PRE-TEST

Encircle the letter of your answer.

1. What do you call the condition in which our wants are greater than our limited resources?
a. Economics c. Scarcity
b. Opportunity Cost d. Trade-off
2. What do you call things that you gave up when you make a choice?
a. Choice c. problem
b. opportunity cost d. Trade-off
3. What do you call the application of economic principles and theories to real-world situations?
a. Applied Economics c. Macroeconomics
b. Economics d. Microeconomics
4. Which of the following is not a factor of production?
a. Capital c. labor
b. Tax d. land
5. What is supply?
a. It is a choice that you gave up c. It is the totality of our needs
b. It is the amount of goods for sale d. It refers to the economy
6. Which of the following classifications does not fall under underemployment?
a. Highly skilled but working in low paying jobs
b. Part-time workers who would prefer to be full time.
c. Without work and currently available for work
d. Workers who are highly skilled but working in low skill jobs
7. When does underemployment occur?
a. It is when a person does have work
b. It is when a person does not have work
c. It when a person does not work for a job that fits his/her skills.
d. It is when a person works for a job that fits his/her skills.
8. Which of the following works best for our country?
a. Decrease in the employment rate
b. Decrease in the underemployment rate
c. Increase in the underemployment rate
d. Increase in the unemployment rate
9. What is most likely to happen when the population continues to rise?
a. Employment rate will go up c. Resources will become scarce
b. Poverty rate will decrease d. Unemployment rate will go down
10. According to Philippine Statistics Authority (PSA) what is the minimum age that a Filipino must
have in order to be classified as an unemployed person?
a. 13 years old c. 15 years old
b. 14 years old d. 18 years old
11. What kind of approach is used by economists to explain how the economy works?
a. Collaborative c. positive

b. Experimental d. scientific
12. What are you experiencing when your wants are greater than your resources?
a. Poverty c. trade-off

b. Scarcity d. unemployment

Applied Economics
Page 1 of 8
13. What is the reason why we are studying economics?
a. Poverty c. trade-off

b. Scarcity d. unemployment
14. What type of analysis are economists concerned with in order to become objective?
a. Careful c. normative

b. Negative d. positive
15. Which major characteristic of economists enable them to make sound decisions in solving
economic problems?
a. Objective c. subjective
b. Prompt d. trustworthy

Applied Economics
Page 2 of 8
 MODULE #1: INTRODUCTION TO APPLIED ECONOMICS

Learning Outcomes:

At the end of the lesson, the student should be able to:

 define basic terms in applied economics

 identify the basic economic problems of the country
 explain how applied economics can be used to solve economic problems

Lesson 1: Basic Terms in Applied Economics

Have you tried to budget your money in order to buy what you want to eat or
consume in your daily living? Have you tried to run out of water while you were taking a bath? Have
you tried to limit the number of kilos of rice that you will buy for your daily consumption? If you have
answered yes to at least one of these questions, then you must be facing the trauma of not being
able to have enough of what you wanted.

In this lesson, you will be introduced to the most basic terms used in Applied Economics and
their corresponding definitions. These words will surely guide you in understanding the real meaning
of Applied Economics.

What is Scarcity?

Life would be easier if we could have whatever we wanted, whenever we wanted it.
Unfortunately, life doesn’t work that way. There are times when we feel like buying all the things we
want while window shopping but we just don’t have enough money. At times, when we are craving
for some food, the store just runs out of stock. There are times when we really wanted to take a bath
but there is no single drop of water coming out of the faucet, or we wanted to light up a candle but
we ran out of matchsticks. You see, this is scarcity, and it is everywhere. Scarcity is the condition in
which our needs and wants are greater than our limited resources.

Needs and wants differ from person to person. The easiest way to describe needs is that
these are the things that we can’t live without. Examples of needs are air, water, food and shelter. On
the other hand, wants are those that we can live without. Examples of wants are jewelries and
luxuries.

Why is scarcity linked to Economics?

Scarcity is the reason why people have to study and practice economics. Economics studies
how people distribute or divide their limited resources in order to satisfy their unlimited wants. Or
simply, it is the study of how individuals and societies deal with scarcity.

For instance, if after your examination you plan to eat a heavy lunch with your limited
allowance which is 100 pesos, you will have to budget it and decide about which food you will buy to
satisfy your hunger. Since we are unable to have everything we desire, we must make choices on
how we will use our limited resources.

What are Trade-offs?

When making choices, there are things that we need to give up. Trade-offs consist of all the
options that we give up when we make a choice.

