APPLIED ECONOMICS

ELEMENTS OF ECONOMICS
ECONOMICS as a Social
Science
• Three strands in the development of the
definition of economics.
1. Wealth
2. Decision-Making
3. Allocation
 The earlier definition of economics
as the science of wealth-getting
and wealth-using implies the
motivation of the process of
Economics as wealth accumulation.
Study of
Wealth
It is the utilization of wealth for
the individual’s satisfaction and
society’s welfare.
 In everything that we do, whether
we produce or consume, whether it
Economics as is wealth-getting or wealth-using,
Study of we make decisions and these are
based on alternative choices.
Making
Choices
(Decision- Opportunity Cost - the loss of
potential gain from other
making) alternatives when one alternative is
chosen
 Consistent with the process of
wealth-getting and wealth-using
and the process of making
Economics as choices.

Study of
Allocation
Distribution of scarce resources.
 The systematic or scientific method is being used
in the study of society and its components.

can be described as the study of the various

Economics as a modes and aspects of human interactions in a
group as these people aspire to preserve their
Social Science group as a social unit, to make it stable, and to
promote growth, expansion, and development.

Pertains to the study on how society creates its

material wealth, how it makes this wealth
available to its people with minimum difficulties,
and how it expands its wealth.
Resources and the Study of
Economics
• Resources or Wealth – can be defined as products of
nature, qualities of individuals, and man-made things which
are used in producing goods or services.
1. Natural Resources
2. Human Resources
3. Physical Resources / Manmade Resources
• Key Characteristics – Limited
• Factors: 1. Length of time as well as the difficulty in
reproducing
2. Competing uses of the resources
Human Wants and Economic
Analysis
• Described as differentiated or expanded
human needs.
• Resources as used to answer the human
needs and human wants of the society.
• The expansion and multiplication of
human wants is one of the key reasons
why we have an economic problem.
Scarcity as a Source of
Economic Problem
• Scarcity – the limitation of resources to
answer the expanding human wants.
• Scarcity is a key economic problem
because of the limitations of resources.
• The limitation of resources arise primarily
because of its alternative and competing
uses while human wants are expanding.
 • Scarcity is a general characteristic of
resources in the light of its competing
uses that may arise from the rapid
Scarcity / expansion of human wants,
• Shortage is a condition when the supply
Shortage / of a good, service, or resource is not
Surplus enough to meet the demand.
• Surplus – wastage of resources in the light
of competing uses through improper
ways.
 Economics, as a study, is
Scarcity is the reason the social science that
why people have to involves the use of scarce
practice economics. resources to satisfy
unlimited wants
 Relative Scarcity-Is when
a good is scarce
compared to its demand.

Absolute Scarcity- is when

supply is limited.
 • Defined as a social mechanism to respond
to the economic problem of scarcity.
• Various ways of treating the problem of
Allocation scarcity.
and the Act • Individuals may have to temper or
slowdown the expansion of their
of human wants
• To hasten the expansion of human
Economizing wants
• Combination of the first two
altErnative
Mechanisms for
Allocation
 • Market is a state when
buyers and sellers transact
on the purchase or sale of a
god or service.
• The agreement is to set the
amount of good or service to
be rendered and most
importantly, the price that
the output is going to be sold
and bought.
• Price of Commodity – is
both an index of cost or
sacrifice (for producers)
1. Market System and benefit or
satisfaction (for buyers)
Market System
• Price can signal costs and benefits
• Price can be an instrument for the
allocation of resources through this
mechanism
• Market System address the problem of a
surplus or relative abundance.
• Provides incentive and disincentives to
consumers or producers that respond to
the problem of scarcity.
Basic Economic • What to produce and how much
Problems of • How to produce
Society • For whom to produce
 ■ Society must have to decide what goods
What to and services should be produced in the
economy. Having decided on the nature
produce and of goods that will be produced, the
how much? quantity of these goods should also be
decided on.
 • Is a question on the production method
How to produce? that will be used to produced the
goods and services. This refers to the
resource mix and technology that will
be applied in production.
 • Is about the market for goods. For
For whom to whom will the goods and services be
produced? The young or old, the male
produce? or female market, the low-income or
the high income groups?
 • The state or an agency of
the government may be in
charge in the allocation of
resources by using its
political power in answering
the basic economic
problems of production and
distribution.
• This is the authoritative
system wherein decision-
making is centralized in the
government or a planning
committee. Decision are
imposed on the people who
do not have a say in what
goods are to be produced.
This economy holds true in
dictatorial, socialist, and
2. Command communist nations.
 • Normally observed and
practiced in indigenous
communities in the past
where life was
complicated and the
simple needs of the
members of the society
can be provided by the
society itself.
• Example: the practice of
concept of sharing
• Decisions are based on
traditions and practices
upheld over the years and
passed on from
3. Tradition in the Process of generation to generation.
Methods are stagnant and
Allocation therefore not progressive.
 Macroeconomics
2 Branches of
Economics
Microeconomics
 • is a division of economics that is
Macroeconomics concerned with the overall performance
of the entire economy.
 • Studies the decision and choices of
the individual units and how these
decisions affect the prices of goods
in the market.
Microeconomics
• It is also concerned with the process
of setting prices of goods that is also
known as Price Theory.
Basic Economic Problems Confronting the
Development of the Philippines in the 21st Century
• Poverty and Unequal Distribution of
Income
• Demographic Changes and its Economic
Implications
• Low Investment in Human Resource
Development
• Weak Infrastructure
• Pursuing Food Security
• Slow Adoption of Modern Technology
• Environmental Sustainability and the
Country’s Development Thrust
Poverty

