APPLIED ECONOMICS

A B M S P E C I A L I Z E D S U B J E C T

This course dea ls with the b a s i c principles of applied economics,

and its application to contemporary economic i s s u e s f a c in g the
Filipino entrepreneur su ch as prices of commodities, minimum
wage, rent, and taxes.

It covers an a na lysis of industries for identification of potential

b u sine ss opportunities. The ma in output of the course is the
preparation of a socioeconomic impact study of a b u sin e ss venture.
Chapter 1
Introduction to Applied Economics

Lesson 1.1 Introduction to Economics

Lesson 1.2 Economics as an Applied
Science

At the end of the se ssio n the learners will be able to:

a. Differentiate Economics as a Social Science and as an Applied Science
b. Give real-life situation in which the Principles of Applied Economics are used.
c. Cite current economic i s s u e s that needs to be addressed.
d. Relate the Principles of Applied Economics to current i s s u e s u sin g critical
thinking.
 Land LIMITED UNLIMITED Food
Clothing
Labor Shelter
Ca pital RESOURCES HUMAN WANTS Security,
Entrepreneurship etc.

Relative
Scarcity
Absolute
Scarcity Scarcity

Insufficiency of resources to meet

the wants of consumers and
insufficiency of resources for
producers that hamper enough
production of goods and services. Opportunity Cost Choices & Decision-making
B ec aus e of scarcity, there is a need
for a ma to mak e decisions in
choosing how to maximize the use
of the scarce resources to s at isf y
as many wants as possible.
ECONOMICS LIMITED UNLIMITED
Economics is the social science that involves RESOURCES HUMAN WANTS
the us e of scarce resources to s at is f y
unlimited wants.

Economics is a social sc ience bec aus e it

studies human behavior just like
Psychology and Sociology.

Social Science
The study of society and how people behave
and influence the world around them.
Scarcity
Economics as a Social Science
As a Social Science, Economics studies
how individuals mak e choices in allocating
scarce resources to s at is f y their unlimited
wants.
Choices & Decision-making
 BRANCHES OF ECONOMICS
Macroeconomics Microeconomics
A division of Economics that is concerned Is concerned with the behavior of individual
with the overall performance of the entire entities s uc h as the consumer, the producer,
company. and the resource owner.

It studies economic s ys t em as a whole It is more concerned on how foods flow from

rather than the individual economic units that the bus ines s firm to the consumer and how
mak e up the economy. resources move from the resource owner to
the bus ines s firm.
MACROECONOMICS is about the nature of
economic growth, the expansion of It is als o concerned with the process of
productive capacity and the growth of setting prices of goods that is als o known
national income. as PRICE THEORY.
MICROECONOMICS studies the decision and
choices of the individual units and how these
decisions af f ec t s the prices of goods in the
market.

The difference between micro and macro economics is simple. Microeconomics is the study of economics at an individual, group or company
level. Macroeconomics, on the other hand, is the study of a national economy as a whole. Microeconomics focuses on issues that affect
individuals and companies. This could mean studying the supply and demand for a specific product, the production that an individual or
business is capable of, or the effects of regulations on a business. Macroeconomics focuses on issues that affect the economy as a whole.
Some of the most common focuses of macroeconomics include unemployment rates, the gross domestic product of an economy, and the
effects of exports and imports.
SCARCITY
Is a condition where there are insufficient
resources to s at is f y all the need and wants
of a population.

Relative Scarcity Absolute Scarcity

Is when a goods is s c arce compared to its Is when supply is limited.
demand.

RELATIVE SCARCITY occurs not bec ause the ABSOLUTE SCARCITY explains why there are
good is scarce per se and is difficult to s ome products that are very expensive in the
obtain but bec aus e of the circumstances Philippines.
that surround the availability of the good.
CHOICE AND DECISION MAKING
With the presence of scarcity, there is a need
to make decisions in choosing how to
maximize the use of the scarce resources to
s at is f y as many wants as possible.

