APPLIED ECONOMICS

A BM S P ECI ALI ZED S UBJ ECT

This course deals with the basic principles of applied economics, and its
application to contemporary economic issues facing the Filipino
entrepreneur such as prices of commodities, minimum wage, rent, and
taxes.

It covers an analysis of industries for identification of potential business

opportunities. The main output of the course is the preparation of a
socioeconomic impact study of a business venture.
Chapter 1
Introduction to Applied Economics

Lesson 1.1 Introduction to Economics Lesson 1.2

Economics as an Applied Science

At the end of the session the learners will be able to:

a. Differentiate Economics as a Social Science and as an Applied Science
b. Give real-life situation in which the Principles of Applied Economics are used.
c. Cite current economic issues that needs to be addressed.
d. Relate the Principles of Applied Economics to current issues using critical thinking.
 Land
Labor LIMITED UNLIMITED Food
Clothing

RESOURCES HUMAN WANTS

Capital Shelter
Entrepreneurshi Security, etc.
p

Relative Scarcity
Scarcity Absolute Scarcity

Insufficiency of resources to meet the

wants of consumers and insufficiency of
resources for producers that hamper
enough production of goods and services.
Opportunity Cost Choices & Decision-making

Because of scarcity, there is a need for a

ma to make decisions in choosing how to
maximize the use of the scarce resources
to satisfy as many wants as possible.
ECONOMICS LIMITED UNLIMITED
Economics is the social science that involves the use RESOURCES HUMAN WANTS
of scarce resources to satisfy unlimited wants.

Economics is a social science because it studies

human behavior just like Psychology and Sociology.

Social Science
The study of society and how people behave and
influence the world around them.

Scarcity
Economics as a Social Science
As a Social Science, Economics studies how
individuals make choices in allocating scarce
resources to satisfy their unlimited wants.

Choices & Decision-making

 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.
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.
SCARCITY
Is a condition where there are insufficient resources
to satisfy all the need and wants of a population.

Relative Scarcity Absolute Scarcity

Is when a goods is scarce compared to its Is when supply is limited.
demand.

RELATIVE SCARCITY occurs not because the good ABSOLUTE SCARCITY explains why there are
is scarce per se and is difficult to obtain but because some products that are very expensive in the
of the circumstances that surround the availability of Philippines.
the good.
CHOICE AND DECISION MAKING
With the presence of scarcity, there is a need to make
decisions in choosing how to maximize the use of the
scarce resources to satisfy as many wants as possible.

Opportunity Cost
Refers to the value
of the best forgone alternative.

The concept of OPPORTUNITY COST holds true for

individuals, businesses, and even a society. In making
a choice, trade-offs are involved.

What will happen if there is

no SCARCITY?
Without scarcity, a person does not need to make
choices since he/she can have everything he/she
wants.
BASIC ECONOMIC PROBLEMS OF THE SOCIETY
All societies are faced with basic questions in the
economy that have to be answered in order
to cope with constraints and limitations. LIMITED UNLIMITED
RESOURCES HUMAN
What to produce? How much? WANTS
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? SCARCITY

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.
CHOICES AND DECISION
MAKING
For whom to produce?
is about the market for the goods. For whom will the What How For whom
goods and services be produced? The young or old, to produce? And to produce? to produce?
the male or female market, the low- income or the How much?
income groups?
 ECONOMICS SYSTEMS

is a system of production, resource

allocation, exchange and distribution
of goods and services in a society or a
given geographic area.
 Four Types of Economic Systems:

These questions are answered by the type of economic system a

nation has. There are four types of economies:

 Pure Market Economy

 Pure Command Economy
 Traditional Economy
 Mixed Economy

Let’s review each of these types of economies.

 Pure Market Economy

• NO government involvement in
economic decisions. Private firms Problems
account for all production.
• Difficulty enforcing property
• Consumers decide WHAT should be rights - no laws.
produced. They do this through the
purchases they make.
• Some people have few resources to sell -
• Businesses determine HOW the no minimum income.
products will be produced. They
must be competitive.
• Some firms try to monopolize markets -
• WHO buys the products? The people conspiring and price fixing.
with the most money are able to buy
more goods and services. • No public goods. - national defense?
 Pure Command Economy

• All resources are government-owned. Problems

• One person (dictator) or a group of officials
decide WHAT products are needed. • Consumers get low priority.

• The government runs all businesses, • Little freedom of choice – few

controls all employment, and decides HOW products.
goods and services will be produced.
• Resources owned by the state are
• The government decides WHO receives the
products that are produced.
often wasted – individuals don’t care
if they don’t own it.
 Traditional Economy

• Economy is shaped largely by

custom or religion.

• Customs and religion determine

the WHO, WHAT, and HOW.

