BASIC TERMS
IN
APPLIED
ECONOMICS
 

DEFINITION OF TERMS
 SCARCITY – insufficiency
SCARCITY –  insufficiency of resources to meet the
wants of consumers and insufficiency of resources
for producers that hamper enough production of
goods and services.
 ECONOMICS
as a study, is the social science that involves
 – as
 – 
the use of scarce resources to satisfy unlimited

wants.
- is a different
different science
science from
from biolo
biology
gy
and chemistry as these are physical sciences.
- is a social
social science
science because
because it stu
studies
dies hum
human
an
behavior just like psychology and sociology.
2
 

DEFINITION OF TERMS
 SOCIAL SCIENCE – 
SCIENCE – isis broadly speaking, the
study of society and how people behave and
influence the world around them.

2 TYPES OF SCARCITY
a. Relative Scarcity – 
Scarcity – is
is when a good is scarce
compared to its demand.
Ex. a. Coconuts are abundant in the
Philippines since the plant easily
grows in our soil and climate.

3
 

TYPES OF SCARCITY
• However, coconuts become scarce when the
supply is not sufficient to meet the needs of the
people
• b. Bananas are abundant in the Philippines and
are being grown in a lot of regions around the
country. But when a typhoon destroys banana
plants and the farmer has no bananas to
harvest, then bananas become relatively scarce.

4
 

TYPES OF SCARCITY
 ABSOLUTE SCARCITY – 
SCARCITY – is
is when supply is
limited.
 Ex. a. Oil is absolutely scarce in the country
since we have no oil wells
well s from which we can
source
source our petrolum
petrolum needs, sso o we rely heavily
heavily on
imports from oil-producing countries like Iran
and other Middle Eastern countries.
b. Cherries are absolutely scarce in our
country since we do not have the right climate
to grow them and we have to rely
rel y on imports for
our supply of cherries. This explains why
cherries are very expensive in the Philippines. 5
 

DEFINITION OF TERMS
 Opportunity Cost  – refers to the value of the best
foregone alternative.
 Ex. a. When land is devoted exclusively to the
cultivation of rice, we give up an output of bananas
cultivation
or mangoes that we could have planted on that
land area.
b. A producer who decides to transform all his
leather into shoes, gives up the chance to produce
bags with that leather.
c. A school teacher who could have worked in

a bank, gives up the salary that she would have

earned as a bank employee. 6
 

DEFINITION OF TERMS
• d. A manager who quits his job in order to take up
a master’s degree, gives up his salary as a
manager. That salary is his opportunity cost.

Two branches of Economics

1 Macroeconomics
- is a division
division of
of economics
economics that
that is cconcern
oncerned
ed
with the overall performance of the entire economy.
- it studies
studies th
thee econom
economic
ic sys
system
tem as a whole
rather than individual economic units that make up
the economy. It focuses on the overall flow of goods
and resources and studies the causes of change in the
7
aggregate flow of money , the aggregate
 

TWO BRANCHES OF ECONOMICS

movement of goods and services, and the general

employment of resources.
- is about
about the na
nature
ture of economi
economicc growth,
growth, tthe
he
expansion of productive capacity, and the growth of
national income.
2. Microeconomics
- is a division
division of
of economics
economics that
that is concerne
concerned
d
with the behavior of individual entities such as the
consumer , the producer, and the resource owner.
- it is more concern
concerned
ed on how goods
goods flo
flow
w
from the business firm to the consumer and how
resources move from the resource owner to the
8
business firm.
 

TWO BRANCHES OF ECONOMICS

- it is also
also concerned
concerned with
with the process
process of setting
setting
prices of goods that is also known as P rice
ri ce Theory.
Theory.
- it studies
studies the
the decision
decisions
s and choices
choices of the
the
individual units and how these decisions affect the
prices of goods in the market. Likewise, it examines
the alternative methods of using resources inorder to
alleviate scarcity. It does not focus on aggregate
levels of production, employment, and income.

9
 

ECONOMIC RESOURCES

 Economic Resources – 
Resources – also
also known as f ctors of
production , are the resources used to produce
goods and services. These resources are, by
nature, limited and therefore, command a
payment that becomes the income of the resource
owner.
Land – soil
1. Land – soil and natural resources that are
found in nature and are not man made.
Owners of lands receive a payment known as
rent.

10
 

ECONOMIC RESOURCES

 LABOR – physical
LABOR –  physical and human effort exerted in
production. It covers manual workers like
construction workers, machine operators, and
production worker, as well as professionals like
nurses, lawyers, and doctors. The term also
includes jeepney drivers, farmers, and
fishermen. The income received by labors is

referred to as wage.
 CAPITAL
CAPITAL –  – man-made
man-made resources used in the
production of goods and services , which include
machineries and equipment. The owner of

capital earns an income called interest.

11
 

Identify which resource is referred to

by the following words.

 _______ 1. Entertainers
Entertainers
 _______ 2. Minerals
Minerals
 _______ 3. Forests
 _______ 4. Marine
Marine resources
 _______ 5. Teachers
Teachers
 _______ 6. Technology
Technology
 _______ 7. Production
Production Equipment
Equipment

 _______ 8. Engineers
Engineers 12
 

Identify which resource is referred

to by the following words.

 _______ 9. Call center

center agen
agents
ts
 _______10.
 _______10. Business
Business proprietor 
proprietor 

13
 

Classify the following topics. Write MIC if it

falls under Microeconomics; MAC, if it falls
under Macroeconomics
 _______ 1. The inflation
inflation rate in th
the
e Philip
Philippines
pines in the
last quarter of 2013 was 4.8%.
 _______ 2. A ₱340-billion deficit in the Philippines
budget is expected in the year 2015.
 _________3. Prices of Toyota vehicles are predicted to go
up in December.
 _________4. Garlic prices in the past months have risen
because producers hoarded their suppliers in their
bodegas.
 _________5. Unemployment rate has dropped because of
the increase in the number of OFW’s.

14
 

Classify the following topics. Write MIC

if it falls under Microeconomics; MAC, if

it falls under Macroeconomics

 _______ 6. In the past year,
year, Coca Cola
Cola was named
the fastest selling product in the market.
 _______ 7. Rental
Rental on land coul
could
d not be increased
increased
by landowners because of the Rent Control Law.
 _______ 8. Prices
Prices of apples and
and grapes tend to
increase during Christmas season.
 _______9. The Philippine
Philippine economy
economy grew at the rate
of 5.8% in 2013.
 _______10. Philippine
Philippine congress ppassed
assed the Value
Value
 Added Tax Law to
to strengthen the P
Philippine
hilippine tax
system.
15
 

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