Applied Economics - Quarter 1

NAME OF STUDENT: GRADE/SECTION:

_________________________ __________________________
TEACHER: DATE SUBMITTED:
_________________________ __________________________

I – INTRODUCTORY CONCEPT

Economics is defined as the effective management of scarce resources to

satisfy unlimited human wants and needs. Applied Economics as a field of
economics is concerned with using economic theories and models, as well as related
principles and concepts, to understand contemporary socioeconomic issues.
Moreover, Applied Economics as social science and applied science
considers society as similar to the marketplace. Many social processes and
phenomena such as social relationships, migration, and social change can be
understood in terms of economic concepts such as demand and supply, exchange,
cost and benefits, and profit maximization. Applied economics is closely tied to public
policy and governance, as decision - making often utilizes economic tools and
methods.

ECONOMICS AS A SOCIAL SCIENCE AND APPLIED SCIENCE

Economics as a Social Science

Nature
 It studies how individuals make choices in allocating scarce resources to
satisfy their unlimited wants.
 It uses the scientific method to build theories based on logical reasoning to
help explain the behavior of individuals, groups, and organizations.
 It attempts to explain the economic behavior, that arises when scarce
resources are exchanged through a systematic collection of facts and figures
to deal with the cause-and-effect relationship.
 Economics as a social science is based primarily on observation and
deduction and the construction of abstract models.
 It is qualitative in nature.

1
RO_Applied_Economics_SHS_Q1_LP 1
Scope of Economics as a Social Science
It focuses on the microeconomics branch of economics. Microeconomics is the part
of economics whose subject matter of study is individual units, for instance, a
consumer, a household, a firm, an industry, and the likes. It analyses how the
decisions are taken by the economic agents, concerning the allocation of the
resources that are limited in nature. It studies consumer behavior, product pricing,
firm’s behavior, factor pricing, and the likes. The objective of microeconomics can be
achieved through the best possible allocation of scarce resources.

Economics as an Applied Science

Nature
 It is both qualitative and quantitative in nature
 It formulates general theories through testing mainly using data from the past.
 Economics as applied science uses econometrics and analyses theories and
models to predict outcomes of socioeconomic issues and likewise propose
solutions to economic problems.
 It studies the factors that determine a country’s national income, savings,
investment, outputs, and employment that promotes economic growth.

Scope
 It focuses on the macroeconomics branch of economics that studies the
entire economy, instead of individual units for instance level of output, total
investment, total savings, total consumption, and the likes. It is the study of
aggregates and averages. It analyses wholly the economic environment
wherein the firms, consumers, households, and governments make
decisions.
 It covers areas like national income, general price level, the balance of trade
and balance of payment, level of employment, level of savings and
investment. The macroeconomics goal can be attained through the effective
use of the resources of the economy.

As the modern economy is primarily defined by knowledge and technology,

the conventional definition of Economics that focuses on matching scarcity and
wants is challenged by the need for a better organization to effectively address
scarcity and human wants. Scarcity is a fundamental concept of economics. It refers
to the limitation of resources particularly economic resources such as land, labor,
capital, and entrepreneurship. Scarcity results in challenges to properly allocating
resources to all sectors of the economy. Economics is the science of scarcity.

2
RO_Applied_Economics_SHS_Q1_LP 1
 ECONOMICS AS A SOCIAL SCIENCE

Economics is classified as a social science because it studies how societies

solve the fundamental problem of reconciling the unlimited wants of individuals with
limited resources. It uses the scientific method by observing reality and addressing
questions and problems to explain and arrive at the formulation of theories and
models.
We often encounter limitations of different sorts because of scarcity.
Insufficiency of resources would lead to not being able to meet the needs and wants
of the consumers. On the part of producers, insufficiency of resources could limit the
production of goods and services.
In our country, for instance, we experience relative scarcity when it comes to
rice. We have abundant rice production but because of our population, the supply of
rice is insufficient to meet the needs of the people. We also experience absolute
scarcity on some of the products and services that we need like cherries, it is scarce
in our country because we do not have the right climate to grow them thus, we rely
on imports for the supply of cherries making it very expensive here in the Philippines.

