12 - ABM

APPLIED
ECONOMICS

Ms. Marie Christine Pajanil

 CHAPTER 1:
INTRODUCTION TO
APPLIED ECONOMICS

1 . 1 . R E V I S I T I N G
E C O N O M I C S A S A
S O C I A L S C I E N C E
OBJECTIVES
At the end of the lesson, the student shall be able to:

A. understand economics as an applied science and its utility in addressing the

economic problems of the country;
B. analyze and propose solutions to the economic problems using the principles
of applied economics;
C. discuss and explain the basic concepts in applied economics; and
D. demonstrate the defining characteristics of economic sitution in the
Philippines.
WHAT IS ECONOMICS?
Economics is the study
of social behavior
guiding in the allocation
of scarce resources to
meet the needs and
desires of the individual
members of a given
society.
ECONOMIC DEFINED

From the Greek word “OIKOS”

meaning household and “NOMOS”
meaning management. In simple
terms, it is household management.
The wise production and use of wealth
to meet the demands or needs of the
people.
ECONOMICS

Study of what constitute rational

human behavior in the endeavor to
fulfill needs and wants.
Understanding how society allocates
its scarce resources.
Almost always, human activities
involve economics.
 ECONOMICS AS
DEFINES BY AUTHORS
OF ECONOMIC BOOKS
 1. FAJARDO
Economics is the proper allocation
and efficient use of available
resources for the maximum
satisfaction of human wants.

2. NORDHAUS
Economics is the science of choice.
It studies how people choose to use
scarce resources to produce
various commodities.
 3. SICAT
Economics is the scientific study
which deals with how individuals
and society have general
choices.

4. WEBSTER
Economics is the branch of
knowledge that deals with
production, distribution and
consumption of goods and
services.
 5. SAMUELSON
The study of how people and society
end up choosing, with or without the
use of money, to employ scarce
resources that could have alternative
uses to produce various
commodities among various persons
and group in society.
6. HALL & LOEBERMAN
The study of choice under the
condition of scarcity.
7. VILLEGAS
A social science that
studies and seeks to
allocate scarce human and
non-human resources
among alternatives in order
to satisfy unlimited human
wants and needs.
 ECONOMICS IN A PROCESS

UNLIMITED SCARCITY MAKE

WANTS CHOICES
ECONOMICS FROM
“OIKANOMIA”
Household
Management
MACROECONOMICS

MICROECONOMICS

ECONOMICS
MACROECONOMICS AGGREGATES

Deals with the

economic behavior BUSINESS

of the whole
economy or its GOVERNMENT
aggregates
HOUSEHOLD
(composed of BUSINESS
individual units)

GOVERNMENT
MACROECONOMICS
GROSS DOMESTIC PRODUCT - is the total monetary or
market value of all the finished goods and services
produced within a country’s borders in a specific time
period.
GROSS NATIONAL PRODUCT - is the total value of final
products and services produced by a country's
residents, calculated by combining personal
consumption, private domestic investment,
government expenditure, net exports, and overseas
investment income.
MACROECONOMICS
LEVEL OF EMPLOYMENT - defined as the number of
people engaged in productive activities in an economy.

NATIONAL INCOME - is the total market value of

production in a country’s economy during a year.

GENERAL PRICE LEVEL - an index that measures the

change in price of goods in an economy over time and
hence the purchasing power of the currency of the
country.
MICROECONOMICS AGGREGATES

Deals with the

economic behavior BUSINESS

of individual units
such as:
FIRMS
CONSUMERS

LANDOWNERS
MICROECONOMICS

PRICE THEORY - the price of a particular good or service

is determined by the relationship between producer
supply and consumer demand at any given point.
ECONOMIC AS A STUDY OF
WEALTH
The earlier definition of
economics as the science of
wealth-getting and wealth-using
implies that the motivation of the
process of wealth accumulation
is the utilization of wealth for the
individual’s satisfaction and
society’s welfare.
ECONOMIC AS A STUDY OF
MAKING CHOICES
In evertyhing we do, whether we
produce or consume, whether
wealth-getting or wealth-using,
we make decisions and these
decisions are based on
alternative choices.
ECONOMIC AS A STUDY OF
ALLOCATION
The definition of economics as a
social science that deals with the
study of allocation of scarce
resources to answer the
unlimited wants.
MAJOR DIVISIONS OF ECONOMICS

PRODUCTION

DISTRIBUTION

EXCHANGE

CONSUMPTION

PUBLIC
FINANCE
 1. PRODUCTION
refers to the process of
producing or creating
goods needed by the
households to satisfy
their needs.

