ECONOMICS AS A SOCIAL

SCIENCE
 One of the popular attempts to define economics
suggests that “economics is the science which studies
human behavior as a relationship between ends and
scarce means which have alternative uses”.
A definition which has also gained prominence is that
economics is the “study of the ways that individuals
and societies allocate their limited resources to
satisfy their unlimited wants”
It is important to recognize the
following 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.
 Adam Smith is the “Father of Economics”. His book entitled “An Inquiry Into the
Nature and Causes of the Wealth of Nations” in 1776 attracted widespread
attention and helped establish economics as a scientific field of study apart from
political science and moral philosophy.
 Economics is regarded as a social science because it uses scientific method to
build theories that can help explain the behavior of individuals, groups and
organizations.
 The problems of economics arise out of the scarcity of resources to satisfy human
wants. Human wants are unlimited, but the resources (land, labor, and capital)
required to satisfying them are limited. If human wants are unlimited, but
resources to satisfy those wants are limited, then people in the society face the
problem of scarcity.
 Everyone has to make choices. You may see many items that you would like to
have, but you cannot afford to buy them all. Business owners, managers, team
leaders and even governments must take right decision because they cannot have
everything. There will always be difference between what people want and the
resources available to satisfy those wants.
Economic Resources
 Economic resources are factors of production used to produce
things that people desire in order to satisfy their wants. The
things that people produces are called commodities.
Commodities may be divided into goods and services. Goods are
tangible, like bags or shoes, and services are intangible, like
haircuts or education.
 The act of making goods and services is called production, and
the act of using them to satisfy your wants is called consumption.
Categories of Resources
 Land-It
includes all natural resources (gifts of nature) used in the
production process.
Payment for the use of land is called rent. Rent is income to the
owner of the land.
 Laboror Human Resources-It refers to the physical and mental
talents to produce goods and services.
Payment for the use is called wage. Wage is income to laborers,
who own their labor.
Capital-Man-made or manufactured resources or
also known as capital goods used in producing,
consumer goods. These include buildings,
machine, tools, equipment, roads, highways,
bridges and even software.
Payments for the use of capital is called
interest.
Entrepreneurial Ability-Special skills of an
individual needed to produce goods and services
like managerial and organizational skills.
Economics as an Applied Science

 AppliedEconomics involves different ways to achieved practical

objectives by applying economic theory in the real world.

 Economics as an applied science helps students to learn about

the relationship of a business and basic economic theories. It
offers many opportunities to measure their academic and
personal growth and improve their educational career planning.
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 the law of demand are good examples of a useful
economic model. The law of supply states that, other things being equal, as
price increases, the quantity supplied increases, and as a price decreases, the
quantity supplied decreases. The law of demand states that, other things being
equal, as price increases, the quantity demanded decreases, and as price
decreases, the quantity demanded increases.
 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, health care, 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.
 Basic Economic Problems
The fundamental problem of economics is to determine the most
efficient ways to allocate their resources. The decision must be
made to transform the different economic resources into goods and
services to satisfy their need and want.
 The are three basic questions to make the right decisions:
1. What to produce?
2. How to produce?

3. For 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 producer 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 in the market, If no one desires
to buy stereo sets, it is not worth producing them.
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 at lowest
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.
For 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 service 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

The Philippines appeared to be one of the fastest growing

economies of Asia. As reported by the Philippine National
Statistical Coordination Board, the Philippine economy grew an
annual 6.3 percent in the December quarter of 2015. According to
the Philippine Statistics Office, Philippines annual inflation rate
slowed to 1.3 percent in January 2016 from 1.5 percent in
December, recorded a Current Account surplus of 88.41 US Million
dollars in September of 2015 as reported by the Bangko Sentral ng
Pilipinas but still need to address different economic problems to
achieve economic growth.
Unemployement
 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 problems in the Philippines
because of its increase in population. As reported by the Bangko
Sentral ng Pilipinas, the total population in the Philippines was
lasted 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 graduates.
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 health care for retirees.
 Showing population growth. To improve standard of living of the Filipinos, Philippine
economic growth must increase faster than it population.
Poverty
As a 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.
 Provisionof unemployment benefits for those who will be
unemployed due to natural and man-made calamities.
 Increasing social services like education, health care and foods
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 in consistently
below 3 percent of Gross Domestic Product (GDP) and the government
spending social infrastructure for education and health is only 4
percent of GDP. From the economist’s point of view of poor
infrastructure, the 2.2 million vehicles a day experiencing traffic
congestion cost of country Php 876 billion a year, or more than 20
billion dollar, in lost productivity and wasted energy based on the study
conducted by the Japan International Cooperation Agency that would
cost a serious drain on an economy of about 250 billion dollars.
 What can be done to improve the 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 GDP, an increase in the efficiency of spending.
 The government shall implement fiscal reform program.
 Continuous 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 investment.
 Focus on investments through public-private partnerships to address key
bottlenecks, and achieve quick gains 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.
The following are the major causes of
income inequality in the Philippines.
1. 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 election. If you are relatives or
friends or someone in power they can have all the chances to get position
even without or less knowledge on the position given to them.
2. Indirect taxes also one of the major causes of income inequality. Indirect
tax is regressive tax that the poor people shoulder the burden of paying
higher taxes like the Value Added Tax.
3. Income tax. 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 higher 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.