GRADE 12 (WEEK 1 & 2)
MACALINAO
Chapter 1: Introduction to Applied Economics
LEARNING OBJECTIVES:
At the end of the chapter, the students are expected to:
 Define basic terms in applied economics;
 Identify the basic economic problems of the country, and
 Explain how applied economics can be used to solve economic
problems.
Economics as a Social Science
One of the popular attempts to define economics suggests that “economics is the science
which studies human behavior as relationship between ends and scarce means which have alternative
uses.” A definition which has also gained prominence is that “economics is the study of the ways that
individuals and societies allocate their limited resources to satisfy their unlimited wants.”
It is important to recognize the following aspects of economics:
1. It is a science concerned with human behaviors.
2. It is concerned with the choices we make and the consequence of these choices for
ourselves and others. In fact, the central focus of economics is on choice and decision
making.
3. It is concerned with man’s material welfare.
Economics is by no means the product of the single mind, but probably no one is more
deserving of this title “Father of Economics” that Adam Smith. His book “An Inquiry into The Nature and
Causes of the Wealth of Nations” in 1776 attracted widespread attention and helped established
economics as a scientific field of study apart from political science and moral philosophy.
Economics is regarded as a social science because it uses scientific methods to build theories
that can help explain the behavior of individuals, groups and organizations.
Economics as a social science has common ground with other social sciences. Economics
borrows freely from the works of psychologists, sociologists, anthropologists, legal scholars, ecologists,
biologists, political scientists and philosophers, all of whom offers alternatives of the economic way of
thinking about how the world works. But economics has some advantages over the social sciences.
Firstly, the economic motives of human beings are more regular and therefore predictable. Secondly,
there is more available factual information in the form of economic statistics that can be the basis of
theoretical verification.
The problems of economics arise out of the scarcity of resources to satisfy human wants.
Human wants are unlimited, but the resources (land, labor, and capital) required to satisfying them are
limited. If human wants are unlimited, but resources to satisfy those wants are limited, then people in
the society face the problem of society.
Everyone has to make choices. You may see many items that you would like to have, but you
cannot afford to buy them all. Business owners, managers, team leaders and even governments must
make right decision because they cannot have everything. There will always be difference between
what people want and the resources available to satisfy those wants.
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SOURCE: APPLIED ECONOMICS FOR SENIOR HIGH SCHOOL BY ELOISA M.
Economic Resources
Economic resources are factors of production used to produce things that people desire in
order to satisfy their wants. The things that people produces are called commodities. Commodities
may be divided into goods and services. Goods are tangible, like bags or shoes, and services are
intangible, like haircuts or education. The act of making goods and services is called production, and
the act of using them to satisfy your wants is called consumption. It has been conventional to
categorize economic resources (factors of production) as land, labor, capital and entrepreneurial ability.
Categories of Resources
Land. It includes all natural resources (gifts of nature) used in the production process. These include
mineral and oil deposits, water, fertile soil, air, climate forest, wildlife, and rain.
 Payment for the use of land is called rent. Rent is income to the owner of the land.
Labor or Human Resources. It refers to the physical and mental talents to produce goods and
services.
 Payment for the use of labor is called wage. Wage is income to laborers, who own their labor.
Capital. Man-made or manufactured resources or also known as capital goods used in producing
consumer goods. These include buildings, machine, tools, equipment, roads, highways, bridges and
even software.
 Payment for the use of capital is called interest.
Entrepreneurial Ability. Special skills of an individual needed to produce goods and services like
managerial and organizational skills.
 Profit. Income of an entrepreneur after deducting the payments from the owners of land, labor
and capital.
Economics as an Applied Science
Applied Economics involves different ways to achieve practical objectives by applying
economic theory in the real world.
Economic as an applied science helps students to learn about the relationship of a business
and basic economic theories. It offers many opportunities to measure their academic and personal
growth and improve their educational career planning. It focuses primarily on theoretical business
economics. It focuses on urban problems, the health-care crisis, agricultural problems, poverty,
economic growth and the environment.
Economic theory is a broad concept for the explanation and understanding of the movement
of goods and services in the market. For example, the theories of the behavior of individuals and
institutions engaged in the production, consumption, distribution and exchange of goods and services.
Economic theory uses different economic models to describe how the people react to a
particular economic situation.
Economic models may be in the form of verbal expression, numerical tables, and mathematical
equations or diagram used to understand economic events. The law of supply and the law of demand
are good example of a useful economic model.
