CHAPTER ONE

INTRODUCTION TO
APPLIED ECONOMICS
ASYNCHRONOUS-JANUARY 5
 DISCUSS BRIEFLY PHIL.ECONOMY
YEAR 2020
 STATE YOUR PERSONAL FORECAST
FOR THE PHILIPPINE ECONOMY
2021
 WHAT POSITION IN THE
GOVERNMENT YOU WOULD LIKE TO
HAVE IN ORDER TO BE ABLE 2 HELP
BOOST OUR ECONOMY?
ASYNCHRONOUS JANUARY 11
 READ THE LINK I WILL SEND TO YOU
THROUGH OUR GC
 ANSWER THROUGH WORD
 ENUMERATE ALL AND EXPLAIN
BRIEFLY THE TERMS DISCUSSED IN
THE TOPIC
 DEFINE ALL THE IMPORTANT TERMS
IN THE DEFINITION OF ECONOMICS
EXPLAIN THE DEFINITION
 ECONOMICS IS A SOCIAL
SCIENCE THAT DEALS
WITH ALLOCATION OF
SCARCE RESOURCES TO
MEET THE UNLIMITED
HUMAN WANTS.
SUBJECT TITLE
 COVERS BASIC PRINCIPLES OF APPLIED
ECONOMICS & ITS APPLICATION TO
CONTEMPORARY ECONOMIC ISSUES FACING
THE FILIPINO ENTREPRENEUR WHICH
DEPARTS SIGNIFICANTLY FROM THE SOCIAL
STUDIES THRUST OF THE CURRENT
CURRICULUM IN ECONOMICS
 IT COVERS AN ANALYSIS OF INDUSTRIES FOR
IDENTIFICATION OF POTENTIAL BUSINESS
OPPORTUNITIES
INTRODUCTION
 WE, AS HUMAN BEINGS MUST MEET OUR
BASIC NEEDS: FOOD, CLOTHING & SHELTER
FOR SURVIVAL, STABILITY AND DEVELOPMENT
 WE GET OUR FOOD FROM VARIOUS SOURCES
AND THROUGH DIFFERENT MEANS
 WE BUY CLOTHES AND WEAR THEM TO COVER
OUR BODIES, FOR COMFORT & PROTECTION
 SHELTER - PROTECTS US FROM HARSH
ELEMENTS OF ENVIRONMENT & TO ENHANCE
LEVEL OF ENJOYMENT
ECONOMICS AS A SOCIAL
SCIENCE
 IT FIRST FOCUSES ON WEALTH. IT IS A
SCIENCE OF WEALTH GETTING AND WEALTH
USING
 IT STRESSES DECISION MAKING PROCESS SO IT
IS A SCIENCE OF MAKING CHOICES
 IT CONCENTRATES ON THE ALLOCATION
PROCESS. ECONOMICS IS A SOCIAL SCIENCE
THAT DEALS WITH ALLOCATION OF SCARCE
RESOURCES TO MEET THE UNLIMITED HUMAN
WANTS
ECONOMICS AS A STUDY OF
WEALTH
 WEALTH-GETTING & WEALTH-USING IMPLIES
THAT THE MOTIVATION OF THE PROCESS OF
WEALTH ACCUMULATION IS THE UTILIZATION
OF WEALTH FOR THE INDIVIDUAL’S SATISFAC-
TION & SOCIETY’S WELFARE. THE DEFINITION
REFERS TO ACTIVITIES ANSWERING THE 2
MAJOR ECO PROBLEMS IN ANY SOCIETY- THEY
ARE PRODUCTION AND CONSUMPTION
ECONOMICS AS A STUDY OF
MAKING CHOICES
 IN EVERYTHING WE DO, WE MAKE DECISIONS
AND THESE DECISIONS ARE BASED ON
ALTERNATIVE CHOICES.IN THE STUDY OF
ECONOMICS, WHEN WE MAKE A CHOICE FROM
AMONG THESE ALTERNATIVES, IT IMPLIES
THAT WE ARE SACRIFICING THE BENEFITS
THAT WOULD HAVE BEEN DERIVED FROM
ALTERNATIVES THAT WERE NOT SELECTED- A
MAJOR CONCEPT IS OPPORTUNITY COST
ECONOMICS AS A STUDY OF
ALLOCATION
 ECONOMICS IS A STUDY OF ALLOCATION OF
SCARCE RESOURCES TO ANSWER UNLIMITED
WANTS.
 THIS CONCENTRATES ON THE ALLOCATION
PROCESS SO ECONOMICS CAN BE ANALYZED
COMPREHENSIVELY IN TERMS OF 5 KEY
ELEMENTS: SOCIAL SCIENCE, RESOURCES,
HUMAN WANTS, SCARCITY & ALLOCATION
ECONOMICS AS A SOCIAL
SCIENCE
 ECONOMICS IS PRIMARILY A SOCIAL SCIENCE
 IT UTILIZES THE SCIENTIFIC METHOD OF
INQUIRY FROM IDENTIFYING THE PROBLEM,
PROPOSING ALTERNATIVE TENTATIVE
ANSWER TESTING TENTATIVE ANSWERS,
GATHERING THE DATA AND CONCLUSION.
