APPLIED ECONOMICS

Self-Learning Module
PRELIMINARIES

Module # 2 – Basic Economic Problems and How Applied Economics Solves Economic
Problems

MODULE OVERVIEW

This module was carefully prepared and designed for you to perform at your own pace.
Useful activities on the basic economic problems and solve for economic problems each in
anyway, its fields were provided for you to accomplish which will allow self-discovery of the
concept. These will also help develop your creativity and critical thinking skills to make
decisions independently. It is also expected that upon accomplishing these activities, you can
communicate confidently and collaborate with other people to solve problems, intelligently.
And most importantly, your character and initiative to handle situations which you cannot
control will be improved.

LEARNING COMPETENCIES

1. Identify the basic economic problems

2. Illustrate how applied economics can be used to solve economic problems
3. Construct framework to solve the economic problem
4. Solve problems on economic activities

INSTRUCTIONAL MATERIALS

The Economic Problem: Scarcity and Choice Retrieved on June 08 2020 from
www.cob.jmu.edu.com
Enriquez, H. C. (2020). Basic Economic Problems of the Country. Retrieved on June 01 2020
from https://www.slideshare.net/HannahCullen/lesson-3-basic-economic-problems
Guru, S. (2020) 4 Basic Central Problems Faced by an Economy Retrieved on June 10 2020
from https://www.yourarticlelibrary.com/economics/4-basic-central-problems-faced-by-an-
economy- explained/36608
Pettinger, T. (2019). Examples of Economic Problems retrieved on June 02 2020 from
https://www.economicshelp.org/blog/15276/economics/examples-of-economic-problems
Pretty, N. (2020). Basic terms in Economics. Retrieved on June o1
2020 from https://www.slideshare.net/nikspretty/basic-terms-in-economic

PRE - ASSESSMENT Let us start your journey in learning more on the

resources of production and possible issues on the
production of goods and services. Are you excited to
answer the Pre- test? Smile and Enjoy!
 Direction: Please read and analyze the questions carefully. 1) What do you think were the
resources used to produce the products (dresses)? 2) What were the issues/problems in the
production of the products? Give 4 in each category
Resources in the Issues/Problems in the
Production (dress) Production

Matching Type: Match Set A or the central economic issues and

problems to Set B or the description of economic issues.
SET A SET B
1. What to produce A. the legalities of the production
2. How to produce B. the nature of goods to produce
3. Whom to produce C. the allocation of the
among members of the society
4. What provision in the D. the methods of production
production of products

INTRODUCTION

Great, you finished answering the

questions. You may request your
facilitator to check your work.
LOOKING BACK TO YOUR LESSON Congratulations and keep on
learning!

Last topic, we discussed the nature and scope of economics; the two fields of the study
which include micro and macroeconomics. We also discussed the kinds of goods and the
economic resources to produce the goods. Let’s check your retention of our past lesson.
Multiple Choice.
 Directions: Kindly choose the letter of the correct answer. Encircle your answer.

1. The physical effort of the manpower to produce the basic needs of the consumers,
describes which factor of production?
a) Land
b) Capital
c) Labor
d) Entrepreneur
2. The initiative and creativity to produce something new describes which factor of
production?

a) Land
b) Capital
c) Labor
d) Entrepreneur

3. The equipment of the coffee shop to produce cups of coffee, are what kind of goods or
products?
a) Consumer goods
b) Either consumer goods or capital goods
c) Capital goods
d) Economic goods

4. Which best of the following best describes economics as a social and an applied science?
a) The study of products we need to survive
b) The study of how customers make choices when there is unlimited supply of
resources
c) The study of human personalities
d) The study of how buyers make choices when there is limited supply

5. The following are examples of customers’ basic needs.

a) Water and shelter
b) Iced tea
c) Laptop and cellular phones
d) Expensive bags

INTERACTION

Learning Activities

Hi! I provided you some reading materials and examples in identifying

various forces and elements of the firms; environment. Please take time to read and
analyze for you to be ready in your next task. Enjoy!

