Lesson 2 - Economics as an Applied Science

1. ECONOMICS AS AN APPLIED SCIENCE LESSON 2

2. ECONOMICS IS A STUDY OF ECONOMIC ACTIVITIES OF A MAN. IT IS ONLY
CONCERNED WITH THE WEALTH-GETTING AND WEALTH-USING ACTIVITIES OF A
MAN. - PROF. MARSHALL
3. SPECIFIC OBJECTIVES • Discuss why economics is an applied science • Explain the basic
economic problems • Understand how applied economics work
4. APPLIED ECONOMICS • The term “applied economics” is believed to have started 200 years
ago in the writings of two economists: JEAN-BAPTISTE SAY JOHN STUART MILL (1767-
1832) (1806-1873)
5. APPLIED ECONOMICS • Applied economics - is the study of economics in relation to real
world situations. It is the application of economic principles and theories to real situations, and
trying to predict what the outcomes might be. SIMPLER DEFINITION • Applied economics – is
the study of observing how theories work in practice.
6. WHAT IS THE IMPORTANCE OF APPLIED ECONOMIC APPLICATION? 1. Applying
economics to a company, household or a country helps sweep aside all attempts to dress up a
situation so that it will appear worse or better than it actually is. *applied economics becomes a
powerful tool to reveal the true and complete situation in order to come up with things to do
7. EXAMPLE Applied economics can assess the profits of a certain company The result can help
the executives to do some strategies in order to boost its sales
8. WHAT IS THE IMPORTANCE OF APPLIED ECONOMIC APPLICATION? II. Applied
economics acts as a mechanism to determine what steps can reasonably be taken to improve
current economic situation *to examine each aspect, one can strengthen areas where performance
is weak
9. EXAMPLE • Purchase of goods and services • Usage of raw materials • Division of labor
within entity (e.g. firm, company, agency)
10. WHAT IS THE IMPORTANCE OF APPLIED ECONOMIC APPLICATION? III. Applied
economics can teach valuable lessons on how to avoid the recurrence of a negative situation, or at
least minimize the impact. *to review what steps were taken to improve and correct similar
situations and continue good strategies to keep the economy flowing in a correct direction
11. ECONOMETRICS
12. WHAT IS ECONOMETRICS? • Econometrics – is the application of statistical and
mathematical theories to economics for the purpose of: • Testing hypotheses • Forecasting future
trends The results of econometric are compared and contrasted against real life examples.
13. Theoretical Applied Econometrics
14. ECONOMETRICS EXAMPLE Real life application of econometrics would be to study the
hypothesis that as a person’s income increases, spending increases Income Spending
15. BASIC ECONOMIC PROBLEMS • Scarcity of means for satisfying various needs is the
central problem of our economic life and it is scarcity that creates the need to make a choice •
Scarcity and choice go hand in hand
16. Scarcity Povert y Unemploy ment Slow Growth Inflation
17. SCARCITY • Scarcity- refers to the tension between our limited resources and our unlimited
wants and needs Video
18. BASIC ECONOMIC PROBLEMS 1. What to produce? - The system must determine the
desires of the people. - Goods and services must be based on the needs of the consumers Factors
to consider: a. Availability of resources b. Physical environment c. Customs and traditions of
people
19. BASIC ECONOMIC PROBLEMS II. How to produce? - The system must select the proper
combination of economic resources in producing the right amount of output - The quality of
output must comes first before the quantity
20. BASIC ECONOMIC PROBLEMS III. For whom shall the goods and services be produced? -
This has something to do with distribution - Once the goods are produced, how shall they be
distributed?
21. BASIC ECONOMIC PROBLEMS IV. Are the country’s resources being utilized or some of
them are lying idle and unemployed? - When resources are scarce, it is absolutely not right to keep
some of the available ones idle. - If resources are not fully utilized, the production system is said
to be inefficient
22. BASIC ECONOMIC PROBLEMS V. Is the economy’s capacity to produce goods growing or
remaining the same overtime? - To achieve a growth is productive capacity is a universal
objective.
23. IF YOU ARE THE ECONOMIC PLANNER, HOW CAN YOU RESOLVE
UNEMPLOYMENT? • List down your option/s. Discuss. • ½ crosswise. Due on Friday, July 7
2017