INTRODU C T IO N T O

APPLIED EC O N O M I C S
 ECONOMICS
The word ‘economics’ comes from two old greek words - ‘oikon’, which
means ‘home’ and nomos’ which means ‘management’. therefore,
economics literally means ‘management of the home’. however, the
meaning is now much larger, meaning the management of all world
resources.
 WHAT IS ECONOMICS?
Is the study of the ways that individuals and societies allocate their
limited resources to satisfy their unlimited wants.
MEASURING THE ECONOMY
The heart of economy is production whose value measures both resource input and output of people. the interplay of
resources and outputs tells how well the economy has performed.

ECONOMIC RESOURCES
Also known as factors of production, are the resources used to produce goods and services.
LAND
Soil and natural resources that are found in nature and are not man-made.
Owners of lands receive a payment known as RENT.
LABOR
Physical and human effort exerted in production. It covers manual workers like construction workers, machine
operators, and production workers, as well as professionals like nurses, lawyers and doctors. The term also includes
jeepney drivers, farmers and fisherman the income received by labors is referred to as WAGE.
CAPITAL
Man-made resources used in production of goods and services, which include machineries
and equipment. The owner of capital earns an income called INTEREST.
 SCARCITY
IS A CONDITION WHERE THERE ARE INSUFFICIENT
RESOURCES TO SATISFY ALL THE NEED AND WANTS
OF A POPULATION.

ABSOLUTE SCARCITY
Relative Scarcity
Is when a goods is scarce compared to its Is when supply is limited.
demand. It explains why there are some
It occurs not because the products that are very expensive
good is scarce per se and is difficult to
in the Philippines
obtain but because of the circumstances
that surround the availability of the good.
ECONOMICS AS A SOCIAL SCIENCE
Is the study of society on how people behave and
influence the world around them

•Studies human behaviour just like psychology and sociology

•Studies how individual make choices in allocating scarce
resources to satisfy their unlimited wants
ECONOMICS AS AN APPLIED SCIENCE

Helps students to learn about the relationship of a business and basic

economic theories
Focuses on urban problems, the health care crisis, agricultural problems,
poverty, economic growth and the environment.
BASIC ECONOMIC PROBLEMS OF THE SOCIETY
All societies are faced with basic questions in the
economy that have to be answered in order to cope
with constraints and limitations.
For whom to produce?
What to produce? How much? is about the market for the goods.
Society must decide what goods and services should For whom will the goods and services
be produced in the economy. Having decided on the be produced?
nature of goods that will be produced, the quantity to The young or old, the male or female
these foods should also be decided on. market, the low- income or the income
groups?
How to produce?
is a question on the production method that will be
used to produce the goods and services. This refers
to the resource mix and technology that will be
applied in production
BASIC ECONOMIC PROBLEMS IN
THE COUNTRY
UNEMPLOYMENT

POVERTY
QUALITY OF
INFRASTRUCTURES
INCOME
INEQUALITY
UNEMPLOYMENT
Unemployment rate in January 2020 was 5.3
percent while in April 2019, it was recorded at 5.1
percent

17.7% - 7.3 million unemployed Filipinos April

2020

https://psa.gov.ph/statistics/survey/labor-and-employment/labor-force-survey/
POVERTY
The 2018 poverty incidence among population, or the proportion of poor
Filipinos whose per capita income is insufficient to meet their basic food and
non food needs, is now estimated at 16.7 (from 16.6 percent)

This translates to about 17.7 million Filipinos living in poverty in 2018 (17.6
million Filipinos)
QUALITY OF INFRASTRUCTURES
•As a proportion of economic output, capital outlays would account foe 4% of
gross domestic product (GDP), up from the original forecast of 3.8%, but still
down from 5.4 % achieved last year.
• From P4.1 trillion budget, which was nearly unchanged for this year, next
year’s outlay is pegged as P4.34 trillion, accounting for higher infrastructure
spending of main infrastructure agencies, the public works and transportation
departments.
https://ppp.gov.ph/in_the_news/2020-govt-infrastructure-spending-seen-higher-than-originality-thoug
ht/
 INCOME INEQUALITY
• Income inequality exists when there is an unequal
distribution of incomes across various groups of individuals
and households in an economy.

https://businessmirror.com.ph/2020/04/20/ineq
uality-to-worsen-in-3-mo-ecq-study/#:":text=Th
e%20economists%20said%20a%20two,%3B
%20and%20Gini%20coefficient%2C%200.243
4
BASIC TERMS IN ECONOMICS:
Needs - the things that we need for survival
Wants - the things that we would like to have
Scarcity – it is a commodity or service being in short supply
Goods – anything that yields satisfaction to someone
Economic Resources- inputs used in the production of
goods and services
BRANCHES OF ECONOMICS
HOW DOES OPPORTUNITY COST AFFECT DECISION
MAKING?

