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Quarter 1 – Module 2:
Utility and Application of Applied
Economics to Solve Economic Issues
and Problems

APPLIED ECONOMICS

SDO Taguig City and Pateros

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Introductory Message
For the facilitator:

This module was collaboratively designed, developed and evaluated by the

Development and Quality Assurance Teams of SDO TAPAT to assist you in helping
the learners meet the standards set by the K to 12 Curriculum while overcoming
their personal, social, and economic constraints in schooling.

As a facilitator, you are expected to orient the learners on how to use this module.
You also need to keep track of the learners' progress while allowing them to
manage their own learning. Furthermore, you are expected to encourage and assist
the learners as they do the tasks included in the module.

For the learner:

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.

The following are some reminders in using this module:

1. Use the module with care. Do not put unnecessary mark/s on any part of
the module. Use a separate sheet of paper in answering the exercises.
2. Don’t forget to answer Let’s Try before moving on to the other activities
included in the module.
3. Read the instruction carefully before doing each task.
4. Observe honesty and integrity in doing the tasks and checking your
answers.
5. Finish the task at hand before proceeding to the next.
6. Return this module to your teacher/facilitator once you are through with it.
If you encounter any difficulty in answering the tasks in this module, do not
hesitate to consult your teacher or facilitator. Always bear in mind that you are
not alone.

We hope that through this material, you will experience meaningful learning
and gain deep understanding of the relevant competencies. You can do it!

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 Let’s Learn

This module was designed and written with you in mind. It is here to help you
examine the utility and application of applied economics to solve economic issues
and problems. The scope of this module permits it to be used in many different
learning situations. The language used recognizes the diverse vocabulary level of
students. The lessons are arranged to follow the standard sequence of the course.
But the order in which you read them can be changed to correspond with the
textbook you are now using.

After going through this module, you are expected to:

1. define scarcity, trade-off, and opportunity cost
2. explain the production possibilities frontier
3. apply the concept of opportunity cost when evaluating options and making
economic decisions
4. understand marginal analysis cost and benefit
5. examine the utility and application of applied economics to solve economic
issues and problems

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 Let’s Try

Choose the letter of the best answer. Write the chosen letter on a separate sheet of
paper.

1. What is the main economic problem?

a. to many resources
b. not enough needs
c. scarcity
d. all of the above

2. What does scarcity mean?

a. people are scared.
b. there is not enough of something
c. too much of something
d. none of the above

3. How is the value of each purchase or choice we make decided?

a. by looking at the benefit
b. by looking at the missed opportunity
c. by looking only at the monetary cost
d. none of the above

4. What does opportunity cost mean?

a. it is what a person gives up when they make a choice
b. it is idea that scarcity is an economic problem
c. it is that choices have benefits
d. none of the above

5. Refers to who receives the products and services an economy produces.

a. who gets what is produced
b. what to produce
c. how to produce
d. none of these are correct

6. When one is making a choice, the cost of what one gives up is called _______
a. efficient market
b. economic problem
c. trade-off
d. opportunity cost

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 Lesson Utility and Application of

1 Applied Economics to Solve

Economic Issues and Problems
As you now know, the study of economics is about choices that are made by
individuals and entities, given the fact that we can never have enough.

Philippines has been encountering different economic problem; the problem on how
to make use of the limited and scarce resources available. Economic problems arise
due to unlimited needs and wants of people with only limited or scarce resources
available to satisfy them. This problem on limited resources make the concept of
choice and scarcity fundamental in the study of economics.

Scarcity signals the need to make choices and, trade-off is usually involved when a
choice is made. Thus, one has to give up something. The best alternative that
people forego, or give up, when making a choice or decision is called opportunity
cost.

This lesson helps you understand and examine the utility and application of
applied economics to solve economic issues and problems.

Let’s Recall

Activity 1:
Direction: Use the picture below to help you answer the following questions:

Source: [ CITATION Pow19 \l 1033 ]

1. What does scarcity mean?

2. What is there an unlimited amount of in the world?
3. What is there a limited amount of in this world?

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4. What are people fighting over?
5. What appears to be the economic problem?