Wondering how scarcity happens in real life?

Read the story of Sarah and her friends.
Sarah and four of her friends have decided to eat at a fast-food restaurant.
All her friends wanted to eat cheeseburgers but as they entered the restaurant a
long queue of customers is waiting to have their orders be served. Nearly all the
tables and seats inside the restaurant are taken because of the limited dining
capacity allowed because of the pandemic and as Sarah and her friends
approached the cashier, they found out that there were only three cheeseburgers
available which made Sarah and one of her friends decide to order regular burger
instead. They had their orders packed so they can eat at the park near the store
because there are no available tables and chairs at the restaurant.

Scarcity results in challenges regarding properly allocating our resources and

this likewise happens in all sectors of the economy. The concept of scarcity is
coupled with the fact that human wants, and needs are unlimited.
Unlimited Human Wants and Needs

Needs are things desired which are essential for human survival. Wants are
those that are desired but are not essential for survival. (C. Manapat).

3
RO_Applied_Economics_SHS_Q1_LP 1
 Because of scarcity, every person must learn how to make decisions in
choosing how to maximize the use of scarce resources to satisfy as many wants and
needs as possible.
For example, your parent has to decide on how to utilize your family’s monthly
budget to buy food, pay for utility bills, daily allowance ,and buy other things like new
clothes or shoes. If your family’s budget is not enough, your parent may have to give
up some of these things.

Let us take the story of a student in assessing our own wants and needs
Several classmates of Jamielle raid her bag to check the kinds of stuff inside
it. Her classmates found several notebooks, a pen, calculator, face powder,
toothbrush and toothpaste, hand sanitizer, chocolate chips, a can of soda, a photo of
her favorite Korean actor, several pairs of fancy earrings, a washable mask, and an
extra shirt. Jamielle’s classmates ask her why she decided to bring to school each of
the things inside her bag. Jamielle classified her things as her needs and wants. She
classified her notebook, pen, calculator toothbrush and toothpaste, hand sanitizer,
washable mask ,and extra shirt as her needs. She considers those things as a
necessity for her to keep up with her studies and to keep herself clean and sanitized
for her health safety. Jamielle confessed to her classmates that she can be fine
without bringing to school the rest of the things on her bag because she considers
her face powder, chocolate chips, a can of soda, a photo of her favorite Korean actor
and several pairs of fancy earrings as her wants and are not needed in school.
We should keep in mind that wants and needs vary for every individual. Face
powder and fancy earrings may not be considered as Jamielle’s needs but for a
person who works as a fashion model, these could be considered as needs as these
are necessary for doing her job.
Did you ever wonder how complex the process that each object you own right now
has passed through before it reached into your possession? The government and
private sectors have utilized several resources to produce the things that we use.

Economic Resources and Factors of Production

Land refers to natural resources that exist without man’s

intervention. It encompasses all things derived from the forces of
nature such as air, water, forests, vegetation, and minerals. The
payment for land is called rent.

4
RO_Applied_Economics_SHS_Q1_LP 1
 Labor refers to human inputs such as manpower skills that are used in
transforming resources from different products that meet our needs. The payment for
labor is called wages and salaries.
Capital is a man-made factor of production used to create another
product. Examples are machinery and equipment used in manufacturing
companies. The payment for capital is interest.
Entrepreneurship is the factor of production that integrates land, labor,
and capital to create new products. An entrepreneur is an individual
who makes the decisions regarding production and utilizing the other
factors of production. A successful entrepreneur not only creates new
products – he or she also innovates by improving on old ones.

Since the scarcity of resources is central to the study of economics, it is

necessary to properly allocate these resources to meet people’s unlimited wants.
This process of allocation answers three economic questions:

The Basic Economic Questions

How to produce? For whom to produce?

