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Applied Economics Q3 Module 2
Applied Economics Q3 Module 2
APPLIED
ECONOMICS
Quarter 3 – Module 2
The Utility and Application of Applied Economics
to Solve Economic Issues and Problems
Applied Economics – Grade 11
Alternative Delivery Mode
Quarter 3 – Module 2: The Utility and Application of Applied Economics to Solve
Economic Issues and Problems
First Edition, 2020
Republic Act 8293, section 176 states that: No copyright shall subsist in any work of
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Applied
Economics
Quarter 3 – Module 2
The Utility and Application of
Applied Economics to Solve
Economic Issues and Problems
Introductory Message
For the facilitator:
This learning resource hopes to engage the learners into guided and
independent learning activities at their own pace and time. Furthermore,
this also aims to help learners acquire the needed 21st century skills while
taking into consideration their needs and circumstances.
In addition to the material in the main text, you will also see this box in the
body of the module:
As a facilitator, you are expected to orient the learners on how to use this
module. You also need to keep track of the learners' progress while allowing
them to manage their own learning. Furthermore, you are expected to
encourage and assist the learners as they do the tasks included in the
module.
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For the learner:
This module was designed to provide you with fun and meaningful
opportunities for guided and independent learning at your own pace and
time. You will be enabled to process the contents of the learning resource
while being an active learner.
3
This is a task which aims to evaluate your
Assessment level of mastery in achieving the learning
competency.
In this portion, another activity will be given
Additional Activities to you to enrich your knowledge or skill of
the lesson learned.
1. Use the module with care. Do not put unnecessary mark/s on any
part of the module. Use a separate sheet of paper in answering the
exercises.
2. Don’t forget to answer What I Know before moving on to the other
activities included in the module.
3. Read the instruction carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking your
answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are through
with it.
If you encounter any difficulty in answering the tasks in this module, do
not hesitate to consult your teacher or facilitator. Always bear in mind
that you are not alone.
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I
Because of the presence of scarcity, there is a need for man to make decisions in
choosing how to maximize the use of the scarce resources to satisfy as many wants as
possible.
We can also discover the application of opportunity cost in making a choice not only
for individuals but also for businesses, government, and even a society as a whole.
As students, understanding the existence of scarcity can help analyze how to
maximize the use of available resources in order to overcome scarcity.
You will also learn how the basic economic problems in our society, economic
systems, and the measurement of economy thru GNP able to help in solving economic issues
and problems where it is in this module the center of our discussion focused.
It covers many different learning situations where you can relate your personal
experiences on different practical scenarios about Applied Economics.
LEARNING COMPETENCY:
OBJECTIVES:
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I
The activity aims to give you a clear understanding of examining the utility and
application of applied economics to solve economic issues and problems.
Directions: Analyze what economic resources or factors of production the following pictures
and statements fall. Choose a word (Land, Labor, Capital) that best describe what is given
below.
Economic resources- are resources used to produce goods and service
1. 7.
https://www.devex.com/news/in-the-philippines-training-a-
new-generation-of-construction-workers-95693 https://www.thebalancecareers.com/tips-for-high-school-
students-who-want-to-be-a-doctor-2059733
2. 8.
https://agriculture.papemachinery.com/new-
equipment/agriculture/combines https://www.indiafilings.com/learn/odisha-land-conversion/
3. 9.
https://www.sillem.tech/new-machineries-2018/
https://www.dreamstime.com/photos-images/land.html
4. Soil and natural resources that are 10. Owners of lands receive a payment
found in nature and are not man-made known as rent
5. Physical and human effort exerted in 11. The income received by labors referred
production as wage
6. Man-made resources used in the 12. Includes machinery and equipment
production of goods and services
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’s In
Task 1 implies the Economic resources, also known as factors of production. These
are the resources used to produce goods and services. But these resources are, by nature,
limited and therefore, command a payment that becomes the income of the resource owner.
Production refers to the process of producing or creating goods needed by the
households to satisfy their needs.
