Basic

Economic
Problems
Applied Economics – The use of this term
is believed to have started nearly 200
years ago, in the writings of Jean-Baptiste
Say (1767-1832) and John Stuart Mill
(1806-1873). This is the application of
economic principles and theories to the
present economic condition.
Applying economic theories to current economic
conditions can be helpful in the following reasons:
1. It enables the true picture of the situation to show.

2. It helps determine the steps to be taken to improve the

present economic condition.

3. It helps to avoid the recurrence of a negative situation

or at least minimize the effect.
Econometrics – Application of statistical and mathematical
theories to economics to test hypothesis and forecast future trends.
An example of real-life application of econometrics would be
to study the hypothesis that as a person’s income increases,
spending increases.

Scarcity – is the limited nature of resources. Resources for an

individual includes time, money and skill. For a country
limited resources include natural resources, work force or
we call it also as labor force where most of them work
abroad to seek higher salary to meet financial needs. Other
limited resource of a country is technology. The lack of
technology available leaves some of our most precious
natural resources useless because we cannot use them.
These resources are all limited as compared with our unlimited
wants and needs. Because of this, people and nations should
choose which goods and services they can avail and which one
they should give up during this pandemic. People opted to
choose to buy basic needs necessary for survival.

What is the basic economic problem? Scarcity. Because of this

people and nation must choose how to use their available
resources efficiently.
 Every economic system is faced with the following
problems:
1. What to produce? – What is the desire of the people?
Goods and services to be produced should be based on
the needs of the people. However, a very important factor
like availability of resources should be considered. A good
example of this is the production of rice. Since the
Philippines is known to be an agricultural country because
of its extensive rice fields.
2. How to produce? - What are the resources to be used?
How much labor is needed to produce the needed
quantity? Quality should come first before quantity. Rice
planting requires a lot of labor (workers) to plant rice.
3. For whom shall goods and services be produced?
How are the goods distributed among consumers? Goods
are produced to meet the urgent needs of the people.
How much goods are produced for the basic needs and
how much goods are produced for our wants
 There are two other problems connected with
resource allocation and economic growth.

1. Are the country’s resources being utilized, or some of them are lying
idle and unemployed? – When resources are scarce it is not good to
see available resources idle. Example of this is there are a lot of
people (labor) who are not employed, or they are without jobs.
Therefore, production cannot meet its maximum level capacity.

2. Is the economy’s capacity to produce goods growing or remaining the

same overtime? – To achieve a growth in productive capacity is a
universal objective.

This makes possible an improvement in the

standard of living if the rate of population growth is not very high.