Society decides who will
produce goods and what
process of production will
be used. Goods may be
produced by corporations,
small business owners, or
the government itself. The
process of producing
goods may be addressed
depending on the costs
and the availability of
resources needed.
The question revolves
around the issue of who
What to produce? will benefit from the goods
and services produced. It
Society determines the depends on the
kind and quantity of
distribution of wealth in a
products it will produce
society. Therefore, a
depending on what the
consumers want to buy consumer who has the
or are willing to pay capacity to pay for certain
for. goods and services is
more likely to benefit than
one who cannot afford
them.

The answers for what, how, and for whom to produce are influenced by the
structure of a society’s economic system.
Economic Systems
1. Market Economic system (Free market system aka Capitalism)
Characteristics of Free Market
 Little government involvement in the economy. (Laissez Faire = Let it be)
 Individuals OWN resources and answer the three economic questions.

5
RO_Applied_Economics_SHS_Q1_LP 1
  The opportunity to make a profit gives people an incentive to produce quality
items efficiently.
 A wide variety of goods is available to consumers.
 Competition and Self-interest work together to regulate the economy (keep
prices down and quality up).
Example of how the free market regulates itself:
If consumers want computers and only one company is producing them,
other businesses have the INCENTIVE to start making computers to earn
PROFIT. This leads to more competition which means lower prices, better
quality, and more product variety. We produce the goods and services that
society wants because “resources follow profits”.
End Result: Most efficient production of the goods that consumers want
to be produced at the lowest prices and the highest quality.

2. Command Economic System

In a centrally planned economy (communism) the government
 owns all the resources
 decides what to produce, how much to produce, and who will receive it.
Examples: Cuba, China, and North Korea

Advantages and Disadvantages

What is GOOD about Communism?

1. Low unemployment – everyone has a job
2. Great Job Security – the government doesn’t go out of business
3. Equal incomes mean no extremely poor people
4. Free health care

What is BAD about Communism?

1. No incentive to work harder
2. No incentive to innovate or come up with good ideas
3. No Competition keeps the quality of goods poor.
4. Corrupt leaders
5. Few individual freedoms

3. Mixed Economic System

A mixed economic system is where all three questions are answered by both
the government and private entities in consideration of their mutual benefit.
Economic resources are owned by both. Today, most countries apply this type of

6
RO_Applied_Economics_SHS_Q1_LP 1
economy but in different proportions – some countries employ an economic system
that is more command-oriented than market-oriented, while others have a more
market-oriented economic system.

Scarcity requires that people should make choices when choosing the
resources that they wish to own or utilize. Determining how each or group of
individuals will behave given certain changes in the economy is an important part of
economic study.

DECISION MAKING AND RATIONALITY

Economics uses the concept of rationality to predict the actions or behavior of
people. Economists assume that individuals make decisions rationally and that it is
possible to predict certain behavioral outcomes.

For example, if a person prefers rice over bread, and bread over potato, then
it is most likely that he or she prefers rice over potato. Given this preference, when
this person is faced with a choice between buying suman and mashed potato, he or
she would choose to buy suman.

Opportunity Cost and Trade-off

Opportunity Cost is one of the evident effects of scarcity. When resources

are scarce or limited, consumers are compelled to choose how to manage them
efficiently and decide how much of their wants or needs will be satisfied and how
much of them will be left unsatisfied. Hence, when a need is pursued, all other
alternatives are forgone. And the more we have of a certain good, the more we
sacrifice other things. An exchange where you give up one thing to get something
else that you also desire is called a trade-off.

How to illustrate Opportunity Cost and Trade-Off?

One example is when you spend 50 pesos on your mobile load. The
opportunity cost of buying corresponds to all other items that can be bought
with the same amount. Let us say that with your 50 pesos you can buy
other products such as a sandwich, a can of fruit juice or a bottle of mineral
water and a ballpen or pencil. You can also buy a combination of other
items whose prices total 50 pesos. However, once you have decided to buy
a mobile load, you have chosen to abandon all other options. Once the
choice is made, you can no longer go back and undo such decision. This is
called a Trade-Off. Trade-Offs could result in either the satisfaction of needs
or a failure to meet them.

