Applied

Economics
Week 2: Module 2

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 Module UTILITY AND APPLICATION OF
2 APPLIED ECONOMICS

Target

Scarcity is the main reason why people practice economics individually or as a

community. Due to unsatiable wants but limited resources, man needs to choose or
decide on what is the best solution. An ample knowledge in applied economics play an
important role to come up with efficient and effective choices and decisions.

If you are wondering why we must study economics, all you must do is stop, look,
and listen to what is happening around us. You will come to know that the most
important news whether on paper, on air, virtual, etc., is economic in nature.

Every household and community are facing economic issues and problems. In
our country, the 38-year-old female Chinese national was reported by the Department
of Health on January 30, 2020, as the first CoViD-19 case. March 7 of the same year,
the first local transmission of the said decease was confirmed, leading President
Rodrigo R. Duterte to make hard decisions and imposed Enhanced Community
Quarantine (ECQ) on March 16, 2020. A situation and decision that gave birth to
multiple economic issues and problems in The Philippines, like the rest of the world.

In your week-1 lesson, you defined economics and differentiated it as social

science and applied science classification of nature and scope. You learned about
scarcity, opportunity cost, the economic resources, macro, microeconomics, and the
like that leads to our new topic in this module.

This learning material will help you examine the utility and application of applied
economics to solve basic economic issues and problems of society like the above-
mentioned economic situation and solution on CoViD-19.

Learning Competency
1. Examine the utility and application of applied economics to solve economic
issues and problems (ABM_AE12-Ia-d-3)

Subtasks:
1. List basic economic problems of society.
2. Identify the economic system that answers the basic economic problems.
3. Demonstrate how economy is measured and show the extent of problems.
4. Distinguish/examine the utility and application of applied economics to
solve the Philippines’s basic economic issues and problems.

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 Jumpstart

Activity 1.
TELL ME!
The Basic Economic Problems of Society

Use one half (1/2) crosswise sheet of pad paper.

Write your L#____NAME: ____________________________ DATE: __________________
FT: 2S1Q_W2_LC#3=Jumpstart-Act#1 ApEc12: (section)_______

Direction: Answer the questions written on the tables below depending on the given
economic situation for Activity A, B, and C. First 2 answers are given as
example and guide. Think and list 3 or more. You can repeat the given
examples if applicable. Use a separate sheet (pad paper) for your answer.

A. If you are a learner, what will you do one month before opening of classes?
What to produce and how much? How to produce? For whom to produce?
Notebook. 9 pcs. Recycle old notes Personal consumption
Backpack bag. 2 pcs. Buy from stores Me and my brother

B. If you are the president of our country, what will you do when your society is caught
on a pandemic situation like the CoViD-19?
What to produce and how much? How to produce? For whom to produce?
Inter-Agency Task Force (IATF) Executive Order Service to Filipino people
Agricultural supplies like rice Farming The whole population

C. If you are a businessman, what will you do during “BER” months or when Christmas
season is already fast approaching?
What to produce and how much? How to produce? For whom to produce?
Lechon Small business Interested customers
Christmas lights Through Factory Christmas believers

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 Discover

BASIC ECONOMIC PROBLEMS OF SOCIETY

All societies are faced with basic questions in the economy that must be answered
to cope with constraints and limitations. These are:
1. What to produce and how much – society must decide what goods and services
should be produced in the economy. Having decided on the nature of goods that
will be produced, the quantity of these goods should also be decided on.
2. How to produce – is a question on the production method that will be used to
produce goods and services. This refers to the resource mix and technology that
will be applied in production.
3. For whom to produce – is about the market for goods and services. For whom
will the goods and services be produced? The young or old, the male or female
market, the low-income or the high-income groups?

ECONOMIC SYSTEMS
The economic system is the means through which society determines the answers
to the basic economic problems mentioned. A country may be under any of the
following types or even a combination of the three 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.
2. 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. This
economy holds true in dictatorial, socialist, and communist nations.
3. Market economy. This is the most democratic form of an economic system. Based
on the working of demand and supply, decisions are made on what goods and
services to produce. 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.

WHY IS ECONOMICS IMPORTANT?