SUBJECT TEACHER: LUDGI G. RUIZ (CONTACT #: 09515871074)
GRADE 12 (WEEK 1 & 2) SOURCE: APPLIED ECONOMICS FOR SENIOR HIGH SCHOOL BY ELOISA M. MACALINAO
Current Account surplus of 88.41 US$ Million in September of 2015 as reported by the Bangko Sentral
Why Study Economics? ng Pilipinas but still need to address different economic problems to achieve economic growth.
a. Decision-Making Skills. An exposure to quantitative problem solving techniques is an important
 Unemployment. According to the Labor Force Survey, the unemployment rate was 6
part of economics. The business sector typically rewards employees who have acquired specific
percent in October 2014 and 6.6 percent in January 2015. Unemployment remains a
quantitative skills. The study of economics gives you an opportunity to acquire those necessary
persistent problem in the Philippines because of its increase in population. As reported
skills.
by the Bangko Sentral ng Pilipinas, the total population in Philippines was last
b. Problem Solving Abilities. People with education in economics develop an appreciation of the
recorded at 102.2 million people in 2015 from 26.3 million in 1960. The number of
social issues – global warming, health care, education and social security. The issues are complex
people entering the job market has been greater than the number of jobs created. The
and the ability to deal with them suggest ways of improving our standard of living in the broadest
rural-urban migration increases due to insufficient employment opportunities. Many of
sense that requires clear thinking.
the unemployed individuals are college graduates.
c. Job Opportunities. Better job opportunities await the economics graduate. Business and
government are increasingly aware of the need for people who are trained in economics. They are
WHAT CAN BE DONE TO SOLVE UNEMPLOYMENT PROBLEM?
employed in teaching, government services, banks and business firms. Their duties may include
1. Appropriate economic policies for labor-intensive industries.
research economic analyst, forecasting and consultants on capital investment.
2. Improvement in the education system of the country especially in the rural areas.
3. Minimize rural-urban migration by improving the economic environment in the rural areas.
There are three basic questions to make the right decisions:
4. Provision of more investment opportunities to encourage local and international investment like
tax incentives.
WHAT TO PRODUCE?
5. Proper coordination between the government and the private sector to solve the problem of job
Every economy must determine what goods and services are to be produced and in what
mismatch.
quantities of each, to produce. In some, the buyers and producers need to produce in order to obtain
6. Decreasing the retirement age from 65 to 60 for public sector to give chance to younger
things and exchange the things they already own. Since society cannot have everything, they must
generation to enter the labor market but providing an attractive well-defined benefit pensions
decide which goods and services they want now and which one to give up.
and retiree health care for retirees.
For example, if gadgets are in demand, they need to pay business to produce and sell these
7. Slowing population growth. To improve standard of living of the Filipinos, Philippine economic
gadgets in the market. If no one desires to buy stereo sets, it is not worth producing them. In case a
growth must increase faster that its population.
company produces an item which buyers don’t buy in much quantity, there will likely be inadequate
 Poverty. As a fast-growing economy, with 6.3 percent Gross Domestic Product for the
income. The company will have to enhance the quality and transform the product to match the taste of
4th quarter of 2015, still there is a decline in the incidence of poverty in the Philippines.
the buyer. In some society, government decide on what goods and services to produce based on the
Poverty remained not only an economic problem but also a social problem of the
resources available and demands of the buyers,
country. Increase in population, increase in the cost of living, unemployment, inequality
in the distribution of income are some of the reasons why a decline in poverty is very
HOW TO PRODUCE?
low.
The company must decide on how to use the resources to produce goods and services. What
combinations of resources and technologies will be used to produce goods and services at lowest cost?
WHAT CAN BE DONE TO SOLVE POVERTY PROBLEM?
The manufacturer may wish to maximize profits and minimize production cost. They may combine labor
1. Reduce unemployment.
and capital given the prices of labor and capital and productivity of those resources.
2. Appropriate policy on labor income.
3. Promote economic growth to improve the standard of living.
FOR WHOM TO PRODUCE?
4. Provision of unemployment benefits for those who will be unemployed due to natural and man-
This question determines the distribution of goods and services. Goods and services will be
made calamities.
distributed to buyers on the basis of their ability and willingness to pay its existing market price. The
5. Increasing social services like education, health care and food subsidies leads to sustainable
ability to pay the prices for goods and service depends on the amount of income that the buyers have,
poverty reduction.
along with the prices of and tastes and preferences for various goods and services.
Basic Economic Problem of the Country THE FOLLOWING ARE THE MAJOR CAUSES OF INCOME INEQUALITY IN THE
Philippines appeared to be one of the fastest growing economies of Asia. As reported by the PHILIPPINES:
Philippine National Statistical Coordination Board, the Philippines economy grew an annual 6.3 percent 1. Political culture can be considered as one of the major causes of income inequality in the
in the December quarter of 2015. According to the Philippine National Statistics Office, Philippines Philippines. The “palakasan” and the “utang na loob” that cannot be avoided especially after
annual inflation rate slowed to 1.3 percent in January 2016 from 1.5 percent in December, recorded a election. If you are a relatives or friends or someone in power, they can have all the chances to
PAGE | 2 SUBJECT TEACHER: LUDGI G. RUIZ (CONTACT #: 09515871074)
GRADE 12 (WEEK 1 & 2) SOURCE: APPLIED ECONOMICS FOR SENIOR HIGH SCHOOL BY ELOISA M. MACALINAO
get the position even without or less knowledge on the position given to them. “Utang na loob”
is indebtedness to someone who has done someone a favor. It is an obligation of a person to Advantages Disadvantage Advantages Disadvantage Advantages Disadvantages
repay whatever good things they have done to you. It may be in the form of voting for them in s s
the election or do something for them till the end.