 THIS IS BEING USED IN THE STUDY OF
SOCIETY AND ITS COMPONENTS
SOCIAL SCIENCE CAN BE DESCRIBED AS THE
STUDY OF VARIOUS MODES & ASPECTS OF
 HUMAN INTERACTIONS IN A GROUP AS THESE
PEOPLE ASPIRE TO PRESERVE THEIR GROUP
 PERTAINS TO THE STUDY ON HOW SOCIETY
CREATES ITS MATERIAL WEALTH-4 EXAMPLE
IN POLITICAL SCIENCE THE CREATION &
UTILIZA- TION OF POWER IS BEING STUDIED
 INDIVIDUAL BEHAVIOR ARE SYSTEMATICALLY
EXAMINED
 RECORDING & ANALYSIS ON HOW THESE
GOALS OF SOCIETAL PRESERVATION,
STABILITY & DEVELOPMENT ARE ACHIEVED
RESOURCES AND STUDY OF
ECONOMICS
 RESOURCES(2ND ) IS LINKED WITH THE
PROCESS OF WEALTH CREATION & WEALTH
UTILIZATION
 RESOURCES /WEALTH- DEFINED AS
PRODUCTS OF NATURE, QUALITIES OF
INDIVIDUALS AND MAN-MADE THINGS USED IN
PRODUCING GOODS OR SERVICES
 NATURAL RESOURCES (INTERMEDIATE
GOODS),MAN-MADE, HUMAN RESOURCES
KEY CHARACTERSITICS OF RESOURCES
IS THAT THEY ARE LIMITED
 ONE MAJOR FACTOR PERTAINS TO LENGTH OF
TIME AS WELL AS THE DIFFICULTIES IN PRODU
CING THESE RESOURCES(NON-RENEWABLE)
 LIMITATION IS FURTHER INTENSIFIED BY THE
COMPETING USES FOR THESE RESOURCES
 RESOURCES ARE VERY PROLIFIC SINCE THEY
CAN BE USED IN VARIOUS PRODUCTIVE AND
DISTRIBUTIVE ACTIVITIES. VARIOUS RESOUR-
CES CAN BE COMBINED IN DIFF. PROPORTION
HUMAN WANTS & ECONOMIC
ANALYSIS
 HUMAN WANTS -THIRD DIMENSION OF ECO
 WEALTH ARE EXPANDED NOT ONLY FOR
THEIR INTRINSIC VALUE BUT BECAUSE OF
THEIR IMPACT IN IMPROVING HUMAN
WELFARE
 HUMAN WANTS CAN BE DESCRIBED AS
DIFFERENTIATED OR EXPANDED EX FOOD CAN
BE DIFFERENTIATED BY LEVEL OF INCOME, BY
ENVIRONMENT; HOUSING DIFFERENTIATING
THE SAME BASIC HUMAN NEED CAN MANIFEST
ITSELF IN VARIOUS FORMS OF HUMAN WANTS
 THROUGH THE DIFFERENTIATING IMPACTS OF
VARIOUS FACTORS. BEC. OF MARKED
DIFFERENCES BETWEEN HUMAN WANTS FROM
HUMAND NEEDS, PEOPLE TEND TO VIEW
HUMAN WANTS AS LUXURY COMPARED WITH
HUMAN NEEDS
 DIFFERENCES IN TASTE, INCOME, ENVIRON-
MENT, ECONOMIC STATUS, AND OTHERS
BECAUSE BUSINESSES KNOW THE IMPACT OF
THESE DIFFERENTIATING FACTORS ON THE
 CONSUMPTION HABITS OF PEOPLE, THEY CAN
INFLUENCE THE TASTE & BEHAVIOR OF CON-
SUMERS THROUGH VARIOUS FORMS OF MAR-
KETING AND ADVERTISING.SINCE THESE
FACTORS CAN BE INFLUENCES INTRINSICALLY
AND EXTERNALLY, IT’S POSSIBLE THAT
HUMAN WANTS CAN EXPAND AND MULTIPLY.
EXPAN-SION OF HUMAN WANTS IS ONE OF
THE KEY REASONS OF ECO PROBLEM. SOCIETY
HAS TO RESPOND 2 THIS IN LIGHT OF LIMITED
WEALTH.
SCARCITY AS A SOURCE OF
ECONOMIC PROBLEM
 SCARCITY - 4TH ELEMENT IS A KEY PROBLEM
BECAUSE OF LIMITATIONS OF RESOURCES, ON
ONE HAND, AND THE EXPANSION OF HUMAN
WANTS ON THE OTHER HAND
 LIMITATION OF RESOURCES ARISE PRIMARILY
BECAUSE OF ITS ALTERNATIVE & COMPETING
USES WHILE HUMAN WANTS ARE EXPANDING
BECAUSE OF INTERNAL & EXTERNAL FACTORS
THAT DIFFERENTIATE HUMAN NEEDS INTO
HUMAN WANTS.
MEMBERS OF SOCIETY HAS TO SURVIVE
MATERIALLY AND SOCIETY HAS TO DEVISE
 A MECHANISM OF UTILIZING THESE LIMITED
RESOURCES TO MEET THE NUMAN WANTS OF
PEOPLE THAT WILL RESULT IN THE HIGHEST
LEVEL OF SOCIAL WELFARE
 PROPER USE OF RESOURCES BECOMES A
SOCIETAL PROBLEM
 PROPER USE OF RESOURCES IMPLIES THE
NEED TO MAXIMIZE BENEFITS FROM THESE
RESOURCES & MINIMIZE OPPORTUNITY COST
SOMETIMES PEOPLE EQUATE
SCARCITY WITH SHORTAGE
 THEY ARE RELATED BUT NOT IDENTICAL.
