APPLIED

ECONOMICS
MADEMOISELLE IRISH M. GERALDEZ
12 GAS/ 12 ABM
 INTRODUCTION TO APPLIED ECONOMICS
 ECONOMICS AS SOCIAL SCIENCE
“ECONOMICS is the science which studies human behavior as a
relationship between ends and scarce means which have alternative uses.”
“ECONOMICS is a study of the ways that individuals and societies allocate
their limited resources to satisfy their unlimited wants.”
ASPECTS OF ECONOMICS
1. It is a science concerned with human behavior.
2. It is concerned with the choices we make and the consequence of these choices
for ourselves and others. In fact, the central focus of economics is on choice and
decision making.
3. It is concerned with man’s material welfare.
 ECONOMIC RESOURCES
Economic resources are factors of production used to produce
things that people desire in order to satisfy their wants.

COMMODITIES- Things that people produces. It may be divided

into GOODS and SERVICES.
GOODS- are tangible, like bags or shoes.
SERVICES- are intangible, like haircuts or education.
PRODUCTION- The act of making goods and services.
CONSUMPTION- The act of using to satisfy wants.
 CATEGORIES OF RESOURCES
 LAND- It includes all natural resources (gifts of nature) used in the production
process. These includes MINERAL OIL DEPOSITS, WATER, FERTILE SOIL, AIR,
CLIMATE FOREST, WILDLIFE and RAIN.
 LABOR or HUMAN RESOURCES- It refers to the physical and mental talents to
produce goods and services.
WAGE- Payment for the use of labor.
 CAPITAL- Man-made or manufactured resources or also known as capital goods
used in producing consumer goods. These includes BUILDINGS, MACHINE,
TOOLS, EQUIPMENT, ROADS, HIGHWAYS, BRIDGES or even SOFTWARE.
 ENTREPRENEURIAL ABILITY- Special skills of an individual needed to produce
goods and services like managerial and organizational skills.
PROFIT- Income of an entrepreneur after deducting the payments from the
owners of land, labor and capital.
 ECONOMICS AS APPLIED SCIENCE
 APPLIED ECONOMICS- involves different ways to achieve practical
objectives by applying economic theory in the real world.
ECONOMIC THEORY- is a broad concept for the explanation and
understanding of the movement of goods and services in the market. For
example, the theories of the behavior of individuals and institutions engaged in
the PRODUCTION, CONSUMPTION, DISTRIBUTION and EXCHANGE OF
GOODS and SERVICES.
ECONOMIC THEORY uses different economic models to describe how the
people react to a particular economic situation.
ECONOMIC MODELS may be in the form of verbal expression, numerical
tables, and mathematical equations or diagram used to understand economic
events.
THE LAW OF SUPPLY AND DEMAND

The LAW OF SUPPLY states that, other things being

equal, as price increases, the quantity supplies increases.
As price decreases, the quantity supplied decreases.

THE LAW OF DEMAND states that, other things being

equal, as price increases, the quantity demand increases.
As price decreases, the quantity demand decreases.
 WHY STUDY ECONOMICS?
 DECISION-MAKING SKILLS- An exposure to quantitative problem solving
techniques is an important part of economics. The business sector typically
rewards employees who have acquired specific quantitative skills. The study of
economics gives you an opportunity to acquire those necessary skills.
 PROBLEM SOLVING ABILITIES- People with education in economics develop an
appreciation of the social issues--- global warming,, healthcare, education and
social security. The issues are complex and the ability to deal with them suggest
ways of improving our standard of living in the broadest sense that requires clear
thinking.
 JOB OPPORTUNITIES- Better job opportunities await the economics graduate.
Business and government are increasingly aware of the need for people who are
trained in economics. They are employed in teaching government services, banks
and business firms. Their duties may include research, economic analyst,
forecasting and consultants on capital investments.
 BASIC ECONOMIC PROBLEMS

The fundamental problem of economics is to determine the

most efficient ways to allocate the resources. The decision must
be made to transform the different economic resources into
goods and services to satisfy their need and want.

