Applied Economics

Introduction to Applied Economics

Quarter 3, Module 1
Applied Economics
Senior High School
Locally-Developed Module
Quarter 3- Module 1 Week 1-2 Introduction to Applied Economics
First Edition, 2021
Macalinao, Eloisa M (2016). Applied Economics.
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Microeconomics vs. Macroeconomics: What's the
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Answer to Activity # 2

Capitalism Command
INTRODUCTION TO APPLIED ECONOMICS
Owners of Factors of Pro- Household and State
duction Firms
(State or Household and
Firms)
This module intends to explain the basic terms in econom-
Existence of Freedom of Yes No ics particularly the concepts of scarcity and opportunity cost. Also,
Choice and Enteprise (Yes
or No) this module will tackle how applied economics concepts will be used
Centralized or Decentral- Decentralized Centralized to help solve the economic problems that are confronting the coun-
ized
try.
State –Controlled or Mar- State Controlled Market Controlled
ket Controlled At the end of this module , you are able to :

Incentives: Profit Punishment

• Define basic terms in applied economics ABM_AE12-Ia-d-1
Punishment or Profit
• Identify the basic economic problems of the country
Activity 3
In doing this module, the following
1. When making decisions since the society has limited
are some reminders:
resources any individual or government’s decision would
mean that there will be someone better off or there will be a
sacrifice. For example, increased in taxes means more 1. Take the pretest before
government funds but added burden to the consumers
because they have reduced purchasing power. answering the module.

2. Positive analysis will answer the question what is while 2. Read the instructions carefully
normative analysis will answer the question what should be. before doing each task.
3. Because of scarcity, you cannot have everything, therefore 3. Answer all the exercises.
you have to make a choice on what to let go or sacrifice or
4. Take the posttest.
what to have using the limited resources you have.
5. Use a separate sheet in
answering all the activities.

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Directions: Read the questions carefully then encircle the letter of 8. A
the correct answer. 15. A 7. D

1. The return for the use of land. 14. A 6. B

A.Profit C .Wage 13. B 5. B
B. Rent D . Interest
Answers will vary
12. D 4. D
Review
2. The social science that describes how society allocates or 11. C 3. A
choose among scarce resources. 10. A 2. B
A.Psychology C. Economics 9. D 1. D
B Econometrics D. entrepreneurship
Posttest
3. The one who organizes the factors of production and is a risk- 10. True
taker. 10. A
A. Capitalist C. Entrepreneur
9. False
B. Financier D. Employee 9. A 8. False
8. C 7. True
4. Not enough of everything to satisfy the needs and wants of 7. D
man. 6. False
A. Scarcity C. Satisfaction 6. A 5. False
B . allocation D. Rationing 5. B 15. A
4. True
4. A 14. A
5. Basic economic question on determining the kind of technology 3. True
that will be used in the production of goods and services. 3. C 13. B
2. True
A. What to produce ? C. How much to produce ? 2. C 12. B
B. How to produce ? D. For whom to produce?
1.False
1. B 11. C
Answers to Activity 1
6. Return for labor. Pretest
A. Wage C. Profit
B. Rent D. Interest

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10. Mr.Johnson contracted Mr. Bean who is a lot owner that he
7. The basic economic question that guides companies in
will make use of the lot as a location for the coffee shop that
determining the quantity of goods and services to be
Mr. Johnson is building and both agreed on terms regarding
Produced.
the use of the lot. The for the use of Mr. Bean’ land is called
A. What to produce ? C. For Whom to produce?
___.
B. How to produce? D. How much to produce?
A. Rent C. Profit
B. Interest D. Lease
8. Return for use of capital.
A. Rent C. Interest
11. When the company choose to use a robot for one of it B. Profit D. Wage
production area , it is answering the economic question
A. What to produce? C. How to Produce? 9. Microeconomics
B. How Much to Produce? D. For whom to Produce? A. Unemployment C. Taxation
B. Migration D. Firms Choice of Technology
12. It is used as a medium of exchange or an instrument in
exchanging goods and services. 10. Goods used to produce other goods.
A. Supply C. Profit A. Capital C. Entrepreneurship
B. Demand D. Money B. Labor D. Land

13. The social science of the wise allocation of scarce resources to 11. In capitalism or free market economy the allocation of
satisfy insatiable human wants and needs. resources is determined by:
A. Money votes taken by consumers
A. Sociology C. Psychology
B. A central planning authority
B. Economics D. Politics
C. By consumer preferences
D. The level of profits of firms
14.Economics deals primarily with the concept of
A. Scarcity C. Change 12. In communism or command economy the allocation of
B. Poverty D. Power resources falls in the hands of
A. Money votes taken by consumers
15. Gambling should be legalized to increase tax revenue B. A central planning authority
A. Normative Economics C. Positive Economics C. By consumer preferences
B. Satiated D. None of the above D. The level of profits of firms

