APPLIED ECONOMICS

Quarter 1- Modules 1-6

Writers:

Amapola D. Guidote – LPCNSHS Doña Josefa Campus

Anna Marie L. Duaman – LPCNSHS- CAA Campus

Lesson Economics as social science
1 and applied science
Most Essential Learning Competency
Differentiate economics as social science and applied science in
terms of nature and scope.
What is it?
Economics will help the students understand why there is a need for
everybody, including the government, to budget and properly
allocate the use of whatever resources are available. It will help one
understand how to make more rational decisions in spending money.
Economics can generally be broken down into macroeconomics,
which concentrates on the behavior of the economy as a whole, and
microeconomics, which focuses on individual people and businesses.
Economic resources
Land - (all natural resources),
Labor - (all physical and mental talents of individuals),
Capital - (all manufactured aids/tools/equipment used in producing
goods and services, and cash)
Economics as a social science
This means that economics has two important attributes. Economics
studies human activities and constructions in environments with scarce
resources and uses the scientific method and empirical evidence to
build its base of knowledge.
The evaluation of human interactions as it relates to preferences,
decision making, and constraints is a significant foundation of
economic theory. The complexity of the dynamics of human motivation
and systems has led to the establishment of assumptions that form the
basis of the theory of consumer and firm behavior, both of which are
used to model circular flow interactions within the economy.
Photo source:
https://courses.lumenlearning.com/
boundless-economics/chapter/the-
study-of-economics/
Circular Flow of the Economy: Economics provides an accessible foundation for
understanding the complexity of the interactions in the world. For example, the circular
flow diagram displays the economic framework related to the dynamic
interconnectedness of economic agents. In the graph above the display is limited to
households and firms but other depictions of circular flow incorporate the government
and international trading partners.
Economics provides distilled frameworks to analyze complex societal
interactions, as in the case of consumer and firm behavior. An
understanding of how wages and consumption flow between
consumers and producers provides agents with an ability to understand
the symbiosis of the relationship rather than fixating on the contentious
components that surface from time to time.
Economics also allows individual agents to balance expectations. An Process Questions:
understanding of the ebb and flow of the economy through the boom
and bust of the business cycles, creates the potential for emotional 1. What is the role of the given economic resources in economics?
balance by reminding agents to limit desperation in downturns and 2. How would you differentiate economics as a social science
exuberance in expansions. from economics as an applied science based on your
understanding? Give example.
By developing an understanding of the foundations of economics, 3. What is the relevance of understanding the Circular Flow of the
individuals can become better decision makers with respect to their Economy?
own lives and maintain a balance with respect to an externality that
has the potential to supplement or deter their plans. Since economic
theories are a basis of decision making and regulatory policy, being
knowledgeable about economics foundations allows an individual to
be an active and aware participant rather than a passive economic
agent.

Economics as an applied science

Applied economics reduces abstract concepts into examples that
can be discussed and related to the business community at large.
However, depending on whom you ask, what constitutes applied
economics versus what constitutes core economics is open to
interpretation.

A popular philosophy taught in many business schools as to what

constitutes the field of economics more broadly is that economics is
the study of whatever economists themselves do. For simplicity’s sake,
the mainstream view of applied economics is generally thought of as
consisting of the below:

1. Labeling variables as core-specific

2. Providing numerical estimates
3. Interpreting real-world events
4. Providing a structure to draw conclusions

Lesson Application of Applied
2 Economics
Most Essential Learning Competency
Examine the utility and application of applied economics to solve
economic issues and problems
What is it?
Applied economics is the application of economic theories and
principles to real world situations with the desired aim of predicting
potential outcomes. The use of applied economics is designed to
analytically review potential outcomes without the "noise" associated
with explanations that are not backed by numbers. Applied economics
can involve the use of econometrics and case studies. It is the study of
observing how theories work in practice. Applied economics may be
practiced at macroeconomic (the whole, aggregate economy) or
microeconomic (analyzing individual consumers and companies)
levels.
Basic economic problems of society
A.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.
B.How to produce – is a question on the production method that will
be used to produce the goods and services . This refers to the resource
mix and technology that will be applied in production
C.For whom to produce – is about the market for the goods 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
The economic systems is the means through which society determines
the answers to the basic economic problems mentioned.
A.Traditional economy – decisions are based on traditions and
practices.
B.Command economy – this is the authoritative system wherein
decision-making is centralized in the government or a planning
committee.
C.Market economy – This is the most democratic form of economic
system.
Positive Economics
Positive economics is a stream of economics that focuses on the
description, quantification, and explanation of economic
developments, expectations, and associated phenomena. It relies on
objective data analysis, relevant facts, and associated figures. It
attempts to establish any cause-and-effect relationships or behavioral
associations which can help ascertain and test the development of
economics theories.
Positive economics is objective and fact-based where the statements
are precise, descriptive, and clearly measurable. These statements can
be measured against tangible evidence or historical instances. There
are no instances of approval-disapproval in positive economics.
Here's an example of a positive economic statement: "Government-
provided healthcare increases public expenditures." This statement is
fact-based and has no value judgment attached to it. Its validity can
be proven (or disproven) by studying healthcare spending where
governments provide healthcare.
Process Questions:
1. What are the strengths and weaknesses of the different
economic system?
2. In what way is applied economics important in tackling
economic issues or problem of the country?
3. Give the importance of positive and normative economics.