 SCARCITY - A GENERAL CHARACTERISTIC OF
RESOURCES IN THE LIGHT OF ITS COMPETING
USES THAT MAY ARISE FROM THE FAST
EXPAN- SION OF HUMAN WANTS
 SHORTAGE - A CONDITION WHEN THE SUPPLY
OF A GOOD,SERVICE OR RESOURCE IS NOT
ENOUGH TO MEET THE DEMAND
SHORTAGE IS A SPECIFIC MANIFESTATION OF
SCARCITY BROUGHT ABOUT BY A SHORTFALL
 IN SUPPLY DUE TO EXTERNAL FORCES
 A SURPLUS CAN ALSO BE ASSOCIATED WITH
THE PROBLEM OF SCARCITY. WASTAGE OF
RESOURCES IN LIGHT OF COMPETING USES IS
AN IMPROPER WAY OF USING RESOURCES
 SINCE RESOURCES HAVE ALTERNATIVE USES
WITH CORRESPONDING OPPORTUNITY COSTS
HAVING A SUPPLY > DEMAND IS AN ECOPROB
ALLOCATION & ACT OF
ECONOMIZING
 ALLOCATION - 5TH ELEMENT-THERE IS A NEED
FOR A MECHANISM OF DISTRIBUTING LIMITED
RESOURCES TO MEET EXPANDING HUMAN
WANTS
 ALLOCATION - A SOCIAL MECHANISM TO RES-
POND TO THE ECONOMIC PROBLEM OF
SCARCITY
 SOLUTION - SLOWDOWN EXPANSION OF
HUMAN WANTS, HASTEN EXPANSION OF
LIMITED RESOURCES OR COMBINATION OF
THESE TWO
MARKET SYSTEM AS A MECHANISM
FOR ALLOCATION-1ST ALTERNATIVE
 MARKET SYSTEM - IS THE NORMAL PROCESS
OF ALLOCATION UTILIZED IN MANY SOCIETIES
 MARKET- NOT ONLY A PLACE BUT A STATE
WHEN TRANSACTIONS ARE MADE
 TRANSACTIONS CAN BE DONE VIA TELEPHONE
INTERNET OR WHAT THEY CALL E-COMMERCE
 PRICE OF A COMMODITYIS BOTH AN INDEX OF
COST FOR PRODUCERS& BENEFIT FOR BUYERS
TO THE SELLER, THE PRICE CAN
SIGNAL COSTS AND BENEFITS
 PRICE - A SUMMARY OF THE UNIT COST OF
PRODUCING THE GOOD OR SERVICE
 PRICE - AS BENEFIT, THE SELLER RECEIVES
THE AMOUNT OF MONEY AS PAYMENT FROM
THE CONSUMER THAT BOUGHT THE
GOOD/SERVIC
 PRICE - CAN BE AN INSTRUMENT FOR
ALLOCA- TION OF RESOURCES THROUGH THE
MECHA- NISM OF MARKET SYSTEM
THE PROBLEM OF SCARCITY IS ADDRESSED
THROUGH CHANGES IN PRICES & RESPONSES
 OF BUYERS AND SELLER ( EXAMPLE OIL PRICE)
 MECHANISM OF MARKET SYSTEM CAN ALSO
ADDRESS THE PROBLEM OF A SURPLUS.
WASTAGE CAN BE ELEIMANTED BY REDUCING
SUPPLY OF THE COMMODITY & INCREASING
THE DEMAND
 DECLINE IN PRICE- AN INDICATOR OF
RELATIVE ABUNDANCE SO CONSUMERS WILL
INCREASE THEIR CONSUMPTION
RELATIVE ABUNDANCE - SUPPLIERS
WILL REDUCE THEIR PRODUCTION
 LOWER PRICE - LOWER RETURNS/INCOME
 MARKET SYSTEM PROVIDES INCENTIVES AND
DISINCENTIVES TO CONSUMERS & PRODUCERS
THAT RESPOND TO PROBLEM OF SCARCITY
 AUTOMATIC PRICE ADJUSTMENTS - NOT
ONLY ANSWER THE PROBLEM OF SHORTAGES
AND SURPLUSES BUT ALSO ANSWERS 3 BASIC
ECO QUESTIONS: WHAT TO PRODUCE, HOW
TO PRODUCE, FOR WHOM TO PRODUCE
CONT. MARKET SYSTEM
 1ST PROBLEM,NORMALLY GOODS THAT ARE
NEEDED OR WANTED BY CONSUMERS ARE THE
ONES TO BE PRODUCED. PRICE OF A COMMO-
DITY IS A REFLECTION OF RELATIVE SCARCITY
WHEREIN GOODS WHOSE PRICES ARE INCREA-
SING MEAN THAT THESE COMMODITIES ARE IN
NEED OR WITH HIGH DEMAND. ON THE
OTHER HAND, GOODDS THAT ARE RELATIVELY
ABUNDANT ARE THOSE PRICES ARE DECLINING
AND SHOULD NOT BE FURTHER PRODUCED.
CONTINUATION
 2ND ECO QUESTION RELFECTS THE MANNER OF
PRODUCTION OR TECHNOLOGY THAT WILL
BE USED BY FIRMS IN PRODUCING THE GOODS
WITH HIGH DEMAND. SINCE PRODUCERS ARE
MOTIVATED BY EARNING HIGH PROFITS, THEY
CAN MAXIMIZE THEIR PROFIT BY DECREASING
THEIR COSTS GIVEN THE PRICES OF GOODS
THEY ARE PRODUCING. THE PRICE SYSTEM
CAN ANSWER THIS BY SELECTING FACTOR
INPUTS & RAW MATERIALS THAT WILL GIVE
THE LOWEST COST OF PRODUCTION.
CONTINUATION
 3RD ECO QUESTION, THE MARKET CAN LIKE-
WISE ANSWER FOR WHOM GOODS WILL BE
PRODUCED BY ALLOCATING A HIGHER PROPOR
TION OF OUTPUT TO MEMEBERS OF A SOCIETY
W/ HIGH PURCHASING POWER.PURCHASING
PPOWER IS DETERMINED BY THE AMOUNT OF
RESOURCES THEY HAVE & MORE IMPORTANTLY
ON THE PRODUCTIVITY OF THESE RESOURCES
PRODUCTIVITY OF RESOURCES IS REFLECTED
BY THE MONETARY RETURNS. PRODUCTIVE
WORKERS RECEIVE HIGHER WAGES;OWNERS
OF PRODUCTIVE CAPITAL GET HIGHER PROFIT
COMMAND AS AN ALLOCATION
MECHANISM-2ND ALTERNATIVE
 ASIDE FROM MARKET SYSTEM THERE ARE OTHER
WAYS DEVISED BY SOCIETIES CURRENT LY & IN
THE PAST INALLOCATING LIMITED RESOURCES IN
THE LIGHT OF EXPANDING HUMAN WANTS.
