce resources SOCIAL SCIENCE SCIENCE
to satisfy unlimited wants. The study of society and how As a social science, Economics
people behave and influence studies how individuals make
It is a social science because it the world around them choices in allocating scarce
studies human behaviour just like resources to satisfy their
Psychology and Sociology. unlimited wants

Study of PEOPLE and CHOICES

“A study of man in the ordinary business of life. It enquires how he gets his income and
how he uses it. Thus, it is on the one side, the study of wealth and on the other and
more important side, a part of the study of man.”
//Alfred Marshall
 LIMITED UNLIMITED
Land
RESOURCES HUMAN WANTS
Labor Food
Capital Clothing
Entrepreneurship Shelter
Security, etc

SCARCITY
Relative Scarcity
Absolute Scarcity

CHOICES & Opportunity Cost

DECISION-MAKING
ECONOMIC RESOURCES

Land – soil and Labor – physical and Capital – man-made

resources used in
other natural human effort exerted production of goods
resources in production and services, which
include machineries
and equipment
S Insufficiency of resources to meet the
wants of consumers and insufficiency of
CHOICE AND
C resources for producers that hamper DECISION MAKING
enough production of goods and services
With the presence of scarcity, there is a need to
A RELATIVE SCARCITY make decisions in choosing how to maximize the
A good is scarce compared to its demand use of scarce resources to satisfy as many wants
R It occurs not because the good is scarce as possible
per se and is difficult to obtain but
C because of the circumstances that surround OPPORTUNITY COST
the availability of the good. -Refers to the value of the best forgone alternative.
I -The concept of OPPORTUNITY COST holds true for
ABSOLUTE SCARCITY individuals, businesses and even a society. In making
T Supply is limited
It explains why some products are very
a choice, trade-offs are involved.

Y expensive

SO WHAT HAPPENS IF THERE IS NO SCARCITY?

Without scarcity, a person does not need to make choices since he/she can have
everything he/she wants
 BRANCHES OF ECONOMICS
MICROECONOMICS MACROECONOMICS
-It is concerned with the behaviour of the individual
entities such as the consumer, the producer, and the -It is concerned with the overall performance
resource owner. of the entire company
-It is more concerned on how goods flow from the -It studies the economic system as a whole
business firm to the consumer and how the resources rather than the individual economic units that
move from the resource owner to the business firm. make up the economy.
-It is also concerned with the process of setting prices -It is about the nature of economic growth, the
of goods that is also known as the PRICE THEORY. expansion of productive capacity and the
-It studies the decision and choices of the individual growth of national income.
units and hoe these decisions affect the prices of
goods in the market
 Spending
Income

MICROECONOMICS MACROECONOMICS
GOVERNMENT Taxes, etc.
FIRM Spending

Goods Wages, Rents, Payments

and Money Labor
Services Salary
Profits, Interest, etc.
REST OF
HOUSEHOLD
Spending THE WORLD
HOUSEHOLD & Taxes Receipts

Sales Wages, profits,

Receipts
BUSINESS taxes, etc.
 BASIC ECONOMIC PROBLEMS IN THE SOCIETY
All societies are faced with basic economic questions
in the economy that needs to be answered in order
to cope with the constraints and limitations LIMITED UNLIMITED
RESOURCES HUMAN WANTS
WHAT to produce? HOW MUCH?
Society must decide what goods and services should
be produced in the economy. Having decided on the
nature of goods that will be produced, the quantity SCARCITY
to these goods should also be decided on
HOW to produce? CHOICES AND
Is a question on the production method that will be DECISION-MAKING
used to produce the goods and services. This refers
to the resource mix and technology that will be
applied in production WHAT HOW FOR WHOM
to produce & to produce to produce
FOR WHOM to produce?
HOW MUCH
Is about the market for the goods. For whom will the
goods and services be produced? The young or old,
male or female market, the low-income or high-
income groups?
 ECONOMIC SYSTEMS
The economic system is the means
through which society determines the
answers to the basic economic
problems mentioned.