Doctors
FRUITS
Shoes Police
Goods Services
1. ____________ 1. _____________
2. ____________ 2. _____________
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’s New
We are facing global crisis today which is Covid-19. This does not respect national
boundaries - and it made countries to work together to find solutions. The global
community has shown that we can work together with government, businesses and
individuals taking measures to address the global crisis caused by the Covid-19 pandemic.
As member of the society, what will you provide to help lessen or stop the spread of the
virus.
Analyze the economic crisis cited above. You may answer questions based on the
Basic Economic Problems of Society. Write your answers in your activity notebook.
1. What to produce and how much?
1.
2.
2. How to produce?
This refer to the production method that will be used to produce the goods or services.
Refers to the resource mix and technology that will be applied in production. You can refer
to the Economic resources (land, labor, capital)
4. Do you think the goods and services you produced are in accordance with
consumer’s utility or usefulness? Why?
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is It
If there is a central economic problem that is present across all countries, without any
exception, then it is the problem of scarcity. This problem arises because the resources of all
types are limited and have alternative uses. If the resources were unlimited or if a resource only
had one single use, then the economic problem would probably not arise. However, be it natural
productive resources or man-made capital/consumer goods or money or time, scarcity of
resources is the central problem.
Economic resources, also known as factors of production, are the resources used to
produce goods and services. These resources are, by nature, limited and therefore, command a
payment that becomes the income of the resource owner.
1. Land - soil and natural resources that are found in nature and are not man-made.
Owners of lands receive a payment known as rent
- these resources consist of gifts of nature which include:
Soil
Rivers
Lakes, oceans
Forests
Mountains
Mineral resources
- land is considered an economic resource because it has a price attached
to it.
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3. Capital - man-made resources used in the production of goods and services like:
Machinery
Equipment
Example:
Companies use capital to buy land and other goods
B. Capital - represents the major physical assets individuals and
companies use when producing goods and services
Example:
Buildings, vehicles, equipment
5. Foreign Exchange -refers to the dollar and dollar reserves that the economy has.
-foreign exchange is part of economic resources because we need
foreign currency for international trading and buying materials
from other countries.
- International medium - dollar
This central problem gives rise to four basic problems of an economy. In this article, we
will look at these basic problems in detail.
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The Four (4) Basic Problems of an Economy
The central economic problem of scarcity of resources is broken down into four basic problems
of an economy. Let’s look at each of them separately.
Hence, society must choose between the techniques to produce the commodity. Similarly, for all
goods and/or services, similar decisions are necessary. Further, the choice depends on the
availability of different factors of production and their prices. Usually, a society opts for a
technique that optimally utilizes its available resources.
Basic Problems of an Economy – #4 – What provision should be made for economic growth?
Can a society use all its resources for current consumption? Yes, it can. However, it is not likely
to do so. The reason is simple. If a society uses all its resources for current consumption, then its
production capacity would never increase.
Therefore, the standard of living and the income of a member of the society will remain
constant. Subsequently, in the future, the standard of living will decline. Hence, society must
decide on the part of the resources that it wants to save for future progress.
Consumers
Households have limited income and they need to decide how to spend their finite
income. For example, with an annual income of P84,000, a household may need to spend
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P30,000 a year on rent, P10,000 a year for utility bills. This leaves P44,000 or (P
3,666.67/month) for deciding which other food, clothes, transport and other goods to
purchase.
Workers
Householders will also face decisions on how much to work. For example, working
overtime at the weekend will give them extra income to spend, but less leisure time to enjoy
it. A worker may also wish to spend more time in learning new skills and qualifications. This
may limit their earning power in the short-term, but enable a greater earning power in the
long-term. For example, at 18 a student could go straight into work or they could go to
university where they will hope to gain a degree and more earning power in the long-term.
Producers
A producer needs to remain profitable (revenue higher than costs). So, it will need to
produce the goods which are in high demand and respond to changing demands and buying
habits of consumers – for example, switching to online sales as the high street declines.