For idea how important the subject is, all you need to do is read pages of the
newspapers to see that the most important news is economic in nature. Watch the
news on TV and for sure, economic news always presents important issues.
Economics will help you 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 it.
On the national level, economics will enable you to look on how the economy
operate, and if leaders are effective in trying to shape up the economy.

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SCIENTIFIC APPROACH IN THE EMPIRICAL TESTING OF ECONOMIC THEORY
Economics is a study that attempts to explain how an economy operates and how
the consumer attempts to maximize his/her wants within limited means. Using tools
such as logic, math, and statistics, you need to approach the empirical testing of an
economic theory in a scientific manner. This scientific approach involves the ff. steps:
1. State the propositions or condition that are taken as given and do not need
further investigation, as the basic starting point of investigation.
2. Observe facts in connection with the activity that you want to theorize.
3. Apply the rules of logic to the observed facts to determine causal relationships
between observed factors and to eliminate facts that are unnecessary and
irrelevant.
4. Establish a set of principles such that formulated hypotheses may be tested as
to whether they are valid or not.
5. Use statistics and econometrics as empirical proof in testing the hypotheses.

POSITIVE ECONOMICS VERSUS NORMATIVE ECONOMICS

Positive economics deals with “what is” - things that are happening such as the
current inflation rate, the number of employed laborers, and the level of the Gross
National Product (GNP). Positive economics is an overview of what is happening in the
economy that is possibly far from what is ideal.
Normative economics refers to “what should be” – that which embodies the ideal
rate of population growth or the most effective tax system. In other words, it focuses
on policy formulation that will help to attain the ideal situation.

MEASURING THE ECONOMY

Shaping the economy’s future is changing past and present perspectives extended
to the future. Looking ahead is grounded on past and present performance and the
health of the economy. The heart of the economy is a production whose value measures
both resource input and output of people. The interplay of resources and outputs tells
how well the economy has performed.
Gross Domestic Product (GDP) is the total monetary or market value of all the
finished products produced with a country’s borders within a period. As broad
measure of overall domestic production, it functions as a comprehensive scorecard of
a given country’s economic health. (https://www.investopedia.com/terms/g/gdp.asp)
Gross National Product (GNP) is an estimate of total value of all the final products
and services turned out in each period by means of production owned by a country’s
residents. It is commonly calculated by taking the sum of personal consumption
expenditures, private domestic investment, government expenditure, net exports, and
any income earned by residents from overseas investments, minus income earned
within the domestic economy by foreign residents. Net exports represent the difference
between what a country exports minus imports of goods and services.
(https://www.investopedia.com/terms/g/gnp.asp)
GNP vs. GDP
GDP GNP
 the total value of production realized  the total value of income earned by
by resident producers in an economic acountry’s residents regardless of
territory. where the income came from.
 made in the Philippines  made by Filipinos
(https://dirp3.pids.gov.ph/ris/eid/pidseid0606.pdf)

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 GNP/GDP: Expenditure Approach To account GNP and classify its components,
one way is by end-use expenditure. Products are final when they have reached the
highest levels of processing in the economy for different uses in the given period. They
are household and individual consumption (C), and government expenditure on goods
and services including labor (G) and exports (X). Products, regardless of production
stages, are also considered final when basically stocked (unused) as capital goods and
inventories of raw materials and intermediate products. Classified as investments (I),
they are stock of values for future use and therefore, have reached the highest possible
production stages for the given period. On the other hand, their import components
(M) are excluded since import products are produced in other economies. To restate
the GNP equation: GNP=C+I+G+(X-M)

GNP/GDP: Income Approach Another way to account GNP and classify

components is by resource uses and contributions that make up the production
stages. As basic factors (e.g., leather) as processed into higher forms (e.g., shoes). If all
payments for resource contributions (rent, wage, interest, and profit) went to resource
owners, GNP would simple (simply) be the sum of all factor payments from the raw
material to the final product stage.

ECONOMICS AS AN APPLIED SCIENCE

Applied Economics is the application of economic theory and econometrics in
specific setting with the goal of analyzing potential outcomes. We should be able to
improve human welfare among Filipinos by the investigation and analysis of economic
problems in the real world. Applying economic theory in our lives means trying to
address actual economic issues and do something about it. The concept of scarcity
and choices should encourage us as individuals to help in our little way to provide
solutions to the country’s economic problems.