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 Let’s Explore

Warm-up Activity:
Scenario:
You are on a desert island. Alone. You must survive. The island has only one food
source that you have found: pineapples. It takes you 2 hours to harvest and cut up
1 pineapple (you have no knife!). You also want to build your shelter. Each piece
takes you 3 hours to build.
You have only 12 hours of sunlight and need to complete your tasks by sundown.
How will you spend your hours? Record your decision on a separate sheet of paper.
Answer the following questions:
1. Think back to the Warmup Activity. Why did you spend your hours the
way you chose?
2. What limits did you face? What tradeoffs did you make?
3. How does scarcity (limited resources) affect our economy and ability to
produce?
Source: ©Mrs. P's Interactive Classroom 2019

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 Let’s Elaborate

Scarcity is the main economic problem of the country because the limited
resources is not enough to meet the unlimited wants and needs of the people.
Because of scarcity, people make choices and in choosing something means you
need to give up something in exchange. As stated in the principles of economics,
“there’s no such thing as free”. Everything has its price. This concept is called
opportunity cost which measures the cost by what is given up in exchange. It also
measures the value of the foregone alternative. An example of opportunity cost is
that, when you choose between watching tv and reading a book, the option you do
not choose is your opportunity cost. So, if you choose to read, your opportunity
cost is watching tv – but if you do not really care about watching tv, your
opportunity cost is low.

Tradeoff is usually involved when a choice is made. Thus, one has to give up
something. The difference between tradeoffs and opportunity cost is that, every
time you make decision, there is probably a list of tradeoffs you make. The highest
value tradeoff is your opportunity cost.

PRODUCTION POSSIBILITIES FRONTIER

Production Possibilities Frontier is a model for understanding the tradeoffs
an economy must make when dedicating its scarce resources. It illustrates the
limits of any economy’s ability to produce outputs given its economic resources.
The graph is limited to two resources and analyzing the graph can tell you whether
the economy is allocating its resources efficiently or inefficiently. This is because
the production of one commodity can only be increased by sacrificing the
production of the other commodity.
Example:
The table below shows a production possibility frontier which contains which
contains different combinations of foods and clothing.

Clothing Food
70 0
60 20
40 50
20 70
0 80

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 A. Graph the Production Possibility Curve

Production Possibilities Frontier Curve

[ CITATION Cru17 \l 1033 ]

B. Compute for the opportunity cost using the formula

what you give up
opportunity cost =
what you get

Opportunity Cost of Producing Clothes

Clothing Food Opportunity cost (clothes)
Point A 70 0
Point B 60 20 10/20 = 0.5
Point C 40 50 20/20 = 1
Point D 20 70 30/20 = 1.5
Point E 0 80
As you have seen in the example above, the production of clothes increases
at the expense of the production of food. The production of one commodity can only
be increased by sacrificing the production of the other commodity. It is also called
the production possibility curve or product transformation curve.
Production Transformation Curve

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 Types of relationships:

change∈value onthe vertical axis Δ y rise

Slope= = =
change∈value on the horizontal axis Δ x run

Productive efficiency means resources are being used to maximize production

capabilities
Allocative efficiency means resources are being devoted towards their “best” or
optimal ends

Example 2:
  Look at the Production Possibilities Frontier graph below.

  In this simplistic island economy, your main resource was your time. You
had to make decisions based on your limited time.
  Question1: What is your opportunity cost of changing from obtaining 3
pineapples to obtaining 6?
  Answer: It would cost you 2 pieces of shelter

PRODUCTION POSSIBILITIES AND EFFICIENCY

The production possibility frontier will tell you that:
1. The economy is producing efficiently when an economy is performing at
any point along the PPF
2. The PPF curve is usually “bowed out” or curved because not all resources
are perfectly adaptable for producing each product
3. It is not possible to have any point outside the production possibility
curve because of the resource limitation unless the economy grows,

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 introduced new technology, discovered new resources, or there is an
increase in productivity.

MARGINAL ANALYSIS: COST and BENEFIT

 Marginal analysis means going-over a decision on the margin comparing
costs of a little more or a little less.

 Marginal cost is the difference (or change) in cost of a different choice.

Marginal costs sometimes go up and sometimes go down, but to get the
clearest view of your options, you should always try to make decisions based
on marginal costs, rather than total costs.

 Marginal Benefit: the difference (or change) in what you receive from a
different choice. The amount of benefit you receive from a particular good or
service is subjective; you may get more satisfaction or happiness from a
particular good or service than another. 

How, then, do you decide on a choice? The answer is that you compare, to
the best of your ability, the marginal benefits with the marginal costs. Marginal
analysis is an important part of economic rationality and good decision-making.

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 Let’s Dig In
Activity 2.
Directions: Using the x and y values, plot the points and graph the PPF. Label your
axes! Then answer the questions that follow.

