APPLIED ECONOMICS

CHAPTER 1
WHAT IS ECONOMICS?
 it comes from the Greek word “oekanomia” meaning “household
management”

 According to Fajardo, economics is the proper allocation and

efficient use of available resources for the maximum satisfaction of
human wants.

 Samuelson states that economics is the study of how societies use

scarce resources to produce valuable commodities and distribute
them among different people.

 Webster defined economics as a branch of knowledge that deals with

the production, distribution and consumption of goods and services.
Importance of Economics:
 People cannot live without production and consumption. For
instance, earning money, buying goods, depositing and
withdrawing money in the bank, these are all economic
activities.

 It guides us on how to make a living, how to use our money

wisely, how to run our business, how to distribute properly
our available scarce resources, and how to maximize our
profits and consumer’s satisfaction.

 To help government promote growth and improve the quality

of life while avoiding depression and inflation and to analyze
fascinating patterns of social behavior.
Economics as Social Science:
 Economics is a Science. The word science is the state of
knowing, something that may be studied or learned like
systematized knowledge.

 Social Sciences is one field of study that relates to human

behavior and society.

 Economics as a social science is the study of the relations

between people during the production, distribution and
consumption of wealth in human society.
4 Factors of Production:
1. Land – is everything found above and underneath the earth
that is used to produce other goods.

2. Labor – refers to the physical and mental components of

human resources that contribute to the conversion of all
raw materials into finished and consumable goods.

3 Classification of Labor:

a. Employed - employed people are components of labor

force, whose level is from 15 years old and above, who are
physically and mentally qualified and are willing to work and
contribute to the economy’s production.
 b. Unemployed – considered unemployed are members of
the labor force who are qualified to be employed but there are
no demands for their services or they themselves are not willing
to work.

c. Underemployed – People who are qualified for a higher

employment position but over qualified for their current
employment thus are receiving lower salary that what they
should be compensated.

3. Capital – is referred to in economics as finished goods used

to produce other goods.

4. Entrepreneurs – are part of the human resource who are

experts in the management of production resources or the
factors of production.
Basic Economic Questions:
1. What to produce? - Business enterprise normally conduct
market survey in order to determine what buyers want or
what the market demand is before a new product is
introduced in the market.

2. How do we produce? - This question aims to find out the

best and applicable techniques or method to use in the
manufacture of products of the commodity that is
demanded by the consumers.

3. How much to produce? This refers to the volume or

quantity that an entrepreneur or business enterprise needs
to produce that is sufficient for what the market demands.
4. For whom to produce? This is determined by the income
level of the prospect buyer or consumers, the price of the
commodity, the culture and their religious affiliations.

Basic Types of Economic Systems:

5. Capitalism - this system is characterized by private

ownership and control of most resources in order to
maximize its utilization.

6. Socialism – this allows the government to manage and

control the major and key industries.

7. Communism – was derived from a French term,

communisme, which means common.
4. Mixed Economy – this is characterized by the presence of
private ownership of the different means of production and
the presence of a government which is in control of the
implementation of the fiscal and monetary policies.

5. Traditional Economy – This system is very common in

developing economies where decisions are based on
customs, beliefs and practices handed down from one
generation to another.