Applied Economics

Introduction to
Applied
Economics
Week 1-2
Introduction to Applied Economics

1.Revisiting Economics as a Social Science

2.Economics as an Applied Science
3.Basic Economic Problems and the Philippine
Socioeconomic Development in the 21st
Century
At the end of this module, you MUST be able to:

1.Define basic terms in applied economic

(ABM_AE12-Ia-d-1)
2.Identify the basic economic problems of the
country (ABM_AE12-Ia-d-2)
3.Explain how applied economics can be used to
solve economic problems (ABM_AE12-Ia-d-3)
Revisiting Economics as a Social Science

"Economics is the study

of how individuals,
business firms,
governments, and
societies as a whole
make choices under
conditions of scarcity.”
Scarcity, Choice, and Trade-offs
People want goods and services.
Goods are physical objects such as shoes and
computers.
Services are work done for people such as shoe
repair and computer maintenance.
 Scarcity - a situation in which people
cannot have everything that they want
because of limited resources.
 Resources- the most basic elements
that people use to produce the goods
and services that they want.
REMEMBER!
A resources is scarce when the available quantity of
that resource is less than its desired uses. Scarce
resources have to be divided up or allocated among
their alternative uses. Because resources are scarce,
goods and services are scarce.
When they are faced with scarce resources,
people are forced to make choices. Making a
choice means selecting one thing over
another. So in a world of scarcity, people face
trade-offs-situations in which they have to
choose between two things (or activities) that
cannot be had (or done) at the same time.
 SCARCITY OF RESOURCES

 Land-resources provided by nature

 Labor-physical and mental effort human beings use to
produce goods and services
 Capital- anything that we produce and then use in the
production of other goods and services
 Entrepreneurship - ability that some people have for
organizing the other resources-land, labor, and capital-to
produce goods and services
The field of economics is broken down into
major categories based on certain criteria.
There is:

The microeconomics versus

macroeconomics distinction,

The positive economics

versus normative economics.
MICROECONOMICS
VERSUS
MACROECONOMICS
 Microeconomics
Takes a close-up view of the economy and analyze.
individual parts of an economy: a consumer, a
business firm, an industry, a single market rather
than the whole economy. What will happen to the
cost of desktop computers over the next two years?
How many fast-food industry jobs will open up for
high school graduates?
 Macroeconomics
Takes an overall view of the economy.
Macroeconomics answers such questions as What
determines national income and overall production?"
and "What might cause unemployment rate, inflation
rate, and interest rates to be low one year and high
the next.
To make it simple:
 Microeconomics is the study of
individuals and business decisions
 Macroeconomics looks at the decisions of
countries and government.
POSITIVE ECONOMICS
VERSUS
NORMATIVE ECONOMICS
 Positive economics
Attempts to determine how the world is. If
someone says, "Water is becoming scarcer, or
Flood irrigation requires vast amounts of water,"
that person is making a positive statement. The
Statement says what the Speaker believes how the
world works. We can test whether it is right or
wrong by checking it against the facts.
 Normative economics
Considers how the world ought to be. If someone says, "We
must try to increase farm production with less water, or
"Water management should move from flood irrigation to
sprinkler and drip systems, he or she making a normative
policy statement. You may agree or disagree with a policy
goal but you cannot prove or disprove it by the facts alone.
Normative economics requires us to make judgments about
different outcomes and our judgment depends on our values.
Opportunity Cost

It is important to note that the opportunity

cost of a choice is not the value of all the
opportunities not taken. It is the value of the
best opportunity not taken.
Opportunity Cost is the thing that is given up
when given a choice.
Example: You go to SM Cabanatuan City, you can
buy Smart Phone for your online school or latest
Nike Shoes. You buy the Smart Phone.

The opportunity cost is the NIKE shoes

(the thins you gave up and did not buy)
This is an example of the needs and
wants.
Trade-offs Do Not Have to Be "All or Nothing"
A choice is a trade-off-exchanging one thing for
something else or exchanging more of one thing for
less of something else.
Opportunity Cost and Individual Choices

Should you take the boat or should you take the plane
when you want to travel from Cebu City to Manila? Which
is less costly to you? You will have to ask about the value
of the time you give up when you take the boat as well
as the value of the money you give up when you decide
to take the plane.
 Opportunity Cost and Social Choices

Better education for all Filipinos is a goal that we can all

agree on. Greater access to good schools would be needed
to achieve this goal. These, in turn, would require more and
better-trained teachers (labor and human capital), and
more school buildings and equipment (physical capital).
Opportunity Cost and Social Choices

In order to improve Philippine education, we would have to

shift resources land, labor, capital, and entrepreneurship
away from producing other things that we also want. We
would have better education, but fewer health care services,
or other goods and services that would otherwise have been
produced. The opportunity cost of improved education, then,
is the value society places on those other goods and services
we would have to do without.
 Economics as an Applied Science

Economics provides you with tools for understanding the

world around you and for making sense of the daily news.
Economics can help you predict the likely effects of events and
government actions.
The lessons of economics can be used as a guide in making
personal and business decisions, as well as decisions about
matters that concern society as a whole.
Basic Economics Problem in the Philippines

1. UNEMPLOYMENT
2. POVERTY
3. POOR QUALITY OF
INFRASTRUCTURE
4. INCOME
IENQUALITY
 Module 1… End

For activities, you may send your output

to my email account:
espanolajocelynfelices8.7@gmail.com