Factors of production -
inputs
Goods and services -
outputs
4. CONSUMPTION
refers to the proper
utilization of economic
goods. However, goods
and services could not be
utilized until you pay for it.
5. PUBLIC FINANCE
pertains to the activities
of the government
regarding taxation,
borrowings, and
expenditures.
TYPES OF ECONOMICS
1. HOUSEHOLD ECONOMICS -
most common use of
economics is for the family.
2. BUSINESS ECONOMICS -
when a person or group of
persons begin to work, they
come under the system of
business economics in their
workplace.
 TYPES OF ECONOMICS
3. NATIONAL ECONOMICS -
economic factors of problems
affecting the whole nation.

4. INTERNATIONAL ECONOMICS
- involving the business of one
country with other countries like
trade, tourism, exchange rates.
 CHAPTER 1:
INTRODUCTION TO
APPLIED ECONOMICS

1 . 2 . E C O N O M I C S
A S A A P P L I E D
S C I E N C E
APPLIED ECONOMICS
The term “applied
economics” is belived to
have starter 200 years ago
in the writings of two
economists:
1. Jean-Baptiste Say (1767 -
1832)
2. John Stuart Mill (1806 - 1873)
APPLIED ECONOMICS
is the study of economics in
relation to real world
situations. It is the
application of economic
principles and theories to
real situations, and trying to
predict what the outcomes
might be.
What is the importance of Applied Economics??

is the study of economics in relation to real world

situations. It is the application of economic
principles and theories to real situations, and trying
to predict what the outcomes might be.
acts as mechanism to determine what steps can
reasonably be taken to improve current economic
situation.
can teach valuable lessons on how to avoid the
recurrence of a negative situation, or at least
minimize the impact.
What is Econometrics?

is the application of statistical and mathematica;

theories to economics for the purpose of:
1. Testing hypotheses
2. Forecasting future trends

Note: The results of econometric are compared and

contrasted against real life examples.

Theoretical + Applied Econometrics

ECONOMETRICS EXAMPLE

Real life application of econometrics would be to

study the hypothesis that as a person’s income
increases, spending increases.

INCOME SPENDING
 CHAPTER 1:
INTRODUCTION TO
APPLIED ECONOMICS
1 . 3 . B A S I C E C O N O M I C
P R O B L E M S A N D T H E
P H I L I P P I N E
S O C I O E C O N I M I C
D E V E L O P M E N T I N T H E
2 1 S T C E N T U R Y
BASIC ECONOMIC PROBLEMS
Scarcity of means for
satisfying various needs is
the central problem of our
economic life and it is
scarcity that creates the
need to make a choice

Scarcity and choice go hand

in hand
BASIC ECONOMIC PROBLEMS
1. What to produce?
The system must determine the desires of the
people.
Goods and services must be based on the needs of
the consumers.

Factors to consider:
a. Availability of resources
b. Physical environment
BASIC ECONOMIC PROBLEMS
2. How to produce?
The system must select the proper combination of
economic resources in producing the right amount
of output
The quality of output must come first before the
quantity

3. For whom shall the goods and services be produced?

This has something to do with distribution
Once goods are produced, how shall they be
distributed?
BASIC ECONOMIC PROBLEMS
4. Are the country’s resources being utilized or some of
them are lying idle and unemployed?
When resources are scarce, it is absolutely not right
to keep some of the available ones idle.
If resources are not fully utilized, the production
system is said to be inefficient.

5. Is the economy’s capacity to produce goods

growing or remaining the same overtime?
To achieve a growth is productive capacity is a
universal objective.
Thank You!