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Applied
Economics

1st Quarter
Week 1 Module
This module was designed to provide you with fun and meaningful opportunities for
guided and independent learning at your own pace and time. You will be enabled to
process the contents of the learning resource while being an active learner.

This module has the following parts and corresponding icons:

This part includes introduction, most essential

LET’S START
learning competency / objectives of the whole
module.

This part includes an assessment that aims to

LET’S TRY check what you already know about the topic to be
learned.

This part includes a brief discussion of the lesson.

LET’S LEARN This aims to help you discover and understand
new concepts and skills.

This part includes a brief discussion of the lesson.

LET’S EXPLORE
This aims to help you discover and understand
new concepts and skills.

This part includes an overall idea of the topic of

LET’S WRAP UP the whole module for better understanding.

This part includes a task which aims to evaluate

LET’S CHECK your level of mastery in achieving the learning
competency.

REFERENCES This part includes a list of all sources used in

developing this module.

REMINDERS:

o Don’t forget to type/write your name on the bottom part of the 1st page of this
module.
o Answer all the activities included in this module.
o If you will submit the module online, make it in a PDF file to prevent the
collision of pictures and text, as well as to prevent the file formatting.

GOOD LUCK AND GOD BLESS!

 This module was written for you to accomplish at home. It was carefully designed
so that you can work at your own pace and allow self-discovery of the concept through
activities that you will perform. Activities were also selected to allow independent
learning which also aims to develop students’ reading comprehension skills through
understanding written texts.

After going through the module, you are expected to:

1. differentiate economics as social science and applied science in terms of nature

and scope

2. explain why economics is related to scarcity

3. apply the concept of opportunity cost when evaluating options and making
economic decisions
4. make decisions based on how man can satisfy most of his wants given limited
resources
5. differentiate macroeconomics and microeconomics
6. describe and state the importance of economic resources
7. differentiate positive and normative economics
8. differentiate gross national product and gross domestic product

Direction: Write TRUE if the statement is correct, and if it is FALSE change italicized
word to make the statement correct. Write your answer on the space provided.
__________1. Economics social science that involves the use of scarce resources to
satisfy unlimited needs.

__________2. Surplus is a condition where there are insufficient resources to satisfy all
the needs and wants of a population.

__________3. Opportunity cost refers to the value of the best foregone alternative.

__________4. Economic Resources, also known as factors of production, are the

resources used to produce machineries and equipment.

__________5. Soil and natural resources that are found in nature and are not man-
made is called capital.
__________6. Physical and human effort exerted in production. It covers manual
workers is called labor.

__________7. Land is a man-made resources used in the production of goods and

services, which include machineries and equipment.

__________8. A study of society and how people behave and influence the world
around them is Economics.

__________9. A division of economics that is concerned with the overall performance of

the entire economy is called Microeconomics.

__________10. Macroeconomics is a division of economics that is concerned with the

behavior of individual entities such as the consumer, the producer and the resource
owner.

LESSON 1:
INTRODUCTION TO APPLIED
ECONOMICS

Scarcity is the reason why people have to practice economics, Economics, as a

study, is the social science that involves the use of scarce resources to satisfy unlimited
wants.

Well known economist Alfred Marshall described economics as a study of

mankind in the ordinary business of life. It examines the part of individual and social
action connected with the attainment and use of material requisites of well-being.

Scarcity is a condition where there are insufficient resources to satisfy all the
needs and wants of a population. Scarcity may be relative or absolute.

Relative scarcity is when a good is scarce compared to its demand. For example,
Bananas are abundant in the Philippines and are being grown in lot of regions around
the country, but when the typhoons destroy banana plants then the farmer has no
banana to harvest, then bananas become relatively scarce.

On the other hand, Absolute scarcity is when the supply is limited. For example,
Oil is absolutely scarce in our country since we have no oil wells from which we can
source our petroleum needs.

CHOICE AND DECISION-MAKING

Because of the presence of scarcity, there is a need for man to decide in

choosing how to maximize the use of scarce resources to satisfy as many wants as
possible. For example, Monthly budget needs to decide on how to utilize it for rent,
electricity, water etc.
 Opportunity cost refers to the value of the best foregone alternative. In other
words, opportunity cost refers to the giving up of something in order to earned his/her
goal to earn more money. For example, a manager who quits his job in order to take up
his master’s degree, gives up his salary as manager

ECONOMIC RESOURCES

Economic resources, also known as factors of production, are the resources used to
produce goods and services. These resources are by nature, limited and therefore,
command payment that becomes the income of the resource owner.

1. Land – soil and natural resources that found in nature and are not man-made.
Owners of land receive payment known as rent.

2. Labor – physical and human effort exerted in production. It covers annual

workers, the income received by labors is referred to as wage.

3. Capital – man-made resources used in production of goods and services which

include machineries and equipment. The owner of capital earns income called
interest.

ECONOMICS AS A SOCIAL SCIENCE

Economics is a social science because it studies human behavior just like

psychology and sociology. A Social science is, broadly speaking, the study of society
and how people behave and influence the world around them. As a social science,
economics studies how individuals make choices in allocating scarce resources to
satisfy their unlimited wants.

MACROECONOMICS AND MICROECONOMICS

There are two branches of economics. These are macroeconomics and

microeconomics.

Macroeconomics is a division of economics that is concerned with the overall

performance of the entire economy. Macroeconomics is about the nature of economic
growth, the expansion of productive capacity, and the growth of national income.

Microeconomics on the other hand, is concerned with the behavior of individual

entities such as the consumer, the producer and the resource owner. Microeconomics
studies the decisions and choices of the individual units and how these decisions affect
the prices of goods in the market.