WHEN MARKET SYSTEM IS NOT AVAILABLE OR IF
IT FAILS, THE COMMAND SYSTEM MAY BE A MORE
EFFECTIVE ALTERNA- TIVE SOCIAL MECHANISM
FOR ALLOCATION. IN A COMMAND SYSTEM,THE
STATE OR AN AGENCY OF THE GOVT MAY BE IN
CHARGE IN THE ALLOCATION OF RESOURCES BY
USING ITS POLITICAL POWER IN ANSWERING THE
BASIC ECO PROBLEMS OF PRODUCTION/DIST
IN TIMES OF NATURAL CALAMITIES,
DISASTERS OR NATL EMERGENCIES
 COMMAND SYSTEM MAY BE MORE ORDERLY
THAN THE MARKET SYSTEM. THE NORMAL
OPERATIONS OF A MARKET MAY NOT BE
PRESENT UNDER SUCH CIRCUMSTANCES BUT
THE BASIC NEEDS OF CITIZENS HAVE TO BE
ADDRESSED. THE INCENTIVE SYSTEM OF THE
PRICECHANGES MAY NOT BE ENOUGH TO
TEMPER INDIVIDUALS IN THEIR CONSUMPTION
OR ENCOURAGE PRODUCERS TO SELL MORE
WHEN SHORTAGES OF GOODS OCCUR. GOVT
CAN RATION BASIC GOODS TO THOSE IN
NEED.
GOVT CAN ALSO IMPOSE PRICE
CONTROL TO PREVENT RAPID
 INCREASE IN PRICES. IN TIMES OF WAR, GOVT
CAN EVEN CONFISCATE RESOURCES TO BE
USE FOR THE IMMEDIATE NEEDS OF THE
STATE. THE COMMAND SYSTEM HAS BEEN
USEFUL AS A TEMPORARY ALTERNATIVE
WHEN MARKET SYSTEM CANNOT FULLY
OPERATE OR PRICE MECHANISM IS
INADEQUATE FOR ALLOCATION. HOWEVER, IT
HAS BEEN USED EVEN IN NORMAL TIMES BY
SEVERAL TOTALITARIAN & SOACIALIST STATES
IN THE PAST TO PURSUE NATIONAL GOALS
INCLUDING INDUSTIRALIZA- TION AND SELF-
RELIANCE. (MAO TSE-TUNG)
TRADITION IN THE PROCESS OF
ALLOCATION-3RD ALTERNATIVE
 THIS MAY BE USEFUL IN SITUATIONS WHERE
OPERATION OF THE MARKET MAY NOT BE
APPROPRIATE,OR THE POWER OF AN ORGANIZED
STATE HAS NO CONTROL OVER A CERTAIN
COMMUNITY. THIS WAS NORMALLY PRACTIED IN
INDIGENOUS COMMUNITIES IN THE PAST WHERE
LIFE WAS SIMPLE W/ SIMPLE NEEDS. IF MARKET
OPERATES ON PRICE CHANGES, COMMAND
SYSTEM OPERATES UNDER RULE OF POWER &
FORCE TRADITION USES CULTURE, SOCIAL
NORMS TO TEMPER WANTS & ENCOURAGES
PRODUCERS TO EXPAND PRODUCTION.
TEMPERING MECHANISM OF
TRADITION IS MADE THROUGH
 FORMATION OF HUMAN WANTS WHICH ARE
SHAPED BY SOCIAL NORMS AND VALUES
 IN THE USE OF RESOURCES FOR PRODUCTION
PURPOSES, TECHNOLOGIES HANDED DOWN
FROM GENERATIONS ARE UTILIZED.
 IN THE DISTRIBUTION OF THE COMMUNITY
OUTPUT, CONCEPT OF SHARING IS
PRACTICED
 MECHANISM OF TRADITION OPERATES IN
ADDRESS IN WASTEFUL BEHAVIOR
 TIPPING-GIVING A SMALL TOKEN OF APPRECIA
TION FOR SERVICES BEC. OF GRATITUDE
CONTINUATION
 ALTHOUGH THE MARKET SYSTEMIS THE MOST
PREVALENT MECHANISM FOR ALLOCATION IN
MANY SOCIETIES TODAY, COMMAND SYSTEM &
SYSTEM OF TRADITION HAVE BEEN USED WITH
SOME VALUE AND EFFECTIVENESS IN MANY
INSTANCES. THE CHOICE OF ALLOCATION
MECHANISM WILL DEPEND ON THE SITUATION
AT HAND & THE EFFECTIVENESS OF ALTER-
NATIVE IN ANSWERING THE NEEDS OF THE
PEOPLE, TEMPERING HUMAN WANTS AND IN
THE PROPER USE OF RESOURCES.
ECONOMICS AS AN APPLIED
SCIENCE
 DEALS WITH THE ANALYSIS ON HOW MEMBERS
OF A SOCIETY INTERACT WITH ONE ANOTHER
ON THE CREATION & UTILIZATION OF
WEALTH (TO SUSTAIN,STABILIZE & DEVELOP
GOODS)
 A SCIENCE OF CHOOSING AN ACTIVITY FROM
ALTERNATIVE OPTIONS THAT WILL YIELD THE
HIGHEST BENEFITS TO SOCIETY IN CONTEXT
OF COMPETING USES & OPPROTUNITY COSTS
 TOO THEORETICAL SINCE IT DEALS WITH PRIN
CIPLES, LAWS & ASSUMPTIONS GOVERNING
HUMAN BEHAVIOR IN ALLOCATION PROCESS
ECONOMICS APPLIED IN OTHER
FIELDS
 ACCTG-INFO FROM RECORDING & ANALYSIS OF
TRANSACTIONS ON STATE OF ASSETS CAN BE
USEFUL IN DECISIONS REGARDING WEALTH
 MKTG-UNDERSTANDING BEHAVIOR OF CONSU
MERS CAN BE USEFUL TO FIRMS IN EXPANDING
THEIR MARKET SHARE
 FINANCE-FORMATION OF EXCESS FUNDS FOR
INVESTMENT PURPOSES THROUGH CONCEPT OF
SAVING ROOTED ON OPPORTUNITY COST
 MGT-COMBINATION OF HUMAN & PHYSICAL
RESOURCES FOR PRODUCTION WHICH WILL
REQUIRE UNDERSTANDING OF BENEFIT/COST
A FRAMEWORK IN UNDERSTANDING
DECISIONS USING ECO ANALYSIS
 INDIVIDUAL IS INFLUENCED BY A # OF
MOTIVA- TIONS MOST OF WHICH ARE BASE ON
BENEFIT DERIVE FROM THE CHOSEN
OPTION/BEHAVIOR ONCE INDIVIDUAL
PURSUES HIS CHOSEN OPTION HE WILL GET
AN ADDITIONAL LEVEL OF SATISFACTION.