• Example: India has a caste system

which restricts occupational
choice. (A social class separated
from others by distinctions of
hereditary rank, profession, or
wealth.)
WHY ECONOMICS IS IMPORTANT?

Read the front page of the newspapers or

watch the news on TV.
WHY DO WE NEED TO STUDY ECONOMICS?
ECONOMICS will help the students understand why there is a need for
everybody, including the
government, to budget and properly allocate the use of whatever resources are
available.
It will help one understand how to make more rational decisions in spending money, saving part of it, and even investing
some of it.

On the national level, economics will enable the students to take a look on how the economy operates and to decide for
themselves if the government officials and leaders are effective in trying to shape up the economy and formulate policies
for the good of the nation.
MEASURING THE ECONOMY
The heart of economy is production whose value measures both resource input and output of people. The
interplay of resources and outputs tells how well the economy has performed.

Economic Resources
also known as factors of production, are the resources used to produce goods and services.

Land
Soil and natural resources that are found in nature and are not man-made.
Owners of lands receive a payment known as RENT.

Labor
Physical and human effort exerted in production. It covers manual workers like construction workers,
machine operators, and production workers, as well as professionals like nurses, lawyers and doctors. The
term also includes jeepney drivers, farmers and fisherman The income received by labors is referred to as
WAGE.

Capital
Man-made resources used in production of goods and services, which include machineries and equipment.
The owner of capital earns an income called INTEREST.
GNP vs. GDP

Gross National Product

Market value of final products, both sold and unsold, produced by the resources of the economy in a given
period.

MARKET VALUE is determined by supply and demand

ECONOMY’S RESOURCES are those belonging to Filipino citizens and corporations.

NOT ALL RESOURCES BELONGING TO THE ECONOMY ARE IN THE ECONOMY. CONVERSELY,
NOT ALL RESOURCES IN THE ECONOMY BELONG TO THE ECONOMY.

GNP = C + I + G + (X – M)

Imports
Exports
Government Expenditures on Goods and Services
Investments (stocks of values for future use)
Consumption (household and individual)
GNP vs. GDP

Gross Domestic Product

Better indicator of domestic employment opportunities.
Defined as the market value of final products produced within the country.

GDP is net of GNP after deducting NET FACTOR INCOME from abroad or
by deducting factor income from abroad and adding back FACTOR
PAYMENTS to other countries.

NET FACOR INCOME from abroad is net export of factor service equal to Factor income from abroad less
the factor payments of other countries.

Net Inflow = Inflow - Outflow

- Net Inflow = - Inflow +

Outflow
APPLIED ECONOMICS

Application of economic theory and econometrics in

specific settings with the goal of analyzing potential
outcomes.

John Neville Keynes

First to use the phrase “APPLIED ECONOMICS” to
designate the application of economic theory to the
interpretation and explanation of particular economic
phenomena.

Applied Economics in
Relation to Philippine
Economic Problems
Understanding the existence of scarcity can help Economics students analyze how to maximize the use of available
resources in order to overcome scarcity.

Knowledge of economic theories such as the Law of Supply and Demand can help in analyzing why prices are high
and what the government can do to help bring down prices.
The Philippines Basic Economic Problems

Non-inclusive Growth despite of Economic Growth

Millions of Filipinos are claiming they are experiencing hunger or they still live
below the poverty level.

Unemployment despite of Improvements

Main problem of the Philippine Economy.

Unemployment Rate in the Philippines:

2nd Quarter of 2015 = Decreased to 6.4 % from 7.0% in the previous year Philippines Unemployment Rate

average = 8.85% from 1994 – 2015

Highest = 13.90% 1st quarter of 2000
Lowest = 6.0% 4th quarter of 2014
The Philippines Basic Economic Problems cont.

Poverty
Socio-economic problem.
Poverty incidence of the population registered at
26.4 %, 26.5% in 2009
25.2% in 2012
28.8 in 1st quarter of 2014

Population Growth
Basic economic problem that can be connected to the issue of scarcity.
When population becomes too big, economic resources may no longer be enough to
support the growing population.
2010 = 92.3 M
2014 = 100 M – growing by 2%

Philippines – one of the highest population in Asia.

Represents 1.37% of the worlds population.
Class Activity:

Debate
Based on the proposed 2018 National budget, determine what expenditures are the government’s top
priorities, and then expenditures which are the least priorities.

The debate topic would be “Is it right to prioritize EDUCATION in preparing the National Budget?”

30 minutes preparation per team

15 minutes debate proper.
Thank You!

Reference(s):
Dinio and Villasis 2017. Applied Economics. Rex Bookstore First Edition. Pages 2 -14

https://www.philstar.com/business/2019/08/20/1944950/house-gets-p41-t-proposed-national-budget-2020

Presentation made by:

LORELIE C. BUITRAGPO, MBA©