Producers will need to constantly ask the best way of producing goods. For example,
purchasing new machines can increase productivity and enable the firms to produce goods at
a lower cost. This is important for fast-changing industries where new technology is
frequently reducing costs of production. Without firms adapting to how they produce, they
can become unprofitable.
Firms may also need to make long-term investment decisions to invest in new products and
new means of production.
Government
The government has finite resources and its spending power is limited by the amount
of tax that they can collect. The government needs to decide how they collect tax and then
they need to decide whom they spend money on. For example, the government may wish to
cut benefits to those on low income to increase incentives to work. However, cutting benefits
will increase inequality and relative poverty.
The economic problem can be illustrated with the concept of opportunity cost.
Opportunity cost is the next best alternative foregone. When land is devoted
exclusively to the cultivation of rice, we give up an output of bananas or mangoes that we
could have planted on that land area. A producer who decides to transform all his leather into
shoes, gives up the chance to produce bags with that leather. A school teacher who could
have worked in a bank, gives up the salary that she would have earned as a bank employee. A
manager who quits his job in order to take up a master’s degree, gives up his salary as a
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manager. That salary is his opportunity cost. Without scarcity, a person does not need to
make choices since he/she can have everything he/she wants.
The concept of opportunity cost holds true for individuals, businesses, and even a
society. In making a choice, trade-offs are involved. The opportunity cost of watching a
movie in a cinema is the value of other things that you could have bought with that money
such as a pint of ice cream, a combo meal in a fast food, or a simple t-shirt to be used in a PE
class. Another example is giving up work in favor of a recreational activity, say you go on a
week’s stay in Boracay on a leave without pay. Then you are giving up the income you would
have earned had you not decided to go on that trip. Another example would be a business
proprietor that withdraws P10,000 from his savings account so he can buy materials to be
used in his business. He gives up the interest the savings would have earned but his goal is to
earn more money that would be generated by the business.
A government may have choices on how to spend limited resources. In this simple model,
they have a choice between health care and military spending. If they increase spending on
the military, the opportunity cost is less spending on health care.
Figure 2
How these questions are answered depends on the nature of the economic system in
place. The economic system is the means by which society answers the basic economic
problems.
Economic Systems
The economic system is the means through which society determines the answers to the
basic economic problems mentioned. Economic systems regulate the factors of production,
including land, capital, labor, and physical resources. An economic system encompasses many
institutions, agencies, entities, decision-making processes, and patterns of consumption that
comprise the economic structure of a given community.
A country may be under any of the following types or even a combination of the four
economic systems:
1. Traditional economy. Decisions are based on traditions and practices upheld over the years
and passed on from generation to generation. Methods are stagnant and therefore not
progressive. Traditional societies exist in primitive and backward civilizations.
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Figure 3
The command economy is a key feature of any communist society. Cuba, North
Korea, and the former Soviet Union are examples of countries that have command
economies, while China maintained a command economy for decades before transitioning to
a mixed economy that features both communistic and capitalistic elements
Figure 4
3. Market economy. This is the most democratic form of economic system. Based on the
workings of demand and supply, decisions are made on what goods and services to produce.
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People’s preferences are reflected in the prices they are willing to pay in the market and are
therefore the basis of the producers’ decisions on what goods to produce.
The United States, England, and Japan are all examples of market economies.
Alternatively, a command economy is organized by a centralized government that owns most,
if not all, businesses and whose officials direct all the factors of production.
Economic Utility
A midst of the scarce resources we have in our society, economic utility must also considered
to determine usefulness or value that consumers experience from a product or service and can be
judged based on the form, time, place and possession, these factors help in assessing the purchase
decisions and the drivers behind those decisions.
Economic Utility gives a relative measure of satisfaction for a product. Based on the requirement of
the customer, the product may be assigned its utility. It relies completely on the need and preferences
of a customer.
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Different forms Introducing a
of a product particular product
may possess at the time when a
customer is in its
(or create)
need will increase
different levels
utility
of utility
A product’s utility is
maximum only at such a
place where its
requirement is created.