- is a restricting condition
experienced by millions of
families that prevents them in
attaining minimum level of
consumptions for subsistence
living.
 1. Absolute Poverty – is the lack of income to
Two categories buy the basic food and necessities for
of Poverty: subsistence living.
• Measure in terms of poverty threshold
and poverty incidence
• Poverty Threshold – is the income
needed to purchase the minimum
nutritional requirements and other
basic necessities for daily survival.
• Poverty Incidence – is the proportion
of households in the country with
family income lower than the poverty
threshold or poverty line.
 Two 2. Relative Poverty – refers to the structure on
how the national income is being distributed
categories of among households in an economy.
Poverty:
- Measured by the Lorenz Curve and the Gini
coefficient
- Lorenz Curve – shows the share of the various
household groups (ranked from the poorest to the
richest) on the total national income.
- Gini Coefficient – is a measure on income
inequality derived from the Lorenz curve.
- Perfect Quality = value 0
- Perfect Inequality = value 1
 Demographic Changes in Economic Implications
• The current population of the Philippines is 108,989,411 as of Wednesday,
February 5, 2020, based on Worldometer elaboration of the latest United
Nations data.
• The Philippines 2020 population is estimated at 109,581,078 people at mid year
according to UN data.
• The Philippines population is equivalent to 1.41% of the total world population.
• The Philippines ranks number 13 in the list of countries (and dependencies) by
population.
• The population density in the Philippines is 368 per Km2 (952 people per mi2).
• The total land area is 298,170 Km2 (115,124 sq. miles)
• 47.5 % of the population is urban (52,008,603 people in 2020)
• The median age in the Philippines is 25.7 years.
Low Investments in Human Resource Development
• “The Philippines needs more investments in infrastructure and
human capital, particularly upgrading the skill sets of workers for
higher-paying jobs to be able to counter risks of an overheating
economy”, the World Bank Group said.
• the government needs to affirm its commitment to the promotion of
competition, secure property rights, less regulatory complexities, and
an improved investment climate.
• This can be done by prioritizing investment in both physical
infrastructure and human capital, such as in education, skills, and
health, as this will create better employment opportunities, especially
among the poor.
Weak Infrastructure - BUILD, BUILD, BUILD Program
 Pursuing Food
Security

• Food security is elusive for the poor,

especially in the Philippines. From
2013 to 2015, our underweight
percentage worsened from 19
percent to 25 percent.
• The latest Social Weather Station
Survey showed that in 2018, 19
million (or 19 percent of our people)
experienced hunger, with 10 million
experiencing severe hunger.
Slow Adoption of Modern Technology

• The country’s transport and logistics industry must explore the

opportunities offered by digitization, automation and blockchain
technology to enhance efficiency in logistics, ocean transport and the
port and terminal sector.

• The Philippines tremendous potential is restricted by the slow rate

change in adoption new technology and process innovation.
Environmental Sustainability and the Country’s
Development Thrust
• Environmental Accounting is short for environmental and natural
resource accounting (ENRA). It is likewise termed as “green
accounting,” “resource accounting,” and “integrated economic and
environmental accounting.”

• Environmental accounting is a relatively new concept which aims to

include in the traditional measurement of economic development the
cost of using the environment as inputs to production and as a sink
for wastes.
• Gross National Product is an estimate of the total value of goods and
services produced during a given period of time by the nation’s
residents, regardless of where these are produced.

• Gross Domestic Product, on the other hand, is the total market value
of all final goods and services produced within a country in a given
year. These are the most commonly used measures of the economic
growth of a country.