ECONOMICS AS AN

APPLIED SCIENCE
LESSON 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
SPECIFIC OBJECTIVES

• Discuss why economics is an applied science

• Explain the basic economic problems
• Understand how applied economics work
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)
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.
 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
 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
 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
EXAMPLE

• Purchase of goods and services

• Usage of raw materials
• Division of labor within entity (e.g. firm, company, agency)
 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
ECONOMETRICS
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.
Theoretical

Econometrics

Applied
ECONOMETRICS EXAMPLE
Income Spending

Real life application of econometrics would be to study the

hypothesis that as a person’s income increases, spending
increases
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

 Povert
y

Unemploy
Inflation Scarcity ment

Slow
Growth
SCARCITY

• Scarcity- refers to the tension between our limited

resources and our unlimited wants and needs

Video
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
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
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?
 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
 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.
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