Applied Economics

Basic Economic Problems and

How Applied Economics Solves
Economic Problems

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 LESSON Utility and Application of Applied Economics to
2 Solve Economic Issues and Problems

EXPECTATIONS

Specifically, this module will help you to:

❖ identify the basic economic problems
❖ illustrate how applied economics can be used to solve economic problems
❖ construct framework to solve the economic problem
❖ solve problems on economic activities
Let us start your journey in learning more on
the resources of production and possible issues on the
PRE-TEST production of goods and services. Are you excited to
answer the Pre- test? Smile and Enjoy!

Part I. Identification: 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?

Resources In the Issues/Problems in the

Production (dress) Production
1

https://int.search.myway.com/search/AJimage.j
html

Part II. 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 thesociety
4. What provision in the D. the methods of production

production of products

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 Great, you finished answering the
questions. You may request your facilitator
LOOKING BACK TO YOUR LESSON to check your work. 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.

Part I 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

Part II. Matching Type

Direction: Please match the resources with the statements.

A) Land C) Labour
B) Capital D) Entrepreneurship
1. The idea for a car that runs on a rocky road
2. The crude oil used by ABM Firm to produce gasoline
3. The machine used by Mang Jose, a tailor to stitch PPEs
4. The manpower to build bridges and houses 5.
Technicians who repair computers

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 BRIEF INTRODUCTION

In the article of Forbes Custom (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. http://www2.harpercollege.edu/mhealy/eco212i/lectures/5es/5es.htm

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 Learning Module for Applied Economics

What to Produce?
How to Produce?
If there is scarcity of goods in a society,
the firms have to make wise The production of goods or services
decision on what needs effective methods and
goods/service should be produced and processes. For example, you can
determine the quantity to produce PPEs using sewing machines;
produced. For example, which do we sardines using aqua resources like fish
produce more, masks or and land resources like tomatoes. The
canned goods? But we need production requires more labor and
capital goods like machines, or consumer capital investment.
goods like laptops. The society must
decide the type and quantity of
good/service to be produced to
meet the immediate needs of the society.

BASIC ECONOMIC
PROBLEMS OF THE
COUNTRY

For whom to Produce? What provision/laws should be

The society would always
consider the immediate
beneficiary of the goods. For
example when we produce
masks and PPEs we suppose to
produce first these for the
frontliners of COVID Pandemic
fight. A society decides on the
distribution of the goods
and services among the
members of society who need
them the most.
made for economic growth?
A society 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).

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 6

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 Learning Module for Applied Economics

Also, in the division of labor, it allows workers and firms to produce more. This is because:
a) agents focus on areas of advantage due to natural factors 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
helps you understand the basic
problems facing the world today.
It helps you
become a well-rounded thinker. And most importantly, it prepares you to be a
good citizen. (Credit: Nina Hale/Flickr Creative Commons)
https://opentextbc.ca/principlesofeconomics/chapter/1-1-what-is-economics-and-why-is-it-important/

ACTIVITIES

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 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:
VIP passengers waiting longer more in an inconvenient lines
Passengers who value time and convenience and are willing to pay additional
fees for the privileges and other services
Loyal passengers whom they knew beforehand in which line to go to avoid delays
and inconveniences
Government officials who are seated in the executive area

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 Learning Module for Applied Economics

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

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 Learning Module for Applied Economics

Activity 3 Directions: You may collaborate and communicate with your friends and family
members in doing the tasks. Currently, we are dealing with scarcity on units of bicycles. Below is
a framework showing the solution on how to deal with economic issues on meeting the products.

Question: As an agent of the economy, how will you deal with this scarcity? Choices are given
below. Place them in their proper columns as to economic growth; and improve the use of
available resources and reduce expectations.

http://www2.harpercollege.edu/mhealy/eco212i/lectures/5es/5es.htm

AnsWER A) b) c)

ability to produce goods and services; reduce our wants or lessening consumption; use our
existing resources wisely; don't waste limited resources; productive efficiency; allocates
efficiency; full employment and equity of resources; and reducing wants

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 Learning Module for Applied Economics

REMEMBER

• Economics can be a tool to solve economic problems on the production

of goods and services.

• Production is the process by which resources are transformed into useful forms.

• Resources are things provided by nature that can be used directly or indirectly
to satisfy human needs.

• The basic economic problems on production includes: what to produce, whom to

produce, how to produce and what provisions on production for economic growth.

• Strategic options/decisions to economize the problems include: economic growth

– ability to produce goods and services; reduce expectation- reduce our wants -
lessening consumption; improve the use of resources - use our existing resources
wisely; don't waste the limited resources; productive efficiency; allocate
efficiency; full employment and equity of resources; and reduce expectations –
reducing wants.