HOWEVER, THIS IMPLIES THAT THERE ARE
COSTS ACCOMPANYING THE BENEFITS
ARISIONG FROM HIS BEHAVIOR. THIS COST
CAN BE EXPRESSED IN TERMS OF MONEY TIME,
RESOURCES & OTHER GOODS AND ACTIVITIES
BEING SACRIFICED OR FOREGONE
IN MAKING DECISIONS, WE HAVE TO
WEIGH, COMPARE BENEFITS/COSTS
 MAKE SURE THAT OUR BENEFITS BE POSITIVE
& WILL YIELD THE HIGHEST NET RETURNS
 NET BENEFITS MAY BE IN TERMS OF SURPLUS,
NET SATISFACTION, NET RETURNS OR PROFIT
 SINCE CHOICE IS ALWAYS PROSPECTIVE,
WHAT IS IMPORTANT IS NOT THE ABSOLUTE
VALUE OF BENEFITS & COSTS BUT THE
ADDITIONAL OR MARGINAL BENEFITS &
MARGINAL COSTS.
 MARGINAL ANALYSIS OF BENEFITS & COSTS IS
USEFUL IN SETTING THE CONDITION FOR AN
OPTIMAL DECISION
IN ECONOMIC ANALYSIS, THE
CONDITION FOR THE ATTAINMENT
 OF MAXIMUM NET BENEFIT IS SET WHEN THE
MARGINAL BENEFIT = MARGINAL COST
 MARGINAL BENEFIT > MARGINAL COST-MEANS
MARGINAL NET BENEFIT IS POSITIVE
 WHEN TOTAL BENEFITS ARE NO LONGER
INCREASING, IT HAS REACHED ITS MAX. LEVEL
SO THE DIFFERENCE BET. MARGINAL
BENEFITS AND MARGINAL COSTS IS ZERO.
 DIFFERENTIATING FACTORS MAY BE SOURCE
OF ECO & BUSINESS PROBLEMS LIKE EXCESS
CONSUMPTION,INADEQUATE INVESTMENT
VARIATIONS IN BENEFITS & COST
DUE TO STAGE OF RECOGNITION
 SOME BENEFITS AND COST MAY OF MAY NOT
BE RECOGNIZE BY A DECISION MAKER
 EXPLICIT OR OBVIOUS COST-EASILY SEEN FOR
THEY ARE EXPRESSED IN MONETARY TERMS &
MAY INVOLVE ACTUAL FINANCIAL OUTLAYS
 IMPLICIT OR HIDDEN COST-MORE DIFFICULT
TO RECOGNIZE SINCE THE DECISION MAKER
DOES NOT HAVE TO INCUR ANY MONETARY
EXPENSE IN THE COURSE OF HIS ACTION
 OPPORTUNITY COST-EX. OF IMPLICIT COST
SPATIAL DIMENSIONS IN THE
ISSUE OF RECOGNITION
 IMPLICIT BENEFITS & COSTS ARE HARDER TO
RECOGNIZE BECAUSE OF THE SPATIAL CONSI
DERATION OF THE DECISION MAKER. HE MAY
NOT BE AWARE OF THE SOCIAL/PUBLIC
EFFECTS OF HIS ACTIONS. HIS LEVEL OF
AWARENESS ARE MORE PRONOUNCED ON PRI-
VATE BENEFITS & PRIVATE COSTS. PRIVATE
BENEFITS ARE EXPLICIT TO HIM BECAUSE HE
IS ABLE TO EXPERIENCE DIRECT
SATISFACTION. PRIVATE COSTS ARE EXPLICIT
BECAUSE HE CARRIES THESE OBSERVABLE
SACRIFICES.
TERMS TO UNDERSTAND
 SPATIAL ECONOMICS IS CONCERNED WITH THE
ALLOCATION OF SCARCE RESOURCES
OVERSPACE AND LICATION OF ECO ACTIVITY;
MAY BE BROAD OR NARROW
 VALUATION- IS THE ANALYTICAL PROCESS OF
DETERMINING THE CURRETN WORH OF AN
ASSET OR A COMPANY. AN ANALYST PLACING
A VALUE ON A COMPANY LOOKS AT THE
BUSINESS’ MANAGEMENT, COMPOSITION OF
ITS STRUCTURE, THE PROSPECT OF FUTURE
EARNINGS AND THE MARKET VALUE OF ITS
ASSETS
CONTINUATION
 ON THE OTHER HAND, SOCIAL BENEFITS &
SOCIAL COSTS ARE NOT INTERNALIZED BY
INDIVIDUAL DECISION MAKER. THESE
SOCIAL BENEFITS ARE SPILLOVER EFFECTS
OF INDIVIDUAL DECISIONS THAT THE
ENTIRE COMMUNITY MAY ENJOY.
SIMILARLY, SOCIAL COSTS ARE SPILLOVER
EFFECTS OF INDIVIDUAL DECISIONS THAT
PUT A BURDEN ON THE COMMUNITY AT
LARGE.
