INTRODUCTION TO APPLIED ECONOMICS
Chapter 1 (Lesson 1) ECONOMICS – is a social science that deals with how
LEARNING OBJECTIVES
At the end of the lesson the learners shall be able to:
1. define basic terms in applied economics
2. Understand economics as an applied science
3. Identify the basic economic problems of the
country
4. Explain how applied economics can be used to
solve economic problems
ECONOMICS AS DEFINED BY AUTHORS OF ECONOMICS
BOOKS
Paul Samuelson (Economics)
“the study of how people and society end up
choosing, with or without use of money, to employ
scarce resources that could have alternative uses to
produce various commodities among various persons
and groups in society.”
Roger Le Roy Miller (Economics, Today and Tomorrow)
“Economics concerns situations in which choices
must be made about how to use limited resources,
when to use them and for what purposes. Resources
can be defined as the things people use to make the
commodities they want.”
Hall and Loeberman (Macroeconomics: Principles and
Applications)
“The study of choice under the condition of
scarcity”
Bernardo Villegas (Guide to Economics for Filipinos)
“A social science that studies and seeks to
allocate scarce human and non-human resources
among alternatives in order to satisfy unlimited human
wants and desires.”
Gerardo Sicat (Economics)
“a scientific study which deals with how
individuals and society make choices,”
DEFINITION OF TERMS
Scarcity- a situation wherein the amount of something
available is insufficient to satisfy the desire for it.
Resources- The labor, capital, land and natural
resources and entrepreneurship that are used to
produce goods and services.
Production – refers to the process of producing or
creating goods needed by the households to satisfy
their needs
Distribution – refers to the marketing of goods and
services to different economic outlets
Consumer – use of goods and services by a household.
Commodities - goods and services
Unlimited – without limits, infinite
Wants –desires
DEFINITION OF ECONOMICS
people organize themselves in order to allocate scarce
resources in order to produce goods and services that
will satisfy the unlimited and multiplying wants and
needs of man.
From the Greek word Oikos meaning household and
Nomos meaning management = household
management
The wise production and use of wealth to meet the
demands or needs of the people
WHAT IS APPLIED ECONOMICS?
The term “applied economics” is believed to have
started 200 years ago in the writings of two economists:
JEAN-BAPTISTE SAY JOHN STUART MILL
(1767-1832) (1806-1873)
DEFINITION OF APPLIED ECONOMICS
APPLIED ECONOMICS - is the study of economics in
relation to real world situations. It is the application of
economic principles and theories to real situations, and
trying to predict what the outcomes might be.
SIMPLER DEFINITION • Applied economics – is the study
of observing how theories work in practice.
REVISITING ECONOMICS AS SOCIAL SCIENCE
• First, focuses on wealth
• Wealth-giving and Wealth using
• Second, stresses the decision making process
• Economics is defined as a science of making
choices.
• Opportunity cost - means that our choices
must give us additional benefits that at
least equal to or more than the additional
benefits derive from forgone alternatives
• Third, concentration on allocating process
• There are five elements in the definition of
economics – social sciences, resources,
human wants, scarcity, and allocation.
• Fourth, economics is primarily a social science
• As a Social Science, Systematic or scientific
method is being used in the study of
society and its components.
• As a Social Science, Economics studies how
individuals make choices in allocating
scarce resources to satisfy their unlimited
wants.
• As a Social Science, Economics pertains to
the study on how society creates its
material wealth, how it makes wealth
available to its people with minimum
difficulties, and how it expands wealth.
• Economics is related to other social
sciences that study other dimensions of
 society such as sociology, anthropology,
psychology, and political science,
BRANCHES OF ECONOMICS
MACROECONOMICS
A division of Economics that is concerned with the
overall performance of the entire company.
It studies economic system as a whole rather than the
individual economic units that make up the economy.
MACROECONOMICS is about the nature of economic
growth, the expansion of productive capacity and the
growth of national income.
- Gross national product - Level of employment -
National income - General level of prices
MICROECONOMICS
Is concerned with the behavior of individual entities
such as the consumer, the producer, and the resource
owner.
It is more concerned on how foods flow from the
business firm to the consumer and how resources move
from the resource owner to the business firm.
It is also concerned with the process of setting prices of
goods that is also known as PRICE THEORY.
MICROECONOMICS studies the decision and choices of
the individual units and how these decisions affects the
prices of goods in the market.
BASIC ECONOMIC GOALS
• To strengthen economic freedom.
• Promote economic efficiency.
• Promote economic stability.
• To improve economic security.
• Attaining a high level of growth in the economy.
THE IMPORTANCE OF APPLIED ECONOMICS
 To understand the world better
Applying the tools of economics can help you
understand global and cataclysmic events such as wars,
famines, epidemics, and depressions. Economics has the
power to help us understand these phenomena because
they result from the choices we make under the
condition of scarcity.
 To gain self-confidence and become wise
decisions makers
Mastery of economics will help you to
understand how things work in your society thereby
“feeling equipped”
 To achieve social change and contribute to
National Development
Economics can help us understand the origins of
serious social problems such as: unemployment,
hunger, poverty, disease, child abuse, drug addiction,
violent crime. It will also explain why previous efforts to
solve these problems have failed, and help us to design
new, more effective solutions.