13. The value forgone for not choosing the next best alternative.
A. Scarcity C. Opportunity Cost
B. Profit D. Satisfaction

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 5. Opportunity cost is ______.
A. the additional cost of producing an additional unit of
14. Because of scarcity the people are output.
A. Force to make choices B. what we forgo, or give up, when we make a choice or a
B. Can have anything they want decision.
C. Easily satisfied C. a cost that cannot be avoided, regardless of what is done
D. Can move from one place to another easily in the future.
D. the additional cost of buying an additional unit of a
15. Final goods are meant for product
A. Direct use by the consumers
B. Further processing 6. Macroeconomics is ______.
C. The term does not exist A. Firms
D. None B. Government Policies
C. Households
D. Consumers
7. The value forgone for not choosing the next best alternative.
A. Choices
B. Rationalization
C. Rationing
D. Opportunity Cost

8. In a market economy, the three economic questions are

answered by which of the following?
A. Prices determined by the interaction of the forces of supply
and demand.
B. A cartel of major transnational corporations , government
agencies and consumer advocates.
C. Major corporations, military and elite university professors
D. A central authority such as people’s committee, a
government agency, or a dictator.
9.Capital is ______
A. Money available to invest.
B. Prohibitive cost of entry.
C. A guarantee that a company will be successful.
D. A & B
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 Individual Activity: My Everyday Choices
Directions: Encircle the letter of the correct answer.
Directions: Write three decisions or choices you have done
1. The process by which resources are transformed into yesterday , for example : Choosing between egg and hotdog for
useful forms is _______. breakfast, walking from school to home instead of riding the
A. capitalization jeepney.
B. consumption
C. allocation
1.
D. production

2. The concept of choice would become irrelevant if _____. 2.

A. capital was eliminated Morning
B. scarcity was eliminated
C. we were dealing with a very simple, one-person 3.
economy
D. poverty was eliminated

3. Which of the following is not a resource or factor of 1.

production?
A. money
Evening 2
B. land
C. buildings
D. labor 3.

4. Capital refers to the ________.

A. money the firm spends to hire resources
B. money the firm raises from selling stock
C. process by which resources are transformed into
useful forms
D. refers to things that have already been produced
that are in turn used

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CORE CONCEPTS IN ECONOMICS
“There is no such thing as free lunch.”
Economics Defined: The social science of the wise allocation of
scarce resources to satisfy the unlimited needs and wants of man.
Why Economics Came into Existence
The very reason of the need for the study of economics is
the disparity of the unlimited needs and wants of man and the
SCARCITY of the resources.
Opportunity Cost– the value lost for not choosing the next best
alternative
E.g. use of a public land for park or for a department store
Trade– off involves accepting or choosing less of one thing to get
more or something else . A perfect example of trade- off is the use
of fossil –fuel for energy versus harnessing renewable sources of
energy like solar power.
, trade –off/sacrifice.
Retrieved from https://www.marketplace.org/2013/06/13/
opportunity-cost-simple-whiteboard-explainer/
6 15
Below is a list of key terms you have learned in this module.
• Economics Opportunity Cost
• Scarcity Normative Analysis
• Economic System Positive Analysis
• Basic Economic Questions
• Economics is the social science of the wise allocation of scarce
resources to satisfy the unlimited needs and wants of man. It has
two branches namely : microeconomics and macroeconomics.
• Choices involve trading off the expected value of one opportunity
against the expected value of its best alternative.
• Every decision you make would involved opportunity cost or a
• Positive analysis answers the question “what is” while normative
analysis answers the question “what should be”
• Every country in the world has its own economic system and the
choice of economic system is affected by their history , values and
culture of the country.
 ACTIVITY #3

Directions: Answer the essay questions below as briefly and Scarcity: Productive resources are limited. Therefore, people
concisely as possible. cannot have all the goods and services they want; as a result, they
must choose some things and give up others.

1. How does opportunity cost affect the decisions of individuals or

With opportunity costs or trade- offs , take note of the
governments?
following.

2. Differentiate positive from normative economics. • Whenever there is a choice made there is something given up.

• The opportunity cost of a choice is the value of the best

alternative given up.
3. Why does scarcity forces people to make choices? Give a
concrete example based on your experience. • It can be given a monetary value.

• Choices involve trading off the expected value of one

opportunity against the expected value of its best alternative.

• The evaluation of choices and opportunity costs is subjective

.
for individuals in different countries. Having a car for most in
the USA is practical while in a European country like Germany
and Belgium people choose to ride in trains as their primary
means of transport because their public transport system is
very efficient and owning cars would mean more taxes and
insurances to pay.