TEMPORAL DIMENSION IN THE
ISSUE OF RECOGNITION
 USUALLY AN INDIVIDUAL ACTION IS DECIDED ON THE
BASIS OF PRESENT BENEFITS & PRE- SENT COSTS.
THESE ARE EXPLICIT TO THE INDIVIDUAL DECISION
MAKER AS HIS LEVEL OF AWARENESS IS DICTATED BY
THE PROXIMITY OF THESE BENEFITS & COSTS IN
TERMS OF TIME. PRESENET BENEFITS & PRESENT
COSTS ARE READILY REALIZED WHILE FUTURE BENE-
FITS & FUTURE COSTS ARE TOO DISTANT TO AFFECT
THE AWARENESS OF THE DECISION MAKER. WHEN
THESE FUTURE BENEFITS & FUTURE COSTS ARE NOT
INCLUDED IN THE ANALYSIS, IT MAY LEAD TO
MISALLOCATION OF RESOURCES W/ACCOMPANYING
BUSINESS CONSEQUENCES
VARIATIONS IN BENEFITS & COSTS
DUE 2 DIFFERENCES IN VALUATION
 EVEN IF DECISION MAKER RECOGNIZED THE
IMPLICIT BENEFITS AND IMPLICIT COSTS OF
HIS ACTION, THE DIFFERENCES BETWEEN
MARGINAL BENEFITS AND MARGINAL COST
CAN STILL PERSIST. THE DIFFERENCES MAY BE
DUE 2 THE WAY THE DECISION MAKER VALUES
THESE IMPLICIT BENEFITS & IMPLICIT COSTS.
THE PROPER PRICING AND VALUATION OF
THESE IMPLICIT COSTS MAY HAVE AN EFFECT
ON THE OPTIMAL DECISION.
SPATIAL DIMENSION IN THE
ISSUE OF VALUATION
 THE VALUATION OF THE IMPLICIT COST MAY
ALSO DIFFER BECAUSE OF SPATIAL
CONSIDERA TIONS. EVEN IF DECISION MAKER
HAS RECOG- NIZED THE SOCIAL BENEFITS &
SOCIAL COSTS OF HIS ACTION, VARIOUS
INDIVIDUALS MAY HAVE DIFERENT VALUATION
OF THESE SOCIAL IMPACTS. THERE ARE
INDIVIDUALS WHOSE VALUATION OF SOCIAL
BENEFITS ARE LOW. SIMILARLY, SOME
DECISION MAKERS MAY HAVE LOW VALUATION
OF SOCIAL COSTS.
TEMPORAL DIMENSION IN THE
ISSUE OF VALUATION
 SINCE PRESENT BENEFITS ARE CURRENTLY &
DIRECTLY ENJOYED BY THE DECISION MAKER, THEY
ARE MORE SIGNIFICANT & HAVE HIGHER VALUES
THAN BENEFITS THAT ARE YET TO BE REALIZED &
ENJOYED IN DISTANT FUTURE. IN THIS CASE THE
DECISION MAKER CAN ASSIGN A DISCOUNT RATE ON
FUTURE BENEFITS TO MAKE THEM COMPARABLE
W/PRESENT BENE- FITS. IF FUTURE BENEFITS ARE
CONSIDERED NOT AS VALUABLE, DECISION MAKER
CAN ASSIGN A HIGHER DISCOUNT RATE ON THE
STREAM OF FUTURE BENEFITS TO REDUCCE ITS
PRESENT VALUE.THIS EXPLAIN WHY SOME PEOPLE
BUY INSURANCE MORE THAN THE OTHERS.
BASIC ECONOMIC PROBLEMS CONFRONTING
DEVT OF PHILS IN THE 21ST CENTURY
 SEVERAL ISSUES & PROBLEMS PREVENT ITS
CITIZENS FROM REALIZING A MEANINGFUL
LIFE, ON THE ONE HAND, & IN PUSHING ITS
SOCIOECONOMIC DEVELOPMENT, ON OTHER.
A SIZEABLE PROPORTION OF ITS PEOPLE HAVE
INSUFFICIENT RESOURCES TO AFFORD BASIC
GOODS & SERVICES, LIMITED FREEDOM IN
THEIR CHOICES OF EMPLOYMENT AND
CONSUMPTION & A LOW-SELF-ESTEEM THAT
WEAKENS ITS PEOPLE.QUALITY OF HUMAN
RESOURCES & INADEQUATE INFRASTRUCTURE
ARE CONSTRAINING GROWTH IN ECONOMY.
POVERTY & UNEQUAL
DISTRIBUTION OF INCOME
 POVERTY IS A RESTRICTING CONDITION EXPE-
RIENCED BY MILLIONS OF FAMILIES THAT
PREVENTS THEM IN ATTAINING MINIMUM
LEVEL OF CONSUMPTION FOR SUBSISTENCE
LIVING. FAMILIES WITH LIMITED RESOURCES
CANNOT EARN SUFFICIENT INCOME THAT CAN
PROVIDE MINIMUM NUTRITIONAL REQUIRE-
MENTS FOR DAILY LIVING. THEY ARE ALSO
FACED W/LIMITED ECONOMIC OPPORTUNITIES
THEY ARE OFTEN UNSKILLED & CANNOT FIND
DECENT EMPLOYMENT.
TWO CATEGORIES OF POVERTY
 ABSOLUTE POVERTY IS THE LACK OF INCOME
TO BUY THE BASIC FOOD & NECESSITIES IN
ORDER TO LIVE. THIS IS MEASURED IN TERMS
OF POVERTY THRESHOLD AND POVERTY
INCIDENCE
 POVERTY THRESHOLD-THE INCOME NEEDED
TO BUY THESE MINIMUM NUTRITIONAL
REQUIR MENTS & OTHER BASIC NEEDS
 POVERTY INCIDENCE- IS THE PROPORTION OF
HOUSEHOLDS IN THE COUNTRY WITH FAMILY
INCOME LOWER THAN THE POVERTY LINE
CONTINUATION
 RELATIVE POVERTY-REFERS TO STRUCTURE ON
HOW THE NATIONAL INCOME IS BEING DISTRIBUTED
AMONG HOUSEHOLDS IN AN ECONOMY.