BRIEF INTRODUCTION
 In the articles of Forbs customs(2017), The Philippines: Asia’s New Economic
Powerhouse, the Philippine economy has transformed into one of Asia’s most dynamic
economies on the back of fast-paced Gross Domestic Product (GDP) growth.
(www.forbes.com). For the longest time, it has all the opportunities to sustain its growth and
stability. However, due to the problem on pandemic, at present, it is suffering from economic
depression. The issue of
scarcity on supply due to limited resources, but unlimited wants, is the
ultimate economic problem. Scarcity implies a limited quantity of resources needed in
production.

Guru, S. (2020) mentioned, the main issues on production include the products to
produce; how to produce these products and for whom to produce the products and how to
make the economy grow. Economics, therefore, is concerned with the allocation of resources to
make the most efficient use of these resources.

The Four Basic Economic Problems

In the article of Guru, S. (2020) Basic Central Problems Faced by an Economy, there are
basic problems common to all economies. In terms of production, common to all countries is
the problem on scarcity. This arises
because the resources are limited and have alternative uses. This problem gives
rise to four basic problems of an economy.

In this topic, we will look into these basic problems of what to produce, whom to
produce, how to produce and what provisions on production for economic growth. As we said
earlier, economics can be a tool to solve these economic problems. Economists formulate
strategic solutions to economize the problems such as economic growth or the ability to produce
goods and services, reduce expectation or the ability to reduce our wants such as lessening
consumption, and improve the use of resources or the capacity to use our existing resources
wisely .
 WHAT TO PRODUCE HOW TO PRODUCE

If there is scarcity of goods in a society,

the firms have to make wise decision on what The production of goods and services needs
goods/services should be produced and effective methods and processes. For example,
determine the quantity to be produced. For you can produce PPEs using sewing machines;
example, which do we produce more, masked sardines using aqua resources like fish and land
or canned goods? But we need capital goods resources like tomatoes. The production
like machines, or consumer good likes requires more labor and capital investment
laptops. The society ,ust decide the type and
quantity of goods/service to be produced to
meet the immediate needs of the society
THE BASIC
ECONOMIC
FOR WHOM TO PRODUCE WHAT PROVISION TO BE MADE
PROBLEMS IN FOR ECONOMIC GROWTH
THE COUNTRY

The society would always consider the
immediate beneficiary of the goods. For
example, masks and PPEs we suppose to
produce first these for the front liners of
COVID Pandemic fight. A society decides on
the distribution of the goods and service
among the members of society who need
them the most
A society that uses all its resources for
current consumption. If a society uses all its
resources, then its production capacity will not
increase. The standard of living of the people
and the income of the workforce remain
constant until the standard of living will decline
in the future. The society must decide also on
the part of the resources to be saved for future
progress

APPLIED ECONOMICS ON BASIC ISSUES AND PROBLEMS

Applied Economics seeks to solve the problems on scarcity. This happens when human
wants for goods and services exceed the available
supply. In a modern economy, it is evident that a division of labor happens when people earn
income by specializing in what they produce. They will use that income to purchase the
products they need or want every day (BC Campus 2020).
Also in the division of labor, it allows
workers and firms to produce more. This is
because a) agents focus on areas of
disadvantage due to natural factor and skill
levels; b) the agents learn and invent;
c ) the agents take advantage of economies
of scale. Division and specialization of labor
only work when individuals can purchase what they do not produce in markets
Applied economics then help you understand the basic problems facing the world today.
It helps you become a well-rounded thinker. And most important, it prepares you to be a good
citizen.

EXERCISES AND DRILLS

Activity No. 1 Let’s analyse this passage. This will help you understand our new topic on
the basic economic issues and problems in the production of goods and services. Are you
ready? If yes, you may now analyse the situation

Problem 1 Encircle the best answer. You read about a traveling situation in which some
airline passengers seem to get a “fast pass” through security and move effortlessly
through the boarding process, while other passengers are waiting in long lines. In this
example, the travellers who are moving quickly through the boarding process are
probably:
a) VIP passengers waiting longer more in an inconvenient lines
b) Passengers who value time and convenience and are willing to pay
additional fees for the privileges and other services
c) Loyal passengers whom they knew beforehand in which line to go to avoid
delays and inconveniences
d) Government officials who are seated in the executive area

Activity 2. Multiple Choice (with critical thinking analysis)