ECONOMICS AS APPLIED SCIENCE

7
RO_Applied_Economics_SHS_Q1_LP 1
 Economics as an applied science is the application of economic theories and
models, as well as related principles and concepts, to understand and predict the
outcomes of contemporary socioeconomic issues. In a simple definition, it is
observing how theories work in practice.
Economics as an applied science is the formulation of general theories
through testing, mainly using data from the past.

Application of Economics as Applied Science

 Economics as applied science becomes a powerful tool to reveal the true and
complete situation to come with things to do.
 Economics as applied science acts as a mechanism to determine what steps
can reasonably be taken to improve the current economic situation.
 Economics as applied science can teach valuable lessons to avoid the
recurrence of a negative situation, or at least minimize the impact to review
what steps were taken to improve and correct similar situations and continue
good strategies to keep the economy flowing in a correct direction.

Approaches of Economics as Applied Science

 Uses econometrics
 Input-output analysis
 Historical analogy
 Common-sense or vernacular

Scope of Economics as Applied Science

It is typically characterized by the application of economic theory and

econometrics to address practical issues in a range of fields which includes the
following:

 Demographic economics  Monetary Economics

 Engineering Economics  Agricultural economics
 Labor economics  Public Economics
 Financial Economics  Development economics
 Business economics  Economic History
 Health Economics  Education economics
 Industrial organization

We use various economic theories and models to help us understand economic

phenomena and processes. In studying theories and models, however, we must

8
RO_Applied_Economics_SHS_Q1_LP 1
remember that analyzing economic phenomena and related variables requires
economists to keep in mind certain assumptions and avoid committing fallacies in
their analysis.

Assumptions in Economics

1. Rationality. Economists assume that individuals act logically and predictably

and pursue goals that will benefit them.
2. Profit Maximization. In analyzing the behavior of individuals and firms in
markets, it is assumed that participants expect to gain something from their
transactions. Individuals aim to maximize utility, while firms intend to
maximize their profit.
3. Perfect Information. In most markets, it is assumed that consumers and
producers have complete and accurate information about products, services,
prices, utility, quality, and production methods. This assumption enables
economists to study market processes and the effects of policies on markets
more accurately.
4. Ceteris Paribus. This Latin phrase, which means “all things being equal”,
refers to the assumption which controls the effects of other variables apart
from those that are being analyzed in the study. The majority of economic
theories and models rely on this assumption since it simplifies scenarios and
enables the analysis of data.
Assumptions aid us in better understanding economic issues and make
sense of the behavior of individuals, groups, and institutions in an economy.

For example, in determining the relationship between price and consumer

demand, the only two variables being considered are the quantity demanded and the
price of the product. Other non-price variables are held constant and would therefore
not affect the behavior of consumers.

Fallacies in Economics

Fallacy refers to errors in judgement or conclusions due to faulty

reasoning. The following are some fallacies that are encountered in economic
analysis.
1. Failure to hold things constant under ceteris paribus. This is an error in
analysis committed when an individual considers other extraneous variables
in studying an economic phenomenon. This results in invalid conclusions
since they are no longer in keeping with the economic theory or model being
considered.
2. Post hoc fallacy. This fallacy relates to the Latin phrase post hoc (false cause)
ergo propter hoc which describes how people make the mistaken notion that

9
RO_Applied_Economics_SHS_Q1_LP 1
 since a change happened after an event, then such change was caused by
the event that came before it.
3. Fallacy of composition. This fallacy occurs when one considers a trait of one
part or aspect of something as true or applicable for the whole. This also
occurs when a person thinks that a phenomenon, as experienced by an
individual or a certain group, can be applied to a larger group or the general
population.
4. Sweeping generalization. This fallacy refers to a statement that oversimplifies
a specific scenario presenting it as a general rule.