HOUSEHOLDS ARE POOR BECAUSE OF THEIR
INCOME & RESOURCES ARE LOWER THAN OF OTHER
HOUSEHOLDS.RELATIVE POVERTY IS MEASURED BY
THE LORENZ CURVE AND THE GINI COEFFICIENT.
 LORENZ CURVE-SHOWS SHARE OF VARIOUS
HOUSEHOLD GROUPS ON THE TOTAL NATIONAL
INCOME;GINI COEFFICIENT- IS A MEASURE OF
INCOME INEQUALITY. PERFECT EQUALITY VALUE
0,PERFECT INEQUALITY 1
DEMOGRAPHIC CHANGES & ITS
ECONOMIC IMPLICATIONS
 BEC. OF DEMOGRAPHIC CHANGE, THE
COUNTRY IS NOW CONSIDERED THE 12TH
LARGEST COUNTRY IN THE WORLD.GIVEN THE
LIMITED ARABLE LAND IN THE COUNTRY, IT
HAS BEEN ARGUED THAT RAPID POPULATION
GROWTH WILL REDUCE AVAILABLE LAND PER
PERSON & CAN PUT A TOLL ON
PRODUCTIVITY OF THE AGRICULTURAL
SOCIETY. SIMILARLY,IT CAN REDUCE CAPITAL-
LABOR RATIO & CAN LIMIT GROWTH
POTENTIALS OF ECONOMY.IT PUTS A BURDEN
ON THE GOV’T TO PROVIDE SOCIAL SERVICES;
STRAIN ON ENVIRONMENT
CONTINUATION
 INCREASE IN POPULATION-ADDITIONAL CONSU
MERS & SAVERS THAT CAN EXPAND ECONOMY
 ADDITIONAL LABORERS- SOURCE OF PRODUC-
TIVITY, CREATIVITY & ENTREPRENEURSHIP;
SURPLUS LABOR CAN MOVE TEMPORARILY OR
PERMANENTLY TO COUNTRIES EXPERIENCING
SLOW POPULATION GROWTH & DEFICIENCY IN
LABOR SERVICES. OPTIMIST VIEW
POPULATION GROWTH IS NOT THE CAUSE OF
ENVIRONMEN- TAL DEGREDATION BUT THE
EXCESSIVE DE- MAND OF PEOPLE IN
DEVELOPED COUNTRIES
CONTINUATION
 COST-BENEFIT ANALYSIS EXPLAINS WHY
FERTILITY RATE AMONG WOMEN IN POOR
HOUSEHOLDS IS HIGHER THAN BETTER-OFF
HOUSEHOLDS.POOR FAMILIES CONSIDER
ADDITIONAL CHILDREN AS INVESTMENTS.
OPPORTUNITY COST OF HAVING CHILDREN IS
LOW SINCE WOMEN IN POOR HOUSEHOLDS
ARE USUALLY NOT WORKING.(VICE VERSA
WITH WELL-TO-DO FAMILIES) EXPANDED
POPULATION MEANS ENLARGEMENT OF LABOR
FORCE. INTERNAL, EXTERNAL & OVERSEAS
MIGRATION HAVE IMPACT ON ECONOMY
LOW INVESTMENT IN HUMAN
RESOURCE DEVELOPMENT
 ECONOMIC TRANSFORMATION OF ANY COUN-
TRY CAN BE TRACED TOA CERTAIN EXTENT
TO ITS HUMAN RESOURCES.
 SIZE OF LABOR FORCE CAN HAVE + CONTRIBU
TIONS ON ECO GROWTH, THE QUALITY OF
HUMAN RESOURCES HAS GREATER GROWTH
IMPACT
 HIGHLY TRAINED WORKFORCE IS MORE PRO-
DUCTIVE THAN POOL OF UNSKILLED WORKERS
 KNOWLEDGE CAPITAL IS FORMED THROUGH
HEAVY INVESTMENTS IN HIGHER EDUCATION
SCIENCE & TECHNOLOGY & RESEARCH AND DEV’T

 MILLIONS OF FIL. YOUTH-OUT OF SCHOOL &

HAVE LIMITED EDUCATION AND TRAINING
 PUBLIC SCHOOL EDUCATION IS FREE BUT STIL
MANY WANTED TO HELP IN THE FARM/HOUSE
 THE PROBLEM OF LIMITED INVESTMENTS IN
THE FORMATION OF KNOWLEDGE CAPITAL
MAY BE DUE 2 THE HUGE COST OF
INITIATIVES RELATIVE TO PRIVATE RETURNS
 HUMAN RESOURCE DEV’T INITIATIVES ARE
LEFT WITH THE PRIVATE SECTOR
WEAK INFRASTRUCTURE
 INFRASTRUCTUREFACILITATES AND EXPANDS
TRANSACTION THAT INCREASES ECO GROWTH
 WE NEED ROADS, BRIDGES, NETWORKS IN
TRANSPO & COMMUNICATION BECAUSE THIS
GRIDS LINK ECONOMIC SECTORS TIGHTLY
 WELL-DEVELOPED ENERGY INFRASTRUCTURE
CAN SUPPLY CHEAP ELECTRIC POWER
 INADEQUATE INFRASTRUCTURE HAS DEBILITA-
TING EFFECTS ON INDIVIDUALS, BUSINESSES
 MAJOR REASON FOR INADEQUACY IS INSUFFI-
CIENT FUNDS TO FINANCE HUGE COSTS
SOLUTIONS
 GOVERNMENT MAY BORROW FROM EXTERNAL
DONORS
 GOVERNMENT IS TO ALLOW PRIVATE SECTOR
TO ENGAGE IN THE CONSTRUCTION AND
MANAGEMENT OF INFRASTRUCTURE PROJECT
THROUGH A PUBLIC-PRIVATE PARTNERSHIP
 SINCE GOV’T FUNDS ARE LIMITED, THERE IS A