THE PHILIPPINES' BASIC ECONOMIC PROBLEMS

The Philippine economy has grown significantly during President Benigno Simeon
Aquino’s administration. With a growth rate of the country’s GDP of 6.8% in 2012,
improving to 7.2% in 2013, and slowing down to 6.1% in 2014, these rates are
improved past rates preceding President Aquino’s term. It is also higher than its Asian
neighbors such as Malaysia, Thailand, south Korea, Hongkong, India, and Indonesia
(CIA World Factbook 2013)
Despite this admirable growth, people have been complaining of non-inclusive
growth. Millions of Filipinos are claiming they still live below the poverty level.
Unemployment is still a main problem of the Philippine economy despite
improvements reported by the National Statistic office. In July 2015, the Labor Force
Survey (LFS) released by the Philippine Statistic Authority (PSA) showed the country’s
unemployment rate at 6.4% or an estimated 2.68 million individuals.
Poverty is another a significant socio-economic problem in the country. As reported
by the National Statistics Coordination Board, in 2006, poverty incidence of the
population registered at 26.4%, 26.5% in 2009, 25.2% in 2012, and 28.8% in the first
semester of 2014.
Booming population growth in the Philippines is undeniably another basic
economic problem that can be connected to the issue of scarcity. When the population
becomes too big, economic resources may no longer be enough to support the growing
population. According to the 2010 census, the Philippine population stood at 92.3
million. As of 2014 it has reached more than 100 million-growing by 2% from the
previous year and one of the highest in Asia. The population of the Philippines
represents 1.3% of the world’s total population.

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 Explore
Activity 1. FIND ME!
Measuring the Economy (GNP/GDP: Expenditure & Income Approaches)
Expenditure Approach:

Use one half (1/2) crosswise sheet of pad paper.

Write your L#____NAME: ____________________________ DATE: __________________
FT: 2S1Q_W2_LC#3=Explore-Activity#1 ApEc12: (section)_______

Direction: Observe Table 1.1 then read and understand the interpretation below it.
Using the GNP equation: GNP=C+I+G+(X-M), compute the GNP for 2011 and
2012. The GNP for 2010 is given as an example and as your guide.
Table 1.1. National Product: (by Type of Expenditure) In Million Pesos
At Current Prices
Type of Expenditure
2010 2011 2012
1. House final consumption expenditure 6,442,033 7,132,581 7,837,881
2. Government final consumption expenditure 875,291 941,836 1,112,586
3. Capital formation 1,849,380 1,985,897 1,950,524
a. Fixed capital 1,847,748 1,817,183 2,047,957
(1) Construction 949,406 904,508 1,074,169
(2) Durable equipment 692,519 698,745 751,133
(3) Breeding stock & orchard development 173,494 178,640 181,123
(4) intellectual property products 32,328 35,293 41,531
b. Changes in inventories 1,632 168,710 (97,433)
4. Exports 3,133,507 3,103,018 3,254,460
a. Exports of goods 2,259,876 2,034,503 2,120,180
b. Exports of services 873,632 1,068,515 1,134,279
5. Less: Imports 3,296,732 3,457,065 3,590,5633
a. Imports of goods 2,635,752 2,826,136 2,873,855
b. Imports of services 660,980 630,928 714,708
6. Statistical discrepancy 0 0 0
Gross domestic product 9,003,479 9,706,268 10,564,886
Net factor income from the rest of the world 1,848,952 1,891,937 2,043,843
Gross national product 10,852,431 11,598,205 12,608,730
Source: National Statistical Coordination Board
Table 1.1 presents Philippine GNP statistics whose components are classified by
expenditure accounts. Capital Formation is Investment (I) by both the private sector
and government that consists of fixed capital and inventory changes. Fixed Capital
includes capital goods (buildings, machineries, equipment) while inventory changes
are stocks (unused) for future used from all stages produced in that year. Net Factor
Income from abroad is net export of factor services equal to Factor Income from abroad
less the factor payments of other countries. Factor payments are for the direct services
of resources like the remittances of our overseas contract workers for labor export.
Likewise, profit remittances to the home countries of multinational companies like
Nestle and Procter and Gamble represent our payments for importing their capital and
entrepreneurship. These factor payments to other countries represent additional
imports excluded from our GNP. On the other hand, payments for non-factor services
as part of trade balance (X-M) are for services using all factors (resources) of
production. Profit brought home by Filipino construction firm for construction services
in Saudi Arabia is example of non-factor service receipt.