Opportunity Cost
Refers to the value of the forgon
alternative. be s e
t
The concept of OPPORTUNITY COST holds
true for individuals, bus inesses, and even a
society. In mak ing a choice, trade-offs are
involved.

What will happen if there is no SCARCITY?

Without scarcity, a person does not need to
make choices since he/ s he c a n have
everything he/ s he wants.
CHOICE AND DECISION MAKING
With the presence of scarcity, there is a need
to make decisions in choosing how to
maximize the use of the scarce resources to
s at is f y as many wants as possible.

Opportunity Cost
Refers to the value of the forgon
alternative. be s e
t
The concept of OPPORTUNITY COST holds
true for individuals, bus inesses, and even a
society. In mak ing a choice, trade-offs are
involved.

What will happen if there is no SCARCITY?

Without scarcity, a person does not need to
make choices since he/ s he c a n have
everything he/ s he wants.
BASIC ECONOMIC PROBLEMS OF THE SOCIETY
All societies are f a c e d with b a s i c questions
in the economy that have to be answered in
to cope with constraints and
order LIMITED UNLIMITED
limitations. RESOURCES HUMAN WANTS
What to produce? How much?
society must decide what goods and
services should be produced in the
economy. Having decided on the nature of
goods that will be produced, the quantity to
these foods should als o be decided on.

How to produce? SCARCITY

is a question on the production method that
will be used to produce the goods and
services. This refers to the resource mix and
technology that will be applied in production. CHOICES AND DECISION MAKING
For whom to produce?
is about the market for the goods. For whom
will the goods and services be produced? What How For whom
to produce? to to produce?
The young or old, the male or f emale market,
And produce?
the low- income or the income groups?
How much?
 ECONOMICS SYSTEMS
The economic s ys t em is the m e a n s through
which society determines the answers to the
b a s i c economic problems mentioned.

TRADITIONAL COMMAND MARKET MIXED

ECONOMY ECONOMY
A traditional economy is a
system that relies on customs,
history, and time-honored beliefs.
Tradition guides economic
decisions such as production and
distribution. Traditional
economies depend
on agriculture, fishing, hunting,
gathering, or some combination
of the above. They
use barter instead of money.
is a system where the
government, rather than the
free market, determines what
goods should be produced, how
much should be produced and
the price at which the goods are
offered for sale. It also
determines investments and
incomes. The command
economy is a key feature of any
communist society.
ECONOMY ECONOMY
A market economic system
relies on free markets and does
not allow any kind of
government involvement in the
economy. In this system, the
government does not control
any resources or other relevant
economic segments.
Instead, the entire system is
regulated by the people and
the law of supply and demand.
WHY ECONOMICS IS IMPORTANT?

Read the front page of the newspapers

or watch the news on TV.

WHY DO WE NEED TO STUDY ECONOMICS?

ECONOMICS will help the students understand why there is a need for everybody, including
the
government, to budget and properly allocate the u s e of whatever resources are available.
It will help one understand how to mak e more rational decisions in s pending money, s a vi n g
part of it, and even investing s ome of it.

On the national level, economics will enable the students to take a look on how the economy
operates and to decide for themselves if the government officials and leaders are effective in
trying to s h a p e up the economy and formulate policies for the good of the nation.
MEASURING THE ECONOMY
The heart of economy is production whose value measures both resource input and output of
people. The interplay of resources and outputs tells how well the economy has performed.

Economic Resources
als o known as factors of production, are the resources us ed to produce goods and services.

Land
Soil and natural resources that are found in nature and are not man-made.
Owners of lands receive a payment known as RENT.

Labor
Ph ys ic al and hu man effort exerted in production. It covers manual workers like construction
workers, machine operators, and production workers, as well as professionals like nurses,
lawyers and doctors. The term also includes jeepney drivers, farmers and fisherman The
income received by labors is referred to as WAGE.