X– Y-Values
Values (pounds of
(chairs) peanuts)
0 50
10 40
20 30
30 20
40 10
50 0
Source: ©Mrs. P's Interactive Classroom 2019

1. What is the opportunity cost of changing production from 10 chairs to 40

chairs?
2. What is the opportunity cost of changing production from 0 lbs. of peanuts to
50 lbs. of peanuts?
3. Plot a point at 10 chairs and 10 lbs. of peanuts. What situation is the economy
in at this point?
4. If the economy wanted to produce 30 chairs and 30 lbs. of peanuts, what would
have to happen? Why?
5. True or False: any point along the PPF is considered efficient
6. Explain your answer to Number 5.

Let’s Remember

Direction: Match the term in column A to the statement in column B. Write your
answer on a separate sheet of paper.

COLUMN A COLUMN B
1. Trade-off A. there is no way of making anyone better off
2. Production possibilities B. giving up something to get something
curve C. technical means for producing goods
4. Efficient D. model to show tradeoffs for two goods
5. Inefficient E. missing the opportunity to produce more
6. Technology F. a sustained rise in output
7. Economic growth

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 Let’s Apply

Activity 3.
Direction: Analyze the production possibilities frontier graph below and answer the
following questions.

Source: ©Mrs. P's Interactive Classroom 2019

1. Which of the points above represents efficiency?

2. Which point is not feasible?
3. Which point is not efficient?
4. Moving from which point to which point would show growth?
5. What two items are being produced in the above economy?

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 Let’s Evaluate

Choose the letter of the best answer. Write the chosen letter on a separate sheet of
paper.

1. Because resources are __________, trade-offs between alternative uses of

those resources must be made.
a. Unlimited
b. Scarce
c. Trade-offs
d. Available
2. Which of the following is an example of an economic trade off?
a. reducing unemployment while increasing economic growth
b. increasing the national savings rate while investment spending rises
c. spending less on education programs due to an increase in military
spending
d. buying milk and cookies
3. Decision on resource allocation shall be made together by _____________
a. Corporation
b. Businesses
c. Individuals and society
d. All of these are correct

4. Which of the following best describes efficiency?

a. production of the items that are most in demand
b. an equal distribution of scarce resources
c. obtaining the largest possible output from limited resources
d. lowering the price on your goods so that you sell more good

5. A production possibilities curve is ‘bowed out’ from the origin because ______
a. specialization of output increases input potential
b. resources are scarce
c. wants are virtually unlimited
d. input resources are not equally efficient in producing two alternative
goods

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 Let’s Extend

Activity 4.
Direction: Draw a Production Possibilities Graph for Toyota using the following
information. Write your answer on a separate paper.

A B C D E F G
Trucks 0 15 23 30 35 38 40
Cars 49 47 44 38 30 20 0

1. Which combination(s) on the graph are considered efficient?

2. When moving from point A to point B, what is being given up?

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 Answer Key

Let’s Apply Let’s Try

1. C
1. A, B, C 2. B
2. Y 3. B
3. X 4. A
4. X to A, B, or C 5. A
5. Refrigerators and Cars 6. D

Let’s Dig In
Let’s Evaluate
1. 30 lbs. of peanuts
1. B 2. 50 chairs
2. A 3. Inefficient
3. C 4. The economy would need to
4. C grow because (30,30) is beyond
5. D the PPF
5. True
6. Along the PPF, the economy is
functioning at a maximum
capacity which is efficient

Let’s Remember
1. B
2. D
3. A
4. E
5. C
6. F

References
Cruz, M. A. (2017). Business Economics, (pp 18-21). Mandaluyong City: Anvil
Publishing, Inc.
Laraya, J. De Leon J., & Santos, R. (2019), Applied Economics (pp. 19-26).
Mandaluyong: Books Atbp. Publishing Corp.
Tullao Jr, T. (2015). Understanding Economics in the Philippine Setting. (pp.
153-158). Quezon City: Pheonix Publishing House, Inc.
Viray Jr, E. & Avila-Bato, J., (2018). Applied Economics (pp. 9-20).
Mandaluyong: Anvil Publishing Inc.
@Mrs. P's Interactive Classroom 2019

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 Development Team of the Module
Writers: Suzanne M. Paderna
Editors:
Content Evaluator:
Language Evaluator:
Reviewers: Joana Feliza P. Guevara
Illustrator: Name
Layout Artist: Name
Management Team: DR. MARGARITO B. MATERUM, SDS
DR. GEORGE P. TIZON, SGOD Chief
Name of EPS in-charge of Learning Area
DR DAISY L. MATAAC, EPS – LRMS/ALS

For inquiries, please write or call:

Schools Division of Taguig city and Pateros Upper Bicutan Taguig City

Telefax: 8384251

Email Address: sdo.tapat@deped.gov.ph