APPLIED ECONOMICS

Lesson 2: Utility and Application of Applied Economics to

Solve Economic Problems and Issues

Subject Teacher: Ms. Errocel Shane D. Bellen, LPT

LEARNING OBJECTIVES
 1. Examine the utility and application of applied
economics to solve economic issues and problems.
2. Identify the basic economic problems
3. Illustrate how applied economics can be used
to solve economic problems.
4. Construct a framework to solve the economic
problem.
5. Solve problems on economic activities.
WHAT I KNOW:
Match Set A or the central economic issues and problems to set B or the
description of economic issues.

SET A SET B
____1. What to produce? a. The legalities of the
production
____2. How to produce?
b. The nature of goods
____3. Whom to produced.
produce? c. The allocation of the
____4. What provision in resources among members
the production of of society.
products? d. The methods of
production.
Direction: Kindly choose the letter of the
correct answer. Encircle your answer.
1. The physical effort of the manpower to produce the
basic needs of the consumers, describes which factors of
production?
A. Land c. Capital
B. Labor d. Entrepreneur
Direction: Kindly choose the letter of the
correct answer. Encircle your answer.
2. The initiative and great ideas, concepts, and drive to
produce something new describes which factor of
production.
A. Land c. Capital
B. Labor d. Entrepreneur
Direction: Kindly choose the letter of the
correct answer. Encircle your answer.
3. The equipment of the coffee shop to produce cups of
coffee, are what kinds of goods or products?
A. Consumer goods
B. Either consumer or capital goods
C. Capital goods
D. Economic goods
Capital Goods
Capital goods are tangible assets such as buildings, machinery, and
equipment used to produce consumer goods or services. Capital
goods are durable items and differ from consumer goods and
services, which are the end product of production and
manufacturing.
Capital goods are physical assets a company uses to produce goods
and services for consumers.
• Capital goods include fixed assets, such as buildings, machinery,
equipment, vehicles, and tools.
• Capital goods differ from consumer goods, which are the end
product of production and manufacturing.
Consumer Goods
Consumer goods are products bought for consumption by the average
consumer. Also called final goods, consumer goods are the end result
of production and manufacturing. Clothing, food products, and
dishwashers are examples of common consumer goods.
• Consumer goods, or final goods, are goods sold to consumers for
their use or enjoyment.
• Consumer goods can be classified as durable, nondurable, or
service goods.
• Consumer goods are categorized based on consumer behavior and
marketed by type of good, such as a convenience product or
specialty item.
INTRODUCTION
 In the article of Forbes Customs (2017), the
Philippines: Asia’s New Economic Powerhouse, the
Philippine economy has transformed into one of Asia’s
most dynamic economies on the back of fast-paced
Gross Domestic Product (GDP) growth.
(www.forbes.com) For the longest time, it has all the
opportunities to sustain its growth and stability.
However, due to the problem of pandemic, at
present, it is suffering from economic depression. The
issue of scarcity on supply due to limited resources,
but unlimited wants, is the ultimate economic
problem. Scarcity implies a limited quantity of
resources needed in production.
The Four Basic Economic Problems