Choices made by individuals, firms, or government officials

often have long-run unintended consequences that can partially or
entirely offset the initial effects of their decisions.

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Branches of Economics:
Microeconomics– is the branch of economics dealing with
individuals and business decisions.
Macroeconomics –is the branch of economics dealing with
economic aggregates e.g. Gross National Product, Migration
ACTIVITY #2
Directions: Compare and Contrast the Capitalism vs Command
Economy. Place side by side the characteristics of the two
economic systems..

Topic Discussed in the Two Branches of Economics

MICROECONOMICS MACROECONOMICS Capitalism Command

Trends in consumer behavior Dealing with recession Owners of Factors of
Production
Ways firms maximize profits Reducing inflation (State or Household and
Firms)
Effect of money supply on interest rates International trade between Existence of Freedom of
countries Choice and Enterprise
Effect of the change in price of product x Fiscal policy (Yes or No)
in the consumption of product y Centralized or Decen-
tralized
The family’s decision on how much to Factors that influence the State or Market Con-
save rate of economic growth? trolled
Incentives
Positive Economic Analysis– this has an objective approach. It Punishment or Profit
deals with the statement of facts; It analyses and explains the
causal relationship between variables answers the question what
is; it can be tested.

Normative Economic Analysis—values opinions , beliefs and

judgments; statements that cannot be tested; answers the
question “what should be”

Most of the economic policies set are usually combination

of positive and normative economic analysis.

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ACTIVITY #1: What is True, What is Not?
Directions: Read carefully the statements below. If the statement is
correct write TRUE otherwise write FALSE.
______ 1. Online sellers should be taxed is a normative statement
_______2. Mixed economy is the most prevalent in the world.
_______3. Philippines is an example of a mixed economy
_______4. Technology has played an important role in
unemployment rates.
_______5. Economic system ensures that scarcity is eradicated.
_______6. In capitalism, the government plays a very large role in
economic decisions.
_______7. In a free market economy, the interaction of supply and
demand will determine the answers to the economic questions.
_______8. In capitalism, the state owns and operated all sources of
production
_____ 9. Economic systems are fixed throughout the history of
a country.
_____10. Opportunity cost also meant sacrifice.
Well done! On the next
page, you will learn
more
12
Basic Economic Questions
What to Produce?
Every economy has to determine what goods and services are
to be produced this will be determined by the interaction of the
forces of demand and supply like how much money votes will
be cast by the customers.
How to Produce?
In this economic problem ,companies will decide on how to
utilize the resources to produce the goods and services. What
technology will be used that yield the most number of
production yet would be at the lowest cost. As it is evident that
companies of manufacturers aim to maximize profits and to
reduce or minimize the cost of production. It’s a question of
quality vs quantity.
For whom to Produce?
How will the goods and services be distributed to the buyers?
The customers’ willingness and ability to pay the product on its
existing market price or their purchasing power will determine if
they will have the product—also it depends on their income.
How Much to Produce?
Every economy has to determine the amount of goods and
services it will produce. For progressive countries, there are
more production driven by the high consumption of its citizens.
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 ECONOMIC SYSTEMS 3. Command Economy/Communism– in this economic
system there is no freedom of enterprise and freedom of
The economic system is the institutional framework that
choice. The state is the owner of the factors of production.
guides the economy in its economic activities. The answers to the
This economic system was advocated by Karl Marx in his
four basic economic questions are provided by the country’s
book Das Kapital.
economic system.
People are forced to work , incentives are driven by
The choice of the economic system by the country is
punishments. Cooperation is the prevailing social process.
affected by the following factors:
The economic decisions in this economic system are
A. History
made by the state/government.
B. Politics
C. Culture
At present the most prevalent economic system is the
D. Values mixed economy where there are differences in each country
Types of Economic Systems on how influential the government is , and how important is
the role of the firms and household in making economic
1. Traditional Economy– an economic system that relies on decisions and in answering the basic economic questions.
customs and tradition in the conduct of its economic activities.
2. Capitalism– is the market system that has the following
characteristics
A. Is an economic system characterized by private ownership,
freedom of choice and enterprise and a limited economic role for
government. Profit is the guiding force in the capitalist economic
system
B. The price system or the interaction of the forces of supply and
demand answer the basic economic questions
Adam Smith said that there is the existence of the invisible hand
in a capitalist economy. These are the unseen forces that move
the free market economy. Through freedom of choice and freedom
of enterprise the best interest of society is fulfilled. The constant
interaction of market supply and demand causes the natural
movement of prices and the flow of trade.

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