Normative Economics
Normative economics focuses on the ideological, opinion-oriented,
prescriptive, value judgments, and "what should be" statements aimed
toward economic development, investment projects, and scenarios. Its
goal is to summarize people's desirability (or the lack thereof) to various
economic developments, situations, and programs by asking or
quoting what should happen or what ought to be.

Normative economics is subjective and value-based, originating from

personal perspectives, feelings, or opinions involved in the decision-
making process. Normative economics statements are rigid and
prescriptive in nature. They often sound political or authoritarian, which
is why this economic branch is also called "what should be" or "what
ought to be" economics.

An example of a normative economic statement is: "The government

should provide basic healthcare to all citizens." As you can deduce
from this statement, it is value-based, rooted in personal perspective,
and satisfies the requirement of what "should" be.
 Income effect is felt when the change in the price of a good changes
consumer’s real income or purchasing power, which is the capacity to
Lesson Market demand, Market supply
buy with a given income.
3 and Market equilibrium
Substitute Effect is felt when a change in the price of a good changes
demand due to alternative consumption of substitute goods.
Most Essential Learning Competency
Analyze market demand, market supply and market equilibrium.
The Law od Demand states that as price increases, the quantity
demanded for that product decreases.
What is it?
Supply in economics, is the quantity of a commodity that producers
wish to sell at various prices while demand is the quantity that The Law of Supply states that as the price increases, the quantity
consumers wish to buy. It is the main model of price determination supplied of that product also increases.
used in economic theory.
Equilibrium is a state of balance when demand is equal to supply.
A market is an interaction between buyers and sellers of trading or
exchange. It is where the consumers buy, and seller sells.
Determination of Market Equilibrium
Goods market is the most common type of market because it is where
Market equilibrium is attained when the quantity demanded is equal
we buy consumer’s goods.
to the quantity supplied.
Labor market is where workers offer services and look for jobs, and
where look for workers to hire.
Assuming that the demand function for Good X is: Qd =60-P/2 and the
Financial market includes the stock market where securities of
function for Good X is: Qs= 5+5P
corporations are traded.

Applying the equations we derive the following demand and supply

Demand Function shows how the quantity demanded of a good
schedules given the following prices:
depends on its determinants, the most important of which is the price
of the good itself.
 Demand schedule Good X Supply schedule of Good X
Price
₱0 60 5
2 59 15
4 58 25
6 57 23
8 56 45
10 55 55
12 54 65
14 53 75
16 52 85

Equilibrium quantity is attained where Qd=Qs.

Equilibrium quantity is 55 since quatity supplied and quantity

demanded are both 55 at the price of ₱10 which is the equilibrium price.