Capital
Man-made resources used in production of goods and services, which include machineries
and equipment. The owner of capital earns an income called INTEREST.
GNP vs. GDP

Gross National Product

Market value of final products, both sold and unsold, produced by the resources of the
economy in a given period.

MARKET VALUE is determined by supply and demand

ECONOMY’S RESOURCES are those belonging to Filipino citizens and corporations.

NOT ALL RESOURCES BELONGING TO THE ECONOMY ARE IN THE ECONOMY. CONVERSELY,
NOT ALL RESOURCES IN THE ECONOMY BELONG TO THE ECONOMY.

GNP = C + I + G + (X – M)

Imports
Exports
Government Expenditures on Goods and
Services
Investments (stocks of values for future use)
Consumption (household and individual)
GNP vs. GDP

Gross Domestic Product

Better indicator of domestic employment opportunities.
Defined as the market value of final products produced within the country.

GDP is net of GNP after deducting NET FACTOR INCOME from

abroad or
by deducting factor income from abroad and adding back FACTOR PAYMENTS to other
countries.

NET FACOR INCOME from abroad i s net export of factor service equal to Factor income from
abroad l e s s the factor payments of other countries.

Net Inflow = Inflow - Outflow

- Net Inflow = - Inflow + Outflow

APPLIED ECONOMICS
Application of economic theory and
econometrics in specif ic settings with the
goal of analyzing potential outcomes.

John Neville Keynes

First to use the phrase “APPLIED
ECONOMICS” to designate the application of
economic theory to the interpretation and
explanation of particular economic
phenomena.

Applied Economics in Relation to Philippine Economic Problems

Understanding the existence of scarcity c a n help Economics students analyze how to maximize
the us e of available resources in order to overcome scarcity.

Knowledge of economic theories s u c h as the Law of Supply and Demand c a n help in analyz ing
why prices are high and what the government c a n do to help bring down prices.
The Philippines Basic Economic Problems
Non-inclusive Growth despite of Economic Growth
Millions of Filipinos are c laiming they are
experiencing hunger or they still live below
the poverty level.
Employment Rate in January 2018
Main problem of the Philippine Economy.
Unemployment Rate in the Philippines:
The employment rate in January 2018 was
estimated at 94.7 percent. In January 2017, the
employment rate was 93.4 percent.
Regions with lowest employment rates were
National Capital Region (NCR) (92.2%), Ilocos
Region (93.3%), and CALABARZON (93.3%)
(Table 4). The labor force participation rate
(LFPR) in January 2018 was estimated at 62.2
percent given the population 15 years old and
over of 70.9 million. The LFPR in January 2017
was 60.7 percent. The labor force population
consists of the employed and the unemployed 15
years old and over.
 The Philippines Basic Economic Problems cont.

Poverty
Socio-economic problem.
Poverty incidence of the population registered at
26.4 %, 26.5% in 2009
25.2% in 2012
28.8 in 1 st quarter of2014

Population Growth
B a s i c economic problem that c a n be connected to the is s ue of scarcity.
When population bec omes too big, economic resources m a y no longer be enough to support the growing population.
2010 = 92.3 M
2014 = 100 M – growing by 2%
Philippines – one of the highest population in Asia.
Represents 1.37% of the worlds population.
Class Activity:

Debate
Download a copy and read the article “What’s in the proposed
2018 national budget?” us ing the link provided below.

B a s e d on the budget, determine what expenditures are the government’s top priorities,
and then expenditures which are the least priorities.

The debate topic would be “Is it right to prioritize EDUCATION in preparing the National
Budget?”

30 minutes preparation per team

15 minutes debate proper.

LINK:
https:// www.rappler.com/move-ph/issues/budget-watch/145988-proposed-2017-national-
budget
Thank You!

Reference(s):
Dinio and Villasis 2017. Applied Economics. Rex Bookstore First Edition. Pages 2 -14

Rappler
https:// www.rappler.com/move-ph/issues/budget-watch/145988-proposed-2017-national-
budget