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Using the GNP equation: GNP=C+I+G+(X-M), the GNP for 2010 is:
= 6,442,033 + 1,849,380 + 875,291 + (3,133,507-3,296,732) = GDP: P9,003,479
= Add: Net factor income from the rest of the word P1,848,952. GNP: P10,852,431

Activity 2. COPY ME!

Measuring the Economy (GNP/GDP: Expenditure and Income Approaches)

Income Approach:

Use one half (1/2) crosswise sheet of pad paper.

Write your L#____NAME: ____________________________ DATE: __________________
FT: 2S1Q_W2_LC#3=Explore-Activity#2 ApEc12: (section)_______

Direction: Observe Figure 1.1 then read and understand the interpretation that
follows. Think of another resource or product that can goes through the
process, then make your own income approach of measuring the economy
as shown in Figure 1.1. Use a separate sheet (of paper) for your answer.

Raw Material Intermediate Product

Purchase Purchase
(P100) (P300)

+ +

Resource Resource Resource

Contributions/Income Contributions/Income Contributions/Income
(P100) (P200) (P400)

= = =
Value of
Value of Value of
Raw Material (e.g.,
Intermediate Product Final Product
animal hide,
(e.g., leather, P300) (e.g., wallet, P700)
P100)

Figure 1.1 Value-Added flow

In figure 1.1, the value of, say, the final product (P700) is equal to the intermediate
product (P300) plus the factor contributions (P400) that transformed the latter into is
final form. Following the arrow directions, the value of the intermediate product (P300)
is from the factor contributions at the intermediate stage (P200) and the raw material
stage (P100). In other words, factor contributions made the raw material (P100) and
the intermediate product (P200) through the value added by factor contributions. The
same logic applies to the final product whose material purchase is a product of factor
contributions from the lower stages. In conclusion, all products and their values
contribute to these essential (basic) factors of production.

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 Deepen

Activity 1: THIS IS REAL!

ASEAN Icon and Our Own Notable Person
Use one half (1/2) crosswise sheet of pad paper.
Write your L#____NAME: ____________________________ DATE: __________________
FT: 2S1Q_W2_LC#3=Deepen-Activity#1 ApEc12: (section)_______

A solid understanding of economic principles and how they are applied in real-life
situations can serve as significant tools to help address the country’s economic
problem. Like, learners who know the existence of scarcity can help them analyze how
to maximize the use of available resources (paper, pen, allowance, etc.) to overcome
the shortage. A leader who is knowledgeable in economic theories such as the Law of
Supply and Demand can help in analyzing why prices are high and what the
government can do to help bring down prices.

Lee Kuan Yew (1923-2015) is an ASEAN economic icon and an example of how a
leader of a previously undeveloped country can lead to overcome its country’s basic
economic problems and move toward economic growth.
Before Lee rose through the ranks of his country’s political system, Singapore was
a poor nation mired in debt and plagued by poverty. When he became the first prime
minister of Singapore in 1959, Lee Kuan Yew introduced a five-year plan calling for
urban renewal and construction of new public housing, greater rights for women,
education reform, and industrialization. In 1962, Lee led Singapore into a merger with
Malaysia but three years later, Singapore left the union for good.
Lee has left behind a legacy of an efficiently run country and as a leader who
brought prosperity unheard of before his tenure, at the cost of a mildly authoritarian
style of government and by imposing discipline among is people. By the 1980s,
Singapore, under Lee’s guidance, had a per capita income second only to Japan’s in
East Asia and the country had become a chief financial center of Southeast Asia envied
by many Asian countries including the Philippines.

In the Philippines, famous economist includes: Benigno “Noynoy” Aquino,

Benjamin Diokno, Diosdado Macapagal, Gloria Macapagal Arroyo, Joey Salceda, Pia
Cayetano and Winnie Monsod. You can search through net and books to know about
them and how economics made them contribute/worked meaningfully.