 In the article of Guru, S. (2020) Basic Central

Problems Faced by an Economy, there are basic
problems common to all economies. In terms of
production, common to all coubtries is the
problem on scarcity. This arises because the
resources are limited and have alternative uses.
This problem gives rise to four basic problems of
an economy.
The Four Basic Economic Problems
1. What to produce?
2. How to produce?
3. For whom to produce?
4. What provisions/laws should be made for
economic growth?
WHAT TO PRODUCE
If there is a scarcity of goods in a society, the firms
must make wise decisions on what goods/services
should be produced and determine the quantity to
be produced. For example, which do we produce
more, masks or canned goods? But we need capital
goods like machines, or consumer goods like
laptops. The society must decide the type and
quantity of goods/services to be produced to meet
the immediate needs of society.
How to produce?
The production of goods or services needs effective
methods and processes. For example, you can
produce PPE's using sewing machines; sardines using
aqua resources like fish and land resources like
tomatoes. The production requires more labor and
capital investment.
For whom to produce?
The society would always consider the immediate
beneficiary of the goods. For example, when we
produce masks and PPEs, we are supposed to
produce first these for the frontliners of COVID
Pandemic Fight. A society decides on the
distribution of the goods and services among the
members of society who need them the most.
What provisions/laws should be made for
economic growth?
A society uses all its resources for current
consumption. If a society uses all its resources, then
its production capacity will not increase. The
standard of living of the people and the income of
the workforce remain constant until the standard of
living declines in the future. The society must
decide also on the part of resources to be saved for
future progress.
ECONOMY IN PHILIPPINE CONTEXT
 The BSP decided to raise the key policy interest rate to 3.75%. On 18 August 2022, the BSP
decided to raise the key policy rate by 50 basis points (bps) to 3.75% effective 19 August 2022.
This further action is meant to anchor inflation expectations and avoid a breach in the
inflation target range in 2023. An increase in the BSP’s key policy rate—a move that attracts
banks to place more of their funds in the BSP because they will earn higher interest—helps to
slow down growth in lending activities; and consequently, helps reduce inflation. The impact
of a BSP policy rate action is normally felt within 12 to 18 months.
• Going forward, strong domestic demand will drive the economy to grow at 6.0 percent in
2023 and gradually move to its potential over the medium term.
• The economic recovery will support poverty reduction, although the labor market is
showing a shift to low-productivity jobs.
• Managing inflation, pursuing revenue-enhancing policies and public spending efficiency,
promoting investments, and pursuing a clean energy transition are key drivers to safeguard
growth and achieve long-term development goals.

Reference:

Monetary Policy Report (September 2023)Retrieved from

https://www.bsp.gov.ph/Price%20Stability/MonetaryPolicyReport/English_Visual%20Summary_August2022.pdf#:~:text=An%20increase%20in%20the%20BSP%E2%80%99s%20key%2
0policy%20rate%E2%80%94a,in%20lending%20activities%3B%20and%20consequently%2C%20helps%20reduce%20inflation.
MACROECONOMIC TOOLS
Both monetary and fiscal policy are macroeconomic tools used to manage or
stimulate the economy.
 Monetary policy refers to the actions of central banks to achieve
macroeconomic policy objectives such as price stability, full employment, and
stable economic growth.
 Fiscal policy refers to the tax and spending policies of the central government.
Fiscal policy decisions are determined by Congress and the Administration; the
central banks play no role in determining fiscal policy.
PHILIPPINE ECONOMIC CONTEXT
 In the Philippines, monetary policy is the way the central bank, the Bangko
Sentral ng Pilipinas, controls the supply and availability of money, the cost of
money, and the rate of interest. With fiscal policy (government spending and
taxes), monetary policy allows the government to influence the economy,
control inflation, and stabilize currency.
APPLIED ECONOMICS ON BASIC ISSUES
AND PROBLEMS
Applied Economics seeks to solve the problems on scarcity. This happens when
human wants for goods and services exceed the available supply. In a modern
economy, it is evident that a division of labor happens when people earn income
by specializing in what they produce. They will use that income to purchase the
products they need or want every day. (BC Campus 2020)

Also, in the division of labor, it allows workers and forms to produce more. This is
because:
a. Agents focus on areas of advantage due to natural factors and skill levels;
b. The agents learn and invent;
C. The agents take advantage of economies of scale.
APPLIED ECONOMICS ON BASIC ISSUES
AND PROBLEMS
Division and specialization of labor only work when
individuals can purchase what they do not produce in
markets. Applied economics then helps you understand the
basic problems facing the world today. It helps you become a
well-rounded thinker. And most importantly, it prepares you
to be a good citizen.
WHAT I HAVE LEARNED
Write TRUE if the statement is correct and write FALSE if
you think the statement is not correct.
1. Scarcity in goods and services happens if the resources in
the production are inadequate or scarce.
2. Customers must choose among several alternatives if
scarcity exists.
3. Income inequality is the gap in income that exists
between the rich and the poor customers willing to buy the
same products.
4. Shortage of goods and services is an economic problem,
and shortages are always constant.
5. The Build Build Build Program by the government aims to
help improve the infrastructure projects and other programs
of the country.