It is beneficial that students get to learn first how the growth of the economy is
actually measured. The national government is always happy to inform the people that the
country’s Gross Domestic Product (GDP) has grown in rates, much higher than in the
previous administration. We will now go into a short discussion of what the GDP is all about.
The government plans for a better economy from a perspective of what the economy
has been. Shaping the economy’s future is changing past and present perspectives extended to
the future. In particular, looking ahead is grounded on past and present performance and
health of the economy. The heart of the economy is production whose value measures both
resource input and output of people.
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Gross National Product (GNP) is the market value of final products, both sold and
unsold, produced by the resources of the economy in a given period.
Market value is determined by supply and demand
The economy’s resources are those belonging to Filipino citizens and corporations.
GNP is calculated by adding personal consumption expenditures, government
expenditures, private domestic investments, net exports, and all income earned by residents in
foreign countries, minus the income earned by foreign residents within the domestic
economy. The net exports are calculated by subtracting the value of imports from the value of
the country’s exports.
Unlike Gross Domestic Product (GDP), which takes the value of goods and services
based on the geographical location of production, Gross National Product estimates the value
of goods and services based on the location of ownership. It is equal to the value of a
country’s GDP plus any income earned by the residents in foreign investments, minus the
income earned inside the country by foreign residents. GNP excludes the value of any
intermediary goods to eliminate the chances of double counting since these entries are
included in the value of the final products and services.
Y = C + I + G + (X - M)
Where:
• C – Consumption Expenditure
• I – Investment
• G – Government Expenditure
• M– Imports (Value of imports minus value of exports)
• Z – Net Income (Net income inflow from abroad minus net income
outflow to foreign countries)
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Alternatively, the Gross National Product can also be calculated as
follows:
Where:
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Importance of GNP
Policymakers rely on Gross National Product as one of the important
economic indicators. GNP produces crucial information on manufacturing,
savings, investments, employment, production outputs of major companies, and
other economic variables. Policymakers use this information in preparing policy
papers that legislators use to make laws. Economists rely on the GNP data to
solve national problems such as inflation and poverty.
When calculating the amount of income earned by a country’s residents
regardless of their location, GNP becomes a more reliable indicator than GDP.
In the globalized economy, individuals enjoy many opportunities to earn an
income, both from domestic and foreign sources. When measuring such broad
data, GNP provides information that other productivity measures do not include.
If residents of a country were limited to domestic sources of income, GNP
would be equal to GDP, and it would be less valuable to the government and
policymakers.
The information provided by GNP also helps in analyzing the balance of
payments. The balance of payments is determined by the difference between a
country’s exports to foreign countries and the value of the products and services
imported. A balance of payments deficit means that the country imports more
goods and services than the value of exports. A balance of payments surplus
means that the value of the country’s exports is higher than the imports.
’s More
Task 4
Directions. Give what is asked for in each item. Write your answers in your notebook.
1. Economic resources are the factors for production to produce goods and services. These
factors will be utilized to meet consumer’s utility despite of the scarce resources that we have
in our society and to help solve economic problems. Supply words inside the chart that
correspond to the given economic resources according to the following: factor,
characteristics, examples, rewards.
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*Labor *Capital *Entrepreneurship * Land
2. How are the fundamental questions or the basic questions in the economy
help best to produce and distribute scarce resources?
3. Cite one (1) situation where you may have given up an opportunity in your
life over another opportunity. State the reason why you gave up such choice and
choose the other.
4. How does economic system help to solve economic issues and problems in an
economy?
5. How does GNP help solve economic issues and problems in our country?
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I Have Learned
Task 5: Let’s reflect and realize…
__________________________________________________________________
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I Can Do
The Philippines has a mixed economic system which includes a variety of private
freedom, combined with centralized economic planning and government regulation.
CRITERIA
OUTSTANDING (20pts)
Responds to the expressive qualities of the arts and recognizes particular elements of the work;
expresses an informed personal response to artistic works using relevant
information and relating personal responses to the work(s).
