BASIC TERMS

IN
APPLIED
ECONOMICS
 Have you tried to budget your
money in order to buy what you
want to eat or consume in your
daily living?

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Have you tried to run out of water
while you were taking a bath?

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Have you tried to limit the number
of kilos of rice that you will buy
for your daily consumption?

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If you have answered YES to at least
one of these questions, then you must
be facing the trauma of not being able
to have enough of what you wanted.

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 DEFINITION OF TERMS
 SCARCITY – insufficiency of resources to meet the wants of
consumers and insufficiency of resources for producers that hamper
enough production of goods and services.
 ECONOMICS
– as a study, is the social science that involves
the use of scarce resources to satisfy unlimited
wants.
- is a different science from biology
and chemistry as these are physical sciences.
- is a social science because it studies human
behavior just like psychology and sociology.

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 DEFINITION OF TERMS
 SOCIAL SCIENCE – is broadly speaking, the study of society and
how people behave and influence the world around them.

2 TYPES OF SCARCITY
a. Relative Scarcity – is when a good is scarce
compared to its demand.
Ex. a. Coconuts are abundant in the
Philippines since the plant easily
grows in our soil and climate.

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 TYPES OF SCARCITY
• However, coconuts become scarce when the supply is not
sufficient to meet the needs of the people
• b. Bananas are abundant in the Philippines and are being
grown in a lot of regions around the country. But when a
typhoon destroys banana plants and the farmer has no bananas
to harvest, then bananas become relatively scarce.

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 TYPES OF SCARCITY
 ABSOLUTE SCARCITY – is when supply is limited.
 Ex. a. Oil is absolutely scarce in the country since we have no oil
wells from which we can source our petrolum needs, so we rely
heavily on imports from oil-producing countries like Iran and
other Middle Eastern countries.
b. Cherries are absolutely scarce in our
country since we do not have the right climate
to grow them and we have to rely on imports for
our supply of cherries. This explains why
cherries are very expensive in the Philippines.

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 DEFINITION OF TERMS
 Trade-offs– consist of all the options that we give up when
we make a choice.
Ex. you planned to spend your limited allowance to buy 2
pieces of siopao and softdrinks to satisfy your hunger.
Your other option is to pay for a heavy value meal at 120
pesos or buy your favorite meal combo at 115 pesos. You
gave these options up since you can only afford to pay for
the siopao and drinks. The choices that you’ve given up
are your trade-offs.

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 DEFINITION OF TERMS
 Opportunity Cost – refers to the value of the best foregone
alternative.
 Ex. a. When land is devoted exclusively to the cultivation of
rice, we give up an output of bananas or mangoes that we
could have planted on that land area.
b. A producer who decides to transform all his
leather into shoes, gives up the chance to produce
bags with that leather.
c. A school teacher who could have worked in
a bank, gives up the salary that she would have
earned as a bank employee.

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 DEFINITION OF TERMS
• d. A manager who quits his job in order to take up a master’s degree,
gives up his salary as a manager. That salary is his opportunity cost.

Two branches of Economics

1. 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 rather than individual
economic units that make up the economy. It focuses on the overall
flow of goods and resources and studies the causes of change in the
aggregate flow of money , the aggregate

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 TWO BRANCHES OF ECONOMICS

movement of goods and services, and the general employment of

resources.
- is about the nature of economic growth, the expansion of
productive capacity, and the growth of national income.
2. Microeconomics
- is a division of economics that is concerned with the
behavior of individual entities such as the consumer , the producer,
and the resource owner.
- it is more concerned on how goods flow from the business
firm to the consumer and how resources move from the resource
owner to the business firm.

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 TWO BRANCHES OF ECONOMICS

- it is also concerned with the process of setting prices of

goods that is also known as Price Theory.
- it studies the decisions and choices of the individual
units and how these decisions affect the prices of goods in the
market. Likewise, it examines the alternative methods of using
resources inorder to alleviate scarcity. It does not focus on
aggregate levels of production, employment, and income.

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 What is Supply and Demand?

1. Supply refers to the total number of goods or services

available for sale.

2. Demand refers to the aggregate or the totality of the needs

and wants of the customers.

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 ECONOMIC RESOURCES

 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.
Owners of lands receive a payment known as
rent.

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 ECONOMIC RESOURCES

 LABOR – physical and human effort exerted in production. It

covers manual workers like construction workers, machine
operators, and production worker, as well as professionals like
nurses, lawyers, and doctors. The term also includes jeepney
drivers, farmers, and fishermen. The income received by labors is
referred to as wage.
 CAPITAL – man-made resources used in the production of goods
and services , which include machineries and equipment. The
owner of capital earns an income called interest.

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Identify which resource is referred to
by the following words.

_______ 1. Entertainers
_______ 2. Minerals
_______ 3. Forests
_______ 4. Marine resources
_______ 5. Teachers
_______ 6. Technology
_______ 7. Production Equipment
_______ 8. Engineers
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Identify which resource is referred
to by the following words.

_______ 9. Call center agents

_______10. Business proprietor

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Classify the following topics. Write MIC if it
falls under Microeconomics; MAC, if it falls
under Macroeconomics
_______ 1. The inflation rate in the Philippines in the
last quarter of 2013 was 4.8%.
_______ 2. A ₱340-billion deficit in the Philippines
budget is expected in the year 2015.
_________3. Prices of Toyota vehicles are predicted to go
up in December.
_________4. Garlic prices in the past months have risen
because producers hoarded their suppliers in their
bodegas.
_________5. Unemployment rate has dropped because of
the increase in the number of OFW’s.
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 Classify the following topics. Write MIC
if it falls under Microeconomics; MAC, if
it falls under Macroeconomics
_______ 6. In the past year, Coca Cola was named
the fastest selling product in the market.
_______ 7. Rental on land could not be increased by
landowners because of the Rent Control Law.
_______ 8. Prices of apples and grapes tend to
increase during Christmas season.
_______9. The Philippine economy grew at the rate
of 5.8% in 2013.
_______10. Philippine congress passed the Value
Added Tax Law to strengthen the Philippine tax
system.
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