Applied Economics

Chapter 1: Revisiting Economics as Social Science

Economics – the study of the allocation of scarce resources to satisfy the commerce of men and women.
 Adam Smith
- “The Father of Economics”
- He introduced the concept of laissez faire, for free enterprise and the word entrepreneur for
the skill necessary to bring the factors of production into a coherent whole.
- “Invisible hand” is a collective exercise of social cooperation that allows the people to pursue
their sometimes narrow and individual interests, nonetheless, with social cooperation
redowns to the benefit of mankind.
- Less government intervention
Factors of Production
1. Land
2. Labor
3. Capital
4. Entrepreneurial Activity

 Opportunity Cost/Trade-off
- The cost of the lost alternatives
- The one that is given up
Goods and the “Bads”
 Economic Goods
- Bring out the general progress and commerce in a country and metropolis and even in the
remote barrios
- Creates an idea that people’s lives improve if there is an exchange
- Exchange may be in the form of swap
 Bads
- Negative externalities and market imperfections such as pollution , monopolistic competition,
and free rider phenomenon.

Chapter 2: Economics as an applied science

Main Branches of Economics
1. Microeconomics
2. Macroeconomics
Different Fields of Economics
1. International Economics – concepts of globalization, internationalization, and the mechanics of
the open economy system.
2. Development Economics – focuses on poor nation and avoids copying verbatim the development
program of developed countries.
3. History of Economics – codify the works and relate them to the earlier works.
4. Econometrics – where economists rely more on mathematical equations such as Statistics and
Calculus.
5. Behavioral Economics – focuses on Psychology and Economics.
Positive and Normative Statements
 1. Positive Statement
- Statements and predictions that can be tested to see if the theories from which they are
derived should be accepted or rejected
- “what is”
2. Normative Statement
- It is based on value judgement on what should be.
- People may agree or disagree with the statement
Model Building
- It is an essential tool of economics
- Propose by Joseph Schumpeter along with the process of building and deconstructing to extract
the possible learning from the model building exercise
Ceteris Paribus
- All things being equal
-