EFFECTIVE (17pts)
Responds to the expressive qualities of the arts; expresses an informed
personal response to of the arts using relevant information and relating, the
personal responses to the work(s).
ADEQUATE (10pts)
Responds to works of art and expresses a personal response to the
work(s) using relevant information and personal observations.
INEFFECTIVE (5pts)
Does not express a personal response to artistic works.
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Task 7: Let’s check it out…
Directions: Read carefully the statements or questions below and write your answers on your
activity notebook.
II. Describe the type of economic system characterized in each of the following sentences.
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III. Given the table below are the data in calculating GNP/GDP by expenditure approach.
Arrange the following variables according to the given official formula in calculating
GNP by supplying blanks below the table. Copy the format in your activity notebook where
you are going to write your answers. Here, is the official formula for calculating GNP
Y = C + I + G + (X-M)
Types of Expenditure Amount (In million Pesos)
Capital formation ₱ 1,849,380
Household final consumption ₱ 6,442,033
Exports ₱ 3,133,507
imports ₱ 3,296,732
Government final consumption ₱ 875,291
Net factor income from the rest of the world ₱ 1,848,952
1. _____________________ ₱ _______________
2. _____________________ _______________
3. _____________________ _______________
4. _____________________ _______________
5. Less: ________________ _______________
Gross domestic product ₱ _______________
6. _____________________ _______________
Gross national product ₱ _______________
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Task 8: Let’s go beyond…
Directions. Examine The Philippine National Budget for 2021 and answer the questions
below. Write it in your activity notebook.
https://www.dbm.gov.ph/images/pdffiles/2021-Peoples-Proposed-Budget.pdf
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Questions:
1. Based on the proposed budget for 2021, what expenditures are the government’s top
priorities and least priorities?
________________________________________________
________________________________________________
________________________________________________
2. Why do you think the allocation of budget per sector is not divided equally?
________________________________________________
________________________________________________
________________________________________________
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What’s more What I have learned
1. Answers my vary
What can I do
Answers may vary
2. Answers may vary Additional Activities
3. Answers may vary Answers may vary
4. Answers may vary
Assessment
I. 1. entrepreneur 2. labor 3. land 4. labor 5. land 6. capital
7. Land 8. labor 9. capital 10. foreign exchange
II. 1. market 2. mixed 3. command 4. market 5. traditional
6. command 7. traditional 8. mixed 9. market 10. traditional
III. 1. Household final consumption P 6,442,033
2. Government Final consumption 875,291
3. Capital formation 1,849,380
4. Exports 3,133,507
5. Less: Imports 3,296,732
Gross domestic product 9,003,479
6. Net factor income from the rest of the world 1,848,952
Gross National Product 10,852,431
Glossary
Utility - term in economics that refers to the total satisfaction received from consuming a
good or services.
Opportunity Cost - represent the potential benefits an individual, investor, or business
misses out on when choosing one alternative over another.
GNP - (Gross National Product) is the sum of all domestic and foreign output created by
citizens of a given country. It can be measured by spending or by income.
GDP - (Gross Domestic Product) final value of goods and services produced within the
geographic boundaries of a country during a specified period of time, normally a year.
Expenditure - is money spent on something
Consumer - the one who pays to consume the goods and services produced by a seller.
Producer - someone who creates and supplies goods or services
Goods - are items that satisfy human wants and provide utility
Services - an economic activity where an immaterial exchange of value occurs (e.g., labor)
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References
Dinio, R. and Villasis, G. 2017. Applied Economics” (1st ed.). Sampaloc, Manila:Rex
Bookstore, Inc.
Traditional Economy With Its Characteristics, Pros, Cons, and Examples retrieved from
https://www.thebalance.com/traditional-economy-definition-examples-pros-cons-
3305587
Command economy, N.d, Retrieved from
https://www.economicshelp.org/blog/glossary/command-economy/
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