II – LEARNING COMPETENCIES
Differentiate economics as a social science and applied science in terms of
nature and scope.

III – ACTIVITIES

A. Keep it real!
Using the story of Sarah and friends as an example, relate your personal experience
regarding scarcity. What do you think are the factors that brought this problem and
how were you able to address the problem?
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________

B. Classify it!
Classify the given resources below as land, labor, capital or entrepreneurship.
___________1. Entertainers ___________4. Marine Resources
____________2. Technology ___________5. Teacher
____________3. Business Proprietor

C. Describe Me

Describe the type of economic system (Market Economic

System, Command Economic System or Mixed Economic System) characterized in each of
the following statements:
___________1. Prices are based on demand and supply.
___________2. The government decides on what goods should be produced.
___________3. People enjoy freedom of choice in arriving at decisions on what to buy.

10
RO_Applied_Economics_SHS_Q1_LP 1
___________4. It is the most democratic form of economic system.
___________5. People’s preferences are reflected in the prices they are willing to pay in the
market.

D. Analysis time!

It’s barely two weeks to go before the holiday season. John was able to save
₱4,500 for the whole year by keeping a portion each day from his allowance. It’s
Saturday and John decided to take a stroll to the mall to buy some gifts for his family
and friends. John has made a list of what he would buy for his family and friends. He
planned to spend ₱ 2,250 of his money to buy gifts and the other half of his money to
buy a shirt and a new pair of shoes to replace his old worn-out shoes.

A. When John arrived at the mall, he passed by a fast-food restaurant and realize
that it has been several months since he last ate in that restaurant. John had a
delicious snack at home and still feels full but he decided to order a
cheeseburger, fries, and drinks which he paid for 109 pesos. After having his
snack, John finally had the chance to choose the gifts for his family and friends. A
lot of the items displayed in the mall are on sale!
B. John started picking several gift items for his family and friends which cost
₱2,650. He saw a nice cap on sale which cost 175 pesos and decided to buy it as
a gift for himself.
C. John went to the counter and paid ₱ 2,825 for the items he had selected.
D. John went on to find a pair of shoes and some clothes for himself. The pair of
shoes he liked cost ₱ 1,199 and the shirt he liked cost ₱ 259 each. He wanted to
buy two shirts but he realized he only had ₱ 1,566 left of his money.
E. John decided to buy the shoes he liked and buy only one shirt. He decided to
save again for him to buy the other shirt that he liked in the future.

Answer the following question based on the story of John. Write the letter of your
answer beside each question.
1. In what part of the story do you think John had experienced scarcity? ____________
2. In what part of the story did John experience opportunity cost? _________________
3. In what part of the story did John had a trade-off? ___________________________
4. Which of the item/s John bought for himself is/are his needs? __________________
5. If you were John, which of the items he bought would you decide not to buy? Why?
___________________________________________________________________
___________________________________________________________________
_______________________________________________________________

E. Find the truth

Write True if the statement is correct, otherwise write False.

___________1. The principle of rationality believes that the behavior of an individual is often
difficult to predict since they are illogical and inconsistent.

11
RO_Applied_Economics_SHS_Q1_LP 1
___________2. Assumptions refer to errors in judgement or conclusions due to faulty
reasoning.
___________3. Economics as applied science helps us to understand and predict the
outcomes of current economic situations.
___________4. Economics as an applied science is an effective tool to show us the real
situations to come up with sound decisions.
___________5. Applied science is the study of how people behave and influence their
society.