Following the previous example, you planned to spend your limited allowance to buy 2 pieces
of siopao and softdrinks to satisfy your hunger. Your other option is to pay for a heavy value meal at
120 pesos or buy your favorite meal combo at 115 pesos. You gave these options up since you can
only afford to pay for the siopao and drinks. The choices that you’ve given up are your trade-offs.

What is an Opportunity Cost?

Applied Economics
Page 3 of 8
 Among all your trade-offs, the most desirable alternative that you gave up is called the
opportunity cost. In the previous example, the most desirable option is to buy your favorite meal
combo at 115 pesos. You cannot afford it since you only have 100 pesos so you gave it up.

No matter what choice you make, there is an opportunity cost, or next- best alternative, that
must be sacrificed. Opportunity cost is the highest- valued alternative that must be sacrificed in
order to get something else. The key to making the best possible decision is to minimize your
opportunity cost by selecting the option that gives you the largest benefit.

What are the Branches of Economics?

Microeconomics is a branch of economics that is concerned with the decision-making done

by smaller economic units such as individuals or consumers, firms and industries. Macroeconomics
on the other hand is the study of the large economy as a whole or the aggregate economy.

What is Supply and Demand?

To better understand Economics, we also need to know about supply and demand. Supply
refers to the total number of goods or services available for sale. These goods or services are
produced by making use of the factors of production consisting of land, labor and capital. Land refers
to all natural resources or any raw materials coming from the ground that is used to produce supply.
Labor on the other hand is the work done by people or human resources. Capital does not only
mean money as this can be in the form of man-made tools or objects that may be used to produce
supplies. Demand on the other hand refers to the aggregate or the totality of the needs and wants
of the customers. Balancing these two is one of the goal of Economics so that scarcity is eliminated.

What is Applied Economics?

Applied Economics is the application of the principles of supply, demand, trade-offs

opportunity-costs, and other economic theories to solve real-world problems. It may be practiced in
the microeconomic or macroeconomic level. Applying economic theories in our lives means trying to
address actual economic issues and be able to do something about it.

Lesson 2: Basic Economic Problems of the Country

In the previous lesson, you were introduced to the basic terms used in Applied Economics.
These terms will help you to better understand applied economics and the current situations faced by
our country.

In this lesson you will be identifying the basic economic problems of the country which are all
linked to scarcity. Take time to read and feel the different types of situations you will be immersed in.

All societies are faced with questions about what goods and services should be produced,
how these should be produced and who consumes these. Knowing the answers to these questions
would lead us to identify possible problems and solutions to existing economic problems.

What are the Basic Economic Problems in the country?

Philippines as a growing country are not exempted from experiencing economic problems.
Under the Duterte administration, the country has significantly improved its economic marks,
however, problems still exist. Take a look at the following scenario and examine or identify the
economic problem present in it.

Situation #1: You are a fresh graduate at a prestigious university. You graduated as summa cum
laude and received numerous recognition awards. You took up an education course in order to
become a teacher, however, after graduating; you could not find available jobs within the province.
What economic problem is present and is affecting you here?

1. In this situation, you are affected by the so-called unemployment problem, which is still among
the basic problems of the country. According to PSA (Philippine Statistics Authority, the
unemployed include all persons who are 15 years and over as of their last birthday and are
Applied Economics
Page 4 of 8
 reported as: (1) without work and currently available for work and seeking work; or (2) without
work and currently available for work but not seeking work for the following reasons:
Tired/believed no work is available; awaiting results of previous job application; temporary
illness/disability; bad weather and; waiting for rehire/job recall.

According to the records of PSA (Philippine Statistics Authority), the unemployment rate in the
year 2018 is at 5.3% and this went down a little bit in the year 2019 becoming 5.2%. These
figures show that there is still a huge number of Filipinos who are not working. Not having a job
means not having a source of income to provide for our personal needs and wants, not being
able to being prone to scarcity issues. Unemployment has been an issue in the country for many
years which is why the government is seeking ways to address the problem.

Aside from unemployment, another basic economic problem is faced by Filipinos. Discover it by
reading and immersing yourself in the situation below.

Situation #2: You are a newly-registered nurse. You wanted to immediately find a job to save
enough money for your sick father’s hospitalization. There is no other available job opportunity in the
area except for an immediate hiring for customer service representatives. You got the job and you’re
now a contact center agent. What economic problem is present and is affecting you here?

2. In this situation, you are affected by the so-called underemployment problem, which is also
among the basic problems of the country. Accordingly, labor that falls under the
underemployment classification includes those workers who are highly skilled but working in
low paying jobs, workers who are highly skilled but working in low skill jobs and part-time
workers who would prefer to be full time.

