INTRODUCTION TO

APPLIED ECONOMICS II
ECONOMICS AS SOCIAL SCIENCE
• It is a field of discipline whose one among prime areas of concern is

focused on scientific and systematic understanding of

social interactions of people in the society as they reciprocally
or communally strive to attain their common goals for a prosperous

living condition, peace environment and sustainable

economic growth and development
ECONOMICS AS APPLIED SCIENCE

is the study of economics in relation to real

world situations. It is the application of

economic principles and theories to real

situations, and trying to predict what the

outcomes might be.

...simpler definition

It is the study of observing

how theories work in
practice.
WHAT IS THE IMPORTANCE OF APPLIED
ECONOMIC APPLICATION?
1. Applying economics to a company, household or a
country helps sweep aside all attempts to dress
up a situation so that it will appear worse or
better than it actually is.

*applied economics becomes a powerful tool to

reveal the true and complete situation in order
to come up with things to do
EXAMPLE

Applied economics can assess the profits of a certain

company.

The result can help the executives to do some

strategies
in order to boost its sales
WHAT IS THE IMPORTANCE OF APPLIED
ECONOMIC APPLICATION?

2. Applied economics acts as a mechanism to

determine what steps can reasonably be
taken to improve current economic situation

*to examine each aspect, one can strengthen

areas where performance is weak
EXAMPLE

• Purchase of goods and services

• Usage of raw materials

• Division of labor within entity (e.g. firm,

company, agency)
WHAT IS THE IMPORTANCE OF APPLIED
ECONOMIC APPLICATION?

3. Applied economics can teach valuable lessons on how to

avoid the recurrence of a negative situation, or at least
minimize the impact.

*to review what steps were taken to improve and

correct similar situations and continue good strategies to keep
the economy flowing in a correct direction
WHAT IS ECONOMETRICS?

Econometrics – is the application of statistical and

mathematical theories to economics for the purpose of:

• Testing hypotheses

• Forecasting future trends

The results of econometric are compared and contrasted

against real life examples.
 ECONOMETRICS EXAMPLE

Real life application of econometrics

would be to study the hypothesis that
as a person’s income increases,
spending increases.
BASIC ECONOMIC PROBLEMS
• Scarcity of means for satisfying various needs is the
central problem of our economic life and it is
scarcity that creates the need to make a choice

• Scarcity and choice go hand in hand

 SCARCITY

Scarcity- refers to the tension

between our limited resources
and our unlimited wants and
needs
 1. What to produce?

- The system must determine the desires of the people.

- Goods and services must be based on the needs of the
consumers
Factors to consider:
a. Availability of resources
b. Physical environment
c. Customs and traditions of people
 2. How to produce?

- The system must select the proper combination

of economic resources in producing the right
amount of output
- The quality of output must comes first
before the quantity
3. For whom shall the goods and services be
produced?

- This has something to do with distribution

- Once the goods are produced, how shall

they be distributed?
4. Are the country’s resources being utilized or
some of them are lying idle and unemployed?

- When resources are scarce, it is absolutely not

right to keep some of the available ones idle.

- If resources are not fully utilized, the production

system is said to be inefficient
5. Is the economy’s capacity to produce goods
growing or remaining the same overtime?

- To achieve a growth is productive

capacity is a universal objective.