F. Social Science or Applied Science?

Classify whether the given statement below describes economics as social science
or applied science. Write the letter of your choice beside the number of each given
statement.
A. Economics as Social Science
B. Economics as Applied Science
___________1. It uses models to visualize information and analyze variables and their
relationships.
___________2. It uses scientific methods to build theories to help explain the behavior of
individuals, groups and organizations.
___________3. It studies how individuals make choices in allocating scarce resources to
satisfy their unlimited wants.
___________4. It is characterized as the application of economic theory and econometrics.
___________5. It is a powerful tool to reveal the real and exact situation to come up with
things to do.
___________6. It formulates theories through testing and analyzing historical data.
___________7. It is concerned with the production, distribution and consumption of goods
and services.
___________8. It studies how societies solve the fundamental problem of reconciling the
unlimited wants of individuals with limited resources.
___________9. It utilizes economic theories and models for forecasting future trends.
___________10. It teaches valuable lessons to avoid recurrence and minimize the impact of
a negative situation.

G. Wrap it up!

Classify the following nature and scope either as economics as social science or economics
as an applied science using the given diagram below.

NATURE SCOPE
 Qualitative  Microeconomics
 Both Qualitative and Quantitative  Macroeconomics
 Uses scientific method to build theories to explain  Household economics
behavior of individuals, groups and organizations.  Business Economics
 Uses theories and models to predict outcomes of  National Economics
socioeconomic issues
 Formulates theories through testing historical data

12
RO_Applied_Economics_SHS_Q1_LP 1
  Involves systematic collection of facts and figures
 Deals with cause-and-effect relationship
 Uses econometrics
 based primarily on observation and deduction and
the construction of abstract models
 Proposes solutions to economic problems

ECONOMICS

Applied Science Social Science

Nature Scope Nature Scope

IV – ANSWER KEY

A. answers may vary

B.
1. Labor
2. Capital
3. Entrepreneurship
4. Land
5. Labor
C.
1. Market Economic System
2. Command Economic system
3. Market Economic System
4. Market Economic System
5. Market Economic System
D.
1. D
2. D
3. E
4. A pair of shoes
5. Answers may vary
E.
1. False
2. False
3. True

13
RO_Applied_Economics_SHS_Q1_LP 1
 4. True
5. False
F.
Economics as a social science
Nature:
 Qualitative
 Uses scientific method to build theories to explain behavior of individuals, groups and
organizations
 Involves systematic collection of facts and figures
 Deals with cause-and-effect relationship
 based primarily on observation and deduction and the construction of abstract
models.
Scope:
 microeconomics
 household economics

Economics as applied science

Nature:
 Both Qualitative and Quantitative
 Uses theories and models to predict outcomes of socioeconomic issues
 Formulates theories through testing historical data
 Uses econometrics
 Proposes solutions to economic problems
Scope:
 Macroeconomics
 Business Economics
 National Economics

V. REFLECTION

In this part of the learning activity sheet, you are expected to express your thoughts
and reflections by answering the following questions:
1. Which part of the lesson is very easy for you? Why?
2. Which part of the lesson is very difficult for you? Why?
3. How did you find the lesson? Did you learn something in this lesson?

VI. REFERENCES

Manapat, Carlos L. 2018. Applied Economics for Senior High School.

Phil.:C&E Publishing, Inc.
Dinio, Rosemary P. and George A. Villasis. 2017. Applied Economics.
1st Edition. Phil.: Rex Publishing

14
RO_Applied_Economics_SHS_Q1_LP 1
 Enriquez, Hannah. 2017. Economics as an Applied Science.
https://www.slideshare.net/HannahCullen/lesson-2-economics-as-an-
applied-science
Wikipedia. 2021. Applied Economics. Last modified July 19, 2021.
https://en.wikipedia.org/wiki/Applied_economics.

Development Team of Learner’s Packet

Writer: Cheryl T. Vallejo – Catanduanes National High School

Content Editors: Jezrahel T. Omadto - CID

Shinette T. Oliveros – Catanduanes National High School

Carol P. Gil – Catanduanes National High School

Language Editor: Anne Marionne A. Osila – Catanduanes National High School

Illustrators: Jhon Paulo M. Gianan – Catanduanes National High School

Javine M. Tolledo - Catanduanes National High School

15
RO_Applied_Economics_SHS_Q1_LP 1