CHECK YOUR UNDERSTANDING

Fill in the Blanks.

Directions: Please read and answer the following sentences

• Among nations, these are the common economic problems on production of goods and
services: a) ; b) ;
c) ; d) .
• Economics can be a tool to solve the fundamental problem in economics which is
in the production of goods and services.
• The strategic solutions/decisions/options to economizing problems include a) ;
b) ; and c) .

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 Learning Module for Applied Economics
POST-TEST

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
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 Learning Module for Applied Economics
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

5. 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

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 way of 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?

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 Learning Module for Applied Economics

Name Year/Section Date

Teacher School

Worksheet (Additional Activity)

Let us assess your creativity and love for nature.

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

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 ANSWER KEY

PRETEST:
Part
1. Land
2. Labor
Part II
1. B
2. D

LOOKING BACK TO YOUR LESSO N:

Part I
1. C
2. D
3. C
Part II

1. D
2. A
3. B

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 LEARNING ACTIVITY SHEET FOR MODULE 2
Directions: Choose the letter of the correct answer. Do not forget to write your name, section and date on your
paper.

1. It is the study of how individuals and societies choose to use scarce resources that nature and previous
generations have provided.
a. Economics c. Economic Theory
b. Economist d. Positive Economics
2. When one is making a choice, the cost of one given up is called .
a. Barter c. Trade-off
b. Exchange d. opportunity cost
3. The three basic economic problems of the country are the following except:
a. Who gets what is produced c. What are produce
b. How it is produced d. Who make the choice
4. Which of the following statements best describes scarcity?
a. When there is an abundant or infinite amount of resources or goods
b. Society can meet the wants of every individual
c. There is a less of goods and resources available than people wish to have
d. The government fails to produce the goods
5. Marvin is thinking of going into a movie to watch “How to Train Your Dragon” premiere. A ticket cost Php300 and
she will have to cancel her tutoring job that pays Php500. The cost of seeing the movie is _________.
a. 300 c. 500
b. 200 d. 800
6. Benjie decided to go to class instead of watching movie. What is his opportunity cost?
a. The benefit of learning new things and having more knowledge
b. Meeting new friends
c. Entertainment of watching movie
d. All of the choices
7. Under which economic system would factors of production most likely be owned by the government?
a. Free-Market Economy c. Traditional Economy
b. Command Economy d. Mixed Economy
8. Economists underscore that scarcity should be addressed to protect the interest of the ___.
a. The poor but not the rich c. neither the poor nor the rich
b. Both the poor and the rich d. the poor but never the rich
9. Bonifacio Manufacturing Company decides to produce more alcohol to supply the growing demands in the market
since the start of the Covid19 pandemic. It solves issues on:
a. Whom to produce c. how much to produce
b. How to produce d. what to produce

10. Cebu City has become the center of the covid19 patients. The city needs urgent services of the medical front
liners 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. to all the people of Cebu City c. nurse, doctors and other medical practitioners
b. Police Officers d. Teachers
11. In how it is produced, what are the two techniques used for an efficient & effective production?
a. Capital intensive and machine intensive technique
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 b. Labor intensive and capital-intensive technique
c. Artificial intelligence and robot technique
d. None of these are correct

12. A pizza delivery boy falls under what factor of production?

a. Land c. capital
b. Labor d. entrepreneurship
13. It is the process of combining inputs in order to make something for consumption.
a. Combination c. production
b. Manufacturing d. servicing
14. A workers’ education can contribute to _________.
a. Economic Problem c. Human Capital
b. Scarce Resources d. production
15. It is harvest season and there had been an abundant supply. What concept best applies the statement?
a. Shortage c. drought
b. Surplus d. under production
16. Private airlines in the Philippines use airplanes to produce transportation services. Airplanes in this situation are
an example of what resource?
a. Land c. labor
b. Capital d. entrepreneurship
17. Scarcity of resources is evident in your area. 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 infections of
viruses. Which items most likely you need to produce?
a. PPEs c. canned goods
b. Sack of rice d. sewing machines
18. The fundamental economic problem that must be solve efficiently is ___.
a. Scarcity of resources c. surplus of demand
b. Health system d. export policies
19. What are the two factors that contribute to scarcity in the production of goods and services?
a. Unlimited resources & limited wants c. limited resources and wants
b. Unlimited wants & limited resources d. unlimited resources and wants
20. Which of the following is a factor of production?
a. the interest paid on a bank
b. the taxes paid by workers to the government
c. the skill of an electrical engineer to make electrical wirings
d. the profit of a company

____________________________________________nothing Follows_________________________________________________________________

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