APPLIED ECONOMICS Main Branches of Economics

 Microeconomics- examines individual or company

Module 1: Overview of Applied Economics level. It deals with household and firms, such as
Economics as an Applied Science buying behavior etc
Economics- is the application of economic theories and  Macroeconomics- studies the aggregate or country
models in real life. It is also the efficient allocation of level. The framework focus on the effect on a larger
available resources scale, such as national economy
Scarcity- means that resources are limited Microeconomic concepts
Opportunity cost- is defined as the benefit you give up Utility- value or satisfaction derived from the consumption of
because you choose to take one action in favor of another. a good
Absolute advantage- having the ability to produce more Marginal utility- additional utility or satisfaction from the
output compared to other entity consumption of an additional unit of good
Comparative advantage- means having a lower opportunity Law of diminishing marginal utility: “for every additional
cost consumption, marginal utility or your level of satisfaction is
Basic Economic Problems declining
1. What to produce? Upward sloping utility curve: “As the quantity consumed
2. How much to produce? increases, a consumer’s total utility also increases but at a
3. For whom to produce? decreasing rate
Economic goods- cover goods, services, products, and the like Budget line- represents income constraint of consumers
that have a price and are sold in the market Budget- is a broad term used to illustrate income constraints.
4 Factors of Production Disposable income- income after taxes
1. Land- represents land and similar natural resources Discretionary income- income left from disposable income
available such as farms and agricultural land after all necessary expenses have been deducted
2. Labor- represents human capital such as workers and
employees that transform raw material and regulate
equipment to produce goods and services
3. Capital- represents physical asset such as production
facilities, warehouse, equipment and technology used
in production of goods and services
4. Entrepreneurship- sometimes referred to as
enterprise. It represents the factor that decides how
much of and in what way the other factors are to be
used in production
Circular flow diagram- economic model that illustrates the
flow of factors of production in the economy
Methods Used in Economic Analyses
 Qualitative approach- focuses on directional
relationship of different economic variables
 Quantitative approach- involves mathematical and
statistical analysis of economic data. It is sometimes
referred to as econometrics
Tools Used in Study of Economics
 Economic Variables- an element that can change
 Functions- explain the relationship between two or
more economic variables. It illustrates which of the
variables are dependent and which are independent
 Economic equation- is a mathematical expression of
an economic thought or concept. It is often used to
further explain economic theories and models
 Graph- provides a visual representation of the
relationship between two or more economic
variables. It helps break down abstract ideas through
diagrams.
Economic theories- simplify economic phenomena. These are
statements or observations which provide broader
understanding of economic concept through behavioral
observations and research
Marginal utility theory- states that people buy goods that
give the highest personal satisfaction.
Economic models- makes the study of economics easier by
serving as guides and by simplifying concepts and ideas
Time-series- means that data are collected for particular
elements for several time period
Cross-sectional- include different variables for a single time
period
Normative economics- evaluates economic decisions, policies
or outcomes as good or bad.
Positive economics- evaluates economic scenarios and
policies based on qualitative and quanti analysis