MARKET ECONOMY
This is the most democratic form of
economic system. Based on the COMMAND ECONOMY
workings of demand and supply, This is the authoritative system
decisions are made on what goods wherein decision-making is
and services to produce. Peoples TRADITIONAL ECONOMY
centralized in the government or a
preferences are reflected in the Decisions are based on traditions
planning committee. Decisions are
prices they are willing to pay in and practices upheld over the years
imposed on the people who are not
the market and are therefore the and are passed on from generation
allowed to have a say on what
basis of the producers’ decisions on to generation. Methods are stagnant
goods are to be produced. This
what goods to produce. and therefore not progressive.
economy holds true in dictatorial,
Traditional societies exist in primitive
socialist, and communist nations.
and backward civilizations.
 OKAY. THAT’S
ECONOMICS. BUT
WHY IS IT
IMPORTANT?
Why is economics deeply rooted in the concept of
scarcity?
 POSITIVE ECONOMICS VS. NORMATIVE ECONOMICS

POSITIVE ECONOMICS/ANALYSIS
NORMATIVE ECONOMICS/ANALYSIS
It deals with what is – things that are
It refers to what should be – that which
actually happening such as the current
embodies the ideal such as the ideal rate of
inflation rate, the number of employed
population growth or the most effective tax
labor, and the level of Gross National
system.
Product.
It focuses on policy formation that will help to
It is an overview of what is happening in
attain the ideal situation.
the economy that is possibly far from what
is ideal.
 MEASURING THE
It’s also known
as the factors
ECONOMY
of production, The heart of economy is production
resources used whose value measures both resource
to produce input and output of people. The
goods and interplay of resources and outputs
services. tells how well the economy has
performed.

LAND LABOR CAPITAL

Soil and natural resources Physical and human effort Man-made resources used in
that are found in nature and exerted in production. It production of goods and
are not man-made. Owners covers manual workers as well services, which include
of lands receive payment as professionals. The income machineries and equipments.
known as RENT. received is referred to as The owner of capital earns an
WAGE. income called INTEREST.
 GNP vs. GDP
Gross National Product (GNP)
Market value of final products, GNP = C + I + G + (X – M)
both sold and unsold, produced by
the resources of an economy in a Import
given period.
Export
MARKET VALUE is determined by
supply and demand Government expenditures
ECONOMY’S RESOURCES are those on goods and services
belonging to Filipino Citizens and Investment (stocks of values
corporations. for future use)
NOT ALL RESOURCES BELONGING Consumption (household and
TO THE ECONOMY ARE IN THE individual)
ECONOMY. CONVERSELY, NOT ALL
RESOURCES IN THE ECONOMY
BELONG TO THE ECONOMY.
GNP vs. GDP
Gross Domestic Product (GDP)
Better indicator of domestic
employment opportunities.
Defined as the market value of Net Inflow = Inflow – Outflow
final products produced within the -Net Inflow = Inflow + Outflow
country.
GDP is net of GNP after deducting
NET FACTOR INCOME from abroad
or by deducting factor income from
abroad and adding back FACTOR
PAYMENTS to other countries.
NET FACOR INCOME from abroad is
net export of factor service equal to
Factor income from abroad less the
factor payments of other countries.
 Another way to account GNP and
classify its components is by
resource uses and contributions
that make up the production
stages. As basic factors of
production, resources add value
to products (ex. Leather) as
processed into higher form (ex.
Shoes). If all payments for
resource contributions (rent,
wage, interest, profit) went to
resource owners, GNP would
simply be the sum of all factor
payments from the raw material
to the final product stage.

GNP/GDP: Income Approach

This table presents the Philippine GNP statistics
whose components are classified by factor
contribution of the economy’s producing sectors.
 Application of economic theory and
APPLIED ECONOMICS econometrics in specific settings with the
goal of analyzing potential outcomes.
JOHN NEVILLE KENYES
First to use the phrase “APPLIED ECONOMICS” to
designate the application of economic theory to
the interpretation and explanation of particular
economic phenomena.

Applied Economics in Relation to Philippine Economic Problems

Knowledge of economic theories such as
Understanding the existence of the Law of Supply and Demand can help
scarcity can help Economics in analyzing why prices are high and
students analyze how to maximize what the government can do to help
the use of available resources in bring down prices.
order to overcome scarcity.
 Non- inclusive Growth The Philippines’ Basic Economic Problems
despite of Economic Growth
Unemployment despite
Millions of Filipinos are claiming of Improvements
they are experiencing hunger or
they still live below the poverty Main problem of the
level . Philippine Economy
 Poverty
The Philippines’ Basic Economic Problems
Socio- economic problem. Population Growth
Basic economic problem that can be
connected to the issue of scarcity.
When population becomes too big,
economic resources may no longer
be enough to support the growing
population.
ASEAN ICON
LEE KUAN YEW
(1923 – 2015)

Prime Minister of Singapore

from 1959 to 1990.
During his term, Singapore
became the most prosperous
nation in South East Asia.
 In what way is applied
economics important in tackling
economic issues or problems of
the country?
HOMEWORK
1. Using a pie chart, show your regular allowance for a
week and how you budget this for your school and
personal expenses. How do you economize to make sure
your allowance is enough?
2. Talk to the person who prepares the household budget.
Make a list of all the basic expenses for one month.
Create a table to represent it.
3. What is/are the importance of creating a budget?