In your community, think of a notable person, and make a short description of

his/her accomplishment that made your area a better place to live in like what Lee
Kuan Yew did in Singapore. You may interview and ask for information from your
parents and other adults in your family and neighborhood. Attach a picture of the sign
of progress (e.g., stores like 7/11, agricultural land, fishpond, parks, resort, etc.)
RUBRIC
Score Particular
5 pts. Shows a thorough analysis of the topic/concept and extends material description
beyond requirements (offered new ideas, backed with facts & figures &
demonstrates a level of skill beyond expectations for proficiency).
4 pts. Show a complete and correct understanding of the topic/concept.
3 pts. Shows partial mastery/incomplete comprehension of the topic/concept.
2 pts. Lacks understanding of the topic/concept.

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Activity 2: PROBLEM SOLVED IN OUR HOUSEHOLD! Mi Familia

Use one half (1/2) crosswise sheet of pad paper.

Write your L#____NAME: ____________________________ DATE: __________________
FT: 2S1Q_W2_LC#3=Deepen-Activity#2 ApEc12: (section)_______

Every man of any distinction makes an economics decision every day. Deciding on
how much to spend and save, the kind of food to buy, the type of school to enroll, the
amount of time for work and leisure, and may more are only some situations where
one applies economics. Thus, it is important to understand the various issues and
intricacies concerning economics. (Silon 2009) et al.,

During this time of the CoViD-19 pandemic, many parents decided or even forced
to put a budget on a protective shield like face mask and face shields and prioritized
buying vitamins, antibacterial soap, and disinfectants. These products were not even
present in the family must buy lists before the pandemic shock our economy.
People re-learned the essence of growing their food and planting for business as
well. Some discovered their entrepreneurial skills to augment low income.
Parents also enrolled their kids to schools where they can save money and the
leisure and other family luxuries were cut short. Even the preference for food, family
celebrations and gatherings are shifted and simplified to meet both ends.

In your own family, talk to the person who prepares the household budget for the
family. It could be your mother or your father. Identify what economic issue or problem
you encountered as family and what decision you made to arrive with the solution.

Activity 3: ISSUES DISSOLVED BY MYSELF!

I can help improve our country’s economy in my own little way.
Use one half (1/2) crosswise sheet of pad paper.
Write your L#____NAME: ____________________________ DATE: __________________
FT: 2S1Q_W2_LC#3=Deepen-Activity#3 ApEc12: (section)_______

Think of the time of your life when you badly needed a certain amount of money
to finance a milestone in your life but your parents or guardians doesn’t have enough
resources to give you the cash you need.
a. What was the economic event and how did you solve the problem?
b. Does the decision you choose turned out to be effective? How?
c. How do you plan to elevate your own economic status?

RUBRIC applies to Deepen Activity 3 and 2 as well

Score Particular
Shows a thorough analysis of the topic/concept and extends material description
5 pts. beyond requirements (offered new ideas, backed with facts & figures &
demonstrates a level of skill beyond expectations for proficiency).
4 pts. Show a complete and correct understanding of the topic/concept.
3 pts. Shows partial mastery/incomplete comprehension of the topic/concept.
2 pts. Lacks understanding of the topic/concept.

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 Gauge

By this time, you are already armed with knowledge about the economic
system that answers basic economic issues and problems of society.
Measuring the economy to show the extent of problems is also demonstrated.
We cited lot of economic issues and problems with examples and solutions are
given you. This time let us test how much you gained from the start to the end
of this Alternative Instructional Resource-Learning Material.

Use one half (1/2) crosswise sheet of pad paper.

