COURSE DESCRIPTION

This course deals with the basic principles of

applied economics, and its application to
contemporary economic issues facing the
Filipino entrepreneur such as prices of
commodities, minimum wage, rent, and taxes.
It covers an analysis of industries for
identification of potential business
opportunities.
The main output of the course is the
preparation of a socioeconomic impact study
of a business venture.
CLASSICAL LITERATURE 1
Academic Regulators
2 Major Parts
I. Basic and Underlying Concepts in Applied Economics
II. Economic Concepts and Highlights the Role of Socioeconomic
factors in business.

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1. Overview of Applied economics
• Define Applied Economics and Understand the Basic Terms in Applied
Economics;
• Identify the Basic Economic Problems of a Country
• Identify the Tools and methods in Economics
• Differentiate the Main Branches of Economics
• Explain the Common Microeconomic and Macroeconomic Concepts.

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WHAT IS ECONOMICS?

Is a social science that deals

with the allocation of scarce
resources to meet the
unlimited human wants.

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Economics as an applied
science

is the application of
economic theories and
models in real life.

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BASIC ECONOMIC
CONCEPTS
Scarcity, Needs and Wants
UNLIMITED NEEDS AND WANTS
CONSUMPTION
LIMITED RESOURCES (SCARCITY)

ALLOCATION OF RESOURCES CLASSICAL LITERATURE 7

reflection
In your own words, how would you
differentiate needs from wants?

What are your examples of needs?

What are your examples of wants?

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CLASSICAL LITERATURE 9
Quick review:
1. What is economics?
2. Why is it important to study
Economics?

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ACTIVITY 1:
Divide the class into five
groups. Each group is
assigned to make a
presentation of the
concept of economics:
scarcity, needs, wants,
opportunity cost and
comparative advantage.

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Opportunity cost and
comparative advantage
Opportunity Cost – is defined as the benefit you give
up because you choose to take one action in favor
of another.

Absolute Advantage – is defined as having the ability

to produce more output compared to another
identity

Comparative Advantage – means having a lower

opportunity cost

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Calculation:
COUNTRY ABC and COUNTRY XYZ

That produce only two goods --- wine and

coffee.

What is the opportunity cost for each

country in producing only wine?

What is the opportunity cost of each country

in producing only coffee?

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What have I learned so
far?
ANALYSIS:
A. Analyze the output schedule provided below.
Plot the corresponding graphs of the outputs
of the two countries. Calculate the
opportunity costs. Then find out which
product each country should specialize in.
Write your answers on the space provided.

CLASSICAL LITERATURE 14
analysis OUTPUT Schedule before Specialization
Country Dried Chocolate
Mango (kg)
(kg)
Philippines 200 150

Indonesia 120 130

a. Graphs
b.Opportunity Cost
c. Specialization
CLASSICAL LITERATURE 15
Basic economic problems

1. What goods to produce and services

(economic goods) to provide?
2. How to produce and how much to
produce of these goods and services?
3. For whom to produce these goods
and services?

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Economic goods

- goods, services,
products and the like
that have a price and
are sold in a market.

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What to produce?
THIS FIRST QUESTION RELATES TO
RESOURCES.

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What to produce?

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GOODS AND SERVICES
Goods and services are two important types of
purchases people make.
A good is a tangible or physical product that
someone will buy, tangible meaning something
you can touch.
A service is when you pay for a skill. A service is
something intangible, which can't be physically
touched or stored
CLASSICAL LITERATURE 20
goods
• Capital goods - those goods that have a future
use and are used for production of
consumption goods
• Consumer Goods - are those goods that are
used by the consumers and have no use in
future

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goods

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Identify what type of goods:

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Identify what type of goods:

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Identify what type of goods:

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Identify what type of goods:

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Identify what type of goods:

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Identify what type of goods:

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Identify what type of goods:

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Identify what type of goods:

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CONSUMER GOODS

Durable goods - have a lifespan of more

than three years and include motor
vehicles, appliances, and furniture

CLASSICAL LITERATURE 31
CONSUMER GOODS

Non-Durable Goods - have a lifespan of fewer

than three years

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SERVICES

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How much to produce?
THIS QUESTION FOCUSES ON THE ACTUAL
PRODUCTION OF GOODS AND SERVICES
AND THE ALLOCATION OF RESOURCES.

INPUTS OF PRODUCTION

CLASSICAL LITERATURE 34
For whom to produce?
THE FINAL QUESTION FOCUSED
ON THE DISTRIBUTION AND
CONSUMPTION OF GOODS AND
SERVICES.

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Should the country produce more
rice or should it import and then
develop agricultural lands instead
for other industries?

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Why doesn't the government
give one million dollars to
everyone?

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application
You are an event coordinator and your parent
asked you to organize your upcoming 16th
birthday party. You were given a budget of only
P10 000.00. At least 30 friends and family
members are expected to attend the party. How
are you going to use the money? What food do
you plan to serve?

What activities do you plan to include? List the

activities and the budget allocation on the next
page. You will present your plan to your parent
for recommendation and approval.

CLASSICAL LITERATURE 38
application
ACTIVITIES BUDGET

CLASSICAL LITERATURE 39
FACTORS OF
PRODUCTION
FACTORS OF PRODUCTION

1. Land
2. labor
3. capital
4. entrepreneurship
 LAND
• includes any natural resource used to produce
goods and services; anything that comes from
the land.
• Land resources are the raw materials in the
production process.
• THE FACTOR INCOME ON THE USE OF LAND IS
RENT
 labor
• is the effort that people contribute to the
production of goods and services.
• If you have ever been paid for a job, you
have contributed labor resources to the
production of goods or services.
• THE return on LABOR is WAGE
 capital

Think of capital as the machinery, tools and

buildings humans use to produce goods and
services.
Capital differs based on the worker and the
type of work being done.
THE FACTOR INCOME for capital is
INTEREST.
CLASSICAL LITERATURE 44
 ENTREPRENEURSHIP
An entrepreneur is a person who combines the other
factors of production - land, labor, and capital - to earn a
profit.
The most successful entrepreneurs are innovators who
find new ways to produce goods and services or who
develop new goods and services to bring to market.
Without the entrepreneur combining land, labor, and
capital in new ways, many of the innovations we see
around us would not exist.
THE return on entrepreneurship is PROFIT

CLASSICAL LITERATURE 45
 The circular
flow diagram
analysis OUTPUT Schedule before Specialization
Country Dried Chocolate
Mango (kg)
(kg)
Philippines 120 130

Indonesia 200 150

a. Graphs
b.Opportunity Cost
c. Specialization
CLASSICAL LITERATURE 47
Production possibility
frontier
• The production possibility frontier (PPF)
is a curve on a graph that illustrates the
possible quantities that can be produced
of two products if both depend upon the
same finite resource for their
manufacture. The PPF is also referred to as
the production possibility curve.
 Production possibility frontier
• When producing goods, opportunity cost is what is given up when you take
resources from one product to produce another. The maximum amount
that can be produced is illustrated by a curve on a graph.
• The production possibility frontier (PPF) is above the curve, illustrating
impossible scenarios given the available resources.
• The PPF demonstrates that the production of one commodity may increase
only if the production of the other commodity decreases.
• The PPF is a decision-making tool for managers deciding on the optimum
product mix for the company.

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