Process Questions:
1. What is the relationship between quantity demanded and
quantity supplied in equilibrium?
2. What is the relationship when there is a shortage and when
there is a surplus?
3. What is the vital role of getting/knowing the market equilibrium?
 Lesson The Implications of Market Pricing
4 on Economic Decision–Making
Most Essential Learning Competency
Determine the implications of market pricing on economic decision-
making.
What is it?
A market economy is an economic system in which economic
decisions and the pricing of goods and services are guided by the
interactions of a country's individual citizens and businesses.
Price is important to marketers because it represents marketers'
assessment of the value customers see in the product or service and
are willing to pay for a product or service. Pricing contributes to how
customers perceive a product or a service.
Pricing is the process whereby a business sets the price at which
it will sell its products and services, and may be part of the business's
marketing plan. In setting prices, the business will take into account the
price at which it could acquire the goods, the manufacturing cost, the
market place, competition, market condition, brand, and quality of
product.
➢ Internal Factors - are factors that can be control, determine and
process by the organization.
1. Cost - major factor that determine price. The cost of
production is largely influence by the supplier cost,
macroeconomic trends and the nature of business.
2. Company Objective - a pricing decision must be that will
consider that profit maximization objective. When pricing
decisions are made, they must be in line with the overall
company objectives, as this is what will inform what the pricing
objective really is, so that the pricing decisions made will not be
against the company objective.
3. Organizational Factors - Pricing decisions occur on two levels
in the organization. Overall price strategy is dealt with by top
executives. The actual mechanics of pricing are dealt with at
lower levels in the firm and focus on individual product strategies.
4. Price is the important element in marketing mix. A shift in any
one of the elements has an immediate effect on the other three
- Production, Promotion and Distribution.
 5. Product Differentiation - to attract the customers, different
characteristics are added to the product, such as quality, size,
color, attractive package, alternative uses etc.
➢ External Factors - are factors that are not within reach of the
organization. The business organization cannot control or
determine the aggregate indicators of these factor.
1. Competition - is a crucial factor in price determination. A firm
can fix the price equal to or lower than that of the competitors,
provided the quality of product, in no case, be lower than that
of the competitors.
2. Demand – For a new product, there is need to price such
product strategically in such a way that it penetrates the market,
even if it will be at par with the total cost, while for a highly
demanded product, an increase in price may not really have a
high effect on the demand for such products, so is the need for
management when making pricing decisions to consider the
demand for the product.
3. Suppliers - Suppliers of raw materials and other goods can have
a significant effect on the price of a product.
4. Economic Conditions - The inflationary or deflationary
tendency affects pricing. • The prices are increased in boom
period to cover the increasing cost of production and
distribution.
5. Consumers/Customers - The various consumers and businesses
that buy a company’s products or services may have an
influence in the pricing decision.
6. Government - The prices cannot be fixed higher, as
government keeps a close watch on pricing in the private sector.
Price of Basic Commodities – the individual level, rice consumption and
expenditure levels vary significantly across socio-demographic
characteristics and location of the consumers.
Elasticity is a measure of how much buyers and sellers respond to
changes in market conditions.
Degrees of elasticity;
1. Elastic - describe a change in the behavior of buyers and sellers
in response to a change in price for a good or service. It has
many substitutes.
2. Inelastic - relatively unresponsive to changes, as demand when
it fails to increase in proportion to a decrease in price. It has fewer
substitutes.
3. Unitary Elastic - a change in the price of that good causes an
equal change in quantity demanded.
Income elasticity – the percentage change in quantity compared
to the percentage change in income.
Cross elasticity – the percentage change in quantity of one good
compared to the percentage change in the price of related goods.
Elasticity of Demand – three types of elasticity of demand that deal
with the responses to a change in the price of the good itself, in
income and in the price of a related good which is a substitute or a
complement.
Price elasticity of demand is a measure of the responsiveness of
consumers to a change in the price of the good.
Price elasticity of supply measures the responsiveness to the supply
of a good or service after a change in its market price.
Process Questions:
1. Which among the internal/external factors of pricing is the most
crucial in supplier’ decision making process? Why?
2. How did the pandemic affect the market pricing of basic goods?
Luxurious items?
3. If you are planning to start a food business, how will you establish
product differentiation in the market?
 There are varying degrees of competition in the market depending on
the following factors;
Lesson Differentiate Various Market 1. Number and size of buyers and sellers
5 Structures 2. Similarity or type of product bought and sold
3. Degree of mobility of resources
4. Entry and exit of firms and input owners
5. Degree of knowledge of economic agents regarding prices,
Most Essential Learning Competency costs, demand and supply conditions
Differentiate various market structures in terms of:
a. number of sellers
Economic market structures can be grouped into four categories:
b. types of products
perfect competition, monopolistic competition, oligopoly, and
c. entry/exit to market monopoly.
d. pricing power
e. others The categories differ because of the following characteristics: The
number of producers is many in perfect and monopolistic competition,
few in oligopoly, and one in monopoly. The degree of product
What is it?
differentiation, the pricing power of the producer, the barriers to entry
Market structure refers to the competitive environment in which
of new producers, and the level of non-price competition (e.g.,
buyers and sellers operate. Competition is rivalry among various sellers
in the market. As students, we are exposed to competition in school; advertising) are all low in perfect competition, moderate in
spelling bees, quiz bees, sports fests. monopolistic competition, high in oligopoly, and generally highest in
monopoly.
Significance of the Market Structure
The type of market structure in which the business operates will
determine the amount of market power or control the business owner
will enjoy. Greater market power means a greater ability to control
prices, differentiate the products one offers for sale, thus, leading to
opportunities for more profits.