Write your L#____NAME: ____________________________ DATE: __________________
ST: 2S1Q_W2_LC#3= GAUGE (1-15) ApEc12: (section)_______

Multiple Choice. Read each item carefully then choose the letter of your answer from the given
choices. Write your answer on a separate sheet.
1. This refers to the resource mix and technology applied in production.
A. For whom to spend C. What to produce and how much
B. How to produce D. When to produce
2. The basic question in economics asking about the market for the product.
A. For whom to produce C. How much to produce
B. For whom to spend D. Where to produce
3. The economic system that based on the working of demand and supply,
decisions are made on what goods and services to produce.
A. Command economy C. Overflow economy
B. Market economy D. Traditional economy
4. The subject that help you to budget effectively and efficiently allocate the use of
whatever resources that are available.
A. Accounting B. Comerce C. Economics D. Marketing
5. Which of the following is NOT a step in scientific approach in the empirical
testing of an economic theory?
A. Apply the rules of logic to an observed facts to know causal relationship
B. Establish a set of principles such that formulated hyphotheses may be
tested as to whether they are valid or not
C. Use statistics and econometrics as empirical proof in testing hypotheses
D. Verify the conclution by using the GNP equation
6. Economics that deals with what is happening such as the current inflation rate,
the number of employed laborers, what is the papulation rate, etc.
A. Negative economics C. Overload economics
B. Normative economics D. Positive economics
7. Refers to economic which embodies the ideal rate of population growth or the
most effective tax system or in other words “what should be”.
A. Negative economics C. Overload economics
B. Normative economics D. Positive economics
8. Which of the following best describe Gross Domestic Product or GDP?
A. Foreign residents C. Made in the Philippines
B. Made by Filipinos D. Residents of a country
9. Which of the following is NOT a fact about Gross National Product (GNP)?
A. Excluded import components C. Residents of a country
B. Made by Filipinos D. Within a country’s boarders
10. What is the formula to solve for the Gross National Procet (GNP)?

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 A. Assets=Liability+Equity C. C+I+G+(M-X)
B. C+I+G+(X-M) D. GNP-GDP=GNPGDP
11. Which of the following do NOT state a fact about unemployment in 2015?
A. 2.68M unemployed individuals C. Monitored by PSA
B. 5.24 million jobless D. Registered 6.4% unemployment
12. Which statement is NOT relevant to the booming population in the Philippines?
A. An economic problem connected to to the issue of scarcity
B. As of 2014, it has reached more than 500 million
C. As of 2014, our population is one of the highest in Asia
D. Philippine population stood at 92.3 million in 2010 census
13. Which is the least essential statement about the Philippines’ basic economic
problems?
A. Economic resources may not be enough to support growing population
B. Poverty is another significant socio-economic problem in of our country
C. Unemployment is still a main problem of the Philippine economy
D. Work from home and home schooling affects our economy
14. What is the main economic issue and problem that decimated the source of
living for trycicle, taxi, bus, and jeepney drivers due to the CoViD-19 pandemic?
A. Business closures and trade disruption
B. Disruptions in public transportations
C. Decimation of the tourism industry
D. Workplace absenteeism
15. Whata ideas justify the conclusion of the following perspective article?
ECONOMIC CONSEQUENCES OF THE CoViD-19 OUTBREAK:
The Need for Epidemic Preparedness-by frontiersin.org date May 29, 2020
As the spread of the virus is likely to continue disruping economic activity and
negatively impact manufacturing and service industries, especially in developed
countries, we expect that financial markets will continue to be volatile. There is
still a question as to whether this unfolding crisis will have a lasting structural
impact on the global economy consequences. In either case, it is evident that
comminicable diseases such as CoViD-19 have a potential to inflict severe
economic and financial costs on regional and global economies. Because of high
transportation connectivity, globlization, and interconnectedness, it has been
extremely difficult and costly to contain the virus and mitigate the importation
risks once it started to spread in multiple locations. This warrants international
collective action and global investment in vaccine development and distribution,
as well as preventive measures including capacity building in real-time
surveillance and the development of contact tracing capabilities at the national
and international levels. As outbreaks of novel infections are not likely to
disappear in the near future, proactive international actions are required not only
to save lives but to protect the economic prosperity.
A. Frontliners are highly at risk that is why government should divert all
economic resources on protecting their welfare.
B. Health issues should NOT the only priority to be taken care of, but more
so with economic issues and problems.
C. The financial markets is NOT affected because the CoViD-19 pandemic is
just a matter of health issue and can be solved by vaccine.
D. Transportation should be given attention and high priority and everythy
economic and financial issues connected to the pandemic will be solved

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