2. Indirect taxes also one of the major causes of income inequality. Indirect tax is a regressive
tax that the poor people shoulder that burden of paying higher taxes like the Value Added Tax.
3. Income tax. A Filipino worker receiving minimum wage is exempted in the payment of income
tax, but those Filipino workers earning more than the minimum wage is taxed 32 percent.

WHAT CAN BE DONE TO SOLVE THE PROBLEM OF INCOME INEQUALITY?

1. Policies to enforce progressive rates of direct taxation on income and wealth, especially at the
highest levels.
2. Direct money transfers and subsidize food programs for the urban and rural poor.
3. Direct government policies to keep the price of essential products low.
4. Reform people’s political culture.
5. Raise the minimum wage.
6. Encourage and expand collecting bargaining. Questions for Understanding:
1. Define Economics?
PHILIPPINE SOCIO-ECONOMIC DEVELOPMENT ___________________________________________________________________________
It is the process of social and economic development of the people in the community. It is ___________________________________________________________________________
measured with indicators such as Gross Domestic Product (GDP), life expectancy, literacy and levels of ___________________________________________________________________________
employment. ___________________________________________________________________________
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ECONOMIC DEVELOPMENT
It is the process if improving the standard of living of every individual. 2. What are the different economic resources and their resources payments?
SOCIAL DEVELOPMENT ___________________________________________________________________________
It interventions will directly reduce poverty in its multiple dimensions by increasing the poor’s ___________________________________________________________________________
access to social services and basic facilities. ___________________________________________________________________________
EXERCISE #1: ___________________________________________________________________________
Name: Score: ___________________________________________________________________________
Year/Section: Date: ___________________________________________________________________________
If you’re planning to buy at nearly sari-sari store, grocery, or mall, it’s hard to believe that ___________________________________________________________________________
scarcity is a problem. Are laundry detergents scare? You will notice that even the 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 limited resources (money, time, energy). ___________________________________________________________________________
Given ₱500.00 as your allowance for the whole week. How will you allocate your budget for
your expenses for the week? 3. How is production differ from consumption? Give examples for each?
Choice 1 Choice 2 Choice 3 ___________________________________________________________________________
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PAGE | 3 SUBJECT TEACHER: LUDGI G. RUIZ (CONTACT #: 09515871074)

GRADE 12 (WEEK 1 & 2)
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4. As a student, what can be your contributions to solve poverty in the Philippines?
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5. There are three basic questions to make the right decisions. If you are going to make a
business, what are you going to produce? How to produce and for whom to produce?
WHAT TO PRODUCE?
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HOW TO PRODUCE?
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FOR WHOM TO PRODUCE?
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6. If you become the president, what will be your economic development and social development
plans for the Philippines?
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SOURCE: APPLIED ECONOMICS FOR SENIOR HIGH SCHOOL BY ELOISA M. MACALINAO
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APPENDIX “A”: SCARCITY, CHOICE AND OPPORTUNITY COSTS
Major economic problems arise from the fact of scarcity. Scarcity is the condition that results
from the imbalance between relatively unlimited wants and the relatively limited resources available for
satisfying those wants. No society has ever had enough resources to produce the full amount and
variety of goods and services it’s people’s wanted.
Scarcity necessitates choice. If we cannot have everything we want, we must choice which of
these things we want most. Thus, both individuals and societies must continuously make choices on
how to use the scarce resources available.
Scarce goods are economic goods. Scarce goods have corresponding prices. There are few
desirable things that are not scarce, these are free goods.
Opportunity cost is the foregone benefit of the next best alternative when scarce resources are
used for one purpose rather than another. Thus, the term “opportunity cost” refers to the most desirable
of the alternatives not chosen. If for example, a piece of land could be used for an office building, a
gymnasium, a department store is the loss of only the most desirable of the foregone alternatives. It is
either the loss of an office building, or the gymnasium, or the parking lot – but not all three: which of
these is the most desirable can only be determined by a more careful study.
What is your opportunity cost in going to college?
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Trade-off involves accepting or choosing less of one thing to get more of something else.
Individuals who choose one good or services instead of another, or more of one thing and less of
another, are making a trade-off. Society also makes trade-offs e.g. between the need for more energy
and its desire to preserve the environment. Evaluating trade-offs involves comparing the costs and
benefits of each of the available alternatives.
SUBJECT TEACHER: LUDGI G. RUIZ (CONTACT #: 09515871074)