Direction: Please encircle the correct answer.
1. Scarcity of resources in your locality (Manila) is evident. Only available are
fabrics, electric sewing machines and skilled workers. The government said, you are
only allowed to work from home to be safe and free from infection of viruses. Which
items most likely you need to produce?

a) PPEs
b) Canned goods
c) Sacks of rice
d) Sewing machines

2. Manila is ranked 2nd in the most cases of COVID patients in Metro Manila.
The city needs urgent services of the medical frontliners in curing the increasing
number of patients. There is scarcity in the raw materials for production. To whom
would you produce first the available resources?
a) Soldiers
b) Police Officers
c) Medical Frontlines
d) Your family
3. There is an urgent need of PPEs by the medical frontliners in the City of Manila
due increasing number of COVID patients every day. Which is not true of producing
the products (PPEs)?

a. Import from China

b. TESDA students and skilled workers may produce the PPEs
c. Manufacturers/suppliers may supply the PPEs
d. Export PPEs to Japan as gross national products
4. The ABM Manufacturing Company decides to produce more on liquid soap than
bar soap to supply the growing demands in the market. It solves issues on:
a. Whom to produce
b. How to produce
c. How much incentive
d. What to produce

INTEGRATION

INTERVENTION
REFLECTIVE LEARNING SHEET

Every society must make choices about which

essential should be allocated with the available
but limited resources for production. In most
cases, where there is scarcity in the production
of necessities, or where there are no enough
funds to accomplish everything for the
satisfaction of everyone, the society has to
make better choices.
Today, we have to adjust to the new normal
wayof living.There is scarcity in the production
of goods and services for everyone’s needs and
wants. Everything in this world has limitations.
Rich and poor, all individuals…”ceteres
paribus….” “all else are equal”…..
Regardless of your economic status, which is
more important to you, health or unlimited
supply for your wants?
 POST - ASSESSMENT

Part I TRUE or FALSE

Directions: Please write TRUE if the statement is correct and FALSE if the statement
is incorrect.

1. Scarcity in goods and services happens if the resources in

the production are inadequate or scarce.

2. Customers must choose among several alternatives if

scarcity exists.

3. Income inequality is the gap in income that exists

between the rich and the poor customers willing to buy the
same products.

4. Shortage of goods and services is an economic problem;

and shortages are always constant

5. The Build Build Build Program by the government aims

to help improve the infrastructure projects and other
programs of the country.

Part II Multiple Choice. Choose the letter of the correct answer.

1. The fundamental economic problem that must be solved efficiently
a) Scarcity of resources
b) Health system
c) Surplus of demands
d) Export policies

2. Economists point out that scarcity must be addressed to protect the

a) The poor but not the rich
b) Both the poor and the rich
c) Neither the poor nor the rich
d) The poor but never the rich

3. What two factors contribute to scarcity in the production of goods and services?
a) Unlimited resources and limited wants
b) Unlimited resources and wants
c) Unlimited wants and limited resources
d) Limited resources and wants
4.
5.
4. If there is scarcity in public transportation, what should the learners do?
 a) Home based learning is an alternative choice for access to education
b) Stop learning while waiting for transportation shortage to be solved
c) The government must import units of car from neighbor countries
d) All choices are applicable

6. The economists describe the amount of resources in an economy as:

a) Always constant
b) Can never decrease or increase
c) Unlimited at any moment in time
d) Limited at any moment in time

PART III IDENTIFICATION

Directions: Please read carefully. Despite the limited resources and scarcity of products
for our consumption, today, we still want to achieve maximum satisfaction. We make use as
few resources as possible, allocate our resources where they are best suited, and use the
appropriate technology or materials and produce the right goods and services.

Given the resources below, please select the most efficient products that could be produced to
maximize production and help the economy.

Raw material Finished Product/Services Choice

1. Steel: casino tokens or public cars?

2. Crude oil: gasoline or kerosene?

3. Cars: small cars or SUVs ?

4. Flour: cakes or breads?

5. Cloth scraps: doormats or washable masks

6. Fruits: canned juices or fresh fruits?

7. Vegetables: fresh or frozen vegetables?

8. Coconut oil: cooking oil or expensive

lotion?
9. Sources of electric fans or units of
air: aircon?
10. Imports: PPEs or clothes from Korea?