Learning Essentials

Investopedia defines applied economics as ‘the application of economic theories and principles to real
world situations with the desired aim of predicting potential outcomes.’ Moreover, applied economics
‘can lead to "to do" lists for steps that can be taken to ensure stability in real world events.’

In the 21st century, the Philippines has been faced with several economic problems such as the
following:

Unemployment- occurs when a person is unable to find work

Shortage- occurs when there is less supply than consumer demand.

Surplus- occurs when there is excess supply than consumer demand.

Corruption- refers to dishonest or fraudulent behavior by people with power such as managers

Poverty- refers to the state or condition in which people do not have the minimum standard of life
deemed accepted by the society

Price Volatility- refers to the unpredictable changes in prices (i.e. commodity price)

Tax issues- refers to compulsory contribution to the country’s revenue

Issues on education- includes tuition and other fees increase, bullying, and even graft and corruption

What to produce- refers to the first main problem of the economy which is to decide what products and
services to produce and in what quantity.

How to produce- refers to the economy’s basic problem which is to decide on how to produce the
products. This involves finding the efficient and effective technique for production.

Who gets what is produced- this refers to the problem on who will receive the products and services an
economy produces.

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On the brighter side, applied economics can be used to solve these problems. To use applied economics,
look at the different economic theories and concepts such as the law of supply and demand (which can
be used to explain why shortage and surplus occur), efficient pricing, scarcity, and others. Take and
apply these into real world scenarios.

Study for example why price increases as the demand for cellphones increases. The law of demand, in
this case, can be used to analyze the reason for price increase. The law of demand states that as demand
increases, price and quantity of the product increase as well. Hence, since demand for cellphones
increases, price also increases.

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Businesses are confronted with issues on economics. Competition compels businesses to produce
products of high quality and at an affordable price. A business should also have a competitive advantage
over its competitors to distinguish itself from the rest. Businesses would want to have more customers
to have more profit. Business managers and even entrepreneurs must understand economics to better
their decision-making skills. From the simplest concept of scarcity and choice; down to the law of
demand and supply, it is essential to have economic knowledge.

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Moreover, statistical methods can also be used in solving economic problems. Students in econometrics,
a branch of economics that uses statistical and mathematical theories in economics for ‘forecasting
future trends,’ use these methods intensively.

Observe the logical thinking behind the application of economic theories and concepts. From theories
written in books, to the application in solving real life problems, applied economics has successfully
proven to be helpful in addressing the country’s unending economic dilemmas.

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