APPLIED

ECONOMICS
CHAPTER ONE
INTRODUCTION TO ECONOMICS

What do you think is the

reason why we practice
economics?

SCARCITY!
• Scarcity is a condition where there
are insufficient resources to
satisfy all the needs and wants of a
population.

• Relative Scarcity is when a good is

scarce compared to its demand.

• Absolute Scarcity is when supply is

limited.
 CHOICE AND DECISION-
MAKING

Why do we need to
make a choice?
SCARCITY!
• Opportunity cost
refers to the value of
the best foregone
alternative.
• In making a choice,
trade-offs are involved.
 ECONOMIC RESOURCES
-also known as factors of
production, are the resources
used to produce goods and
services. These resources
are, by nature, limited and
therefore, command a
payment that becomes the
income of the resource owner.
1. Land – soil and natural resources that are
found in nature and are not man-made.
2. Labor – physical and human effort exerted
in production.
3. Capital – man-made resources used in the
production of goods and services, which
include machineries and equipment.
4. Entrepreneurship – refers to the ability
that some people have for organizing the
other resources.
ECONOMICS AS A SOCIAL SCIENCE

-studies how
individuals make
choices in allocating
scarce resources to
satisfy their unlimited
wants.
MACROECONOMICS AND MICROECONOMICS

• Macroeconomics is a division of
economics that is concerned with
the overall performance of the
entire economy. It studies the
economic system as a whole.
• Microeconomics is concerned with
the behavior of individual entities
such as the consumer, the
producer, and the resource owner.
 BASIC ECONOMIC PROBLEMS OF
SOCIETY

-Societies faced with

basic questions in the
economy that have to be
answered in order to cope
with constraints and
limitations.
1. What to produce and how
much?

2. How to produce?

3. For whom to produce?

 ECONOMIC SYSTEM

-is the means through which

society determines the answers
to the basic economic problems
mentioned. A country may be
under any of the following types
or even a combination of the
three economic systems.
1.Traditional economy. Decisions
are based on traditions and
practices upheld over the years
and passed on from generation to
generation. Methods are stagnant
and therefore not progressive.
Traditional societies exist in
primitive and backward
civilizations.
 2. Command economy. This is the
authoritative system wherein
decision-making is centralized in
the government or a planning
committee. Decisions are impose on
the people who do not have a say in
what goods are to be produced.
This economy holds true dictatorial,
socialist, and communist nations.
 3. Market economy. This is the most
democratic form of economic system.
Based on the workings of demand and
supply, decisions are made on what
goods and services to produce. People’s
preferences are reflected in the prices
they are willing to pay in the market
and are therefore the basis of the
producers’ decisions on what goods to
produce.
 WHY ECONOMICS IS IMPORTANT

Why do we need to study economics?

-to 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 also help one understand how to
make more rational decisions in
spending money, saving part of it, and
even investing some of it.
POSITIVE ECONOMICS VS. NORMATIVE
ECONOMICS

Positive economics is an overview of

what is happening in the economy that
is possibly far from what is ideal.

Normative economics focuses on policy

formulation that will help to attain the
ideal situation.
 Economics as an applied science
-Applied economics is the application of
economic theory and econometrics in specific
settings with the goal of analyzing potential
outcomes.
-It deals with practical issues in fields that
include demographic economics, labor
economics, business economics, agricultural
economics, development economics, education
economics, health economics, monetary
economics, economic history, and many
others.
 -Applying economic theory in our
lives means trying to address actual
economic issues and be able to do
something about it. The concept of
scarcity and choice should
encourage us as individuals to help
in our own way to provide solutions
to the country’s economic problem.
 Philippines’ basic economic problem

1.Unemployment
2.Poverty
3.Population Growth
Differentiated group
activity
 1. Cut out a news item that is related to any
economic issue. Afterwards, you have to decide
if the issue is related to scarcity. If so, why and
how?
2. Using a pie chart, show your regular allowance
for the week and how you budget this for your
school and personal expenses.
3. Talk to the person who prepares the household
budget for the family, it could be your mother or
your father. Make a list of all the basic expenses
for one moth. Then ask the budget in
percentage for each of these expenses.