There are Three basic questions to make the right decisions:

1. What to produce?
2. How to produce?
3. From whom to produce?
 WHAT TO PRODUCE?
Every economy must determine what goods and services are to be produced and
in what quantities of each, to produce.
In some, the buyers and producers need to produce in order to obtain things and
exchange the things they already own. Since society cannot have everything, they
must decide which goods and services they want now and which one to give up.
For example, if gadgets are in demand, they need to pay businesses to
produce and sell these gadgets in the market. If no one desires to buy stereo sets,
it is not worth producing them. In case a company produces an item which
buyers don’t buy in much quantity, there will likely be inadequate income. The
company will have to enhance the quality and transform the product to match
the taste of the buyer. In some society, government decide on what goods and
services to produce based on the resources available and demands of the buyers.
 HOW TO PRODUCE?

The company must decide on how to use the resources to

produce goods and services, What combinations of resources
and technologies will be used to produce goods and services.
What combination of resources and technologies will be used to
produce goods and services at lower cost?

The manufacturer may wish to maximize profits and minimize

production costs. They may combine labor and capital given the
prices of labor and capital and productivity of those resources.
 FROM WHOM TO PRODUCE?

This question determine the distribution of goods

and services. Goods and services will be distributed
to buyers on the basis of their ability and willingness
to pay its existing market price.
The ability to pay the prices for goods and services
depends on the amount of income that buyers have,
along with the prices of, and tastes and preferences
for various goods and services.
 BASIC ECONOMIC PROBLEMS OF THE COUNTRY

UNEMPLOYMENT
 According to the Labor Force Survey, the unemployment rate was 6 percent in
October 2014 and 6.6 percent in January 2015. Unemployment remains a
persistent problem in the Philippines because of its increase in population. As
reported by the Bangko Sentral ng Pilipinas, the total population in Philippines
was last recorded at 102.2 million people in 2015 from 26.3 million in 1960. The
number of people entering the job market has been greater than the number of
jobs created.
 The rural-urban migration increases due to insufficient employment
opportunities. Many of the unemployed individuals are college graduate.
WHAT CAN BE DONE TO SOLVE UNEMPLOYMENT
PROBLEM?
 Appropriate economic policies for labor-intensive industries.
 Improvement in the educational system of the country especially in the rural areas.
 Minimize rural-urban migration by improving the economic environment in the rural
areas.
 Provision of more investment opportunities to encourage local and international
investment like tax incentives.
 Proper coordination between the government and the private sector to solve the problem
of job mismatch.
 Decreasing the retirement age from 65 to 60 for public sector to give chance to younger
generation to enter the labor market but providing an attractive well-defined benefit
pensions and retiree healthcare for retirees.
 Slowing population growth- To improve standard of living of the Filipinos, Philippine
economic growth must increase faster than its population. The Government must limit the
 POVERTY
As fast-growing economy, with 6.3 percent Gross Domestic
product for the 4th quarter of 2015, still there is a decline in the
incidence of poverty in the Philippines.
Poverty remained not only an economic problem but also a
social problem of the country. Increase in population, increase
in the cost of living, unemployment, inequality in the
distribution of income are some of the reasons why a decline in
poverty is very slow.
 WHAT CAN BE DONE TO SOLVE POVERTY
PROBLEM?
Reduce Unemployment.
Appropriate policy on labor income.
Promote economic growth to improve the standard of living.
Provision of unemployment benefits for those who will be
unemployed due to natural and man-made calamities.
Increasing social services like education, health care and food
subsidies leads to sustainable poverty reduction.
 Quality of Infrastructure

Based on the Global Competitiveness Report 2014-2015,the

Philippines ranks 91st out of 144 countries on a World Economic
Forum Survey of Infrastructure quality.