According to the records of PSA (Philippine Statistics Authority), the underemployment rate in the
year 2018 is at 18.0% and this went down a little bit in the year 2019 becoming 15.6%. There is
a decrease in the percentage rate which means the Philippines is getting better, however it
remains to be an economic problem. Having a job that doesn’t match your skills still boils down to
being prone to scarcity issues.

Situation #3: Suppose that you, being the eldest of ten siblings were not able to finish your studies.
You were forced to stop going to school at the age of 13 and find a job at an early age in order to
support your siblings. What economic problem can be seen here?

3. In this situation, you are affected by the number one problem of the country which is poverty.

The booming population growth in the Philippines is another basic economic problem that can be
connected to the issue of scarcity. When population becomes too big, economic resources may
no longer be enough to support the increasing number of people. Food, water, shelter, medicine
and other resources wouldn’t be enough to satisfy every people’s needs and wants.

On a 2015 report by the Philippine Statistics Authority (PSA), five (5) out of nine (9) basic sectors
of the economy are considered very poor. The farmers came first, followed by fishermen,
children, self-employed and unpaid family workers, and women. You see, those who do hands-on
jobs usually get lower incomes. This is even the reason why Filipinos tend to go abroad as they
get better pays outside the country.

All of the country’s basic economic problems vary with times and circumstances. Unemployment,
underemployment, poverty and population increase are just few of the basic economic problems
faced by our country. These problems are linked to scarcity. These problems would not have
occurred if the resources or supplies are equally distributed to suit to the needs and wants of
people. It is now a challenge for you to observe and identify other economic problems so you
may be able to think about it and reflect on how you could help in solving it.

Lesson 3: Applied Economics in Relation to the Philippine Economic Problems

Applied Economics
Page 5 of 8
 You have learned from the first lesson of this module that applied economics is the
application of economic principles and theories to real-world situations in order to predict future
outcomes. Therefore, it makes sense that if you will apply the economic theories that you will learn in
your personal life and the society you’re at, you may actually be able to address actual economic
issues and do something about it.

How economists face economic problems

Just like a scientist who needs a science laboratory, as an economist, your laboratory is the
world around you, from the economy as a whole to the decisions made by firms and individuals. In
order to explain why the economy works in a certain way you need to gather historical data or even
wait for events to take place to better understand the economy.

The scientific approach is necessary in solving economic problems. It consists of steps such
as observing the economic problem that interests you; proposing an explanation about why the
problem occurred; gathering data to prove the truthfulness of the causes of the problem and then
recommending the best possible solution based on the verified causes.

One major characteristic of economists that enable them to make sound decisions in solving
economic problems is by being objective. This means that they try to avoid letting personal beliefs
and values influence the outcome of their analysis

To be as objective as possible, economists make use of positive analysis. A positive

statement can be tested and validated. For instance, the statement “the joblessness rate is 5.0%” is
an affirmative statement because it can be tested by collecting data.

In contrast, a normative statement cannot be corroborated. For instance, the statement

“an unemployed worker should receive financial assistance in order to survive” is a matter of opinion.
Financial assistance may be beneficial to the unemployed but it might turn out as a way of pampering
them which would make them want to stay lazy and unemployed. Neither opinion is correct or not
because of opposing standpoints based on values, traditions and beliefs.

Economists are concerned with positive analysis. In contrast, normative statements are
applied by policymakers, voters, and philosophers. There is no exact way to solve economic
problems, if there was, they could not have existed. However, Applied Economics employs positive
analysis and the scientific method which is the best way to solve economic problems.

For instance, if the joblessness rate rises, economists try to apprehend the circumstances
that produced the situation. Economics, if done properly, is confined to positive analysis.

Going back to the previous activity that you’ve answered where you have been affected by
unemployment since you cannot find available jobs, the most appropriate thing an economist must do
is to apply positive analysis. Unemployment happens due to scarcity of jobs which means the number
of prospect workers or job applicants do not match the number of jobs available.

Thus, these numbers must be looked into. Data should be gathered and validated before
economists could suggest or recommend something that will equalize the numbers. This would need
government intervention at the end since they have control over the economy. This is how applied
economics works.

References:
2017. Philippine Statistics Authority. June 30. Accessed January 27, 2020. https://psa.gov.ph/poverty-
press-releases/nid/120251.

ACTIVITY 1

Applied Economics
Page 6 of 8
ACTIVITY 2

ACTIVITY 3

Applied Economics
Page 7 of 8
 POST-TEST

Applied Economics
Page 8 of 8