What is applied economics

 Theapplication of economic theory to determine the likely outcomes

associated with various possible courses of action in the real worls

 Consequencesof choice made by individual ,businesses , policy

makers ,we can help them make a better choice

 Importance:
 Centerof everythingh we do and explain economic theory and apply it
on our everyday lives
 Helpus understand about the prices we pay , how delivery chamges
worlks , why thimgs go on sale
Applied economics focuses on applying economic
principles to wide variety of fields , such as finace
, education , trade, health and or environment

It helps us understand the world around us , it

enable understand people , businesess market and
government , and therefore respond the treats
and of course opportiunities that emerge when
things change
Applied Economics
Elements of Economics:
Goods and Services

Goods are those things that

give satisfaction to person
Goods are classified according to their uses :
Consumer Goods – are those which directly give
satisfaction to people
Capital goods –are goods which are used in the
production process or in production of other goods
and services .
Luxury Goods- are goods that man may do without
but these are used for their comfort and well
being .
Economic Goods- are goods which are useful and
scarce
BasicGoods – are goods which are used to satisfy
the basic needs of man

Tangible goods – are goods which are in the form

of material goods

Intangible Goods-are those goods which you

cannot be touched .These refer to efforts
rendered by individual or groups .Goods are
intangible when they are in the form of services
Want and Need

Want -Refers to the likeness of people

to sustain their comfort and well being

Need – basic necessity of the people

Economic System Models
1. Capitalism – in this model, the factors
of production and distribution are owned
and managed by private individuals or
corporations .
Similar terms like – market economy , free
enterprise ,laissez faire policy (freedom)
“let alone policy or leave it alone “
 Characteristics of capitalism model :
 Presence of religion (belief in God )
private property
Economic freedom
Free competition
Absence of central planning
Capitalist counties
The United States, Canada, Australia, Barbados,
France, Italy, Mexico, Poland, Jamaica, Peru,
Chile, Sweden, Switzerland, Panama, Bulgaria,
Saudi Arabia, Kuwait,
Romania, Turkey and Portugal are all examples
of capitalist countries.
 However, the degree of capitalism varies by
country.
2. Communism
The factors of production and
distribution are owned and
managed by the state . It is the
exact opposite of capitalism –also
known as command economy or
classless society
Essential characteristics of communism :
Absence of religion
No free competition (government is
a sole source of central planning )
No economic freedom
No profit motive
Classless society
Communist countries

China (People's Republic of China) ...

Cuba (Republic of Cuba) ...
Laos (Lao People's Democratic Republic)
...
North Korea (DPRK, Democratic People's
Republic of Korea) ...
Socialism

This is the combination of capitalism

and communism .

The major and strategic industries

are owned and managed by the state
while the minor industries belongs to
the private sector .
Characteristics
role of the state
Central planning
Social ownership on the means of production
Economic and social quality
Goal of social welfare
Freedom of consumption and production
Labor as trustees and employee
Traditional Economy
Traditional economy is an
original economic system in which traditions,
customs, and beliefs help shape the goods
and the services the economy produces, as
well as the rules and manner of their
distribution. Countries that use this type
of economic system are often rural and
farm-based.
Characteristics
Center around a family or tribe
Exist in a hunter-gatherer and nomadic
society
Produced only when they need
They rely on barter
Start to envolve once they start farming and
settle down
Traditional economies are still found
in many developing countries- in
parts of Africa, Asia, South America,
and the Middle East. The Inuit of
northern Canada provides an
example of a traditional economy.
 Criteria to be considered :
Choosing the Best Economic System
Abundance –this refers to goods and services
that the individual member of society receives .
Growth – it is the stepping stone to attain
development ,the growth of economy is
tangible and measurable in terms of GNP Gross
National Product
Stability- this refers to absence of inflation and
Security- economic security lies on
economic stability ,it can only be
attained if there is economic stability , in
this attributes workers do not lose jobs if
there is prosperity in the economy
Efficiency – it means productivity, it is
acquired through the application of
appropriate technology , machine ,
material and management
Justice and Equality – this refer to just and
equal distribution of wealth ,income and
power among members of society .

Economic Freedom – if a consumer is free to

choose his food, style of his house kinds of his
appliances , his education , then there is
economic freedom .
Fundamental and Interdependent
Economics problem
Scarcity of resources

major economics problem in the

production of wealth ,goods and
services. The scarcity is manifested
in the limitation of human wants
The questions below exemplify such limitations :

 1. What good and services to be produced?

 2. How much to produce ?

 3. How shall goods be produced?

 4. For whom shall goods and services be produced?