This can be the result of low investment on infrastructure

projects. The budget of Infrastructure is consistently below 3
percent of Gross Domestic Product (GDP) and the government
spending on social infrastructure for education and health is
only 4 percent of GDP.
WHAT CAN BE DONE TO IMPROVE QUALITY OF
INFRASTRUCTURE?
 Quality Infrastructure increases macro-level competitiveness and encourages
investments. In order to ease infrastructure constraints, the Philippines need
to achieve a gradual increase in infrastructure investments to at least 5 percent
of Gross Domestic Product (GDP), and an increase in the efficiency of
spending.
 The government shall implement fiscal reform program.
 Continues reform in key sectors-particularly power, roads, and water to
improve cost recovery, competition, and institutional credibility, and to sharply
reduce corruption.
 Improving central oversight of the planning and coordination of investments.
 Focus on investments through public-private partnerships to address key
bottlenecks, and achieve quick gains in service delivery.
 INCOME INEQUALITY

Income is the money that an individual earned

from work or business received from investments.
Income inequality refers to the gap in income that
exists between the rich and the poor.
 MAJOR CAUSES OF INCOME INEQUALITY IN THE
PHILIPPINES
 POLITICAL CULTURE- can be considered as one of the major causes of
income inequality in the Philippines. The “PALAKASAN” and the “UTANG
NA LOOB” that cannot be avoided especially after the election.
UTANG NA LOOB- is indebtedness to someone who has done someone
in favor. It is an obligation of a person to repay whatever good things they have
done to you. It may be in the form of voting for them in the election or do
something for them till the end.
 INDIRECT TAXES- is a regressive tax that the poor people shoulder the
burden of paying higher taxes like the Value Added Tax.
 INCOME TAXES- A Filipino worker receiving minimum wage is exempted in
the payment of income tax, but for those Filipino workers earning more than
the minimum wage is taxed 32 percent.
 WHAT CAN BE DONE TO SOLVE THE PROBLEM OF
INCOME INEQUALITY?

 Policies to enforce progressive rates of direct taxation on income and

wealth, especially at the highest levels.
 Direct money transfers and subsidize food programs for the urban and
rural poor.
 Direct Government policies to keep the price of essential products low.
 Reform people’s political culture.
 Raise the minimum wage.
 Encourage and expand collective bargaining.
 Encourage profit sharing.
 SCARCITY AND OPPORTUNITY COST

SCARCITY- is a condition that results from the imbalance

between relatively unlimited wants and the relatively limited
resources available for satisfying those wants.
OPPORTUNITY COST- is the foregone benefit of the next best
alternative when scarce resources are used for one purpose rather
than another. Thus the term “opportunity cost” refers to the most
desirable of alternatives not chosen.
 APPLICATION OF
DEMAND AND SUPPLY
 MARKET

Every market has its own special characteristics, but all markets
ultimately have two things in common:

1. Demand by all people for products or the resources that make
them.
2. A willingness by producers to supply those products or
resources.
 DEMAND

Demand is a relationship between QUANTITY and PRICE.

Demand is defined as the different quantities of a RESOURCE,
GOODS or SERVICES that consumers are willing and able to buy
at any given time at various possible prices.

The amount of a COMMODITY that consumers wish to consume

at a particular level is the QUANTITY DEMANDED. A quantity
demanded increases as the price of commodity falls.
 MARKET DEMAND

The market demand is simply the sum of all

individual demand.
 LAW OF DEMAND
The Law of demand describes the rationing
effect of prices. It states that all other things
being constant, the quantity of the product that
consumers are willing and able to buy increases.
The law of demand shows an inverse relationship
between prices and quantity demanded.
 LAW OF DEMAND
The number of a good that individuals are
willing and able to buy at a particular price
during a particular period of time.
 DEMAND schedule
Demand Schedule is a table showing the
quantities of a product that would be purchased
at various prices at a given time and place.
The results of the survey were compiled in a demand
schedule.
 Table 1
Demand Schedule for t-shirts (Nov
18,2019)
PRICE (PHP) Quantity
Demanded
300.00 10
250.00 20
200.00 30
150.00 40
100.00 50
The survey results explain the law of demand.
According to the demand schedule, the number of T-
shirts that students are willing and able to purchase
was greater at lower prices than any higher prices.
More students are willing to purchase T-shirts at lower
prices, and only few of them are willing to purchase at
higher price.
 DEMAND CURVE

A demand curve is a graph of the demand schedule.

The curve in figure 1 shows the relationship between
the price of t-shirts and the quantity buyers are willing
to purchase. It slopes downward, from left to right.