Every time we choose to do something, like sleep in late, we are giving up the opportunity
to do something less, like study an extra hour for a big test.
When we make decisions about how to spend our scarce resources, like money or time,
we are giving up the chance to spend that money or time on something else.
TRADE-OFFS
• Is an exchange for one thing in return for another

• Trade-offs involve things that can be easily measured

such as money, property, and time or things that
cannot be easily measured, like enjoyment or job
satisfaction.
• Businesses make trade-offs when
they decide how to use their factors
of production.
– A farmer who uses his or her land to
plant broccoli, for example, cannot
use that same land to plant squash.
• Governments also make trade-offs
when they decide to spend their
money on military needs instead of
domestic ones, and vice versa.
CHOICE AND DECISION MAKING
With the presence of scarcity, there is a need to make decisions in choosing how to maximize the use of the
scarce resources to satisfy as many wants as possible.

Opportunity Cost
Opportunity Cost Refers to the value of alternative. The concept of OPPORTUNITY COST holds true for
individuals, businesses, and even a society. In making a choice, trade-offs are involved.
OPPORTUNITY COSTS
• In the value of the next highest valued alternative or
foregone cost.

• The most desirable alternative somebody gives up as

a result of a decision is the opportunity cost.
DECISION-MAKING GRIDS
• Checkpoint: Why does every
choice involve an opportunity
cost?
– We always face an opportunity
cost. When we select one
alternative, we must sacrifice
another.
• Using a decision-making grid can
help you decide if you
are willing to accept the
opportunity cost of a choice you
are about to make.
 ECONOMICS SYSTEMS
The economic system is the means through which high society determines the answers to the
basic economic problems mentioned.

Traditional Economy

Command Economy

Market Economy
 Traditional Economy

✔ Decisions are based on traditions years and passed on and

practices upheld over the from generation to generation.

✔ Methods are stagnant and therefore not progressive.

✔ Traditional societies exist in primitive and backward civilizations.

Command Economy
✔ This is the authoritative system wherein decision-making is
centralized in the government or a planning committee.

✔ Decisions are imposed on the people who do not have a say in

what goods are to be produced.

✔ The economy holds true in dictatorial, socialist, and communist

nations.
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.

✔ People’s preference are reflected in the

prices they are willing to pay in the market
and are therefore the basis of the
producer’s decisions on what goods to
produce.
WHY ECONOMICS IS IMPORTANT?
READ THE FRONT PAGE OF THE NEWSPAPERS
OR WATCH THE NEWS ON TV.

Why do we need to study economics?

Economics will help the students understand why there is a need for everybody, including the government, to budget and
properly allocate the use of whatever resources are available.

It will help one understand how to make more rational decisions in spending money, saving part of it, and even investing
some of it.

On the national level, economics will enable the students to take a look on how the economy operates and to decide for
themselves if the government officials and leaders are effective in trying to shape up the economy and formulate policies for
the good of the nation.
CALCULATING GNP
GNP = GDP + NET FACTOR INCOME (NET INCOME
INFLOW FROM ABROAD – NET INCOME OUTFLOW TO
FOREIGN COUNTRIES)

Net Factor Income

Difference between the factor income earned from abroad

by normal residents of a country and the factor income
earned by non-residents (foreigners) in the domestic
territory of that country.
In what way can they gave positive output in country’s economy?
LET’S PRACTICE!
Compute the GNP of the Philippines with a GDP of php 400M in
2012-2013, with an attributes of net income from American
employees of php 100M in the country and php 250M net income of
Filipinos working in America.
A country possess a yearly gross national product of 340 million. Part
of it includes a gross domestic product of 330 million and an income
inflow of 80 million. How much is the country’s net income outflow?
AUSTRALIA EARNED A YEARLY GROSS NATIONAL
PRODUCT OF 499 BILLION, GROSS DOMESTIC PRODUCT
OF 470 BILLION AND AN INCOME OUTFLOW OF 10
BILLION. HOW MUCH IS THE COUNTRY’S NET INCOME
INFLOW?
CALCULATING GDP
Prepare a ¼ index card for
overtime premium rates, GDP and GNP formula

No sharing of formula card