APPLIED ECONOMICS NATURE OF ECONOMICS

- Economics is the study of what ECONOMICS IS A SCIENCE

constitutes rational human
- Is a body of systematic
behavior in the endeavor to fulfill
knowledge built upon by
human needs and wants.
conscious efforts.
Etymology of Economics ECONOMICS AS A SOCIAL SCIENCE
o Greek word “oikonomia”
- HUMANS – production,
meaning “household
distribution and consumption
management”
- Production and consumption are
goods
- Is a social science that
- Produce and obtain those goods
studies the allocation of
among people
scarce resources to satisfy
- Explain how people interact
unlimited wants.
within markets to get what or
accomplish certain goals they
SCARCITY want.
- Is a population where there are
insufficient resources to satisfy all
Investment in education pays the
the needs and wants of the
highest interest.
population.
- Choices and decision making
- Opportunity Cost refers to the
TRENDS FADS
value of the best forgone
Long term Short term
alternative. (pipili)

RELATIVE SCARCITY
- Is when a good is scarce
compared to its demand.
- Hindi pang matagalan na
mawawala.

ABSOLUTE SCARCITY
- Is when supply is limited.
DIVISION OF ECONOMICS - It is about the nature of
economic growth of national
MICROECONOMICS
income
- It focuses on the overall flow of
money, the aggregate movement
of goods and services, and the
general employment of
resources.

POSITIVE ECONOMICS
- Deals with what is things that are
actually happening such as
current inflation rate, the number
of employed labor and the level
- It is more concerned on how
of the gross national product.
goods flow from the business
- Current situation
firm to the consumer and how
- It is an overview of what is
resources more from the
happening in the economy that is
resources owner to the business
possibly far from what is ideal.
firm.
- Studies the decisions and choices
of the individual units and how
NORMATIVE ECONOMICS
these decisions affects the prices
of goods in the market. - Refers to what should be done –
that which embodies the ideal
such as the ideal rate of
MACROECONOMICS population growth or the most
effective tax system.
- Concerned with the overall
- It focuses on policy formulation
performance of the entire
that will help to attain the ideal
economy.
situation.
o Production
o Profit
o Financial budget
o Internal relation
- Studies the economic system as a
whole rather than the individual
economic units that make up the
economy.
SCOPE OF ECONOMICS
PRODUCTION
- Refers to the process of
producing or creating goods
needed by the household to
satisfy their needs.
- These factors of production are
called inputs and the goods
services that have been created
are called outputs of production.
DISTRIBUTION
- This refers to the marketing of
goods and services to different
economic outlets for allocation to
individual consumers.
- In monetary terms, this is the
allocation of income among
persons or household.
PUBLIC FINANCE
EXCHANGE
- The process of transferring goods
and services to a persons in
return for something.
- At present, the medium of
exchange used in the market is
money. This means, we can
exchange our money with goods
and services.
CONSUMPTION
- This refers to the proper
utilization of economic goods.
- However, goods and services
could not be utilized unless you
pay for it. Hence, we also save
that consumption is spending
mine for goods and services in
order to field-direct satisfaction.
- Is the study of economics in
relation to the real world
situations, as opposed to the
theory of economics
- The use of applied economics is
designed to analytically review
potential outcomes without the
“fanfare” associated with
explanations that are not backed
by numbers.
- Pertains to the activities of the
government regarding taxation,
borrowings and expen
- It deals with the efficient use of
fair distribution of public
resources in order to achieve
maximum social benefits.
- Government programs and
projects are funded by taxes and
loans.
SCIENTIFIC APPROACH IN THE
EMPIRICAL TESTING OF AN
ECONOMIC THEORY
1. State the propositions or
conditions that are taken as given
and do not need further
investigations, as the basic
starting point of investigation.
These proportions will serve as
the premises upon which the
theory is established.
Empirical Validate
Economic Theory
2. Observe facts in connection
activity that we want to theorize.
3. Apply the rules of logic to the
observed facts to determine
casual relationships between
observed factors and to eliminate
facts that are unnecessary and
irrelevant.
Rules of Logic – avoid
unnecessary facts
4. Establish a set of principles such
that formulated hypotheses may
be tested as to whatever they are
valid or not.
5. Use statistics and econometrics
as empirical proof in testing the
hypotheses
TOOLS OF ECONOMICS
LOGIC
- It is a science that deals with
sound thinking and reasoning
In the process of reasoning, facts and
proofs should be presented; otherwise,
such reasoning will be clouded by an
ioth of doubt with the wise app or logic,
one may be able to arrive at a
conclusion.
MATHEMATICS
- It is a science that deals with
numbers and their operations.
Actually, economics is the most
quantifiable discipline among
social sciences. It can quantify
population, income, national
product, aggregate number of
firms.
- Mathematical tools used in
economics include matrix
algebra, linear equations,
economic models, optimization
and differential equations.
STATISTICS
- It is a branch of mathematics
engages with the analysis and
interpretation of numerical data.
- It deals with the process of
collecting, tabulating and
analyzing data to test the validity
of a certain hypothesis.
 - Facts collected and arranged in
an orderly way for study through
statistics.
ECONOMIC RESOURCES/FACTORS
OF PRODUCTION
LAND
- These resources consist of free
gifts of nature which includes all
natural resources above, on and
below the ground such as soil,
rivers, lakes, ocean, forests,
mountains, mineral resources and
climate.
- Is considered economic resources
because it has a price attached to
it. One cannot utilize this natural
resource without paying for it
usually in the form of rent or
LABOR
- This is also termed as a human
resources
- Refers to all human efforts, be it
mental or physical that help to
produce want satisfying goods
and services. Labor is an
indispensable factor in the
production of goods and services.
In return, he earns an income in
the form of wages and or
salaries.
CAPITAL
- Can represent the monetary
resources companies use to
purchase natural resources, land
and other capital goods
- Represents the major physical
assets individuals and companies
use area, producing goods and
services. Include buildings,
production etc.
ENTREPRENEUR
- French word meaning enterpriser
- Is the organizer and coordinator
of the other factors of
production: land, labor and
capital
- Is one who is engaged in
economic undertakings and
provides society with goods and
services
FOREIGN EXCHANGE
- This refers to the dollar and
dollar reserves that the economy
has.