Photo source: https://www.googlesir.com/types-of-market-structures-and-examples/

 quantity mies of differentiat
Market Characteristics decision scale) ed
Structure Monopoly Single seller Unspecifi Compl entry A single,
Number of Number Barriers Entry Homogen ed ete blocked homogene
Sellers of Buyers to and Exit eous or ous
Entry Activity Differentiat product
with no
ed
close
Product?
substitutes
Perfect Many firms Many None Yes, Homogen
Competiti buyers firms eous
on have product,
the all goods
freedo are
m to perfect
enter substitutes
and exit for
consumers
Many firms Many Very Yes, Differentiat
with non- buyers low firms ed
interdepen have products,
dent the but close
Monopolis
pricing freedo substitutes
tic
and m to for
Competiti
quantity enter consumers
on
decisions and exit so their Photo source: https://tinyurl.com/a28ssr28
demand
curves are Process Questions:
elastic 1. What are the characteristics of the different market structures?
Oligopoly Few firms Unspecifi High Difficult Products 2. Which among the market structures best represent the market in
with ed entry can be the Philippines? Explain your answer.
interdepen (often either 3. Is there a need to advertise commodities under pure
dent pricing due to differentiat competition? Why? Why Not?
and
econo ed or non-
 issue is, Government cannot maximize tax benefits to its people and
businesses, because of corruption.
Factors Affecting The Economic
Lesson 6
Situation

Most Essential Learning Competency

Analyze the effects of contemporary economic issues affecting the
Filipino entrepreneur.

What is it? Photo Source: https://tinyurl.com/8bwuebk

When you say “Contemporary issues”, these are the “current”
economic issues affecting the Filipino businesses. These are illustrated What is Entrepreneurship?
into four aspects: Savings and Investment, Rent, Wages, and Taxes. Entrepreneurship is the art of turning an idea into a business. Venture
According to Rosemary Dinio et al. (Applied Economics), savings and Capitalist (Fred Wilson)
investments are very important for everyone’s future. The government
invests in physical infrastructures like roads, the companies invest in Entrepreneurship is the ability to know what products and services are
equipment and systems, and the household saves money and invest in needed by people and to be able to provide these things at the right
personal security. However, the savings are not maximized, because time, at the right place and to the right people, and at the right price.
people, businesses, and government borrow to invest and the
allocation that is supposed to be for savings was put into investments. What Entrepreneurs Do?
To acquire a decent house remains to be a problem amongst Filipinos, Entrepreneurs assemble and then integrate all the resources needed –
especially those with meager income and this resulted to renting a the money, the people, the business model, the strategy—needed to
house. Scarcity of jobs for a large work force resulted to transform an invention or an idea into a viable business.
unemployment. Some companies hire excess employees and pay
them at a lower rate, which led the government to set a minimum
wage. But since many people are in need to get a job, they allow
themselves to be paid lower than the minimum wage, where the
government has the difficulty to monitor the violators. People pay taxes
to the government so it can provide public goods and services. The
largest tax collected comes mostly from personal income. But the main
Photo source: https://tinyurl.com/2vwxmu42
CONTEMPORARY ECONOMIC ISSUES FACING THE FILIPINO Process Questions:
ENTREPRENEURS 1. How important are entrepreneurs during this pandemic?
Provide specific instances.
1. INVESTMENT AND INTEREST RATES- Investment is an asset or item 2. Why is it important to understand Taxes?
acquired with the goal of generating income or appreciation. 3. What other kinds of tax benefits do you wish the government
Appreciation refers to an increase in the value of an asset over to provide? and why?
time.
The interest rate is the amount a lender charges for the use of
assets expressed as a percentage of the principal. The interest
rate is typically noted on an annual basis known as the annual
percentage rate (APR). The assets borrowed could include cash,
consumer goods, or large assets such as a vehicle or building.
2. RENTALS- A property from which the owner receives payment
from the occupant(s), known as tenants, in return for occupying
or using the property.
RENT CONTROL ACT IN THE PHILIPPINES Republic Act 9653, better
known as the Rent Control Act of 2009, is the law that protects
housing tenants (especially in the lower-income class) against
unreasonable rent increases. It also provides the eviction rules
that both landlords and tenants must observe.
3. MINIMUM WAGE- This refers to the minimum amount of
remuneration that an employer is required to pay wage earners
for the work performed during a given period, which cannot be
reduced by collective agreement or an individual contract.
4. TAXES- A tax is a mandatory financial charge or some other type
of levy imposed upon a taxpayer by a governmental
organization in order to fund various public expenditures. Failure
to pay, along with evasion of or resistance to taxation, is
punishable by law.

Reference: https://slidetodoc.com/contemporary-economic-issues-facing-the-
filipino-entrepreneurs-lesson/