NEEDTO ENTICE MORE PRIVATE SECTOR PAR-
TICIPATIONIN IMPROVING OUR AIR & MARINE
PORT FACILITIES. BUT PRIVATE SECTOR WILL
ONLY PARTICIPATE IF PRICE IS
RIGHT/RETURN
PURSUING FOOD SECURITY
 WITH MORE THAN 100M PEOPLE TO FEED,
THE CONCERN OF THE GOV’T IS TO ENSURE
FOOD SECURITY FOR ALL
 FOOD SUFFICIENCY IS LINKED WITH THE DEVT
OF AGRICULTURE AS A MAJOR ECO SECTOR
 AIM- TO UPLIFT PRODUCTIVITY OF SECTOR &
INCOME OF THE FARMERS & FISHERMEN
 SLUGGISH AGRICULTURE- UNSTABLE SOCIETY
 INSUFFICIENCY IN FOOD- SPREAD POVERTY
INVITE INFLATION
PURSUING FOOD SECURITY
 FOOD SECURITY IMPLIES THAT THE COUNTRY
& ITS PEOPLE SHOULD HAVE ENOUGH INCOME
2 PURCHASE FOOD GRAIN AT CHEAPEST PRICE
 TO HAVE ENOUGH INCOME, IT SHOULD USE
ITS LIMITED RESOURCES EFFICIENTLY
 THERE IS A NEED TO INVEST IN IRRIGATION
FACILITIES, PROVIDE CHEAP FERTILIZERS,
ORGANIZE FARMERS WITH SMALL FARM LAND
 IMPROVING PRODUCTIVITY OF AGRI SECTOR
CAN CONTRIBUTE TO THE ACHIEVEMENT OF
FOOD SECURITY
SLOW ADOPTION OF MODERN TECHNOLO-
GY IN PROCESSES OF PROD& DISTRIBUTION
 TECHNOLOGY IS THE MANNER OF PROCESSING
RAW MATERIALS OR INTERMEDIATE INPUTS
IN2 TRANSFORMED OUTPUTS THROUGH THE
USE OF FACTOR INPUTS.
 A TECHNOLOGY THAT IS BIASED IN THE USE
OF LABOR IS CALLED A LABOR-INTENSIVE
TECHNOLOGY WHILE A CAPITAL-INTENSIVE
TECHNOLOGY REFERS2 USE OF MORE CAPITAL
RELATIVE 2 LABOR IN PRODUCTION PROCESS
 STAGNANT MFTG SECTOR IS DUE TO LIMITED
INVESTMENT IN CAPITAL EQUIPMENT
CONTINUATION
 INDUSTRIES LIKE ELECTRONICS & CAR MFTG
WERE ABLE TO EXPAND & IMPROVE THEIR
PRODUCTION THROUGH HEAVY INVESTMENTS
IN MODERN EQUIPMENT. THE SECRET TO
SUCCESS OF THESE INDUSTRIES IS THAT THEY
ARE LINKED W/GLOBAL NETWORKS OF PROD
 DEVT OF SERVICES SECTOR IS ALSO HINGED ON
MASSIVE INVESTMENTS IN MODERN TECH-
NOLOGY. VARIABILITY OF PRODUCTIVITIES IS
ALSO A PROBLEM. RELATIVE PRODUCTIVITIES
OF THESE INDUSTRIES REFLECT THEIR PERFOR
MANCE IN INVESTING IN MODERN EQUIPMENT
IN TRANSPORATION SERVICES, PRODUCTIVI TIES
OF VARIOUS MODES OF TRANSPO ARE MIXED.
 BECAUSE OF LIMITED INVESTMENTS IN THESE,
THE QUALITY OF THEIR SERVICES SUFFERS. =-
IN AVIATION INDUSTRY, OUR AIRLINES ARE
COM PETITIVE GLOBALLY BECAUSE THEY
HAVE TO EXPAND THEIR FLEET OF AIRPLANES
AND IMPROVE THEIR SERVICES REGULARLY TO
COMPETE WITH INTERNATIONAL AIRLINES
 COUNTRY NEEDS EFFICIENT & PRODUCTIVE
SERVICE INDUSTRIES BEC. THESE ARE STRONG
LY LINKED W/ AGRICULTURAL & INDUSTRIAL
 SERVICE SECTOR-LINK AGRI AND INDUSTRIAL
CONTINUATION
 WITH THE ADOPTION OF MODERN TECHNOLO
GY, THE AGRICULTURE, MFTG AND SERICE
SECTORS ARE ABLE 2 REALIZE THEIR GROWTH
POTENTIALS
 REALIZATION WILL MEAN INVESTMENT IN
MODERN EQUIPMENT AND TECHNOLOGY. THIS
CAN BE DONE THROUGH OPENING ECONOMY
TO FOREIGN PLAYERS
 AS LONG AS VARIOUS ECONOMIC SECTORS ARE
INWARD LOOKING,THERE IS NO INCENTIVE 4
THEM 2 IMPROVE-INDUSTRIES UNCOMPETITIVE
ENVIRONMENTAL SUSTAINABILITY
& THE COUNTRY’S DEV’T THRUST
 THIS WILL BE CONSTRAINED BY THE PRUDENT
USE OF NATURAL RESOURCES
 ENVIRONMENT IS PART OF NATURAL RESOUR-
CES WHERE W DERIVE INCOME FROM UTILIZA
TION OF ITS WEALTH
 EXCESSIVE USE OF NATURAL RESOURCES MAY
COMPROMISE ITS ABILITY TO PROVIDE INCOME
 VARIOUS TYPE OF NATURAL RESOURCES ARE
DIFFICULT TO EXPAND-SOLVE THEM AT ONCE
 THERE IS A NEED 2 MITIGATE NEGATIVE CONSE
QUENCES REGULATE USE OF RESOURCES