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 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 authoritative system wherein decision-making is

centralized in the government or planning committee. Decisions are imposed on
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 economic system. Based
on the workings 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 producer’s
decisions on what goods to produce.

WHY ECONOMICS IS IMPORTANT

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, saving part of it, and even investing some of it.

On the national level, economics will enable the students to take a look on how
the economy operates and to decide for themselves if the government official and
leaders are effective in trying to shape up the economy and formulate policies for the
good of the nation.

SCIENTIFIC APPROACH IN THE EMPIRICAL TESTING OF AN 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, mathematics and statistics, the student needs to approach the empirical
testing of an economic theory in a scientific manner. This scientific approach involves
the following steps:
 1. State the propositions or conditions that are taken as given and do not need
further investigation, as the basic starting point of investigation. These
propositions will serve as the premises upon which the theory is established.

2. Observe facts in connection with the activity that we want to theorize.

3. Apply the rules of logic to the observed facts to determine casual 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 hypotheses.

POSITIVE ECONOMICS VERSUS NORMATIVE ECONOMICS

Positive economics deals with what is – things that are actually happening such
as current inflation rate, the number of employed labor, and the level of Gross National
Product. Positive economics is an overview of what is happening in the economy that is
possibly far from what is ideal.

Normative economics, on the other hand, refers to what should be – that which
embodies the ideal such as the ideal rate of population growth or the most effective tax
system. Normative economics focuses on policy formulation that will help to attain the
ideal situation.

MEASURING THE ECONOMY

The heart of economy is production whose value measures both resource input
and output of people. The interplay of resources and outputs tells how well the economy
has performed.

COUNTING ALL THROUGH GNP – As the mirror of all products, Gross National
Product is the market value of final products, both sold and unsold, produced by the
resources of the economy in a given period. Market value id determined by supply and
demand while the economy’s resources are those belonging to Filipino citizens and
corporations. In addition, the value of final products already includes the values of its
components from the lower production stages. Likewise, the value of any product in a
certain period should no longer be counted in succeeding periods to avoid double
counting and overstatement that can mislead decision-making.

GNP/GDP: EXPENDITURE APPROACH – One way to account GNP and classify its
components 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 (1),
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)

However, a better indicator of domestic employment opportunities is Gross

Domestic Product. Gross Domestic Product (GDP) is defined as the market value of
final products produced within the country. The resources in the economy include
capital and entrepreneurship belonging to other countries brought to the domestic
economy by foreign businesses.

Net Inflow = Inflow – Outflow to –Net Inflow = -Inflow + Outflow

GNP/GDP: INCOME APPROACH – Another way to account GNP and classify its
components is by resource uses and contributions that make up the production stages.
As basic factors of production, resources (land, labor, capital and entrepreneurship) add
value to products (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 simply be the sum of all factor payments from the raw material to
the final product stage.

Activity 1: Opportunity cost refers to the alternative forgone when a choice is made by
the consumer. Give examples of opportunity cost for:

a. Individual

Answer:

o Example: Time for playing computer games is set aside to be able to

study well.

b. Producer

Answer:

o Example: The choice of labor over capital goods

 o

c. Government

Answer:

o Example: More roads over public schools

Activity 2: In your community, what are the examples of Macroeconomics and

Microeconomics Business that helps our country’s economic growth.

Macroeconomics Microeconomics

Activity 3: Since our country is facing this Covid19 Virus Outbreak, as a ABM student,
think some goods and services that will help our country’s economic problems. Justify
your answer.

*On a one whole sheet of yellow pad paper and attached in this page.
CRITERIA: Content – 50%
Originality and Creativity – 30%
Relevance – 20%
Total: 100%

Economics is the social science that studies the production, distribution,

and consumption of goods and services.

Economics focuses on the behavior and interactions of economic agents and

how economies work. Microeconomics analyzes basic elements in the economy,
including individual agents and markets, their interactions, and the outcomes of
interactions. Individual agents may include, for example, households, firms, buyers, and
sellers. Macroeconomics analyzes the economy as a system where production,
consumption, saving, and investment interact, and factors affecting it: employment of
the resources of labor, capital, and land, currency inflation, economic growth, and public
policies that have impact on these elements.

Other broad distinctions within economics include those between positive

economics, describing "what is", and normative economics, advocating "what ought to
be"; between economic theory and applied economics; between rational and behavioral
economics; and between mainstream economics and heterodox economics.

Economic analysis can be applied throughout society, in real estate,

business, finance, health care, and government. Economic analysis is sometimes also
applied to such diverse subjects as crime, education, the family, law, politics, religion,
social institutions, war, science, and the environment.

Direction: Write TRUE if the statement is correct, and if it is FALSE change italicized
word to make the statement correct. Write your answer on the space provided.

___________1. Positive economics deals with what is the things that are actually
happening such as the current inflation rate, the number of employed labor, and the
level of Gross National Product.

___________2. The value of any product in a certain period should no longer be

counted in succeeding periods to avoid double counting.

___________3. Resources is determined by the supply and demand while the

economy’s resources are those belonging to Filipino citizens and corporation.

___________4. One way to account GNP and classify its components is by the end-use
expenditure.

__________5. Another way to account GNP and classify its components is by resource
uses and contributions that make up the final stages.

__________6. Embodies the ideal such as the ideal rate of population growth or the
most effective tax system is called Positive economics.

__________7. The heart of the economy is production whose value measures both
resource input and output of people.

__________8. The economic resources is the means through which society determines
the answers to the basic economic problems mentioned.
__________9. When a good scarce is compared to its demand it is called as absolute
scarcity.

__________10. Relative scarcity is when the supply is limited.

FOR CONTENT:
Applied Economics First Edition – Rosemary P. Dinio, PhD, George A. Villasis
https://en.wikipedia.org/wiki/Economics
FOR PICTURE:
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