(make samples on the board)

 CHANGES IN QUANTITY
DEMANDED
QUANTITY DEMAND refers to the number of units of a good
that individuals are willing and able to buy at a particular price.
(Q.D)
More specifically, it is the number of units of a good that
individuals are willing and able to buy at a particular price during
some time period.

CHANGES IN QUANTITY DEMANDED is the movement from

one point to another point on the same demand curve caused by
a change in the price of t-shirts.
 CHANGES IN DEMAND

The DEMAND CURVE reflects the relationship between price

and quantity purchases during the given period of time. But the
price is not the only thing that change and influences the buyer’s
willingness to purchase.
 When this occurs, demand changes--- it increases or decreases.
 Determinants of
DEMAND
1. CONSUMER TASTES AND PREFERENCES- A change in taste
and preferences in favor of a commodity will mean that at each
price, more will be demanded than previously.
On the other hand, a change in tastes and preferences away from
a commodity will mean that, at each price, less will be demanded
than previously.
2. CONSUMER’S INCOME- Individual’s income may change
depending upon the economic situation. A change in income
(increase or decrease), individual’s demand for a particular good
may rise or fall.
 Determinants of
DEMAND
3. POPULATION- Population growth affects quantity demanded
in more or less the same way as increases in average income.

A larger population will increase DEMAND for a particular

product.
A fewer population will decrease DEMAND for a particular
product.
 Determinants of
DEMAND
4. PRICE RELATED GOODS
SUBSTITUTE GOODS. When the price of a
particular item increases, the consumer will
shift in the demand for a substitute.
Butter and Margarine are close substitutes. If the price of
butter goes up, people will tend to substitute margarine for
butter. The demand for margarine will increase since the
price of margarine is lower than the price of butter.
 Determinants of
DEMAND
B. PRICES OF COMMPLEMENTARY GOODS. Items that often
purchase together, like CAR and GASOLINE, are
COMPLEMENTARY.
According to the Law of Demand, if the price of car falls, the
demand for gasoline purchased will decrease.
 Determinants of
DEMAND
5. EXPECTATIONS OF FUTURE PRICES- Future expectations
may affect the demand for goods and services. A consumer who
expects that price of necessity goods will increase during times of
calamities, presumably demand for necessity goods will increase.
If any of these factors occur, the demand schedule and the
demand curve will change so that the quantity demanded any
particular price would be less than in the original demand
schedule. If the demand increases, the curve shifts to the right, if
the demand decrease, the curve shifts to the left.
 ELASTICITY OF DEMAND
DEMAND CURVE represents the relationship between price and
quantity demanded. It slopes downward from left to right, but the
slope and the shape of the demand curves for different products often
are quite different. If the price of necessity goods increases, people
would buy less.

PRICE ELASTIC
INELASTIC
Elasticity describes how much a change in price affects the
quantity demanded.
 Determinants of the ELASTICITY
OF DEMAND
LUXURIES vs. NECESSITIES- the demand for necessities
tends to be inelastic. The demand for luxuries tends to be
elastic.
Proportion of income- Other things being equal, the
larger commodity shares in one’s budget, the greater will
be the demand elasticity for it.
Substitutability- The more substitutes there are for a
commodity, the greater the elasticity of demand.
Time- The longer the interval of time considered, the
more the elastic the demand for a commodity.
 PRICE ELASTICITY OF DEMAND

Price elasticity of demand or Elasticity of demand is

defined as the ratio of the percentage change in
quantity demanded to the percentage change in
price that brings about the change in quantity
demanded.
ELASTICITY OF DEMAND = Percentage Change in
Quantity Demanded/Percentage Change in Price
 PRICE ELASTICITY OF DEMAND

Demand is called ELASTIC, if say, a 10 percent rise in price

leads to a reduction in quantity demanded of more than 10
percent.
When the demand for an item is elastic, a change in price will
have a relatively large effect on the quantity demanded.
Demand is called INELASTIC, if such a rise in price reduces
quantity demanded by less than 10 percent.
When the demand for an item is inelastic, a change in price
will have a relatively small effect on the quantity demanded.