UNIT 1 – ECONOMICS & REAL-WORLD CHALLENGES

APPLIED
ECONOMICS
MODULE 2
PART 1
 This module
will focus on
the Philippine
economy.
Economic system
Economies across the world
are managed differently.
Nations decide on the best
way to allocate their scare
resources.
 Economic system
Refers to the different ways
of managing a nation’s
available resources to answer
the three economic questions.
Economic system may be
classified into four main
types:

Free market
Centralized economy
Mixed economy
Traditional economy
 • Free market

• Centralized economy

• Mixed economy

• Traditional economy
Free market economy

Is a system
characterized by
competition and a
high level of private
ownership.
Free market economy
Prices are set by market
mechanisms or by the interaction
of buyers and sellers in the
market.

Resources are allocated freely

based on the interaction of market
forces.
Free market economy
They have freedom to
exchange goods and decisions.

Government maintains a
hands-off role and minimal
involvement in achieving
economic goals.
Free market economy
Laissez faire system is an example
of a free market economy.
The French phrase means “leave
alone” and used to define an
economic system void of
government intervention.
Centralized Economy
This system is characterized
by the heavy involvement of
the government in managing
the economy.
It is also referred to as
command economy.
Centralized Economy
Government plans, directs, and
decides on how resources will be
allocated.
Individuals and private ownership
have limited economic
involvement.
Example is on North Korea
 Mixed economy
Economic systems that
combines the features of
free market and
centralized systems.
 Mixed economy
Free market forces and central
planning together determine
what to produce, how to
produce, and for whom to
produce.
 Mixed economy
There is a balance between
private and government
accountability in achieving
goals.
Traditional economy
Barter is a mechanism where
goods are exchange for
another good.
 What to How to For whom to
produce? produce? produce?

Determined by Determined by Determined by

consumer choices producers consumer purchasing
Free market power

Determined by the Determined by Determined by the

government the government government
Centralized

Influenced by both Influenced by both Influenced by all

consumers and the producers and the sectors of the
Mixed government government economy
Macroeconomic
Goals
of a country
 Government plays an
important role in a
mixed economy. As a
central decision maker, it
has the responsibility of
overseeing and ensuring
that efficiency is
achieved in the pursuit
of economic goals.
Market failures
These are problems
arising from
inefficiencies in the
allocation of
resources.
Economic Growth
Is typically measured
through GDP.
GDP is synonymous
with the economy’s
output
Business cycle is characterized by
the upward and downward trend
of the GDP.
Recession – period of economic
downturn characterized by high
or increased unemployment, slow
business, and a decline in
consumer purchases.
Expansion – features of low
or decreased unemployment,
increase production, and a
rise in consumer spending
driven by higher income.
A prolonged period of
recession is known as
depression
Full Employment
The upward and
downward movements in
the business cycle lead to
unemployment.
 Businesses that
suffers losses during
recession may try to
stay afloat by
trimming down their
workface.
The unemployment
as a result of the
business cycle is
known as cyclical
unemployment.
 It is defined as
having zero cyclical
unemployment.
Price Stability
It is the absence of
prolonged inflation.
Inflation – persistent
rise in price levels of
goods and services.
Price Stability
Deflation or the
continuous decline in
prices is not good thing
because it contracts the
money supply and limit
liquidity
The Philippines’ 21 st

century
socioeconomic
challenges
Global Challenges
21 century global challenges,
st

such as war, terrorism, and

political instability in other
regions, can impact the
country primarily in areas of
trade and financial markets.