 To help prepare for other careers
Economics has long been a popular college
major for individuals who are intending to work in
business. But it has also been popular among those
planning careers in politics, international relations, law,
medicines, engineering, etc. This is for good reason
because practitioners in each of these fields often find
themselves confronting economic issues.
ECONOMIC SYSTEM
Chapter 1 (Lesson 2)
ECONOMIC SYSTEMS The economic system is the
means through which society determines the answers
to the basic economic problems mentioned.
TRADITIONAL ECONOMY Decisions are based on
traditions years and passed on and practices upheld
over the from generation to generation. Methods are
stagnant and therefore not progressive. Traditional
societies exist in primitive and backward civilizations.
COMMAND ECONOMY This is the authoritative system
wherein decision-making is centralized in the
government or a planning committee, Decisions are
imposed on the people who do not have a say in what
goods are to be produced. The economy holds true in
dictatorial, socialist, and communist nations.
Economic system
MARKET ECONOMY. This is the most democratic form
of economic system. Based on the workings of demand
and supply, decisions are made on what goods and
services to produce. People’s preference are reflected in
the prices they are willing to pay in the market and are
therefore the basis of the producer’s decisions on what
goods to produce.
MIXED ECONOMY. A Mixed Economy with elements of
traditional, command, and free market are present in
varying degrees that is both private and public
institutions exercise economic control.
BASIC ECONOMIC PROBLEMS
All societies are faced with basic questions in the
economy that have to be answered in order to cope
with constraints and limitations.
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 to
these foods should also be decided on.
HOW TO PRODUCE?
Is a question on the production method that will be
used to produce the goods and services. This refers to
the resource mix and technology that will be applied in
production.
FOR WHOM TO PRODUCE?
Is about the market for the goods. For whom will the
goods and services be produced? The young or old, the
male or female market, the low- income or the income
groups?
FACTORS OF PRODUCTION
LAND
These resources consist of free gifts of nature which
includes: - soil - rivers - lakes, oceans - forests -
mountains - mineral resources
Land is considered an economic resource because it has
a price attached to it.
* we usually pay for it through rent or lease
Land is a limited resource. Physical land is a fixed
resource.
LABOR
Also called “human resources”
Labor- refers to all human efforts, be it mental or
physical, that help to produce satisfying goods and
services
In return, he earns an income in forms of wages and
salaries
CAPITAL
Two economic definitions of capital:
a. Capital – can represent the monetary resources
use to purchase natural resources. Ex:
Companies use capital to buy land and other
goods
b. Capital – represents the major physical assets
individuals and companies use when producing
goods and services. Ex: buildings, vehicles,
equipment
*Income derived from capital is interest
ENTREPRENEURSHIP
- is defined as a science of converting ideas into
business and is related to economic activity of a
person who starts, manages, assumes the risk
of a business enterprise.
Entrepreneur came from French word which means
“enterpriser”
- organizer and coordinator of other factors of
production: land, labor and capital. He uses his
initiative, talent and resourcefulness to create
economic goods.
BASIC ECONOMIC PROBLEMS CONFRONTING THE
DEVELOPMENT OF THE PHILIPPINES IN THE 21ST
CENTURY
1. Poverty and Unequal Distribution of Income
2. Demographic Changes and Its Economic
Implication
3. Low Investment in Human Resource
Development
4. Weak Infrastructure
5. Pursuing Food Security
6. Slow Adoption of Modern Technology
HOW TO SOLVE ECONOMIC PROBLEMS IN THE
PHILIPPINES
Unemployment
1, Appropriate economic policies for labor-intensive
industries.
2. Improve the educational system of the country
especially in the rural areas
3. Minimize rural-urban migration by improving the
economic environment in rural areas.
Proper coordination between government and the
private sector to solve the problem of job mismatch.
5. Slowing population growth. Philippine growth must
increase faster than the population. Limit the size of
families.
6. Provision of more investment opportunities to
encourage local and international investment.
Infrastructure
1. The government shall implement fiscal reform
program
2. Continue reform in key sectors-particularly power,
roads and water – to improve cost recovery,
competition, and institutional credibility and to sharply
reduce corruption.
3. Improving central oversight of the planning and
coordination of investments
4. Focus on investments through public-private
partnerships to achieve faster delivery of service.
Poverty
1. Reduce unemployment
2.Appropriate policy on labor income
3.Provision of unemployment benefits for those who
will be unemployed due to natural or manmade
calamities.
Ex. Typhoon, Bombing of terrorists, Earthquake
4. Increase social services like education, health care
and food subsidies for sustainable poverty reduction
5. Appropriate policy on labor income.
Income Inequality
1. Policies to enforce progressive rates of direct
taxation on high wage earners and wealthy
individuals.
2. Direct money transfers and subsidize food
programs for the urban and rural poor
3. Direct government policies to keep the price of
basic commodities low
4. Raise minimum wage
5. Encourage profit sharing